Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

44. Telegram From the Mission at the European Coal and Steel Community to the Department of State⁰

Luxembourg, January 6, 1959, 6 p.m.

Colux 130. Paris also for USRO. Brussels also for USEC. The integration movement of the community of Six has entered the New Year with a demonstration of underlying strength and cohesiveness and with prospects for continued development and growth.

The entry into force of the first tariff and quota reductions required by EEC treaty, while not in any way unexpected, take on added significance against background of the preceding conflict over ETA. The stresses engendered within the community by this conflict and its concomitant antagonisms, threats and enticements have been substantial. The way in which Six have hung together in these circumstances and have gone ahead to carry their treaties into full operation should be viewed as evidence of resiliency and vitality of community integration movement.

While impact on integration of financial and trade measures adopted at end of 1958 will undoubtedly be far-reaching, the direction of various forces set in motion is more difficult to evaluate. Following are some tentative first reactions to these developments.

(A) The general move to limited convertibility, led by UK,¹ provided the opportunity for French to fit their projected devaluation and measures of economic stringency into the framework of a broader system of financial actions.² Of greatest significance is fact that the devaluation was accompanied by measures of internal austerity and extensive liberalization to OEEC area and to lesser extent to dollar area. These measures represent at least temporary dominance in French economic affairs of conservative and orthodox school led by Pinay and Rueff in sharp distinction to the apologists for French protectionism who have hitherto been in forefront.

(B) French devaluation is also attributable in part to coming into play of EEC treaty and long recognized need for adjustments in order to meet potential increased competition in French market and take advantage of opportunities opened up within broader common market.

(C) To extent that these liberal trade and financial measures are carried through successfully the prospects for common market will be profoundly affected. Danger that France would impose a protectionist nigh cost policy on whole of common market would be markedly reduced, although in my opinion this danger has never been as great as opponents of common market would suggest. There has been a tendency on part of opponents to underestimate the countervailing influence of Dutch, German and Belgian interest and policies on emerging common market and indirectly on future evolution of French policy. A sound French currency and liberal French trade policy, however, could have wide ramifications in favorably influencing such aspects of common market as external tariff, common commercial policy, agricultural policy and anti-cartel provisions, which remain to be worked out.

(D) With regard to dispute between Six, UK and other OEEC countries, the French action, as noted by Embassy London, removes the legal prop employed by UK and others in charging discrimination and division on part of Six. it can also be expected to weaken the pressure in countries outside Six for an OEEC wide arrangement of scope and character comparable to proposed FTA, since their ability to enter the markets of Six (i.e., France) has been improved and French action will be regarded as reducing the danger of a highly protected common market.

Moreover, whole rationale of a future OEEC wide trade and payments system is placed in question by institution of a limited convertibility for major European currencies. The US for example supported EPU and European trade liberalization as a step toward global multilateral trade on a non-discriminatory basis at a time when non-transfer-ability of European currencies and bilateral trade arrangements were choking economic progress and the EPU proved outstandingly successful within this framework. With advent of non-resident convertibility there is much less reason for outside countries to encourage or accept OEEC preferential commercial arrangements. At same time, with sterling convertible into dollars for residents of common market countries their own economic interests in pursuing European trade liberalization and in denying themselves US imports when these are of low cost, will have virtually disappeared. The economic interests of OEEC countries concerned, therefore, as well as their IMF and GATT obligations should henceforth lead in direction of enlargement of quotas on a global nondiscriminatory basis and toward their ultimate removal. While the Six should be free within framework of their provisions for an economic union to dismantle their quotas more rapidly within CM they and common market commission should be encouraged to pursue a similar policy of non-discrimination and quota removal in regard to rest of GATT member nations.

With regard to effects of the new measures on cohesion and strength of community of Six, conflicting forces are brought in play. To extent, for example, that French are successful in strengthening their competitive position in OEEC area outside Common Market and in other third markets, the special economic attraction of CM would be relatively reduced. Movement of Six to non-resident convertibility also tends in one way to weaken the ties of reciprocal commercial advantages as an element binding them together, by diluting element of preference for their exports within Common Market. On other hand, the French financial and trade measures if successful, will reduce the conflict within Six regarding future commercial policy of community, since predominant tendency apart from France has been in favor of an outward looking and relatively non-protectionist Common Market. In addition, franc would be able to compete successfully in Common Market, thereby eliminating frictions and obstacles to fulfillment of EEC treaty which an overvalued currency would have made inevitable.

It is possible moreover, that strengthening of French currency and introduction and installment of heavy franc could pave way for measures of monetary coordination or integration among Six, which otherwise would have been frustrated.

The major question remains, of course, concerning France’s ability to make stick this devaluation (the first one in recent years made in advance of necessity) and to continue on path of reduced protection. While Embassy Paris is no doubt commenting on this question authoritatively, seen from here the major determinants of outcome of French move will be ability of government (a) to obtain support of or acceptance by French labor and French Socialists and (b) to reduce or limit the financial drain of the Algerian insurrection and the concomitant French antidote of reliance on application Constantine Plan.³

Apart from forces released by new financial measures, it seems evident to me that strong ties of mutual interest continue to bind together the six countries in support of the new treaties and that this nexus of interests will favor the carrying out of the obligations of Rome treaties and development of the community along the paths which they have laid down—common commercial policies, coordinated social legislation, freer movement of capital and labor, etc., with central institutions and facilities to administer and implement. In addition, the extension of the powers of the community and its central institutions can be expected to lead to consultation and perhaps common action on problems ranging beyond even the broad provisions of these treaties; possible examples being aid to other under-developed areas as well as their O.T., attitude toward Middle East, problem of raw materials supply, relations with Latin America.

In my view the broader political and technological forces at work in mid-twentieth century unrelentingly operate to reinforce the need for and desirability of European integration and to strengthen the centripetal forces already pulling the Six together into a community. The evidence continues to bring its weight to bear on the single nations of Western Europe demonstrating they are too small and weak to provide for their own security or even to control their own destinies to an extent they ultimately find acceptable much less to influence the course of major political events. First and foremost, the ever present menace of predatory Soviet Russia, and to a lesser extent the conjunction of other factors such as the growth of Arab nationalism, the signs of coalescence in black Africa, the change in population balance in favor of China and India, are developments on a scale that seem to many Europeans to call for common European action of a kind that a successful integration movement would make possible. In addition, the economic arguments for integration continue to be strengthened by the technological developments of our time which increasingly place a premium on bigness with respect to both consumption and production. Even requirements for development are moving on to a scale beyond the resources of individual countries that are not the size of a continent, i.e., full scale atomic industry for peace and war, guided missiles, exploration of space, automation, production of advanced types of aircraft. A reflected image can be seen by way of example in the mirror of a recent happening: The Suez crisis on the one hand pointed up European dependence on the Middle East for energy resources and strengthened the case for a Euratom power development program; on the other hand it starkly revealed the measure of Western Europe’s political and military impotence. This may be thought of as a non-recurring chance phenomenon (hopefully) which happened to redound to favor European integration. I believe, however, that while differing specific manifestations will come and go, the major political, technological and economic currents created by the groundswells of our time will work in comparable ways and continue to exert pressure for Western European integration.

Butterworth

0. Source: Department of State, Central Files, 840.00/1–659. Confidential. Transmitted in two sections. Repeated to Bonn, The Hague, London, Rome, Stockholm, Copenhagen, Oslo, Bern, Paris, and Brussels.
1. On December 27, 1958, the British Treasury announced that as of December 29 sterling held or acquired by nonresidents of the “sterling area” would be convertible into dollars at the official exchange rate.
2. On December 28, 1958, French President De Gaulle announced a 17.55 percent devaluation of the franc. He also announced that a new unit of currency, “The Heavy Franc,” equal to 100 old francs would be created by January 1, 1960.
3. In an October 3, 1958, speech in Constantine, Algeria, De Gaulle unveiled a 5-year plan for the economic modernization of Algeria designed to meet the economic demands of the Moslem population.