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

NAC files, lot 60 D 137, “NAC Documents”

No. 9
Report Prepared by the Staff Committee of the National Advisory Council¹

confidential

[Washington,] March 11, 1952.

Alternative A

Subject:

• European Payments Union²

Recommended Action:

The National Advisory Council advises the Director for Mutual Security that:

I. General Principles

The Council, having reviewed the developments under the European Payments Union in the past two years, reaffirms the principles set forth in Part I of its action on January 23, 1950 (Action No. 383³) and considers that in future relations between the U.S. Government and the Union the following additional considerations should guide the U.S. Government.

A. The Council considers that the U.S. Government should oppose any action by the Union favoring measures by any participating country to impose discriminatory restrictions on transactions with the dollar area for purposes of adjusting intra-European balance of payments.

B. The Council further considers that the United States should continue to follow the general policy, both bilaterally and in any appropriate relations with multilateral agencies, of exerting its influence to strengthen weak currencies within the Union, and to discourage pressure on stronger countries to weaken their currencies for purposes of adjusting balances of payments within the Union.

II. Financial Relations Between the U.S. Government and the European Payments Union

A. The future of the European Payments Union in form and function is primarily a European problem. The Council concurs with the Mutual Security Agency that there is no present need for a further United States contribution to the capital fund of the European Payments Union. In the event that the Mutual Security Agency is of the opinion at some future time that an additional capital contribution to the European Payments Union is necessary, a proposal to make such a contribution should be brought before the National Advisory Council for consideration.

B. In the allocation of United States assistance and the administration of offshore procurement, no policy decisions which may be expected to have important effects on the resources of the European Payments Union should be taken without consultation with the National Advisory Council.

C. The Council further recommends that MSA review its procedure for extending assistance to countries having debtor positions in the Union, for the purpose of determining whether all feasible measures are being taken to insure that expenditures are being made in the cheapest world markets in order to conserve dollars and to further progress toward a competitive level of European prices.

III. Management of European Payments Union and United States Participation Therein

A. The Council reaffirms its recommendation of January 1950 that the United States should not participate in the management of the European Payments Union. To the extent that any United States representatives participate as observers in discussions of EPU problems they should endeavor to further the objectives of United States policies, including the financial and commercial policies as set forth in IMF and GATT. In dealing with such questions there should be consultation with the National Advisory Council as specific problems of coordination arise.

IV. Coordination of U.S. Position in the European Payments Union with US. Position in International Monetary Fund and GATT

A. The Council considers it a matter of highest importance that any position taken by United States representatives with respect to the European Payments Union or its individual members should be consistent with the policies of the United States in the International Monetary Fund and GATT, particularly with respect to exchange rates, exchange restrictions, monetary policies and commercial policies. It recommends that the agencies of the Government principally concerned with the United States positions in IMF, EPU and GATT obtain or make proposals which would promote the effective coordination of the policies and actions of these institutions for consideration by the Council or other appropriate interagency body. It recommends further that the United States Executive Director of the Fund and the Director for Mutual Security use their best efforts to promote an effective coordination between the IMF and EPU as to procedures and conditions applying to the use of resources of the two institutions.

Alternative B

Subject: European Payments Union

Recommended Action:

The National Advisory Council advises the Director for Mutual Security that:

I. General Principles

The Council, having reviewed the developments under the European Payments Union in the past two years, reaffirms the principles set forth in Part I of its action of January 23, 1950 (Action No. 383) and considers that in future relations between the U.S. Government and the Union the following additional considerations should guide the U.S. Government.

A. The European Payments Union is to be regarded as a transitional organization, rather than a permanent institution, and an extension of the underlying agreement should accordingly be limited to a period of not more than one year in order to provide for an appropriate review of United States policy with respect to the European Payments Union at that time.

B. The Council considers that the U.S. Government should oppose any action by the Union favoring measures by any participating country to impose discriminatory restrictions on transactions with the dollar area for purposes of adjusting intra-European balance of payments. The Council also recommends that the U.S. Government should exercise its influence insofar as appropriate within the European Payments Union to facilitate movement toward non-discriminatory trade on a global basis and convertibility of currencies, in order to build sound industrial and agricultural strength and to bring about a balanced competitive relationship between the European economy and the rest of the world.

C. The Council further considers that the United States should follow a general policy, both bilaterally and in any appropriate relations with multilateral agencies, of exerting its influence to strengthen weak currencies within the Union, and to discourage EPU pressure on stronger countries to inflate for purposes of adjusting balances of payments within the Union.

II. Financial Relations Between the U.S. Government and the European Payments Union

A. The future of the European Payments Union in form and function must remain essentially a European problem. Accordingly, the U.S. Government should not make any further United States contribution to the capital fund of the European Payments Union and no explicit or implicit commitments for such aid should be given.

B. In the allocation of United States assistance and the administration of offshore procurement, the Council is of the opinion that decisions should be taken on their merits without taking into account the effect of such decisions on the assets and functioning of the European Payments Union.

C. The Council further recommends that, in the provision of assistance to countries having debtor positions in the Union, consideration be given to the advisability of converting allocations of assistance now specifically limited to the settlement of EPU deficits into more general allocations available for expenditure in the cheapest world markets, with a view to furthering progress toward a competitive level of European prices.

III. Management of European Payments Union and United States Participation Therein

A. The Council reaffirms its recommendation of January 1950 that the United States should not participate in the management of the European Payments Union. This would not preclude a United States observer during the period in which the original United States capital contribution continues to be drawn upon, nor would it preclude United States veto power on drawings against the original United States capital contribution, but, in general, the role of the observer should be one of intervening to protect United States interests rather than pressing policy objectives on the management of the Union.

B. To the extent that any United States representatives participate in discussions of EPU problems they should endeavor to further the objectives of United States policy as set forth in IMF and GATT. In dealing with such questions United States representatives should consult with the National Advisory Council as specific problems arise.

IV. Coordination of US. Position in the European Payments Union with U.S. Position in International Monetary Fund and GATT

A. The Council considers it a matter of highest importance that any position taken by United States representatives with respect to the European Payments Union should be consistent with the policies of the United States in the International Monetary Fund and GATT, particularly with respect to exchange rates, exchange restrictions, monetary policies and commercial policies. It recommends that the U.S. Executive Director on the Fund and the appropriate representative of the Director for Mutual Security undertake to bring about such coordination directly and through careful review by the National Advisory Council of all important policy decisions before they are expressed by any United States representative.

B. The Council draws attention to the great importance in European payments problems of appropriate exchange policies and recommends that exchange questions arising in connection with the European Payments Union be referred to the International Monetary Fund for appropriate review in accordance with the general procedures of the Fund.

1. This report was circulated as NAC Document No. 1273. Attached to the source text was a covering memorandum by the Staff Committee to the members of the National Advisory Council which indicated that the two alternative actions on the EPU resulted from a meeting of the Staff Committee on Mar. 11. This report was discussed during the 190th meeting of the NAC on Mar. 13; for the minutes of that meeting, see infra.
2. Numerous reports were written during this re-examination of U.S. policy toward the EPU, including the following: NAC Staff Documents No. 561 and 562 by the Treasury Department, NAC Staff Document No. 563 by the Mutual Security Agency, and NAC Staff Document No. 566 by the Working Group on EPU. Copies of these documents are in NAC files, lot 60 D 137, “NAC Staff Documents.”
3. Not printed. NAC Action No. 383, which laid the groundwork for the establishment of a “European clearing union,” was approved by the National Advisory Council on Jan. 23, 1950. A copy of Action No. 383 is in NAC files, lot 60 D 137, “NAC Actions”; the minutes of the Jan. 23 meeting are in NAC files, lot 60 D 137, “NAC Minutes.” For documentation concerning the creation of the European Payments Union, see Foreign Relations, 1950, vol. iii, pp. 611 ff.