C. FRENCH ZONE—PROGRAM FOR 1949/50.

1. Consumption.

As in the case of the Bizone, the program for 1949/50 for the French Zone contemplates a substantial improvement in national income, in consumption levels and in industrial production.

The increase in the national income and the Gross National Product under the program would be about 15 percent. According to the plan, the increase of industrial output would be about 15 percent, while that of agricultural output may be somewhat lower because of the im- probability that weather conditions will be as favorable in 1949 as in 1948.

Consumption levels generally should improve. The plan contem-
plates an increase of the basic food ration to 1950 calories per day for
the normal consumer, representing an average distribution of rationed
food to all non-self-suppliers of about 2200 calories. Total food con-
sumption, including off-ration food for the non-farm population, would,
therefore, be about 2500 calories per day. This would represent an
increase of about 100 calories as compared with the present levels.

In the field of other consumer goods, marked improvement in dis-
tribution is expected. It is estimated, for example, that the availability
of textiles per capita will increase by 50 percent, shoes, by 25 percent,
paper and paper products by 31 percent, and that coal for domestic use
will double. This would still leave consumption levels far below prewar.

2. Production.

a. Agriculture.

Under the plan submitted by the French Zone Authorities, agricul-
tural acreage will be increased about 10 percent on an over-all basis.
It is probable, however, that crop yields per acre will fall under those of
the current year so that the total output will not be materially greater.

b. Industry.

In the field of manufacturing, the goal for the fiscal year 1949/50
has been set at 75 percent of 1936 as compared with 80 percent for the
Bizone. The target for the 1948/49 plan was 65 percent, consequently
the expected increase is about 15 percent. Actual production in October
1948 was slightly better than that forecast in the plan for 1948/49,
averaging 66 percent of 1936.

Among the specific increases in output planned are the following:

Production of iron and steel would rise from 150,000 tons in 1948/49
to 200,000 tons.

Production of raw hides would rise from 7,000 to 8,000 tons.

Production of textiles would be increased by 30 percent.

Output of electric power is estimated at 2,686 million kilowatt hours, an increase of about 10 percent over current levels.

c. Imports.

The total foreign exchange expenditures for the fiscal year 1949/50 proposed for the French Zone amount to $286 million, of which $25 mil-

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lion represents freight, $4 million miscellaneous expenses and $257 million commodities.

Estimated commodity imports for 1949/50 are compared with those programmed for 1948/49 in the following tabulation:

Table 12. French Zone Import Program—1949/50

(In million dollars)

<table><thead><tr><th></th><th>1947</th><th>1948/49</th><th>1949/50</th></tr></thead><tbody><tr><td>Total Foods</td><td>36.3</td><td>79.8</td><td>80.0</td></tr><tr><td>Bread grains</td><td>(30.1)</td><td>(37.2)</td><td>(38.7)</td></tr><tr><td>Coarse grains</td><td>(.9)</td><td>(.0)</td><td>(.0)</td></tr><tr><td>Fats & Oils</td><td>(1.9)</td><td>(10.0)</td><td>(8.0)</td></tr><tr><td>Other foods</td><td>(3.4)</td><td>(32.6)</td><td>(33.3)</td></tr><tr><td>Tobacco</td><td>0.0</td><td>3.5</td><td>4.8</td></tr><tr><td>Coal</td><td>0.0</td><td>7.0</td><td>0.0</td></tr><tr><td>Petroleum products</td><td>5.6</td><td>8.7</td><td>11.8</td></tr><tr><td>Crude</td><td>(0.0)</td><td>(0.6)</td><td>(0.6)</td></tr><tr><td>Refined</td><td>(5.6)</td><td>(8.1)</td><td>(11.2)</td></tr><tr><td>Minerals & metals</td><td>2.7</td><td>42.8</td><td>46.0</td></tr><tr><td>Equipment</td><td>0.0</td><td>24.0</td><td>27.1</td></tr><tr><td>Textile materials</td><td>6.8</td><td>24.0</td><td>34.3</td></tr><tr><td>All other products</td><td>23.3</td><td>38.9</td><td>52.6</td></tr><tr><td>TOTAL</td><td>74.9</td><td>228.8</td><td>256.6</td></tr></tbody></table>

Requirements for agricultural imports increase only slightly. It was assumed in the preparation of the program that improvement in the diet, both in quantity and quality, would be achieved largely by domestic production. However, the program calls for an actual decline in the value of fats and oil imports from $10 million in 1948/49 to $8 million in 1949/50, corresponding with a decline in quantity from 20,000 tons to 16,000 tons.

Imports of solid fuel are not programmed for 1949/50 whereas there was $7 million allowed for this purpose in 1948/49. It is assumed that the entire needs of the zone's economy will be met from the Bizone. During 1948/49 the French Zone imported some coal from the Saar. Under an agreement between the French Government and the Bizonal Authorities there was to be a progressive reduction in the shipment of Saar coal into the French Zone, while the Saar was being integrated into the economy of France. In practice, there will probably be substantial continued shipment of Saar coal to the French Zone for technical reasons (estimated at $84 million for fiscal 1949/50), balanced by equivalent shipments of Ruhr coal to France. The Ruhr shipments would be for the account of the French Zone, and payment arrangements between the French Zone and Bizone would be on an internal basis.

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Imports of petroleum products show an increase of about $3 million, the entire increase being for refined products, which constitute more than 95 percent of POL imports.

Imports of ores and metals are expected to rise about 10 percent with the largest proportionate increase being for copper, required in the manufacture of electrical equipment as well as for production of machinery.

Imports of textiles and textile raw materials are expected to rise from $24 million in the 1948/49 program to about $34 in the 1949/50 program. The bulk of this increase represents higher importation of raw wool.

Fertilizer imports will be reduced as a result of improved domestic production.

Imports of equipment will increase only slightly, rising from $24 million in 1948/49 to $27 million in 1949/50. About half of this total represents transportation equipment, principally the purchase of freight cars.

There is no significant change contemplated in the distribution of imports by sources. The imports from the Western Hemisphere are expected to comprise 40 percent of the total in 1949/50 as compared with 41 percent in 1948/49. Imports from other participating countries are expected to be 58 percent of the total in 1949/50 compared with 55 percent in 1948/49. Expected imports from other areas are small.

### d. Export Program.

Total commodity exports in 1949/50 are estimated at $173 million as compared with $143 million in 1948/49. The composition of the export programs in the two years are compared below:

Table 13. French Zone Export Program—1949/50
(In million dollars)

<table><thead><tr><th></th><th>1947</th><th>1948/49</th><th>1949/50</th></tr></thead><tbody><tr><td>Agricultural products</td><td>0.0</td><td>4.5</td><td>6.4</td></tr><tr><td>Solid fuels</td><td>0.0</td><td>0.0</td><td>0.0</td></tr><tr><td>Oils and petroleum products</td><td>0.0</td><td>0.0</td><td>0.0</td></tr><tr><td>Ores and metals</td><td>0.4</td><td>7.6</td><td>3.9</td></tr><tr><td>Machinery and equipment</td><td>7.6</td><td>20.7</td><td>17.1</td></tr><tr><td>Textile material and products</td><td>ª</td><td>6.9</td><td>12.0</td></tr><tr><td>Other goods</td><td>50.7</td><td>103.3</td><td>133.4</td></tr><tr><td>TOTAL</td><td>58.7</td><td>145.0</td><td>172.8</td></tr></tbody></table>

ª Included with other goods.

The most important increases will be in metal products, textiles, and leather products. Exports of lumber are expected to decline, reflecting the planned reduction in logging.

Under the plan, it is expected that there will be a substantial increase of exports to Western Hemisphere, which are shown rising from $7.5 million in 1948/9 to $12.5 million in 1949/50. The great bulk of the exports for 1949/50 would, however, continue to flow to other participating countries, especially France.

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### e. Balance of Payments.

Under the plan, presented by the French Zone, the total deficit for 1949/50 would be almost unchanged from 1948/9, rising from $100.8 million in the current fiscal year to $102.7 million next year.

The Western Hemisphere deficit would also remain almost the same, amounting to $100.4 million compared to $97.8 million in the 1948/9 plan. It is expected that the French Zone will have a debit balance with the sterling area of $14 million, and a credit balance with all other participants of about $16 million. Trade with the non-participating Sterling Area would be about in balance, while trade with all other countries shows a deficit of about $4 million. The plan contemplates that the $4 million deficit with "other non-participating" countries will be covered by a $4 million surplus on trade in Switzerland. This would leave total trade with all participating countries showing a deficit of about $2.6 million, which would have to be covered by drawing rights. The balance of payments as estimated by the French Zone Authorities is shown in Table 14.

Table 14. French Zone Program Submission
Balance of Payments—1949/50—All Currencies
(In million dollars)

<table><thead><tr><th rowspan="2"></th><th colspan="5">Non-participating countries</th><th colspan="2">Participating countries</th><th rowspan="2">Total</th></tr><tr><th>U.S.A.</th><th>Canada and Newfoundland</th><th>OWH</th><th>Sterling area</th><th>Other</th><th>Sterling area</th><th>Other</th></tr></thead><tbody><tr><td>I. Expenditure</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Imports F.O.B.</td><td>72.4</td><td>5.2</td><td>19.8</td><td>1.6</td><td>5.7</td><td>14.1</td><td>137.7</td><td>256.6</td></tr><tr><td>Transport</td><td>11.4</td><td>0.8</td><td>3.3</td><td>0.2</td><td>0.9</td><td>2.0</td><td>6.0</td><td>24.6</td></tr><tr><td>Tourism</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.2</td><td>0.2</td></tr><tr><td>Emigrants remittances</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>1.1</td><td>1.1</td></tr><tr><td>Other expenditure</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>3.1</td><td>3.1</td></tr><tr><td>Total</td><td>83.8</td><td>6.0</td><td>23.1</td><td>1.8</td><td>6.6</td><td>16.1</td><td>148.1</td><td>285.5</td></tr><tr><td>II. Receipts</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Exports and re-imports F.O.B.</td><td>5.0</td><td>0.5</td><td>7.0</td><td>2.0</td><td>2.5</td><td>2.0</td><td>153.9</td><td>172.9</td></tr><tr><td>Transport</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>1.3</td><td>1.3</td></tr><tr><td>Tourism</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.3</td><td>0.3</td></tr><tr><td>Emigrants remittances</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>1.0</td><td>1.0</td></tr><tr><td>Other Recepits</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>0.0</td><td>7.4</td><td>7.4</td></tr><tr><td>Total</td><td>5.0</td><td>0.5</td><td>7.0</td><td>2.0</td><td>2.5</td><td>2.0</td><td>163.9</td><td>182.9</td></tr><tr><td>DEBIT BALANCE</td><td>78.8</td><td>5.5</td><td>16.1</td><td></td><td>4.1</td><td>14.1</td><td></td><td>102.6</td></tr><tr><td>CREDIT BALANCE</td><td></td><td></td><td></td><td>0.2</td><td></td><td></td><td>15.8</td><td></td></tr></tbody></table>

## D. CRITIQUE.

### 1. Bizonal Plan.

#### a. Production Targets.

The Bizonal Program for 1949/50 was prepared before there had been adequate opportunity to assess the full impact of the economic upturn, which started in July. The extent of recovery has substantially

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exceeded expectation in many fields and as a result many of the objectives which have been set already appear low. The goal established for general industrial production under the program was 80 percent of 1936; this was stated to be an increase of 20 percent over 1948/49. In fact, production by December 1948 reached 78 percent of 1946 and should readily reach 80 percent before the beginning of the next fiscal year. For the period as a whole, therefore, an average production target of 90 percent of 1936 would appear to be a minimum objective.

Production targets for the several segments of industry should also be raised in the light of past performance. For example, coal output in the Ruhr-Aachen area has already crossed 330,000 tons per day; an increase of less than 10 percent would raise the level to 360,000 tons instead of 343,000 tons as shown in the plan. The greater coal availability would, in turn, permit steel output to push up more rapidly—possibly to an average of 10 million tons for the fiscal year instead of nine million tons as now programmed.

The target for the mechanical and electrical engineering industries is set at 77 percent of 1936 in the program, whereas actual output in November 1948 for these two branches of industries was 99 percent. The level for 1949/50 should therefore exceed pre-war.

Vehicle production in the program is intended to reach 52 percent of the 1936 rate, whereas the level in December was 69 percent. Here again a substantial increase seems in order.

It should be emphasized that these suggested increases in targets reflect experience accumulated largely after the program was prepared by the Bizonal Authorities. The picture has changed sufficiently, however, to warrant such a revision in objectives.

In such a revision, moreover, consideration should also be given to the possibility that considerably higher levels of efficiency in utilization of materials, power and labor should be achieved. In the case of coal, particularly, the assumptions used in calculating requirements appear unduly pessimistic from the point of fuel efficiency. It may be noted that in the 1948/9 program it was stated that the supply of coal would probably be inadequate to support the level of industry then assumed, which was only 62 percent of 1936. Actually there is at present sufficient coal to support production at a rate 20 percent higher than had been assumed in the original plan, including a rate of steel production more than 1 million tons a year greater. While it is true that coal production has also exceeded expectations and that shipments to Berlin are far below schedule because of the blockade, the principal reason for the marked improvement in the situation is better fuel efficiency. The amount of wastage of coal declined sharply after the introduction of currency reform.

Similarly, there should be some improvement in the utilization of electric power.

### b. Exports.

The commodity export program of $1,008 million may also have been underestimated in the light of recent experience. Increase in the out-

96

put of coal, for example, would automatically result in a proportionate
increase in coal exports, amounting to about $15 to $20 million. Exports
of industrial products, such as machinery and chemicals, should also
be revised upward in line with the increasing level of production.

Exports have been running ahead of schedule in the current fiscal
year. In December they reached 72 million (including invisibles) or an
annual rate of about $864 million. This is about $120 million more than
the rate originally programmed.

On the other hand, it must be recognized that too sharp an increase
in exports would not be desirable since it would deprive the Bizone of
commodities urgently needed for internal industrial expansion or indi-
vidual consumption and would, therefore, retard the rate of recovery.

One source of foreign exchange which would not have such an effect
would be income from tourist travel. The level set for 1949/50 is $15
million from this source. It may prove difficult to exceed this figure
substantially during 1949/50 since promotion of tourist trade would
require considerable initial investment in facilities of all kinds, includ-
ing transport. However, such an investment would probably prove very
productive, and might well bear fruit before the middle of 1950. It
would appear urgent that the necessary steps be taken to get the pro-
gram under way as rapidly as possible.

In summary, some increase in the export program would appear feasible, but too large an increase would probably be undesirable. Taking into account the almost certain increase in coal exports and a moderate increase in other items, a level of $1,094¹ million for commodity exports and $1,190 million for total current receipts does not appear excessive.

### c. Consumption Levels and Imports.

Present dietary standards in Western Germany remain significantly
below the level required to sustain a healthy, efficient industrial popula-
tion. The average food intake of the non-farm inhabitants is about
15 percent under pre-war. Some increase should be provided during
the next fiscal year if the desired improvement in industrial perform-
ance is to be realized. It is believed that average food consumption
during 1949/50 should be raised at least 100 calories to a level of about
2550 to 2600 calories for the average non-self-supplier, including off-
ration consumption. This would correspond to an average for the
population as a whole, including self-suppliers, of about 2650 to 2700
calories, or an improvement of about five percent over present levels.
Any lower target would be self-defeating and would hamper rather
than promote recovery.

Taking this into account, the Bizonal food import requirement
has been revised upward by the Department of the Army and the
ECA. At the same time, minor reductions appear necessary in a few
industrial items, such as copper, whose availability is restricted. The
net increase in the total import program, as estimated by ECA, is about
$40 million over the original Bizonal program submission.

¹ These figures exclude about $43 million of additional coal exports which represent an interchange of qualities with the UK and other participants, and are not included in either imports or exports in the programs submitted by the Bizone. They also exclude coal shipped from the Bizone to France in exchange for equivalent shipments of Saar coal to the French zone.

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d. Balance of Payments.

On the basis of these estimated changes, the Bizone would show a net
deficit on current account of $869 million (allowing for a $70 million
sterling contribution from the United Kingdom Treasury). Every pos-
sible effort has been made by the ECA in cooperation with the Depart-
ment of the Army and the Department of Agriculture to shift as much
of this deficit as possible from dollar to non-dollar sources. For example,
plans have recently been developed for purchasing more food from East-
ern Europe than had previously been contemplated and paying for such
food from the proceeds of exports which could not be marketed in the
Western Hemisphere. On the other hand, review of the program as
initially submitted by the Bizonal Authorities indicated that their as-
sumptions with respect to the availability of food and raw materials
from other participating nations, were too optimistic. Moreover, in ad-
dition to its Western Hemisphere deficit, the Bizone will also incur a
dollar deficit of about $20 million on trade with the Philippines. Con-
sequently, it is estimated that the dollar deficit confronting the Bizone
during the year 1949/50 will be about $10 million greater than that orig-
inally forecast by Bizonal Authorities, or about $922 million for fiscal
1949/50.

While the dollar deficit has been increased, the latest estimates of
the Department of the Army set probable GARIOA aid to the Bizone
at only $477 million, or $63 million under the original estimate. It was
not believed possible to increase estimated ECA aid to more than $404
million, sufficient to make up only part of this difference. This would
make total estimated dollar aid to the Bizone $881 million, and leave an
uncovered deficit of $41 million.

The Bizonal Authorities are, at present, studying various ways of
making up this deficit. In the first place, it is believed that a further
increase of imports to the Western Hemisphere, above the levels now
programmed, may be achieved as a result of trade negotiations now
in progress with several South American countries. It may also prove
possible to shift some food purchases now planned for the Western
Hemisphere to Eastern European countries, if availabilities permit. It
would be possible, also, to finance part of this deficit by drawing down
the dollar resources of the Joint Export-Import Agency, which amounted
to about $120 million as of January 1, 1949. However, this surplus in
the JEIA account was due in considerable part to the temporary decline
in imports, the reasons for which have been described in preceding
chapters. Moreover, it is essential for a country, such as the Bizone,
which has lost all its foreign assets as a result of the War, to build up
some reserves for the future. Nevertheless, in view of the sharp reduc-
tion in GARIOA funds, some financing out of JEIA resources may prove
necessary and the Bizonal authorities are considering this possibility.

Even though this estimated aid would not fully meet the Bizone's
dollar requirement, the Bizone should be able to increase its exports of
essential goods to other participating countries substantially during
1949/50. Many of these would otherwise have to be obtained in the
Western Hemisphere. It is not possible to determine at this stage the

98

size of the surplus which the Bizone should be able to develop with
other participating nations outside the Sterling Area; this will depend
principally upon the volume of exports which can actually be realized.
However, it should be possible for the Bizone to develop a trading sur-
plus with other participants that would permit it to grant very substan-
tial drawing rights.

2. French Zone.

a. Production and Consumption Objectives.

Review of the program for the French Zone suggests that, in the effort
to hold requested aid to a minimum, the crucial objective of prompt
recovery may not have been accorded sufficient emphasis. The fact that
the economy of the French Zone has lagged somewhat behind that of
the Bizone makes it necessary that progress from now on be accelerated.
It would be impossible, in fact, to maintain any substantial difference
in consumption and production levels between the two areas. Consec-
quently, if the French Zone is not brought up to the Bizonal level
promptly, there would almost certainly be a flow of resources from the
Bizone into the French Zone, which would have the effect of retarding
Bizonal progress.

Moreover, a large part of the industry in the two zones is comple-
mentary in character; for example, plants in the French Zone can
supply a wide range of machinery parts and fine equipment such as
camera shutters to factories in the Bizone. The huge French Zone
chemical plants, in and near Ludwigshafen, are, in fact, part of the
same industrial complex as the plants across the Rhine in the American
Zone.

Under the circumstances, it would appear necessary to take such steps
as may be required to raise consumption levels in the two areas to
approximate parity and to accelerate the recovery of manufacturing
output in the French Zone.

With respect to consumption, it would appear especially desirable to
improve the quality of diet. The proposed reduction in the rate of im-
portation of fats and oils would be very unfortunate. It is believed that
the imports of fats and oils should be increased over the levels of the
current year rather than cut.

More generally, the French Zone food import program is based upon
the assumption that domestic supply will be 10 percent better than in
1948/49; this would be dependent, however, upon weather conditions
being more favorable than normal. In view of the issues at stake, it
would appear desirable to proceed on the basis of more conservative
assumptions and to program food imports somewhat higher.

In the field of industry, the French Zone program shows a general
level of production at 75 percent of 1936 as compared with 80 percent
in the Bizonal program and with probable Bizonal performance at
between 85 percent and 90 percent of 1936. The French Zone target
should be revised at least to the level in the original Bizonal plan, that
is 80 percent, and imports should be programmed on the basis of this
assumption. Particular emphasis should be devoted to increased ma-

99

machinery production which, in October 1948, was only 45 percent of the 1936 level. In the same month, the index for machinery (excluding electrical) in the U. S. Zone was 65; in December it reached 74. Production in the electrical equipment industry in the French Zone in October 1948 was 80 percent of 1936; in the Bizone it was 142 percent. Increases in the French Zone output in these industries would require imports of non-ferrous ores and metals, especially copper. The French Zone has substantial textile and leather industries whose current rate of operation is far below that of the corresponding industries in the Bizone. For example, in October 1948, textile production in the Bizone was 67 percent of 1936; in the French Zone 48 percent. Leather output in the Bizone was 64 percent of 1936; in the French Zone 48 percent. Larger importation of hides and skins, textiles and raw materials into the French Zone seems warranted. Table 15 compares production levels in the two areas during October 1948.

At the same time, French Zone plants are in considerable need of equipment for repair, replacement and modernization. However, large imports from abroad in these categories do not appear warranted; they should be obtained largely from production within Western Germany. While it may be desirable to augment imports of certain types of equipment beyond the levels scheduled, it is probable that other types now in the program could be obtained within the Bizone.

In summary, the import program for the French Zone should be revised upward substantially. An over-all increase of about $15 million—or about six percent above the programmed level—would be the minimum required to promote recovery.

Table 15. Comparison of Industrial Production Levels
Bizone & French Zone
October—1948

<table><thead><tr><th></th><th colspan="2">Index Numbers 1936 = 100</th></tr><tr><th></th><th>BIZONE</th><th>FRENCH ZONE</th></tr></thead><tbody><tr><td>All Industry</td><td>74</td><td>66</td></tr><tr><td>Mining</td><td>90</td><td>72</td></tr><tr><td>Iron and steel production</td><td>51</td><td>32</td></tr><tr><td>Non-ferrous metals</td><td>66</td><td>40</td></tr><tr><td>Machinery</td><td>65</td><td>45</td></tr><tr><td>Vehicles</td><td>58</td><td>25</td></tr><tr><td>Electrical equipment</td><td>142</td><td>80</td></tr><tr><td>Stones and earths</td><td>90</td><td>85</td></tr><tr><td>Glass and ceramics</td><td>99</td><td>n.a.</td></tr><tr><td>Glass</td><td>n.a.</td><td>92</td></tr><tr><td>Ceramics</td><td>n.a.</td><td>78</td></tr><tr><td>Chemicals</td><td>72</td><td>93</td></tr><tr><td>Rubber</td><td>99</td><td>89</td></tr><tr><td>Sawmills and woodworking</td><td>72</td><td>78</td></tr><tr><td>Paper and products</td><td>67</td><td>72</td></tr><tr><td>Textiles and clothing</td><td>67</td><td>48</td></tr><tr><td>Gas and electricity</td><td>132</td><td>n.a.</td></tr><tr><td>Gas</td><td>n.a.</td><td>117</td></tr><tr><td>Electricity</td><td>n.a.</td><td>98</td></tr></tbody></table>

100

b. Exports.

On the export side, it is very doubtful that any net gain to the recovery program would be achieved by raising French Zone exports above the level planned. It is essential that there be retained within the area the resources needed for its further progress. Moreover, French Zone exports have been maintained at what is probably too high a level for the past three years, with resulting depletion of resources.

This would mean that the net balance-of-payments deficit of the French Zone would be increased by about $15 million to about $115 million. This would be about $22 per capita, or about the same as for the Bizone. In other words, the distribution of total aid to Western Germany (including GARIOA) would then be divided between the Bizone and French Zone roughly in proportion to their respective populations. Since the two areas will form an economic unit, this ratio of distribution appears reasonable.

It should be emphasized in this connection that the program as submitted was prepared by the Authorities for the French Zone on the basis of a rigid interpretation of the OEEC instructions that every effort should be made to avoid presenting a request for aid for 1949/50 in excess for that of 1948/9. As a result the program as submitted is more nearly a relief than a recovery program. The rate of improvement envisaged in the program as submitted would leave the French Zone as a drag upon the Western Germany economy as a whole, and would be likely to delay the achievement of a self-supporting status for the whole area. The French Zone Authorities responsible for preparing the program confirm the conclusion that a moderately larger amount of aid during 1949/50 would accelerate recovery substantially and would probably reduce the need for extraordinary assistance in subsequent years.

c. Balance of Payments.

As in the case of the Bizone, it has not proved possible to achieve a net shift of imports from dollar to non-dollar sources, nor to plan upon an increase of exports to the Western Hemisphere. Transfer of certain imports, such as fats and oils, from the Western Hemisphere to Europe are more than balanced by the need to shift the sources of other items, such as grain, from other participating nations to the United States and other American countries. Consequently, the entire estimated deficit of $115 million represents a dollar charge, which would have to be met through ECA assistance.

E. SUMMARY AND RECOMMENDATIONS.

In summary, it seems clear that both the Bizone and the French Zone are in urgent need of continued extraordinary aid during the fiscal year 1949/50. Without such aid their economies would collapse.

With the assistance of this aid, Western Germany should be able to make substantial further strides towards recovery during 1949/50. It should, in fact, be able to exceed by a substantial margin the industrial

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production targets set forth in the programs submitted for the two areas. With recovery in production and exports, moreover, Western Germany should be able to provide a significant contribution toward general European recovery.

In order to ensure the greatest degree of progress and the most effective utilization of the aid to be provided, it is essential that closer coordination be achieved between the programs for the Bizone and the French Zone. In no other way can maximum use be made of mutually available resources. If it is impracticable to establish a single program, there should be two closely coordinated programs, indicating the manner in which resources can and will be integrated. These should include agreement upon approximately equal consumption levels in both areas and at least an approach to equivalent production objectives. This program or programs should incorporate the higher production and export objectives which have been outlined.

The total amount of dollar aid which has been estimated for Western Germany amounts to about $996 million. Of this total, $477 million would be covered by direct appropriation to the Department of the Army for the Bizone, leaving the ECA aid requirement for Western Germany at $519 million. The estimated distribution of this amount of aid as between the Bizone and French Zone is tentative and any final decision would necessarily have to await submission of coordinated programs which would permit a better appraisal of the most effective distribution of both dollars and commodities as between the Bizone and the French Zone.

Tables 16 and 17 summarize the estimated balance-of-payments positions of the Bizone and French Zone respectively on the basis of these recommendations.

Table 16. BIZONE.
Illustrative Balance of Payments for 1949/50 (ECA Estimate)
(In millions of dollars)

<table><thead><tr><th></th><th>U.S.</th><th>Dollar Account<br>Other</th><th>Total</th><th>Non-Dollar<br>Account</th><th>Grand<br>Total</th></tr></thead><tbody><tr><td>1. Imports</td><td>755.2</td><td>207.7</td><td>962.9</td><td>931.7</td><td>1894.6</td></tr><tr><td>2. Exports</td><td>48.7</td><td>51.1</td><td>99.8</td><td>1036.5</td><td>1136.3</td></tr><tr><td>3. Merchandise balance</td><td>-706.5</td><td>-156.6</td><td>-863.1</td><td>+104.8</td><td>-758.3</td></tr><tr><td>4. Invisibles (net)</td><td>-83.0</td><td>-2.4</td><td>-85.4</td><td>-25.7 <sup>a</sup></td><td>-111.1</td></tr><tr><td>5. Current account balance</td><td>-789.5</td><td>-159.0</td><td>-948.5</td><td>+ 79.1</td><td>-869.4</td></tr><tr><td>6. Settlements</td><td>0.0</td><td>+ 6.5</td><td>+ 6.5</td><td></td><td></td></tr><tr><td>7. Capital transactions</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;a. Non-ECA financing</td><td>+ 20.0</td><td>0.0</td><td>+ 20.0</td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;b. Repayments</td><td>0.0</td><td>0.0</td><td>0.0</td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;c. Other (GARIOA)</td><td>+476.6</td><td>0.0</td><td>+476.6</td><td></td><td></td></tr><tr><td>8. Net Position</td><td>-292.9</td><td>-152.5</td><td>-445.4</td><td></td><td></td></tr><tr><td>9. Est. requirements for<br>ECA aid</td><td></td><td></td><td>404.0</td><td></td><td></td></tr><tr><td>10. Uncovered deficit</td><td></td><td></td><td>41.4</td><td></td><td></td></tr></tbody></table>

<sup>a</sup> This takes account of the estimated U.K. contribution of $70 million to the Bizone.

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Table 17. FRENCH ZONE.

<table><thead><tr><th></th><th>U.S.</th><th>Dollar Account<br>Other</th><th>Total</th><th>Non-Dollar<br>Account</th><th>Grand<br>Total</th></tr></thead><tbody><tr><td>1. Imports</td><td>86.3</td><td>26.9</td><td>113.2</td><td>235.3</td><td>348.5</td></tr><tr><td>2. Exports</td><td>5.0</td><td>12.0</td><td>17.0</td><td>239.6</td><td>256.6</td></tr><tr><td>3. Merchandise</td><td>- 81.3</td><td>- 14.9</td><td>- 96.2</td><td>+ 4.3</td><td>- 91.9</td></tr><tr><td>4. Invisibles (net)</td><td>- 15.0</td><td>- 4.0</td><td>- 19.0</td><td>- 4.5</td><td>- 23.5</td></tr><tr><td>5. Current account balance</td><td>- 96.3</td><td>- 18.9</td><td>-115.2</td><td>- 0.2</td><td>-115.4</td></tr><tr><td>6. Settlements</td><td>0.0</td><td>0.0</td><td>0.0</td><td></td><td></td></tr><tr><td>7. Capital transactions</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;a. Non-ECA financing</td><td>0.0</td><td>0.0</td><td>0.0</td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;b. Repayments</td><td>0.0</td><td>0.0</td><td>0.0</td><td></td><td></td></tr><tr><td>&nbsp;&nbsp;&nbsp;&nbsp;c. Other</td><td>0.0</td><td>0.0</td><td>0.0</td><td></td><td></td></tr><tr><td>8. Net position</td><td>- 96.3</td><td>- 18.9</td><td>-115.2</td><td></td><td></td></tr><tr><td>9. Est. requirements for<br>U.S. aid</td><td></td><td></td><td>115.0</td><td></td><td></td></tr></tbody></table>

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