Foreign Relations of the United States, 1947, The British Commonwealth; Europe, Volume III

851.51/10–1847: Telegram

The Ambassador in France (Caffery) to the Secretary of State

secret
us urgent

Paris, October 18, 1947—8 p.m.

4496. Mytel 4493, October 18, 2 p.m.,¹ regarding France’s dollar position for the October 1947–March 1948 period raises a number of policy problems concerning which I submit the following comments:

1. The last quarter of 1947. On October 1 forward exchange contract of the Bank of France totalled $627,000,000, of which $232,000,000 represent contracts which come due before January 1, 1948, and therefore must be met from the dollar resources of the exchange stabilization fund before that date. The balance of anticipated expenditures during that period of $333,000,000 represent either spot commitments or noncommercial payments which are made on a spot basis. As reported mytel under reference, funds are available or in sight to meet all of these obligations excepting the sum of $104,000,000. According to the Finance Ministry, the forward exchange contracts and other commitments are so spaced that the exchange stabilization fund can now continue operations until the first of December, assuming that potential assets actually become available before that date. This, therefore, narrows the 1947 problem to a sum of $104,000,000 to be expended in the month of December.

The first alternative approach to this problem would be for the Bank of France to cede to the French Treasury an additional sum in the amount mentioned. This would bring the remaining govt resources down to $340,000,000, or approximately 4% of the bank’s note circulation. Such a measure is regarded by observers as dangerous, not only because of the low ratio of reserves to note issue but also because such accession, combined with other inflationary factors, would create an adverse psychological reaction which would make more difficult the avoidance of a runaway situation. It is therefore most desirable to avoid this stopgap solution if at all possible. The psychological impact of this measure would, however, be somewhat tempered if its announcement were to come after the French people were informed that actual Congressional consideration in the US was being given to interim assistance.

The other alternative would appear to be an effort to bridge the gap existing to the end of 1947 thru a combination of decrease of dollar expenditures and increase in dollar revenues. As previously mentioned, possibilities savings this year on imports are negligible because commitments have already been made and must be met. This narrows the expenditure problem to the “other payments” category. Opportunities here seem to be limited to (a) continuation moratorium, transfer blocked US motion picture funds and US bank balances ($15,000,000), (b) possible reduction deficit overseas territories (possible by $15,000,000 or $10,000,000), (c) moratoria on transfer to Belgium under payments agreement, on transfer of dollars to UK Government and on additional contribution to International Monetary Fund, the three totaling $75,000,000. It is believed that to obtain the consent of the other parties to such moratorium arrangements (to continue until long-term assistance became available) would require the firm diplomatic support of the US. If the measures mentioned were successfully employed, the remaining balance of the 1947 gap would be closed either through the transfer of all or part of the Japanese-held gold which France claims ($37,000,000) or possibly through other sources of which the Department may be aware. I believe this short-term problem should be given immediate consideration and, in the event it does not appear possible to meet the December financial requirement through the stopgap measures indicated, the French Government should be informed prior to the convening of the National Assembly the middle of November. This would give the French Government the opportunity to prepare the necessary draft legislation for an additional gold transfer.

2. First quarter of 1948 as reported mytel under reference France’s anticipated uncovered deficit first quarter 1948 is $355,000,000. In conversations the past week, Bidault has emphasized to me the necessity of assuring a continuous flow of imports into France this winter. I concur in this for both economic and political reasons. As the Department will recall, France’s productive effort has been disrupted the past three winters: in 1944–1945 because of the transport bottleneck and war ops; in 1945–1946 because of shortages in raw materials and coal; and in 1946–1947 because of the coal bottleneck. Cumulative effect of these periodic disruptions in industrial activity has been (a) that unemployment, or employment uncertainties, have contributed to social unrest; (b) that the supply of goods available to urban consumers or to farmers to be exchanged for their food products has been very limited; and (c) that France’s export program has been handicapped. It appears to me that from an economic standpoint, a disruption in the tempo of production this winter may well cost us more dollars over the period of long-term financial assistance. In the political field, a subnormal level of production and employment would facilitate the work of the Communists and help them to capitalize on dissatisfaction. I do not mean to imply by this that we are not faced, under the best of circumstances, with a trying period in the French labor situation this, winter. I am convinced, however, that a continued high level of employment, coupled with a 250 gram bread ration, which I am pleased to note the Department has included in its calculations, will minimize the possibilities of success of the Communists’ direct action activities.

Furthermore, achievement of the foregoing would provide a firmer basis than presently exists for the French Government to adopt a stronger, more effective economic program.

The conclusion reached from mytel under reference is that France will need external assistance in the neighborhood of $350,000,000 in the first quarter 1948. In order to assure a continuous flow of essential imports, it would be highly desirable for the French Government to know what assistance we are going to provide before beginning of that period. (I know only too well the difficulties in the way of this.) This would permit (a) the Bank of France to engage itself in forward exchange contracts with the knowledge that the dollars would be available when payments became due, and (b) create enough confidence among the New York banks and large commercial companies in the US so that they would provide the credit lines and short-term credits which are the actual dollar counterpart of the Bank’s forward contracts.

3. Reciprocal French obligation. From my numerous conversations the past two months with members visiting Congressional committees, I have reached the conclusion that they view with some scepticism the French will or ability to stage an economic comeback. I anticipate that in Committee hearings and on the floor of the House and Senate, French assertions regarding their recovery program will be subjected to close scrutiny and analysis. It seems to me, therefore, that we are entirely justified in arranging here in the near future a series of informal talks with the French Government, at both the policy and technical levels, to review in some detail the current and prospective plans which the French Government has in mind to meet its commitments under the initial report of the Conference on European Economic Cooperation. Such exploratory talks can serve the triple purpose of (a) obtaining precise information of the recovery program for Departmental and Congressional use, (b) to make the French realize that we are serious in expecting the highest possible standard of performance and (c) to provide a factual basis for such friendly suggestions as the Department might want to make. It is my thought that this exploration would be concentrated in the four fields which are essential to French economic delivery [recovery] and to a progressive reduction in France’s dollar deficit; i.e.

(1) Return to prewar levels of agricultural production.

(2) Internal financial stabilization.

(3) Rapid expansion volume of French exports to dollar areas.

(4) Increase in coal production.

I would appreciate the receipt by telegram of the Department’s views in regard to the foregoing.²

Caffery

1. Not printed.
2. No reply to this message has been found.