Office of the Historian

740.5 MSP/5–1652

No. 261
Memorandum by the Director of the Office of European Regional Affairs (Martin) to the Assistant Director for Europe of the Mutual Security Agency (Cleveland)

secret
Washington, May 16, 1952.

I have the following comments on your proposal1 for distributing the aid cuts:

1.
With respect to Greece, we do not see in the document any justification for a cut in excess of the flat percentage. All the information [Page 480] at our disposal leads us to believe that such an additional cut is not justified, but before we can make a final judgment it would be useful to have the information on which your decision was based.
2.

With respect to Germany, we object to a cut beyond the 12.6 level. Negotiations are now actively in progress as to the size and nature of German expenditures for defense during Fiscal Year 1953. Our best judgment is that despite the time lag in ratification of the EDC, other expenditures will be made in an amount to bring the total German expenditures up to 11.25 or above.

With respect to the German country statement we would suggest that in calling attention to the importance of counterpart, some mention be made of Berlin, for which 50 percent of the counterpart will be used. Investment programs for breaking bottle-necks are not the principal use, as suggested. This fact, plus the importance of these investment programs, make a cut difficult from the counterpart standpoint.

We are not informed as to what special circumstances in the German case permits such a large cut in pipe-line to sop up the otherwise large cut in imports. Of course if any large dollar increase accrues to Germany for such things as truck rehabilitation, an adjustment in the aid figure will be required.

3.
We do not see an adequate basis for not cutting Turkey. She does not need the dollars. The counterpart is devoted to defense expenditure but does not a have a multiplier effect, as in many other countries. Therefore, we would propose that Turkey take a proportionate cut.
4.
We still believe that Norway should take a proportionate cut and do not think the smallness of the program justifies adequately your figure.
5.
We think your proposals for the Netherlands, Austria, Italy, Denmark, Yugoslavia and France are correct ones. The Netherlands might be a little soft but we do not think more than a few million dollars could under any circumstances be picked up there. We think that for psychological and political reasons it would be bad to go below the $100 million proposed for Italy. We assume the French figure is based on the understanding that types of expenditures made this year to provide France with dollars and other assistance such as OSP will continue to be pressed vigorously, and that special attention will be paid to the needs of Indochina under the appropriate title.
6.
We agree to the UK figure but think this cut is difficult for them. Our agreement therefore is conditioned upon an understanding that every effort will be made to give the UK as much as possible of that aid in the first half of the Fiscal Year, that sincere efforts [Page 481] will be made by all concerned to overcome the obstacles to OSP and similar types of expenditures in the UK to help with their dollar position, and that we watch the UK situation and consider it one of the most eligible countries for transfer from military to economic.
7.
With respect to the briefing paper on Belgium, while 650 is a considerably better figure than 713 we do not have evidence that this is a realistic figure to present to the Congress. We are also somewhat puzzled about the rationale behind the statement that the cut in the Belgian export surplus will make it more difficult for the Belgian Government to finance additional expenditures, in the light of the fact that the real bottleneck in Belgium is local currency availabilities and the export surplus is a drain on their local budget position.
8.
We should like to suggest most urgently that in order to permit the less than pro-rata cuts for Yugoslavia, Austria and Italy, the percentage cut for all other countries should be raised from 12.66 to some higher figure, rather than cutting one or two other countries deeply. The only exception to this might be Denmark.
9.
If the country figures are to be made public shortly this might require another look.

  1. Defined in the memorandum of May 9, supra.↩