ECA Telegram Files, FRC Acc. No. 53A278, Paris Ecato: Telegram

The Administrator for Economic Cooperation (Hoffman) to the ECA Mission in France

confidential

Ecato 632. 1. We continue to hold to principle that French counterpart can be made available for investment expenditures provided total deficit all government operations is held within limits of counterpart and non-inflationary borrowing and provided inflationary pressures are effectively prevented from originating elsewhere. Considerable effort apparently still required to realize planned balance of Treasury operations, particularly in view of possible drop in revenue as result “disinflation.” Further cutting down of expenditures may be only course if Queuille has ruled out tax increases.

2. Have noted claim that credit restrictions imposed to check inflation are having undesirable deflationary influence. Appears to us at moment that relaxation in this field would be taken advantage of immediately and could mean disastrous resumption inflation.

3. On other hand, we do not feel wedded to detail of present regulations of bank credit. Present system apparently lays Bank of France open to considerable direct pressure from businesses and banks. You may want to explore possibility of improving system by introducing [Page 641] greater flexibility while maintaining intact present degree of credit restrictions.

4. In view of delicate balance between inflationary and deflationary forces and possible shift in situation, believe future counterpart releases should continue to be submitted Washington for decision.

5. If direct impact of improvement foreign balance on Treasury operations should appear to be interfering with vigorous prosecution of export drive, advise. This problem may warrant consideration in connection with later request for counterpart releases. Please comment. Under existing authority is Stabilization Fund able to borrow directly from Bank of France rather than from Treasury for purpose of accumulating foreign currency?1

6. You are authorized to release 25 billion francs for May for investment program. Please advise concerning press release text and timing.

7. Excellent analysis French financial situation in your Toeca counterpart series should be supplemented by review of developments in production, inventories, prices, employment and similar fields. Pass to OSR.

Hoffman
  1. In telegram Toeca 895, May 8, 5 p. m., the ECA Mission in France replied that the French inability under payments agreements to “accumulate at least part of increased foreign exchange earnings as working balance is more apt to be obstacle to vigorous prosecution of export drive. Sustained monetary policy and its final success are not in fact possible unless accumulation of working balances and reduction of credits under payments agreements are permitted. Purchases by Bank of France of foreign exchange also seems appropriate way to provide French economy with increased cash facilities and does not entail unfortunate relaxation of credit restrictions.” (ECA Telegram Files, FRC Acc. No. 53A278, Paris Toeca)