Foreign Relations of the United States, 1955–1957, Western Europe and Canada, Volume XXVII

45. Memorandum of a Conversation, Department of State, Washington, May 17, 1957¹

Washington, May 17, 1957

SUBJECT

• French Financial Situation

PARTICIPANTS

• Robert Marjolin
• Mr. Douglas Dillon (W)
• Mr. Whitehouse (W)

Mr. Robert Marjolin called on Under Secretary Dillon on May 17. He explained that while the overt reason for his trip was to discuss the Common Market and Euratom, his actual purpose was to approach the United States Government at the highest level, at Mr. Ramadier’s request, to explain what steps France was taking to overcome its financial difficulties, to ascertain what the United States’ attitude was toward these French measures and, frankly, to find out what, if any, help the United States could give France. He stressed the secrecy of his visit and explained that although he felt certain Mr. Randolph Burgess understood the purposes of his mission, he had not been as explicit with him.

Mr. Dillon stated that it would be helpful to obtain an explanation of the measures which the French Government was taking to put its house in order, and that we would be interested in obtaining Mr. Marjolin’s own ideas on possible solutions to the French financial crisis. He recalled that he had discussed this problem with Ramadier before he left France, and had explained to Ramadier that he had no idea what funds the United States might have available but that the French deficit was so huge that there was nothing the United States could do unless the French took steps to rectify this situation.

In explaining the measures put into effect by the French Government Mr. Marjolin stressed that the present monthly deficit of $100 million a month was exceptional and was attributable largely to last year’s bad harvest, the Suez crisis and speculative inventory buildup, while admitting that even without these factors the deficit would nonetheless be substantial. He pointed out that the 25 percent down payment required on imports has brought imports down from 150 billion francs a month to approximately 100. He estimated that by autumn the French monthly deficit would be on the order of $50 million a month. He said he felt these steps showed France’s willingness to put its house in order and that other measures such as devaluation and the use of multiple exchange rates had been considered but were not deemed appropriate at this time.

In addition, the French Government has cut the budget 250 billion francs and hopes to raise 150 billion francs in additional taxes. In reply to Mr. Dillon’s question regarding the 250 billion franc cut in the budget, he outlined the areas in which substantial reductions had been made; 66 billion francs from national defense, 25 billion from Civil Service payrolls and the remaining cuts in public works—roads, electrification, railways, water works, etc.

In assessing the future economic situation, Mr. Marjolin estimated that the French balance of payments deficit from July 1957 to July 1958 would approximate $500 million and that this sum could not even be met by drawing on the $300 million which the French Government had added to the gold reserve of the Bank of France a few years ago. Mr. Dillon inquired whether the monthly deficit would be tapering off during this period, and Mr. Marjolin asserted that the monthly deficit would be declining and might reach a figure as low as $25 million a month by June 1958. Mr. Dillon explained to Mr. Marjolin the problem facing the Eximbank in financing new aircraft for Air France and pointed out that in this transaction the Eximbank had been reluctant to make a loan when France was already its largest borrower. He reviewed for Mr. Marjolin the different sources of funds available to France. He recommended exploring with the World Bank the possibility of obtaining financing for such French and North African projects as might meet the Bank’s requirements. He stated the IMF was opposed to France borrowing the second half of its quota and that Mr. Jacobsson² might feel devaluation of the franc and other measures should come first. He pointed out that the Mutual Security Bill³ was before Congress and that a special bill for a single country was out of the question, adding that some financing might be possible for colonial projects out of the new development fund. Finally he pointed out that neither in our Military Assistance Program nor in PL 480 could one find a solution to the French problem. In conclusion Mr. Dillon reiterated the fact that no large sums were available but that if the French Government could take appropriate steps to remedy the situation there might be various means for the United States to help France in a small way, and that it would require ingenuity to make the most of the opportunities that existed.

Arrangements were made for a representative of the Department to meet with Mr. Marjolin and Mr. Willis⁴ of the Treasury on Monday to receive details of the French financial situation, and for Mr. Marjolin to discuss Euratom and the Common Market with interested officers in the Department on Tuesday.⁵

1. Source: Department of State, Central Files, 851.10/5–1757. Secret. Drafted by Charles S. Whitehouse.
2. Per Jacobsson, Managing Director and Chairman of the Executive Board of the International Monetary Fund.
3. The Mutual Security Act of 1957 (71 Stat. 355) was approved on August 14.
4. George H. Willis, Director, Office of International Finance, Department of the Treasury. A memorandum of Marjolin’s conversation with him on May 20 is in Department of State, Central Files, 851.00/5–2057.
5. May 21; apparently the conversation was held on May 27.