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

DMS files, lot W–1444, “FY 1955 Program Estimates”

No. 284
Memorandum by the Deputy Director for Programs and Planning of the Foreign Operations Administration (Ohly) to the Deputy Director for Operations of the Foreign Operations Administration (FitzGerald)¹

restricted

[Washington,] October 6, 1953.

Subject:

• Development of FY 1955 Program—Economic Aid for Europe

I. Introduction

As you are aware, programs and estimates for the FY 1955 Mutual Security Program are due in the Bureau of the Budget on October 10. In addition, as indicated in my memorandum of October 2,² the President has called for a preliminary presentation of estimated expenditures for MSP during FY 1955 at a special National Security Council meeting on October 13.

The objective of this memorandum is to set forth informally, for whatever assistance this may be in your preparation of European economic estimates for both of the foregoing purposes, a series of suggested assumptions, premises and guidelines. These suggestions have not been formalized in instructions because I believe that the general question of whether, and if so, in what amount and form, and for what purpose, further economic aid should be extended to Europe can best be approached by giving your European programmers the maximum possible latitude—freedom to reject any program at all or to develop an entirely new program that represents an imaginative and constructive approach to those problems of Europe toward whose solution aid in one form or another might make a significant contribution.

In developing the foregoing programs and estimates, and in preparing the supporting materials therefor, I believe that it would be desirable if the question of aid could be considered and presented as part of a much broader approach to a solution of the major problems which affect U.S. economic relations with the rest of the free world generally and, more particularly, with Europe. Thus I would also hope that the program submission might deal, among other things, with the question of increasing private investment, the extension of credits through the public lending institutions, the development of greater European unity, the continued expansion of the European economy, etc., and with the way in which such factors might be affected by, or affect, any program suggested.

II. General Guidelines

In developing an FY 1955 economic, defense support, technical and/or mutual defense financing aid program for Europe, I suggest (recognizing that some of them are perhaps trite and self-evident) the following general assumptions, guidelines and premises for your consideration.

A. The program for Europe (as the program for all areas) should further to the maximum extent possible with the level and type of resources likely to be made available by the Congress, the attainment of U.S. foreign policy objectives in Europe as these objectives are reflected in current NSC documents or in the latest available redrafts of such documents as, for example, in the prospective German paper. (There is a tendency, once an NSC paper has been adopted, to forget its contents and in the development of programs, to ignore the policies which are therein stated. Therefore it is important when we are formulating programs for a new year to re-study these NSC papers very carefully.)

B. It should be assumed, as a general proposition, that aid of an economic or directly related character will be phased out almost entirely during FY 1955, except as follows:

(1) To the extent which may be required by major changes in (a) the European economic picture and/or (b) the general relationship of the free world to the Soviet bloc (power position, degree of tensions, etc.), none of which are apparent at the moment.

(2) Where special circumstances of the types described in E below can be affirmatively demonstrated as to any country and the treatment of those circumstances is of importance to the security of the United States;

(3) In the case of Greece and Turkey; and

(4) In the case of France, aid which is required to support the successful conclusion of the war in Indochina.

C. It should be assumed that $250,000,000 represents the maximum amount of new obligational authority that should be sought for all forms of defense support, economic aid and mutual defense financing for Europe during FY 1955 except such amount as may be needed for the conduct of the war in Indochina. It should also be assumed that the comparable figure for FY 1956 will not exceed $100,000,000.

D. It should be assumed that the implementation and completion of currently financed European programs of defense support and mutual defense financing, as well as any FY 1955 and 1956 programs which may be approved, will not be restricted or limited by any annual expenditure ceilings but that, on the contrary, aid will be phased in the manner, and pipelines will be held to the size which makes the most political and economic sense.

E. In general, no FY 1955 program should be developed or proposed for any individual country or group of countries, or for any functional purpose covering all or some part of the whole European region, unless one or more of the following conditions or circumstances can be adequately established:

(1) A country is presently encountering, or is about to encounter, a locally insolvable balance of payments problem of such severity that it seriously threatens the political stability of the country in question.

(2) The attainment or maintenance of force goals heretofore approved for a country for CY 1953, coupled with the continued qualitative improvement of such forces up to SHAPE or SACLANT standards, is dependent upon U.S. assistance to such country; or the extension of a moderate amount of U.S. defense support assistance to a country will have a very large multiplying effect in terms of the willingness and political and economic capacity of such country materially to increase its forces above already established force goals. (Except under the foregoing circumstances, the United States will not support with any form of economic aid, a force build-up beyond the level which can be sustained by a recipient country over a protracted period out of its own resources.)

(3) The extension of a moderate amount of assistance would eliminate or significantly decrease a country’s reliance on the Soviet bloc for commodities or goods which are of such great significance to such country that (a) it is under strong compulsions to ship highly strategic things to the Soviet bloc or (b) it would face grave economic, political or military problems if the Soviet bloc was suddenly eliminated as a source of supply.

(4) A moderate amount of aid would, either because of its catalytic or psychological effect, have a very material impact on the attitudes or actions of people (a) behind the Iron Curtain; (b) in some peripheral country adjacent to the Iron Curtain, such as Finland, Germany and Austria, when it could be shown that the extension of assistance held real promise of either strengthening the capacity to resist active Communist efforts directed toward causing neutralism, disorder or defection or creating conditions which might have an extensive though indirect impact on the countries beyond the Iron Curtain, and/or (c) elsewhere.

(5) U.S. aid to a country is necessary in order to fulfill legal or moral commitments for further assistance thereto which have heretofore been made or in order to avoid a termination of aid which is so abrupt that, for either psychological or economic reasons, benefits heretofore derived from U.S. assistance might be partially dissipated.

F. In addition to programs meeting the criteria listed in E above, you are invited to submit any program of U.S. assistance in a moderate amount which you believe would make a really major and permanent contribution toward the solution of the long-term dollar balance of payments problem of the European countries, as by materially decreasing their reliance on dollar sources, by significantly increasing their dollar earnings, by greatly expanding their productive capacity, etc.

G. Any program proposed and any project recommended within a program should, to the extent that this is practicable, further as many as possible of the following general U.S. objectives:

(1) The liberalization of intra-European trade;

(2) The encouragement of Western European unity and integration;

(3) The encouragement of private investment and the creation of conditions favorable to such investment;

(4) The local mobilization of capital and its infusion into the under-developed areas;

(5) The fostering of an expanding European economy based on increasing productivity;

(6) A substantial and equitable defense contribution by each participant in the Mutual Security Program;

(7) Other objectives emphasized in Musto Circular Message #23, dated September 30, 1953.³

H. No aid program designed to meet current consumption needs will be included in the FY 1955 Mutual Security Program for Europe unless it can be justified in such special terms as (a) its direct psychological impact on an important group of people or (b) its essentiality in dealing with temporary or specialized relief or emergency situations, such as those involving escapees and refugees.

III. Specific Factual Assumptions

In developing an FY 1955 program for Europe, it is suggested that the following assumptions with respect to collateral facts or historical developments should be made:

A. The FY 1954 offshore procurement program will approach, but probably not fully reach, the level of $1 billion, exclusive of any special military support, Lisbon OSP, etc.

B. Offshore procurement in FY 1955 will probably not exceed $500 million, again exclusive of any special military support, Lisbon OSP, etc.

C. The European Defense Treaty will be ratified on or about January 1 and become fully operative by April 1, with the build-up of German forces commencing at about that time.

D. The payment of support costs by the Federal Republic of Germany will terminate in the case of the United States on June 30, and the annual rate of such payments will be halved in the case of the United Kingdom as of that date.

E. Business activity will continue at a high level in the U.S. and there will not be any significant recession. (Consideration should, however, be given to the potential effects of, and therefore to the desirability of any prospective safeguarding provisions in the foreign aid request against the contingency of, a moderate recession in the U.S. during FY 1955.)

F. There will be no substantial change during FY 1955 in U.S. international trade or tariff policy as this is reflected in current legislation, but reciprocal trade legislation will be extended for at least another year in substantially its present form.

G. The Austrian Peace Treaty will not be signed before the end of FY 1955. (The effect of an Austrian Peace Treaty on the requirements of Austria for further economic assistance should, however, be explored.)

H. There will be no general settlement with the Soviet Union covering either Berlin or Germany as a whole.

I. There will be separate aid progams covering the overseas territories of certain of the European metropolitan powers and such programs may aggregate perhaps $25 million. A moderate amount will also be provided, whether as part of country programs or separately, for the development of materials and commodities of great significance to, and which are in short supply in, the free world.

IV. Assumptions and Guidelines with respect to Specific Countries

The following assumptions, premises and guidelines should be taken with respect to specific countries:

A. France—There will be no FY 1955 program for France except insofar as it (a) is confined to technical assistance and/or (b) is directly related to the continuation and successful prosecution of the war in Indochina. With respect to the latter, it should be assumed that it will take a minimum of two more annual campaigns (the winters of 1954–55 and 1955–56) with forces of at least the size contemplated in the Navarre Plan to reduce Viet Minh opposition to manageable guerrilla proportions. It should also be assumed that the Associated States will be unable during FY 1955–57 to contribute substantially larger amounts than at present to the cost of financing the military effort required.

B. United Kingdom—Assistance, if any, to the U.K., should not exceed $75 million in the aggregate and, if extended at all, should probably be related to the encouragement of aircraft production in the U.K.

C. Spain—In consultation with Defense, a general recommendation should be made as to the extent to which the remaining $239 million of our total financing commitment to Spain should be programmed in economic aid. The criteria for dividing funds between economic aid and end-item assistance should be the successful implementation of our base program at the least total cost to the United States and the military defense of those bases. Full consideration should be given to the fact that between 60% and 70% of the counterpart generated by economic aid can substitute for other appropriations by the Department of Defense for the construction costs of the base program. Guidance should be obtained from the Department of Defense as to the extent to which they feel it is appropriate to decrease the potential delivery of end-items to Spain in order to save other Defense Department appropriations. Guidance should be obtained from the State Department as to the possible Spanish attitude toward eliminating economic aid for Spain in FY 1955 as well as the implications of continuing a sizeable economic aid program for Spain while sharply cutting back and eliminating economic programs in other European countries. The submission for FY 1955 should include tentative recommendations for FY 1956.

D. Greece—In the absence of extraordinary considerations to the contrary, any FY 1955 aid program for Greece should not exceed the level of the FY 1954 program and should be related, to the maximum extent possible, to the support of Greek military forces.

E. Italy—In the absence of overriding political, military, or economic considerations, there should be a strong presumption against the continuation of any form of economic aid, apart from technical assistance, to Italy in FY 1955.

F. Yugoslavia—Unless there are compelling politico-military reasons for continuing aid to Yugoslavia beyond FY 1955, it should be assumed that the program will be concluded in that year. It is suggested that the FY 1955 program be cut to approximately one-half the FY 1954 program (including use of Section 550 funds). This program might be related in the first instance to the maintenance of minimum consumption imports which are absolutely necessary for the preservation of a minimal level of civilian consumption; second, the provision of sufficient raw materials to prevent substantial unemployment; and third, provision of financial assistance for the purchase of military soft goods to supplement the MDAP program.

G. Turkey—If at all practicable, the FY 1955 program for Turkey should represent a material reduction in the FY 1954 level of aid and should proceed on the assumption that in FY 1956 this level is not likely to exceed $20 million. Aid in general should be limited to that required for the immediate and direct support of the Turkish armed forces.

V. Miscellaneous Considerations in the Development of an FY 1955 Program

A. In developing an FY 1955 European economic aid or defense support program, very thorough consideration should be given to the question of the extent to which surplus U.S. commodities can be utilized in, or in a manner which will effectively supplement or replace, such program. The objective should be a careful analysis of ways in which these important U.S. assets can be used in furtherance of U.S. foreign policy, and it can be assumed that, to some extent at least, the total foreign aid program which Congress will authorize and which the Executive Branch will recommend will be greatly affected by the volume of surplus commodities that can be incorporated in any such program. In fact, if substantial opportunities for the useful disposition of such commodities can be developed, the financial limitations contained in II–C above might be materially exceeded.

B. Careful consideration should be given to the question of whether contingencies which may develop between now and the end of FY 1955 are of such likelihood, importance and character as to necessitate, as a matter of common prudence, the inclusion in the FY 1955 program of an amount and, if so, what amount, to meet what might be termed the reasonable expectations as to aid which might be required to cover contingencies that may develop between now and the end of FY 1955.

C. In submitting program proposals, materials customarily furnished in connection with ECA and/or MSA programs in the past should be furnished with respect to those countries for which significant aid programs are recommended. However, consideration should be given to what other types of materials might be useful in developing and presenting a better “case” to the Bureau of the Budget and Congress.

D. To the extent practicable, the development of the program should reflect continuing consultations with the appropriate bureaus of the Department of State and with the Deputy to the Director of FOA for Battle Act purposes, and, where appropriate, with the Department of Defense.

John H. Ohly

1. Copies to Stassen and Hopkinson. The source text is the copy sent to Stassen.
2. Not found in Department of State or Foreign Operations Administration files.
3. Not printed.