Foreign Relations of the United States, 1948, Western Europe, Volume III

840.50 Recovery/1–2348: Telegram

The Chargé in the United Kingdom (Gallman) to the Secretary of State

secret
us urgent

London, January 28, 1948—7 p. m.

340. Deptel 244, January 24, 2 p. m.¹ Hypothetical postponement ERP discussed with Clarke² Treas. chairman Brit Gov’t Committee on ERP who referred problem immediately Cripps³ and today handed us secret memo considered Brit position. Text by airmail.⁴ Discussion with Clarke confirmed by tone of memo indicates Brit feel their position increasingly serious and urgent need ERP aid equals need France, Italy.

Memo bases argument on reserve position emphasizing reserves support whole sterling area and importance strong reserves magnified by franc devaluation especially if other countries follow French example. Calculation presented which Emb agrees estimates balance reserves June 30 £450 million substantially below £500 million always regarded as minimum. Calculation includes South African loan planned to last three years. Does not include possible drawings IMF £20 million and possibility minor drawings by Dominions. Clarke indicated no possibility refunding RFC loan due unavailability funds Export-Import Bank. No other credit possibilities exist.

Memo estimates drain on reserves first half 1948 £225 million and in second half rather less than £100 million quarterly. Possibility that drain second half not fully covered by ERP aid very relevant to level of reserves required June 30.

“If ERP assistance were available from April 1, even though no payments could be made until July and if it were recognized that we could use some or all of amounts accruing April–June to rebuild our reserves we should then be in position to expend our reserves during those three months with assurance that they could be restored when funds available. If this not possible or if scale and form ERP assistance likely to be inadequate to cover drain on our reserves we shall be driven take further steps to protect our reserve position. The uncertainties of the situation create great difficulties for all contractual arrangements.”

In absence alternative credit possibilities memo suggests possible protective measures:

1) Reduction fat rations and maintenance other rations at low level otherwise increased. Meat ration depends on Argentine negotiations subject breakdown if dollars not available and no allowance made for dollars to Argentina in reserve calculation;

2) Diversion coal to Argentina at expense Europe;

3) Reduction petroleum from Brit sources to soft currency countries (France) in order reduce purchases from US.

Memo emphasizes quantitative savings reduction dollar food imports no longer large and main burden any further cutting bound fall on raw materials which would inevitably reduce production. Imports now at minimum insufficient allow for acquisition pipeline stocks facilitating smooth production. Raw materials from dollar sources enter into wide variety essential uses. Any interference with supplies would have cumulative extremely serious results. If unemployment developed as result shortages bound to be industrial unrest and impact on morale and production effort serious.

Import program from Canada particularly difficult arrangements expire Mar. 31 in anticipation ERP. UK cannot pay additional dollars Canada unless subsequently replaced in reserves. Program involves wheat, livestock products, essential raw materials, especially non-ferrous metals and disruption supplies would have drastic effects on both food and raw material position which particularly serious in view UK potato shortage. Delay in ERP will present both UK and Canada with extreme difficulties in making arrangements after Mar. 31. Disruption supplies from Canada would reduce living standards well below those regarded as minimum upon which effective production can be maintained. Clarke mentioned that US action to supply dollars to Canada would be most helpful.

Discussion with Clarke indicated UK concern over US program off-shore purchases particularly Canada and Argentina in connection food supplies which as general rule are determined by major bargains rather than general trade relationships. UK not now buying food in US.

Discussion also indicated serious shortages non-ferrous metals, steel and timber and Clarke emphasized importance to production of long list smaller items obtainable only from US against dollars. Many of these key materials absence of which would hamper production seriously.

General picture is, 1) Brit uncertainty re timing ERP which affects decision risk reserves; 2) planning of quantities values seriously compromised by uncertainties re size ERP; 3) uncertainty re off-shore purchases.

Emb unable develop opinion on extent and timing of assistance needed avoid consequences postponement ERP and no piecemeal approach seems possible. Main problem is early elimination of uncertainties indicated above and particularly assurance that if Brit risk their reserves they can be replenished promptly and fully.

Emb assumes question political stability not directed UK.

Gallman

1. Not printed; it was the copy received in London of a circular telegram to various American missions requesting an appraisal of the possible economic and political consequences of a delay until July 1, 1948, of assistance under the European Recovery Program (840.50 Recovery/1–2448).
2. Richard W. B. Clarke, Under-Secretary of the British Treasury.
3. Sir Stafford Cripps, Chancellor of the Exchequer.
4. Not printed.