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United States Department of State / Foreign relations of the United States, 1947. The British Commonwealth; Europe

Europe,   pp. 196-654 PDF (168.7 MB)

Page 230

reaching results, and where the overall cost was relatively small; and
that in other areas we should have to apply similar criteria.
840.50 Recovery/5-2747
Memorandum by the Under Secretary of State for Economic Affairs
                       THE EUROPEAN CRISIS
  1. It is now obvious that we grossly underestimated the destruction
to the European economy by the war. We understood the physical de-
struction, but we failed to take fully into account the effects of eco-
nomic dislocation on production-nationalization of industries, drastic
land reform, severance of long-standing commercial ties, disappearance
of private commercial firms through death or loss of capital, etc., etc.
  2. Europe is steadily deteriorating. The political position reflects
the economic. One political crisis after another merely denotes the
existence of grave economic distress. Millions of people in the cities
are slowly starving. More consumer's goods and restored confidence
in the local currency are absolutely essential if the peasant is again
to supply food in normal quantities to the cities. (French grain acreage
running 20-25% under prewar, collection of production very unsatis-
factory-much of the grain is fed to cattle. The modern system of di-
vision of labor has almost broken down in Europe.)
  3. Europe's current annual balance of payments deficit:
    UK ..                                          $21/4 billions
    France .....                                    13/4
    Italy ...1 /2
    US-UK Zone Germany        --.---.-.-----. 1-/2
                                                   $5   billions
not to mention the smaller countries.
  The above represents an absolute minimum standard of living. If
it should be lowered, there will be revolution.
  Only until the end of this year can England and France meet the
above deficits out of their fast dwindling reserves of gold and dollars.
Italy can't go that long.
'This memorandum was sent to Under Secretary Acheson on May 27, with
a chit reading, "If you approve the attached, I would like to discuss
it with the
Mr. Clayton had temporarily returned to Washington from Europe, where he
was attending, as head of the U.S. Delegation, the Second Session of the
Nations Preparatory Committee for an International Conference on Trade and
Employment at Geneva. In Europe since early April, the Under Secretary of
for Economic Affairs had been in frequent consultation with leaders of many
governments of Western Europe regarding the deterioration of their economies.

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