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

Conference files, lot 59 D 95, CF 106

No. 30
Memorandum of Conversation, by the Officer in Charge of Swiss and Benelux Affairs (Scott)¹

secret

Washington, April 10, 1952.

Subject:

• Discussion of Items of General Interest to the Dutch

Participants:

• The Secretary
• Director for Mutual Security Harriman
• Assistant Secretary of State Perkins
• Assistant Secretary of State Thorp
• Joseph W. Scott
• Foreign Minister Stikker
• Ambassador Van Roijen
• J. G. de Beus

I opened the conversation by noting that Mr. Stikker and Mr. Harriman had had an opportunity to discuss during lunch the matter of direct contributions to the EPU fund and the possibility of floating a NATO or EPU bond issue.² I asked Mr. Harriman to tell us how much of these topics he and Mr. Stikker had been able to cover in their luncheon conversation.

Mr. Harriman said that with regard to the floating of a loan he had explained to Mr. Stikker that we did not think it wise for the U.S. to underwrite the disequilibrium caused by the extreme credit positions in Europe of Belgium, Portugal and Sweden. As for contributions to the EPU itself, Mr. Harriman said he had told Mr. Stikker that we wished to support and help the EPU but that was as far as we thought we could go.

Contribution to the EPU

I read the recommendations contained in a paper which had been prepared on the subject of contributions to the EPU explaining that these recommendations represented the considered views of the three agencies concerned, namely, the State Department, the Treasury Department and Mr. Harriman’s office. These recommendations were as follows:

(1) The U.S. has a strong interest in the operation of the EPU and its effective functioning during the defense build-up and recognizes the importance which European countries attach to the EPU. We believe that it will be to our mutual interest for the members of the EPU to solve their present financial problems themselves without direct U.S. assistance.

(2) The EPU should not plan on a direct contribution by the U.S. to its capital. Judging by the experience of the EPU since its inception, it appears to be within the power of the members of the EPU themselves to provide adequate additions to the EPU capital fund which should facilitate the continued functioning of the EPU beyond June 30, 1952. Such additional funds will not obviate the necessity of adopting measures to deal with the problem of the persistent creditors.

Mr. Stikker said that these views seemed to him to be identical with those Mr. Draper had expressed in his statement in Paris on this matter recently and asked us whether this was the final word on this subject. He said that the OEEC and the EPU had been kept together to date but that he could not now make any promises for the future. He said that he was very worried about this and thought it might create real trouble in Europe within the next month or so. He emphasized that he thought an increase in the EPU fund was necessary and he repeated the arguments he had put before us last week regarding the possibility of an end to trade liberalization in Europe if, through an end of the EPU, it became necessary to resort to bilateral trade negotiations. In addition, he said that without an EPU, he didn’t see how there could be a Schuman Plan or an EDC. He thus considered the question of contributions to the EPU as one of the key problems in Europe today.

I asked Mr. Harriman how he thought this key problem could be solved. Mr. Harriman said that this was a problem for European countries to solve themselves. He said that it was generic with certain countries which seemed to be determined to earn dollars through the EPU. He did not believe that we should be expected to ameliorate this in view of its origin and also in view of the fact that the countries referred to above maintained deflationary or anti-inflationary policies of so restrictive a nature that they were bound to create the very problem we were now asked to help solve. Mr. Harriman did not think that the Congress would, therefore, give serious consideration to a request for a direct contribution to the EPU fund in view of the fact that we were already contributing indirectly to their EPU through assisting certain of its members with the EPU deficits. He noted also that the EPU still had somewhere in the neighborhood of $300 million in its fund at present. He said that Mr. Stikker had done an amazing job in getting members of the EPU to work together and he urged Mr. Stikker to continue his work.

Mr. Stikker replied that he would continue and hoped that a way could somehow be found to maintain the EPU beyond June 30. There was another, longer-term problem which he wished to mention in this connection, however. This was the matter of getting on with the collective study of the internal financial stability of each OEEC country. He said that the OEEC had been successful in the case of Germany in carrying out such a study. There were real difficulties ahead, however, in getting France and the UK really to accept an international committee to study their internal financial affairs. He believed, for example, that the only way it would be possible to get the UK authorities to cooperate with such studies was through convincing them that the system would go on. If, therefore, the shorter-term problem of continuing the EPU beyond June 30 couldn’t be solved, he was sure that the longer term problem of establishing the practice of collective responsibility for internal financial stability could not be solved. He concluded by saying that representatives of all of the OEEC countries would want to see him this afternoon after his meeting with us to hear what the possibilities were regarding a contribution to the EPU fund.

Mr. Harriman said that these were matters which ought to be negotiated out in Paris. Mr. Stikker said that as Chairman of the OEEC he had considered it his duty to put these problems before us.

Proposal to Float a $500 Million NATO or EPU Bond Issue in the International Market

We then took up Mr. Stikker’s proposal of last week regarding the floating of a bond issue of some $500 million in the international market here. I had promised him last week that we would consult with the other agencies concerned here regarding this matter and read from a paper which had been subsequently prepared on this subject.³ I told him that as we saw it, such an issue could be successful only if the U.S. were to underwrite it in its entirety and that this would unquestionably require Congressional action.

Discussion of Possibilities of Assistance from International Monetary Fund

Mr. Stikker asked what we thought of the possibility of obtaining an advance from the International Monetary Fund. I asked Mr. Thorp to come into the meeting to give his views on this.

Mr. Thorp said that he thought there would be two difficulties in the way of the Fund’s taking favorable action. The first difficulty was the psychological factor. As Mr. Stikker probably knew, the Fund had no enthusiasm for the EPU because the EPU had seemed to “invade” some of the Fund’s territory. The second difficulty arose from an established general policy of the Fund regarding the release of its resources. Under this general policy the Fund was husbanding its resources during the present, transitional period until the time came when the Fund’s resources could be used to support financial stability. The U.S. was in agreement with this policy which seemed to us to be consonant with the Fund’s Charter. A change from this policy might in fact require a modification of the Fund’s Charter.

Mr. Stikker then asked whether the U.S. attitude toward the EPU were the same as the Fund’s. Mr. Thorp said that it wasn’t, that we were supporting the EPU and that the Fund was not. He asked Mr. Stikker whether he knew of any studies having been made of the possibility of utilizing the Fund’s resources to support the EPU. Mr. Stikker replied that he was not aware of any formal study which had been made but that he and his associates had heard that there had been a change in the general policy of the Fund around the beginning of this year which would make it possible to use the Fund’s resources for such a purpose. He also said that it was his and his associates’ opinion that the principal barrier to the possibility of the Fund’s supporting the EPU was psychological. Mr. Thorp said that although he hadn’t discussed this with other members of the Fund’s Board, it was clear that we would have to change our general position regarding the use of the Fund’s resources before we could agree to their use for support of the EPU.

Mr. Thorp then asked Mr. Stikker whether he saw any end to the excessive creditor position of Belgium. Mr. Stikker replied that he saw no end to it until Belgium stopped trying to earn dollars in Europe. As Mr. Stikker saw it, this was one of four problems which were all hinged together and which had to be solved if we were going to avoid real economic trouble in Europe. These four problems were (1) the problem of international review of the internal financial stability of European countries, (2) an increase in the EPU fund, (3) a decrease in the external credit position of Belgium, Portugal and Sweden, and (4) a change in the Belgian dollar policy. He concluded on this subject by saying we should not be surprised if we ran into serious trouble on the above matters by May or June and expressed the hope Mr. Thorp would look carefully at the problem posed by the psychological barrier regarding the EPU which the International Monetary Fund seemed to have. Mr. Thorp said that he would.

[Here follows discussion of the European Defense Community negotiations, a German defense contribution, a request for relief as a guarantor under the Indonesian Surplus Property Credit Agreement, a request for ships to transport emigrants from the Netherlands, possible changes in management of the Nicaro Nickel Company, and the blocking of assets of the Slavenburg’s Bank in the United States.]

1. A summary of this conversation was transmitted to the Embassy in Paris in telegram Topol 683, Apr. 15. (740.5/4–1552)

   For a record of an earlier meeting between Acheson and Stikker, which took place in Washington on Apr. 3, see Document 28. Stikker was in Washington to accompany Queen Juliana on her visit to the United States.

2. No record of this luncheon meeting with Harriman was found in Department of State files.
3. A copy of this paper is in Conference files, lot 59 D 95, CF 106.