840.00/6–1049: Telegram
The Chargé in the United Kingdom (Holmes) to the Secretary of State
2234. For FASC and FACC from ECC. ECC at meeting 2 June considered question of US dollar assistance for indirect impact MAP on recovery. Agreed it is important that principle be established in legislation or legislative history. Furthermore if feasible desirable that contingency authority to expend some sums for such assistance if experience proves necessary should be obtained. Not possible give any figures on indirect impact at present. Examination of WU Supply Board’s production programs (FSB)49 (13) indicates insufficient data therein to make any useful evaluation (note re Clay memorandum to Taggart and Bonesteel).1 Appears likely indirect impact of 49/50 additional production will be small or negligible but believe it desirable not to prejudge problem. Precedent that such impact can be disregarded should not be established at this time.
ECC believes it important that argument justifying possible use of dollars for indirect impact aid be presented positively. Financial and economic condition many MAP countries is such that they must give priority to recovery as matter of vital importance their continued existence. This is in keeping with basic premise of MAP. However, there does exist for various reasons capacity for increased armament production in these countries without substantial impact on recovery. In some cases likely to arise specific increased arms production projects might be initiated if country concerned knew that at least preliminary impact on its hard currency exports, et cetera, of diverting resources would be compensated for in some degree by dollars. Without dollar coverage of indirect impact on recovery, these projects might not be started. Contributions to rearmament of these projects might be many times the value of impact compensation.
Basic to indirect impact question is general proviso that all projects involved must be financed from noninflationary local currency sources and must not seriously affect recovery. Any indirect impact arising would, therefore, be marginal and would not be able net additional source of funds for ERP but simply would cover small losses to recovery which had been adjudged by US to be worthwhile from overall standpoint because of greatly increased benefits to MAP.
Overall amount of dollar aid available to assist European military production should be kept high since it represents our big lever in [Page 306] obtaining the maximum production consistent with no adverse effect on recovery. If kept high it will permit advantage being taken of potential increases capacities arising from possible changes in economic situation and would provide flexibility to permit appropriate handling of indirect impact when experience has developed how it properly should be treated.
Sent Department 2234; repeated Paris 413; Rome 83; Oslo 28; Copenhagen 18; Brussels 120; The Hague 105.
- Col. C. H. Bonesteel, 3d, Special Assistant to the U.S. Special Representative in Europe.↩