No. 69 NAI TSCH/3/S14106C
Memorandum for Government by the Department of External Affairs'Participation of Ireland in the European Recovery Programme: Method of Financing'
Dublin, 8 June 1948
- The Minister for External Affairs wishes to put before the Government the following observations with regard to the Department of Finance memorandum of the 8th June entitled 'Participation of Ireland in the European Recovery Programme: Method of Financing'.1
- In the Minister's opinion, the balance of the argument is strongly against making any move in present circumstances towards taking up the $10 million loan allotted to us in respect of the current quarter. More would be lost than gained by such a move. To accept the 100% loan allocation for the current quarter - in the absence of some definite indication of more favourable allocations in the future - would inevitably create doubts in the mind of the American officials with regard to the strength and sincerity of the attitude adopted by the delegation in the recent conversations. It would be taken as indicating that the Irish Government, having considered the report of the delegation, were prepared, faute de mieux,2 to accept 100% loan allocations; and it would be definitely damaging to our case to give the American authorities any warranty for such an assumption just at this stage. Moreover, our friends in the United States, who are working energetically to secure a more favourable allocation for Ireland in future quarters, would be greatly disconcerted by the news that the 100% loan allocation for the current quarter had been accepted.
- It is not clear that the advantages to be gained would be sufficiently great to offset these drawbacks. As is indicated in paragraph 3 of the Department of Finance memorandum, it is uncertain what proportion of the eight to ten million dollar net drawings in the current quarter could be brought within the scope of the approved programme and of the loan provision, if it were accepted. Even assuming the proportions were substantial, we should have to satisfy very elaborate and exacting documentary requirements in order to secure reimbursement out of the loan provision; and it is at least doubtful to what extent we could count on being able to do this. To sum up, what the Minister fears is that, by accepting the loan allocation for the current quarter, we should be sacrificing definite tactical advantages without any firm assurance of being able to secure commensurate benefits in the shape of dollar gains, either for ourselves or for the sterling area pool.
- The Department of Finance memorandum remarks that 'if we make no move towards accepting the loan in respect of the current quarter, it may be taken by the Americans as some sign of lack of co-operation in the work of E.R.P., thus reacting against our chances of more favourable treatment later on'. The Minister is satisfied that there is no force in this contention, and that American reactions to our non-acceptance of the 100% loan provision for the current quarter are likely to be helpful rather than otherwise. The Minister also questions the validity of the contention that 'the British would tend to regard our inactivity as showing indifference towards the need for easing the strain on the sterling area reserves at the present critical time'. The British must surely realise that the stand which we are taking on this issue is no less in the interest of the sterling area as a whole than it is of ourselves: That was frankly admitted by the Minister-Counsellor at the British Embassy at Washington (Mr. Frank Lee), who urged that we should 'hold out until the very eleventh hour'. The 'Financial Times' of the 2nd June announced that 'British officials had informed the E.C.A. that Britain could accept no dollars in the form of loans unless they were intended for self-repaying projects and not for consumption goods'. This corresponds closely to a line of argument adopted by the Minister during the recent talks in Washington. The acceptance of the 100% loan allocation for our current quarter's programme, by far the larger part of which consists of consumption goods, would cut right across this and could only weaken the position not only of ourselves but the British as well. The Minister has difficulty in believing that the British would wish to see so easy a surrender on our part of important positions of principle, merely for the purpose of securing a few million dollars for the sterling area pool in respect of the present quarter.
- From our own point of view, there are two important considerations to be borne in mind. However difficult it may be to justify the acceptance of dollar loan obligations in respect of future quarters, it will be doubly difficult to justify such a course in respect of the present quarter in view of the fact that, under the arrangement made last November, we are entitled to draw on the sterling area pool for our current dollar needs up to the 30th June. Secondly, if our non-utilization of the loan allocation has the disadvantage, from one point of view, of involving a drawing-down of the sterling area reserves, that very fact has the advantage of tending to ensure British support for our case in Washington - a point of by no means negligible importance.
- The foregoing considerations stand quite apart from the question whether, even if we did decide to accept the loan which we have been offered, the programme for the current quarter could be cleared with the American authorities, and the proposed loan agreement negotiated in the time available between this and the end of June. The Minister doubts whether this would be possible. In fact, there is every likelihood that an indication from us that we were now prepared to accept the loan offered for the current quarter would be met by the statement that it would not be possible to arrange anything in respect of the present quarter in the time available.
- The Minister agrees with the Minister for Finance, however, that we must proceed on the basis of continued participation in the European Recovery Programme and that the necessity for accepting some degree of loan liability in respect of future E.R.P. allocations must be faced. There is one point which might be considered by the Government in this connection. In the course of the Washington conversations, the suggestion was thrown out by an official of the E.C.A. (Mr. Chatfield Taylor)3 that arrangements might possibly be made under which the Irish Government's liability, under any dollar loans which it accepted, might be limited to a liability to repay in Irish currency. Having regard to the consideration mentioned in the Department of Finance memorandum that, owing to the difficulty of convertibility, E.R.P. loans may well end up as grants, the Minister feels that the suggestion made by the E.C.A. official should not be followed up on our side; and that, provided due safeguards can be secured against the consequences of devaluation, it is better that any E.R.P. loans accepted by us should be frankly dollar loans subject, as regards payment, to the condition of convertibility.
- The Minister for External Affairs has no objection to the method of financing proposed in paragraph 11 of the Department of Finance memorandum.4
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