Foreign Relations of the United States, 1952–1954, Western Europe and Canada, Volume VI, Part 1

840.00/1–1254

No. 193
Memorandum by the Director of the Foreign Operations Administration (Stassen) to the Secretary of State¹

confidential

Washington, January 12, 1954.

Subject:

• The Next Step in OEEC for Facilitating Trade and Payments Between the EPU Area and the Dollar Area

1. The March meeting of OEEC² will consider future trade and payments relationship within EPU and with the dollar area.

2. It is in the national interest of the United States that the action then taken by OEEC should serve the following objectives:

a. Draw the economies of Western Europe into increased cooperation and integration with each other.

b. Avoid economic splits in Western Europe.

c. Facilitate trade and payments between Western European countries.

d. Facilitate trade and payments between Western Europe and the dollar area.

e. Move toward general convertibility of currencies.

f. Prevent conditions which would call for large United States aid or credit.

g. Improve Western Europe’s productivity, standard of living, and defense effort on its own resources.

3. It is suggested that these objectives would be served by the following steps:

a. Establish a limited convertibility between the OEEC area as a whole and as a unit with the dollar area through an Atlantic Clearing Committee. Special representation would be arranged for the United Kingdom on account of the sterling area problems.

b. Revise EPU to provide for consolidation of long-standing debts, and for their repayment over a reasonable (e.g., three to five years) period.

c. Renew EPU for three years with a new line of intra-European credit, with a review of exchange rates and financial and trade policies as a condition for such renewal. As an essential factor of renewal, it would be necessary to work out special programs of financial and trade reforms including revaluation in France supported if necessary by stabilization credits from EPU or other sources.

d. In the renewal, grant to the EPU managing board new authority to recommend revaluation and other appropriate steps whenever a member reached a certain point in either debtor or creditor position with a proviso that all members could discriminate against the debtor or creditor if the recommended revaluation is not carried out. Failure by a member to follow managing board recommendations would entail the right for other members to withhold trade and credit benefits, which had previously been mandatory for members, so as to encourage joint development of satisfactory corrective programs.

e. Establish a reasonably uniform Western European policy for trade and payments with the dollar area and for successive steps to liberalize dollar imports to Western Europe. Such programs and policies would be reviewed with the United States and Canada as members of the Atlantic Clearing Committee, in order to assure that action will be neither too restricted nor too liberal.

f. In connection with the Atlantic Clearing Committee, and for the purpose of promoting liberalization toward the dollar area, establish a modest line of credit for the EPU area as a whole, if appropriate, through a policy of Federal Reserve Bank discount purchase of EPU credits under certain circumstances.

4. It is suggested that such a program would take advantage of the creditor position of Germany, Switzerland, Sweden, Portugal, Belgium, and The Netherlands in establishing a total EPU-dollar limited convertibility.

a. It would avoid the divisive effects which are certain to follow upon a deutschmark or guilder convertibility without franc or sterling convertibility.

b. It would be a controllable conservative move toward general convertibility without the grave risks of other methods.

c. Cartelized industries in individual European countries would be gradually subjected to the competition of dollar goods on a Europe-wide liberalization program.

d. A much needed European influence on European rates of exchange would be established.

e. Sterling would be strengthened by the indirect strength of Western Europe through EPU and world trade would be facilitated.

f. Capital movements and investment attractiveness would be facilitated without undue risk.

5. Mr. Walter Ringer of the Foreign Operations Administration is available for staff discussions with the Departments concerned.³

1. Copies were also sent to the Secretary of the Treasury, the Secretary of Defense, the Director of the Bureau of the Budget, and the Chairman of the Board of Governors of the Federal Reserve System. Subsequently circulated to members of the National Advisory Council on Feb. 2, as Document No. 1581. (NAC files, lot 60 D 137, “NAC Documents”)
2. This discussion did not take place in the OEEC Council until its 251st meeting in Paris May 5–6; minutes of this meeting, totaling 123 pages, are in OEEC files, lot 56 D 217, “C/M (54) 15”.
3. For a record of the meeting between Department of State representatives and Foreign Operations Administration officials, which occurred on Feb. 13, see Document 201.