USPolAd Files: Ambassador Murphy’s Correspondence
1Memorandum by Mr. Wesley C. Haraldson of the Office of the United States Political Adviser for Germany (Murphy)2
Subject: Paris Discussions on the Marshall Plan, August 4 to August 6, 1947.
Under Secretary of State Clayton, Ambassadors Caffery, Douglas and Murphy met in Paris from August 4 to August 6 to discuss the Marshall proposal for rendering aid for the economic reconstruction of Europe. Paul Nitze had been sent by the Department in order to bring the most recent Washington thinking to the group. During a series of sessions covering most of the three days, various topics briefly outlined below were explored and recommendations were sent by the group to the Secretary of State.
Critical Situation
Ambassadors Caffery and Douglas informed the group of the critical situation existing in France and Britain, respectively, and Under Secretary Clayton told of the conditions existing in Italy. At the present time England is exhausting its dollar resources at the rate of 100 million dollars a week. At this rate, England will find it impossible to go beyond November 15 without cutting into her gold reserves. Unless additional American aid is forthcoming shortly, she will be completely out of dollar resources. Douglas indicated that on the basis of his discussions with Bevin and other British officials, this situation might lead, in the very near future, to the depreciation of the pound, a drastic cut in imports, and force England to withdraw from many of her foreign commitments and radically change her foreign policy.
Ambassador Caffery indicated that the situation with France was very similar, that France could not get by beyond the end of this year without substantial aid, that her reduced harvest this year would provide bread for only five months at the present low ration.
Under Secretary Clayton felt that Italy might possibly scrape through on her present resources up until the first of January, but [Page 346] that unless aid was forthcoming very shortly she would not be in a position to contract for food deliveries for the first quarter of 1948.
The possibilities of interim aid were briefly explored. Because of the specialized purpose of the American Export-Import Bank, it was believed highly unlikely that this institution could provide any assistance. The Monetary Fund could grant Great Britain a small amount of aid, perhaps in the amount of 320 million dollars if dollars were declared a scarce currency, vis-à-vis the English pound. The United States could also assist Great Britain by assuming the full burden of necessary imports into the bizonal area of Germany, and by relaxation of certain commitments, such as the convertibility and non-discrimination clauses of the US–UK loan agreement. However, it was believed that Congressional action would be necessary to provide even this interim assistance. Because Congress does not meet again until the first of the year, it did not seem possible that any aid would be forthcoming under the Marshall Plan until March at the earliest. In view of this, recommendations were sent to Washington that all possibilities of rendering interim financial aid should be explored, even to the calling of a special session of Congress. Unless immediate aid were forthcoming, it was felt that the situation in these three countries might so deteriorate economically, politically, socially and in the field of foreign relations, that many of their objectives in Western Europe and elsewhere might be unobtainable.
The situation in Germany was recognized as critical. However, the direct responsibility of the United States as an occupying power placed the German problem in a somewhat different category.
Policy Paper of the Planning Board
Paul Nitze briefly outlined a memorandum prepared by the Planning Board of the State Department which summarized its thinking on the Marshall Plan. Briefly this paper set forth the following considerations:
A. U. S. selfish interests involved
- (1)
- If the present trend of economic and political deterioration continues, Europe and its way of life will be lost for a long time.
- (2)
- From a standpoint of trade, the U.S. was interested in a healthy European economy.
- (3)
- For reasons of strategic necessity, it is highly desirable to support the existence of free and independent states and a United Nations organization made up of such states.
B. Nature of the problem
- (1)
- Previous aid by the United States to the European countries in an amount of approximately 10 billion dollars has failed to fulfill the anticipated aims.
- (2)
- Increased production is the only answer. Otherwise the European countries will continue to remain relief clients.
- (3)
- Europe’s transport system must be rebuilt.
- (4)
- Conditions must be created in which the products of the several European countries can be exchanged among themselves. This should envisage initially some type of multilateral clearing agreement and finally to erase exchange restrictions, tariffs and other trade barriers so as to unite Europe economically.
C. Congress will appropriate money only on a declining scale over the period of any proposed plan. Hence, it will be necessary for the countries receiving aid to use the money in the most effective manner. Also, because of domestic political considerations, as well as for technical and administrative requirements, aid forthcoming under any plan will undoubtedly be concentrated to a relatively few commodities, such as coal, wheat, cotton, tobacco, etc.
The entire emphasis of the plan should be to help Europeans to help themselves. Hence, not only food and consumers goods should be sent to Europe, but wherever possible, short term capital equipment which will increase the productivity of the European farms and factories, should be included. Long term capital requirements should be satisfied by the World Bank.
In all the discussions at the Paris Conference and in Washington, it was emphasized that any plan for European aid should have as its goal a self-sustaining Europe at the end of three or four years. Hence, elaborate plans for reconstruction or industralization, such as the Monnet plan for France, cannot be supported by American aid.
D. The Planning Board’s policy paper called for the following changes with respect to Germany:
- (1)
- Simplification at Allied Control with more responsibility resting with the German people.
- (2)
- Production controls, priorities and allocations which would assure that the scarce commodities were directed to the proper ends.
- (3)
- Financial reform and readjustment of internal prices.
- (4)
- Early clarification of reparations.
- (5)
- Early termination of denazification. This would, perhaps, involve further amnesties. It would permit the employment of persons in capacities commensurate with abilities. No administrative or political power should be given to persons of pronounced Nazi taint.
- (6)
- Remove existing barriers to foreign travel and trade except where security demands their continuation. Germans should be permitted to set up agencies outside of Germany.
- (7)
- Special arrangements for coal production.
- (8)
- Inclusion of Western Germany into any new arrangements for multilateral clearing or other devices for eliminating exchange restrictions.
Problem Discussed
During and following the presentation of the program as outlined by the Planning Board, a number of the specific points presented or closely related thereto, were discussed by the group, many in a detailed, definitive way which resulted in concrete recommendations to Washington and others in a more cursory manner. Among these problems discussed were the following:
To what extent should America make its views known to the cooperating countries and in demanding reforms or concessions.
Type of organization.
Aid in the form of commodities or cash, or both.
International allocation of scarce commodities.
Centralized purchasing to reduce competitive buying.
Internal budgetary reforms of participating countries.
Elimination of trade barriers and present unreasonable exchange rates.
Use of domestic currency counter-part of aid received.
Technical assistance to be given by the United States in drafting plan.
Time required for Congressional action and the possibility of Congressional approval.
Consensus of Group and Recommendations
It was the general consensus of the group that it would be impossible to get Congressional approval to any plan which did not spell out in great detail the use to which the funds would be put, and unless the participating countries not only promised to take steps but actually did take steps to put their own economies in order. For example, it would be necessary for Great Britain to improve coal production and to eliminate much of her housing program which is such a drain on steel and labor resources. In the case of France it would be necessary to take steps which would both increase her agricultural production and eliminate the present situation where the farmers are unwilling to sell their present limited products. It would be undesirable as well as impossible to get the American taxpayer to provide funds for the importation of scarce commodities into Europe unless the European countries themselves did everything possible to maximize their production of these commodities. This being the case, the group was in general agreement that the United States should make its wishes known at an early date to the participating countries, so that they might draw up the proper type of proposal, and be cognizant of the commitments for internal improvement which they would be called upon to make as a quid pro quo to the receipt of any aid. It was felt that a number of countries or certain groups within these countries were of the opinion that they were favoring the United States by participating [Page 349] in the Marshall Plan, that it was a device on the part of the United States to ward off a depression.
The following recommendations were made to Secretary Marshall and Under Secretary Lovett:
- (1)
- That the participating countries be informed of the views of the United States prior to the adoption of any program. Unless this were done it was believed that the planning of the European countries might very well crystallize in an unacceptable program which would be extremely unfortunate.
- (2)
- Top priority should be given by the countries of Europe in the production of coal and food (this was aimed specifically at France and Great Britain). Failure to achieve satisfactory levels in the production of these items should warrant the discontinuance of aid.
- (3)
- Participating countries should be called upon to carry out internal financial reform which would stabilize their money, restore confidence in it and make possible the establishment and maintenance of proper exchange rates.
- (4)
- Agreement should be reached among the participating countries for the reduction and eventual elimination of all tariffs and trade barriers so as to facilitate production, distribution and exchange of their commodities.
- (5)
- Organizationally the plan should envisage bilateral agreements between the United States and the individual countries tied into a multilateral agreement among all the participating countries. This would insure individual and collective responsibilities.
- (6)
- The problem of the disposition of the domestic currency counter-part of any aid received by a country was discussed, but no recommendation was made other than that the problem should be explored by technical experts with the view of preventing such currency from being used in ways which might jeopardize necessary monetary and budgetary reforms.
Level of Industry
The problem of the level of industry was discussed only incidentally as a result of the note which Ambassador Caffery was sending to the French Foreign Office asking, on the part of the United States Government, for France’s view on level of industry, control of the Ruhr and related matters. Caffery indicated that publicly France would go on record for a modified version of the Morgenthau Plan, but that informally he was sure that France was willing to compromise on a mutually acceptable solution. He stated that Bidault had frequently told him “We know that we have to join with you in the control of Germany and reorganization of Western Europe, but please don’t force us to do so at the point of a gun”. Under Secretary Clayton analyzed France’s position on the basis of what he called legitimate interests and illegitimate interests. Their legitimate interests were (a) military security, and (b) a desire to decrease the economic dependency [Page 350] of France on Germany. The illegitimate interest should be ignored completely and the French so informed, but that attempts should be made to satisfy their legitimate concerns. This he felt could be done outside of any level of industry plan.
At one stage of the discussion Mr. Clayton thought that in making recommendations to the Department the Conference should suggest that unless immediate steps were taken to extend aid to the United Kingdom and France “irreparable” damage would be done. Mr. Murphy expressed doubt that such damage would be irreparable and stated that it seemed to him that this question might then involve a fundamental change in our foreign policy. Mr. Clayton pointed out that what he had in mind was that if the United Kingdom for example were forced to pull out of a number of areas for financial reasons that a vacuum would be created which would be filled then by another foreign power—maybe the Soviet Union. He doubted that American public opinion would move fast enough to enable the necessary shift in our foreign policy which would permit the United States and not the Soviet Union to fill that vacuum.
Mr. Murphy commented also that it had been most interesting to listen to the exposition of the possible political effects of the deteriorating economic situation in France and the United Kingdom in view of the fact that the economic condition of Germany was so much worse than that existing in either the United Kingdom or France. He mentioned that the effect of this adverse German economic situation remained to be seen but that the political direction in which 66,000,000 Germans went might have a decisive effect on the European future.