Foreign Relations of the United States, 1947, The British Commonwealth; Europe, Volume III

Lot 122, Box 13107

Memorandum¹

secret

[Washington,] September 29, 1947.

Immediate Need for Emergency Aid to Europe

a. the problem

1. The emergency needs of certain key countries of western Europe cannot be met without immediate action on the part of the United States. These countries, particularly Italy and France, are without adequate food and fuel supplies for the fall and winter and without sufficient dollars with which to buy them. They cannot, by their own efforts, survive the major crisis which is already upon them. A collapse of France and Italy could initiate expanding economic depression and political repercussions throughout Europe and, potentially, over a wide part of the world.

2. The following sections of this memorandum deal in more detail with the financial, food, and foreign political aspects of the situation.

b. financial

3. The slow recovery of European production during this year, especially in production of goods for export, combined with a continuing necessity for imports from dollar countries at rising prices have resulted in a severe drain on the dollar resources of Europe as a whole. The overall drain is estimated for the full year 1947 as being of the order of magnitude of 5 billion dollars.

4. Certain countries such as England still have substantial, but rapidly declining, resources available. France and Italy have now reached the bottom of the barrel.

5. France requires roughly 100 million dollars a month worth of food, coal, and basic supplies which must be paid for in dollars. Her receipts in dollars for goods and services which she exports are running at a rate of 10 million dollars a month.

6. France has been meeting this gap by drawing on credits from the Export-Import Bank and the International Bank, by drawing maximum permissible amounts from the International Monetary Fund, by liquidation of United States securities held by her nationals and by drawing down her gold and dollar reserves.

7. We are informed by the French Government that by October 15 France will have exhausted these resources to a point where she will have to suspend imports even of food and coal for lack of dollars.

8. France still has official gold reserves of 440 million dollars, but these reserves are less than half the minimum of one billion dollars which agencies of this Government and the French have considered necessary to maintain confidence in her currency. Uncontrolled inflation is considered to be as dangerous as a decline in imports of food and coal.

9. A few additional dollar or gold payments will become available to France during the next six months. These include distribution to France of gold looted by the Germans, further liquidation of United States securities owned by French nationals, advance payment of United States Army obligations to France, and a further drawing from the International Monetary Fund at the earliest date permitted by its regulations. With the possible exception of the United States Army obligations, none of these sources will provide finances early enough to meet immediate October requirements. Assuming full use of these last remaining resources France will be short of meeting its minimum dollar requirements for the next six months by from 250 to 300 million dollars.

[Here follows a table showing French dollar requirements October 1, 1947–March 31, 1948, arrived at by comparing expenditures with receipts and resources.]

10. Italy’s remaining gold and dollar resources are less than those of France. It is estimated that the Italian Government’s unencumbered dollar holdings will be down to about 32 million dollars by October 1. 28 million dollars worth of so-called Fortezza gold² and about 30 million dollars worth of European gold looted by the Germans will become available to Italy making a total of 90 million dollars as basic reserves.

11. Italy requires a minimum of 85 to 95 million dollars per month worth of the food, fuel and other essential commodities which have to be paid for in dollars. Her dollar receipts from the export of goods and services are running at somewhat over 20 million dollars per month, leaving a gap of 65 to 75 million dollars per month.

12. This gap will be met in part by U.S. relief shipments and drawings on Export-Import Bank credits. After making full allowance for these items and certain small miscellaneous receipts there remains an uncovered deficit of 20 to 30 million dollars per month during the last three months of this year and 50 to 65 million dollars per month during the first three months of 1948. The total amount by which Italy will fall short of meeting its minimum dollar requirements for the next six months is 210 to 285 million dollars.

[Here follows a table showing Italian dollar requirements October 1, 1947–March 31, 1948, arrived at by comparing expenditures with receipts and possible dollar resources.]

c. food

13. Food is one of the fundamental factors in the economic and political problem of western Europe. Reduction or fear of reduction in already low rations is even now having an effect on the political situation, particularly in Italy and France.

14. In these two countries the food problem is double edged. Already existing on minimum scale rations, there are grave fears that actual supplies of grain will not become available in exporting countries in quantities sufficient to satisfy their essential import requirements. Furthermore, without dollars, they will be unable to buy and pay for whatever grain may become available.

15. In Italy the bread (and pasta) ration is now about 290 grams (about 10 ounces) per person per day. This together with the small amounts of other food the average Italian is able to purchase give him 1900 to 2000 calories per day.

16. To maintain this ration the Italian Government has been releasing approximately 400,000 tons of grain per month. It is estimated that some tightening up in the administration of the ration could reduce this to 370,000 tons per month during the remaining nine months of the crop year. The requirement for the full year thus totals approximately 4,500,000 tons.

17. Italian crops are estimated as being so badly affected by this summer’s drought and to some extent by the field workers strikes that total Italian grain yields will be 800,000 tons lower than last year. It is estimated that collections from farms will be less than 2,200,000 tons as against 2,800,000 tons last year.

18. To maintain the ration, total imports from all sources of 2,300,000 tons for the crop year would be required. A large part of farm collections in Italy will have been completed by the first of January and collections during the first six months of 1948 will probably not average more than 75,000 tons a month. Imports of nearly 300,000 tons of grains (or equivalent caloric value in substitute foods) a month during that period from all sources would be necessary to maintain the ration. Such quantities are not now in sight. Failure to maintain the ration, however, will undoubtedly have serious political and economic consequences.

19. In France owing to a combination of heavy winter kill from frost and bad weather during the spring, the wheat crop has dropped from about 6.7 million tons in 1946 to less than 4 million tons in 1947. The daily bread ration in France was lowered from 300 grams last year to 250 grams in the spring and more recently to 200 grams (about 7 ounces) per day. Slightly more other foods are available in France than in Italy and the average Frenchman probably is obtaining some 2100 calories per day. This level of feeding is so low that it has caused widespread demonstrations. Every effort should be made to enable restoration of the ration to 250 grams.

20. Imports of approximately 1,700,000 tons are required if the 200 gram ration is continued. Imports of 2,000,000 tons will be required if the 250 gram ration is to be restored. As in the case of Italy this quantity is not now in sight.

[Here follows a table showing grain requirements of France and Italy.]

d. foreign political aspects

21. During this spring and early summer, communist strength in western Europe declined somewhat. It was possible in both France and Italy for governments which excluded the communists to be formed and to maintain greater strength than had been anticipated.

22. The strong reaction on the part of the USSR and the local communist parties against the steps taken by the western European countries to develop a cooperative European recovery program following Secretary Marshall’s Harvard speech evidences their fear that the success of such a program would mean their defeat.

23. There is reason to believe that the totalitarian forces have decided to engage in, and have already begun, a militant and concerted effort to subvert democratic governments before such a cooperative recovery program can get under way. They are hoping that the food and financial situation in Europe this winter will produce economic conditions sufficiently serious that they can be aggravated by aggressive communist actions to a point where the position of democratic governments in France and Italy can be made untenable and communist regimes installed.

24. It is believed that the campaign initiated by the USSR against individuals in the United States accusing them of “war mongering” may be designed to lay the necessary psychological foundation to cover militant action by the communists this winter and to reduce the efficacy of reaction by the U.S. to such action.

25. In Italy the communists have already declared open political warfare against the government and the forces of moderation. It is believed that they induced the recent strikes in part to discourage the United States from granting further aid. Unless the Italians acquire the dollar exchange necessary to cover minimum imports, particularly food and coal, it is probable that the resulting hunger and unemployment will enable the communists to gain a dominant if not controlling position in the government before the winter is over. The Italian government has already drastically curtailed imports, including coal, oil and other basic supplies.

26. In France the story is much the same and, although on the surface there is less turmoil, the situation is in fact as serious as in Italy. The French likewise have been forced to suspend dollar purchases except for limited quantities of food and fuel and a very few other essentials. In the absence of external aid, it is believed that even these limited purchases will have to stop during the fall months. Greatly increased social and political unrest is expected in France this winter. With extremists of the right and left contending for power, there is small hope of there being any degree of political stability in France unless financial aid is given. (In France there is a possibility that the forces of the extreme right, grouped around General de Gaulle, might temporarily seize power. But it is difficult to imagine this taking place without civil war.)

27. It should be borne in mind that if a totalitarian regime, particularly one of the left, obtains control of France, it will be very difficult for us to maintain our position in Germany.

28. On the other side of the ledger, there is every reason to believe that, if we give the people of western Europe timely and adequate financial aid and otherwise help them to meet their minimum requirements, the forces of totalitarianism can be defeated or greatly reduced in those countries. The great majority of the people are strongly opposed to totalitarianism. They want to fight for their freedom. But to have a chance of success during this critical winter, it is necessary that they be enabled, by further aid from us, to maintain the strength to withstand the militant communist campaign.

29. From the viewpoint of the vital interests of the United States, the principal issue in Europe today is whether or not it will be totalitarian. If the virus of totalitarianism spreads much farther, it will be almost impossible to prevent its engulfing all the [of] western Europe. This would mean communist totalitarianism almost everywhere on the continent with the iron curtain moving to the Atlantic.

30. In the event of a totalitarian Europe, our foreign policy would have to be completely re-oriented and a great part of what we have fought for and accomplished in the past would be lost. The change in the power relationships involved would force us to adopt drastic domestic measures and would inevitably require great and burdensome sacrifices on the part of our citizens. The maintenance of a much larger military establishment would undoubtedly be required. The sacrifices would not be simply material. With a totalitarian Europe which would have no regard for individual freedom, our spiritual loss would be incalculable.

1. This memorandum, filed among records of European Recovery Plan committees, presumably was prepared by the Advisory Steering Committee for the use of the President. The memorandum appears to be based on the ASC’s meeting of September 25.
2. Gold uncovered by Allied military forces at La Fortezza in northern Italy on May 6, 1945. For related information, see telegram 5466 of October 10, from London, p. 987.