Foreign Relations of the United States, 1950, Western Europe, Volume III

611.51/10–2050

Memorandum of Conversation, by Miss Miriam Camp of the Office of European Regional Affairs

top secret

[Washington,] October 18, 1950.

US-French Ministerial Talks

(Fifth Meeting, October 18, 1950)

Department of State

Secretary Acheson

Mr. Thorp

Mr. Nitze

Mr. E. Martin

Mr. Peterson¹

Miss Camp

Mr. Glenn (interpreter)

Treasury Department

Secretary Snyder

Mr. W. Martin

Mr. Hebbard²

Department of Defense

General Lemnitzer

ECA

Mr. Foster

Mr. V. Cleveland

White House

Mr. Gordon

Embassy, Paris

Ambassador Bruce

Mr. Tomlinson

Ministry of Finance

Minister Petsche

M. Filippi

M. Goetze

M. B. de Margerie

M. Martinet

M. Huet

M. Denis

Ministry of Defense

General Vernoux

Foreign Office

Ambassador Alphand

French Embassy

Ambassador Bonnet

M. Schweitzer

M. C. de Margerie

M. Demont³

Minister Petsche referred to the memorandum of August 17⁴ which had been given to Secretary Snyder in Paris setting forth the French Government’s views of the principles on which the NATO should be established. He said that although the French proposals might have been interpreted simply as an exercise in logic, the French intended them as very practical proposals and that he wished to revert to them today because he believed the time had come to consider the further development of the NATO. He referred to the present situation in which on one side there was a monolithic structure and on the other a collection of nations standing side by side but not integrated. The French proposals were in essence, a procedure for bringing about a greater degree of integration among the NATO countries and thus permitting decisions to be taken as rapidly as possible. The memorandum of August 17 had referred to action in both the military and economic field. M. Petsche said he considered the decisions in New York on a common integrated staff offered a solution in the military field. So far as the economic and financial field was concerned, the French proposed the establishment of a common integrated budget. He emphasized that their main objective was not so much to ensure an equitable distribution of the defense burden, which could be achieved by other means, but to establish a genuine co-partnership. He emphasized that in the French view financial assistance should be received from other countries as well as the United States, in particular, those countries which were not in a position to contribute significantly militarily. Another fundamental purpose of the common budget would be to increase the rationalization of the defense programs of the individual countries. A third area in which the common budget would be useful was in combatting inflation. M. Petsche felt that through this mechanism measures could be taken to stabilize currencies and to maintain at least a parallelism in the degree of inflation in individual countries.

M. Petsche said that he recognized that the United States Government had shown an understanding of these problems and had accordingly put forward the so-called Nitze proposals.⁵ He expressed the willingness of the French to take the Nitze paper as a basis for discussion in the Deputies’ meeting. However, he felt that the principle underlying the Nitze paper that each government was responsible for the security of its own country ought to be further extended. By the establishment of a common staff a collective responsibility had been created which in turn required the establishment of collective programs. He further expressed reservations on the bilateral means of payment proposed in the Nitze document and reemphasized the French view that the NATO concept, unlike the ERP concept, was not one of giver and receiver but of partnership in a common effort. M. Petsche also felt that the urgency of the situation required a modification in the existing MDAP legislation to permit transfers and to enable free dollars to be used through the EPU mechanism.

M. Petsche then referred to the dollar pooling proposals included in the August 17 memorandum and reaffirmed the French view that dollars earned by NAT countries as well as free dollars appropriated by the United States for the defense program should be pooled and subject to the control of the EPU. Although having these major reservations on the Nitze document, M. Petsche reaffirmed his willingness to see it introduced for discussion by the Deputies and submitted a few technical amendments in the present draft.

M. Petsche then turned to the subject of raw materials and to the suggestions made in this connection in the August 17 memorandum. He emphasized the French concern with recent increases in prices on raw materials which, although resulting in part from the Korean war, would continue as a result of the accelerated defense program. He pointed out that so far we had seen only increases in the world market prices not the repercussions on retail prices which would occur in another two or three months. He emphasized the serious inflation which would be created and his fear runaway inflation might mean disaster for the whole western world. He referred to his conversations with Mr. Thorp and said that, in the light of various points made by Mr. Thorp in the course of those conversations, he had modified some of the more drastic of his earlier proposals. He was therefore submitting a new proposal which he handed to Mr. Acheson and which is attached as Appendix A. He felt that it was necessary for the NATO countries to take certain common measures, for example, restrictions on consumption, compulsory use of substitutes, and related measures. These should be done on a NATO basis, not as in World War II on an individual national basis. He felt that we were already facing very serious situations in a number of commodities and referred to wool and steel and cotton as examples. As a result of the mounting wool prices and the restriction on the export of cotton from the United States, he expected that the cost of French clothing would shortly rise by 30% or more. This in turn would result in demands for increased wages. If, at the same time, as the taxpayers were being asked to pay for an increased rearmament program prices were allowed to rise sharply, a disastrous situation both from the social standpoint and the standpoint of the military program would result. He concluded by emphasizing that we do not know how long the rearmament program would continue but that it might well last for ten to fifteen years unless drastic control measures were taken. He felt the Western countries might well fall into the trap which the Soviet Union was building and that the Soviet Union might accomplish their purposes through social revolution within the Western countries.

Secretary Acheson thanked M. Petsche for the August 17 memorandum and his summary of the points included in it. He felt the memorandum had been very far reaching and had already deeply affected the thinking in the U.S. Government. He suggested that Mr. Nitze outline the U.S. Government’s views on the financial proposals put forward by M. Petsche and that Mr. Thorp summarize our views on the proposals respecting raw materials. Mr. Nitze said that the French proposals had been considered not only within the Executive branch of the United States Government, but also with the United Kingdom and French officials. As he understood them, the three principal objects of the mechanism suggested by the French were to permit the military plans of the individual countries to go forward in accordance with the agreed NATO defense plan, to insure that economic questions were multilaterally considered, and to bring economic pressure to insure that the national programs were carried out in conformity with the multilaterally agreed program. To accomplish these ends the French had proposed four techniques: (1) the common budget; (2) the Atlantic loan; (3) the dollar loan; (4) the Atlantic tax, although the latter had been subsequently withdrawn. He felt the common budget proposal presented two types of difficulties. The first was the difficulty which both the United States and the United Kingdom would have in participating in this type of arrangement and the second was the practical one of whether the common budget could be effective unless an executive agency of the NATO were able to concern itself directly with matters of internal financial and monetary policy. This, in turn would require a stronger political organization than the NATO had at the present time. He felt that the Atlantic loan proposal also presented difficulties and, as proposed, would probably involve a contingent liability on the United States for the full amount of the loan. The dollar pool also presented problems but he felt it might be further considered by the experts. Although by no means shutting the door on any of these developments, the United States Government had felt that, in view of the time urgency, it was desirable to develop procedures which, while meeting the underlying objectives of the French, could be agreed to readily by the other countries. Referring to the so-called Nitze memorandum, he thought that the approach outlined would enable us to move forward on a partnership basis, that nothing in the procedure outlined precluded financial assistance by countries other than the United States, although looking at the question practically he questioned whether any major financial contribution would be made from any other country with the possible exception of Canada. He pointed out that assistance between countries would only flow if the national programs were being carried out in conformity with the overall program and that in this way the pressure which the French sought could be brought to bear on national programs.

Mr. Snyder and Mr. Foster concurred with Mr. Nitze’s comments. M. Petsche enquired whether, if at a later stage, agreement were reached on a European common budget the United States would feel able to make a lump sum appropriation to the common budget. He felt that such a procedure would further the integration of the European countries.

Mr. Acheson said that this suggestion would have to be discussed within the United States Government but that there were clearly a number of very great difficulties connected with it.

Mr. Thorp then summarized the United States view of the French proposals regarding raw materials. He expressed general agreement with the French appraisal of the basic character of the problem, i.e., that recent price rises were serious; that there was need for action without delay; that the action should be international in character; and that the NATO had shown direct interest and responsibility in the problem. The difference, if there were a difference between us, lay in the question of procedure. He referred to the fact that the OEEC was now studying particular commodity problems and said that we would urge our representatives in Paris to expedite that work. The results of the OEEC study should be brought to the attention of the NATO Deputies as soon as possible. He felt it was also desirable for the Deputies to set up a group within the NATO to keep the commodity situation under review and to recommend international action as appropriate. He believed that the main difference between us and the French was probably in the degree of responsibility to be given to the NATO. In the United States view, action at this stage should be taken on a commodity by commodity basis, using the mechanism best suited to the commodity in question. Although the NATO might determine that action on a particular commodity was required, he felt that in most cases it would be desirable for one or two of the NATO countries to call together an ad hoc meeting of the principal producing and consuming countries in order to allocate or take other measures. He emphasized that we wished to avoid any impression that the NATO countries were “ganging up” on the other countries. He also expressed the view that too great a use of NATO in this field was undesirable because of its defense character. In conclusion, he said that although believing that we should begin to deal with the commodities problem through a series of commodity conferences we recognized that additional machinery might be required at a later stage.

M. Petsche requested that the United States Government review the document which he handed to Secretary Acheson and which he felt was much more in line with the United States’ views as presented by Mr. Thorp than the earlier French proposal. Although agreeing that commodities would have to be studied on an individual basis and with the principal producers and consumers, he raised the question of what would happen if we were unable to work out a cooperative arrangement. He suggested that if commodity conferences ended in disagreement the NATO should take action. If, after discussion, there appeared to be no hope of cooperative action with producers, he felt the situation warranted the creation of a “consumers’ cartel” to bargain with the producers.

Mr. Acheson assured M. Petsche that the United States Government would study the latest proposals of the French Government and would also consider what action should be taken if it were not possible to work out cooperative arrangements with the producers. He said that we recognized the seriousness of this problem but had no solution to offer at present.

The meeting concluded with mutual expressions of appreciation for the full and frank discussion of these common problems.

Appendix A

secret

French Proposal Handed to Secretary Acheson by M. Petsche October 18, 1950

Article 1. In accordance with the principle of economic cooperation with which they intend to comply, the high contracting parties agree to entrust the Executive established by themselves with the following responsibility:

a) to keep under constant review the evolution of supplies and prices of raw materials and essential commodities;

b) to recommend consultations between the main producing and consuming countries as soon as the market situation of a raw material or of an essential commodity seems to justify the use of such a procedure, provided it is up to a Government or to a group of Governments to call any international meeting;

c) to prepare such international meetings and to recommend steps which might be proposed by the countries concerned;

d) should such meetings not arrive at satisfactory conclusions, to recommend joint measures which might be taken by member countries of the Atlantic Pact.

Article 2. The recommendation made by the Executive may concern:

a) the stimulation of production of commodities in short supply in the participating countries;

b) the periodical international distribution of commodities through allocations;

c) the coordination of the purchasing policies of the importing countries and, as the case may be, the organization of joint purchases, whether the purchases apply to a certain tonnage of existing commodities or whether they should be achieved over a certain period of time through the conclusion of short or long term contracts;

d) the reduction or, if necessary, the suppression of the consumption of certain products.

1. Avery F. Peterson, officer in charge of economic affairs in the Office of Western European Affairs.
2. William L. Hebbard, of the Office of International Finance, Department of the Treasury.
3. Eugène Demont, Technical Counselor of the French Embassy.
4. For additional information on this memorandum, see telegram 852 from Paris, August 17, p. 220.
5. For the text of the “Nitze paper,” and related information, see telegram Todep 63 to London, October 17, p. 386.