103 MSA/3–353
No. 272
The Under Secretary of State (Smith) to the
Director for Mutual Security (Stassen)1
My Dear Mr. Stassen: The Department of State has reviewed the documents dated February 24, 1953 which were prepared by the Mutual Security Agency for budgetary justification of the Defense Support programs for Title I countries in Fiscal Year 1954.2 We are in broad general agreement with the basic policies outlined in these documents as well as with the assumptions and reasoning underlying the recommendations for aid to various countries. We do, however, wish to make certain comments relating to political or [Page 529] other conditions in individual countries, as well as certain new information, which we believe should assist you and the Bureau of the Budget in making a final determination as to the recommendations of the Mutual Security Agency.
France.
We fully support the proposed aid figure for France in the amount of $500 million. This amount is essential as support for the French global defense effort if this is to continue at the magnitude which we believe is necessary. Such assistance would be the equivalent of about two-fifths of the present French budget for the war in Indochina. In addition, the French NATO program amounts to more than $2.5 billion a year. We believe that if the French are to continue their effort in Indochina without relaxation, as well as sustain their present buildup in Europe, the recommended amount should be made available regardless of the aid techniques ultimately decided upon.
United Kingdom.
While we agree that $250 million defense support funds will be required to meet Mutual Security objectives in the United Kingdom during the 1954 Fiscal Year, we feel that this amount will be sufficient only if at least $150–$200 million of offshore purchases are made in the United Kingdom during the same period.
Italy.
While the Mutual Security Agency estimate of $35 million can be accepted as a realistic planning figure for the dollar aid requirements of Italy in Fiscal Year 1954, we feel that statements of justification require additional clarification. We agree that such dollar aid would contribute to an enlargement of the Italian defense program, would accelerate and stimulate socially and politically desirable developmental projects, and would, if necessary, protect the Italian reserve position. A more precise explanation should, however, be given of the priority to be assigned to these objectives and the precise ways in which this dollar aid would be employed.
Austria.
The $35 million aid figure is based upon projections into Fiscal Year 1954 of trade and payments trends which are currently very favorable. It may be unrealistic to rely upon continuation of these trends, since Austria, in addition to being subject to unpredictable world economic developments, is, perhaps uniquely, vulnerable to pressure from the USSR and its satellites, both in certain of its external economic relations and in the satisfactory administration of a portion of its economy at home. Thus, while $35 million is an acceptable planning figure, it appears to us that Austria’s strategic [Page 530] and political importance is such that if additional dollar assistance were to become essential to preserve stability, we should make every effort, at that time, to provide it.
Germany (Berlin).
With regard to aid for Berlin, it should be pointed out that the situation in Berlin is subject to rapid changes and emergency conditions may develop suddenly. The pressures exerted by the Soviets, not only increase the flow of refugees [and] disturb business confidence, but lead to fears of total or partial interruption of access to West Berlin.
While we have no reliable indications of the likelihood of a blockade, we consider it imperative at this time to make adequate provisions to meet the approved goals which call for support of the Berlin economy and maintenance of our position there.
We are in agreement with the Mutual Security Agency estimate of $60 million for the Berlin investment program with the exception of that portion devoted to work relief. Our estimates indicate that approximately $18 million will be required for this purpose. Thus the total investment program should be increased to $66 million.
In the Mutual Security Agency submission we do not find adequate provision for the agreed stockpile goals, which are designed to prevent much greater expenditures if a full scale airlift were again to become necessary. Our information indicates a need for at least $40 million dollars for this purpose in fiscal 1954, and probably more. A review of stockpile requirements is now under way and its results should be available in matter of days. This review is expected to support a larger figure than the above.
On the basis of recent advice from Bonn it would appear that $15 million will have to be included for emergency aid for refugees. Exact figures and detailed justification for this new item will be available shortly.
In view of the foregoing information from the field, it would appear that a comprehensive program for Berlin in Fiscal Year 1954 would require approximately $121 million in contrast to the $68 million proposed by the Mutual Security Agency. These estimates are, however, subject to further clarification by the United States High Commissioner.
Yugoslavia.
The Department is in agreement with the Mutual Security Agency estimate that the United States portion of tripartite aid to Yugoslavia in Fiscal Year 1954 should approximate $64 million. However, it appears unlikely that more than $14 million additional [Page 531] aid can be expected this year from the United Kingdom and France.
Greece.
We are in substantial agreement with the estimates with respect to Greece; however, the assumptions made by the Mutual Security Agency, particularly with respect to Greek earnings from exports are believed to be somewhat optimistic in the light of experience to date; after a re-check, commodity-by-commodity of present export prospects, the Department believes the Mutual Security Agency figure of $35 million may prove to be inadequate to meet Greek dollar needs.
Greece occupies a key area and is maintaining armed forces disproportionate to its wealth and resources. Its reserves are low and a pipeline of goods in process constitutes an element of security it seems advisable to maintain. The Greek Government elected last November is proving cooperative and firm in its opposition to Communist moves. It would be most unfortunate for the United States to treat defense support in a way that might indicate to the Greeks a lack of sympathy with the new Government. It is also evident that there are few areas where defense support aid is matched with as much military effort.
Turkey.
The Department of State considers that defense support aid of at least $55 million as well as certain budgetary support aid to the probable extent of $15 million will prove essential to the United States objectives of maintaining and strengthening the Turkish armed forces and at the same time providing for the continued economic development of this backward but awakened and progressive country. We concur in the view expressed by the United States country team in Turkey that expenditures for Turkish defense from Turkey’s own resources should not be expected to increase in proportion to gross national product or budgetary revenues but rather that such increases be used to foster the development of an expanded economic base which would more fully support Turkish defense at a future date. It should be borne in mind that in the case of Turkey, as of Greece, relatively limited amounts of United States aid support a proportionally larger defense effort than in many other areas.
Offshore Procurement.
The Mutual Security Agency has indicated that its projections and recommendations as to aid to certain key countries are predicated on expectations as to the amount and character of offshore [Page 532] procurement contracting in those countries during Fiscal Year 1954 and prior years.
The Department of State considers that only if the projected offshore procurement programs for Fiscal Years 1953 and 1954 are substantially realized, will the aid recommended be adequate to meet the dollar needs of the countries concerned. These offshore procurement programs, while an important factor in solving the balance of payments problems of our principal NATO allies, have as their primary objective, the strengthening, and in some sectors, the further development of an effective European defense production industry which will be able to provide materiel for the future maintenance of European NATO armed forces.
Consequently, we recommend that the Fiscal Year 1954 program for offshore procurement in Europe be approved in a form that will clearly separate offshore procurement funds from Mutual Defense Assistance funds for other purposes.
Sincerely yours,
- Drafted by Robert G. Cleveland and cleared in substance with Bonbright, Riddleberger, Richards, Newman of S/MSA, and Nitze.↩
- Reference is to a series of narrative and tabular statements in support of revised MSA fiscal year 1954 budget proposals for Europe. Copies of these documents, along with a covering memorandum from George W. Lawson to John Ohly, dated Feb. 24, 1953, are in DMS files, lot W–1444, “FY 1955 Program Estimates”.↩