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

850.33/2–554

No. 197
Memorandum by the Deputy Assistant Secretary of State for European Affairs (Bonbright) to the Acting Secretary of State¹

secret

[Washington,] February 4, 1954.

Subject:

• U.S. Loan to the European Coal and Steel Community.

This memorandum is to keep you informed of the latest developments on the proposed loan to the European Coal and Steel Community.

On January 13, following various telephone conversations among Mr. Stassen and Mr. Rand of FOA, Secretary Dulles, Mr. Kyes, Mr. Humphrey, and Mr. Dodge, a message (Tab A²) was sent to M. Monnet in response to his request for a loan of $400–500 million. This message proposed an announcement by the Secretary of State that the U.S. is prepared to loan to the High Authority over the next two years $100 million from FOA funds to aid in the financing of selected raw material projects of the Community. The announcement was also to state that President would make recommendations to the Congress in respect to additional financing as the Community develops its plans.

The proposed announcement was unacceptable to M. Monnet, as indicated in his letter and aide-mémoire to Mr. Bruce (Tab B³), the chief points at issue being the amount of the loan and the nature of U.S. review over the High Authority’s use of the loan funds. Monnet regards a loan of $400 million as the minimum needed to strengthen the position of the High Authority in the initial years of its operation as the first supranational European institution, and to encourage European capital to loan to the High Authority on reasonable terms. Although not mentioned in his aide-mémoire, we know that both he and Mr. Bruce regard a loan of this magnitude as of great importance in strengthening European support for the EDC and regaining momentum towards a political federation of Europe.

The second point which M. Monnet takes exception to is the possibility that the U.S. might require a project-by-project review of the use of the loan funds. Monnet feels very strongly that such a review is incompatible with the necessary independence of the High Authority, and would adversely affect its relations with the U.S. Although EUR had not interpreted the proposed announcement as indicating that such a review was contemplated by the U.S. and would strongly have opposed it, we have subsequently learned from a memo of Mr. Rand to Mr. Dulles and others that Mr. Rand did intend for us to exercise this kind of supervision. It is understood that Mr. Stassen, however, has recently indicated his own opposition to project-by-project review, and it is hoped that inter-agency agreement can soon be reached that such review is not a condition of the loan.

A final question to be resolved is the source of the funds for the loan. FOA had intended to use $100 million of the FY 1954 obligational authority of the Mutual Security Program, which would have required Presidential approval of a transfer from military funds to economic aid. Mr. Kyes has now retracted Defense Department approval of such a transfer, which it is asserted would cut into the program for end-item deliveries to Europe. A second possibility is to request Congress to authorize Treasury to make the loan as a public debt transaction—i.e., not requiring an appropriation—but Mr. Humphrey is understood to be very much opposed to this, presumably because such a transaction would raise the total U.S. debt and would also affect the U.S. cash deficit as the loan is drawn. A third possibility, which is opposed by the Bureau of the Budget, and presumably also by Mr. Humphrey, is to request Congress for a straight authorization and appropriation of funds in the amount of the loan.

M. Monnet will discuss the loan with the Secretary in Berlin on Sunday, February 7.⁴ Before attempting to resolve the question of the amount of the loan and the related question of the source of funds, we hope to secure any further views which the Secretary may have following his meeting with M. Monnet.

1. Drafted by Boochever.
2. Tab A, telegram Edcol 79 to Luxembourg, Jan. 13, was not attached to the source text. This telegram transmitted the text of a proposed press release by the Department of State concerning the loan to the European Coal and Steel Community. The text of the press release, which had not yet received all the necessary clearances by Jan. 13, had been drafted by the Foreign Operations Administration and sent to the Department of State as an enclosure to Document 191.
3. Tab B was not attached to the source text, but for text of Monnet’s letter and the aide-mémoire, see telegram 168 from Paris, supra.
4. For a summary of this meeting, see telegram Dulte 60 from Berlin, Feb. 10, infra.