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Intra-European Payments Scheme

Volume 466: debated on Monday 4 July 1949

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(by Private Notice) asked the Chancellor of the Exchequer whether he can make a statement on the recent discussions in Paris.

I am glad to be able to tell the House that, as a result of the discussions which took place in Paris last week, agreement has now been reached on the principles of the Intra-European Payments Scheme for 1949–50.

We had proposed to the Consultative Committee at their meeting in May a scheme whereby there should be a big step forward in the direction of a wider and less restricted system of trade in Europe and a payments scheme which would match this extension of trade by making the credits granted under the Intra-European Payments Scheme freely transferable into any European currency. The condition of such a payments scheme was that Belgium should be put in a position to grant drawing rights and credits sufficient to cover the whole of her anticipated European surplus.

Agreement was reached in principle at the May meeting as to the removal of restrictions to European trade, subject to certain international obligations in the field of trade policy with countries outside Europe, and subject to a reservation that such development of European trade would not entail a cost to any of the participants in gold or dollars. My right hon. Friend the President of the Board of Trade will make an early statement as to the details of this scheme. The second reservation I have mentioned was closely connected with the question of covering the Belgian surplus and the form of the intra-European payments scheme.

It was not possible to arrive at an agreement on these latter matters in May, nor could any agreement be worked out at Paris by the experts, or later at the meeting which I attended at Brussels. These meetings, however, served to clarify the issues, and to limit the area of difference.

By the time of the Brussels meeting a proposal had been formulated whereby, to secure greater freedom of payments, 40 per cent. of the grants made by one country to another under the Payments Scheme should in future be freely transferable, that is to say, they could be used for payments not merely to the creditor making the grant, but to any other member of the Scheme. If they were so transferred, it was proposed that an equal amount of conditional aid dollars should be taken away from the original creditor and be transferred to the country with whom the credits were, in fact, spent. Part, also, of the grants was to be convertible, that is to say, could be turned into dollars and spent on American goods.

These grants of drawing rights under the Payments Scheme are based on estimates, made at the beginning of the year, of the balance of payments between the two countries concerned. These estimates can, by their very nature, be only approximate. Nevertheless, a part of the dollar aid which any country receives under E.R.P., equal to the amount of all the grants that it gives under the Payments Scheme, is known as "conditional aid," that is, it is not firmly or finally allocated until the credit has been taken up.

We took strong objection to this scheme for the transfer of conditional aid and the convertibility of drawing rights, because the country making grants, that is, the creditor country might well be open to the loss of dollars not because it had in any way failed to provide goods on which the grant could be spent but merely because the estimate on which those grants had been based was shown by the facts to be wrong.

But our major objection was one of principle, namely that such an arrangement would have a very restrictive effect upon European trade. The creditor countries would have had to cut down their grants in order to make sure that they were spent on their own goods; and, having made them, the creditor would restrict his purchases from the debtor country so that it would be short of the creditor's currency and thus be more certain to use up all the credit granted for purchases from the creditor. Indeed, it is obvious that the introduction of any further gold or dollar element into intra-European payments is bound to be restrictive in its effect on trade.

We further pointed out that, in the present condition of our gold and dollar reserves, it was not possible for us to accept any considerable risk of gold and dollar losses under the European Payments Scheme, and that if that Scheme were intended to expand and not to restrict trade the risk of loss must not be so great as to lead creditors to restrict trade in order to protect themselves from loss of dollars.

On the other hand, it was urged that an arrangement of this kind was essential if there was to be real freedom of competition in Europe, and that the grants would not in practice be freely transferred unless the dollar aid in return for which they were granted went with them.

As a result of the discussions at Brussels, it was agreed to eliminate the element of convertibility of any part of the credits into dollars, and progress was made towards working out an arrangement to cover the Belgian surplus. There remained to be dealt with at Paris the question of the transferability of European credits and conditional aid in the Intra-European Payments Scheme, and the completion of the arrangements as to the Belgian surplus.

M. Spaak, on behalf of Belgium, was most helpful, and as a result of his offer to grant a very considerable credit in Belgian francs, we were able to settle the matter of the Belgian surplus. There- after the problem of the transferability of conditional aid became easier of solution and, finally, the matter was agreed upon the following lines:

The making of any part of the grants convertible into dollars, as I have said, was dropped. It was further agreed that not more than 25 per cent. of the grants should be transferable. It is our hope that, by thus limiting the amount of conditional dollar aid which can change hands, we shall avoid any serious restrictive effect, since the risk for the countries taking part should be outweighed by the advantages which they will gain from expanding trade with their European partners in a more fully competitive system. It was also provided that the working of the Scheme should be kept under constant review. For instance, we should expect to see a revision of the grants made from time to time if it should be found that errors in the calculations had been made, or if such revision were necessary to avoid special hardship to any particular credits.

Belgium has a surplus in her trade in Europe which is calculated to be more than twice as large as her dollar deficit. Last year, the dollar aid given to her was limited to the amount of her dollar deficit, though more than four-fifths of it was conditional aid. In consequence, the counterpart of the conditional aid which was available for granting drawing rights to other countries was not large enough to cover her surplus in Europe. If this arrangement had continued this year, there would obviously have been a strong tendency for this gap to be filled by the use of transferable drawing rights granted by other creditors, with the result that they would have lost dollars to Belgium.

It was therefore agreed to increase the amount of dollar aid to be given to Belgium for the year 1949–50. She will receive 312½ million dollars, against an estimated dollar deficit with the Western Hemisphere of 200 million dollars. In return, she has agreed—in order to help to make a compromise possible—not only to make grants available to that amount, but also to extend long-term credits to some of her principal debtors amounting to 87½ million dollars.

The terms of these loans will be the same as those of the loans granted under the European Recovery Programme. In this way, Belgium's debtors, of whom we are one, should have enough of her currency to buy from her without loss of gold or dollars, and without being under strong pressure to use for that purpose the grants made to them by other countries.

As a further step to assist in the working of the scheme, the Belgians offered that grants should cease to be transferable to Belgium if at any time she should have received as much as 40 million dollars from other creditors as a result of such transfers.

This agreement, which I regard as a great achievement of European co-operation, will, I hope, serve to develop European trade and recovery. It could not have been reached except in a spirit of compromise and goodwill, and I should like to pay tribute to the part played in our discussions by my friends, M. Spaak, M. Petsche and Mr. Harriman, who helped so greatly in guiding the Council to their final decision.

Is the right hon. and learned Gentleman aware that we on this side of the House should like to support his last statement and express our appreciation of the initiative taken by the three gentlemen whom he has mentioned in the discussions which have just taken place? Further, is he aware that we sincerely value the reaching of an agreement upon the Intra-European Payments Scheme? In particular, may I ask when the President of the Board of Trade will make a statement upon what I might call the longer-term issue, that is, the freeing and widening of European trade? May I ask also whether he realises that we consider that the success of such an agreement as he made recently in Paris will be tested by its ultimate result in this wider purpose? Does he also realise that since, as I understand it, he is to make a broader statement later this week on the economic position, we do not desire to press questions about the effect on the economic situation in this country on the occasion of this statement today?

I am much obliged to the right hon. Gentleman for what he has said. I am sure that those to whom I expressed my gratitude will also be grateful to him for his expression of gratitude to them. I hope that the President of the Board of Trade will make a statement later this week. I am not quite certain when it can be, because they are discussing today in Paris in the Council at the official level a resolution which was sent from the Consultative Committee on the expansion of European trade. We shall have to await the end of that discussion before we can actually make a statement.

May I also add to what the Chancellor has said in thanking his colleagues for the way in which they helped in arriving at agreement, and also thank the right hon. and learned Gentleman himself for the part he played? We are very glad indeed that agreement has been arrived at, but we realise that the statement which he has made will require more time to consider in detail. While we realise that the President of the Board of Trade will be making a statement later, may I ask if it will be possible for the Chancellor himself, before this Session closes—and there are not many days to go now—to review the general economic position and provide time for the Debate upon that matter, because our position at present is one which certainly calls for a very frank and full statement and is causing a good deal of anxiety at the present moment?

I shall be making another statement on the broader issues in the course of this week, and any question of a Debate on that subject had better go through the usual channels.

Perhaps I may be allowed to say, in relation to what the right hon. and learned Gentleman has just said, that we do not intend to ask any questions today or until after Wednesday's statement, but it will be our intention to give some of our time to ensure a full discussion before the House rises.

While congratulating my right hon. and learned Friend on his firm stand taken in defence of this country's economic interests, may I ask whether, in considering any representations from the American or Belgian Governments for an extension of multilateral and competitive trade, he has drawn the attention of those Governments to the obligations which they assumed under the Havana Charter to maintain full employment in their countries?

I think that everybody who was present at the discussions which we had, which went on for a long time, is quite conscious of that.

May I ask the right hon. and learned Gentleman whether he would agree that our real difficulty in entering a competitive system in Europe is practical rather than technical; namely, the inroads on the competitive system at home as a result of which we are not producing enough goods at a price which people can pay?

I think that, broadly speaking, our prices are very competitive with other European prices, and we shall welcome a degree of competition being introduced into European trade, where it can well be tolerated under existing conditions and could stimulate some of our manufacturers to greater efforts.

May I ask the Chancellor whether, in view of the fact that this situation arose largely because of difficulties between estimated and actual trade, which is one of the major contributory causes of the very big leak of dollars that is occurring in the sterling area, the President of the Board of Trade, when he makes his statement later this week, will bring that very important factor into account?

That factor does not come into the consideration of these matters. We are considering intra-European payments, not dollar payments.

May I ask the Chancellor if he can explain a fact which puzzles many of us? Why is it that Belgium should be so prosperous and that we should be in such difficulties, and can the right hon. and learned Gentleman find out from M. Spaak the recipe for how to be prosperous though Socialist?

I am not quite sure that M. Spaak would not agree with me more than with some others.

Is my right hon. and learned Friend aware that everyone on this side of the House, and, I think, in the House as a whole, has every confidence in his great ability, thanks him very much for what he has done at Brussels, and wishes him well for the future in the difficult negotiations which he has to tackle?

May I express the hope that the Chancellor and the House will realise, after that long statement, which requires further consideration, that it is only a stop-gap and does not go to the root of the matter? Is he aware that we are faced with a similar crisis to that of 1931, and that the only remedy is to produce goods and services at world competitive prices or face starvation?