"The Swiss Are For It"

A bright new gleam was discernible last week in the usually worried eyes of Marshall Plan economists at ECA's Paris headquarters. To the alphabetic array of international agencies they had just added a bright new set of initials: EPU (European Payments Union). The letters spelled good news for the West--for the Italian farmer who needed a new plow, the Dutch exporter with round red cheeses to sell, the Birmingham housewife in her shopping queue, and for the U.S. citizen with income tax to worry about. EPU should go a long way toward freeing Western Europe's trade of its plaguing mass of restrictions, making its economy increasingly independent of U.S. dollars. Said one ECAdviser: "I really feel we have something awfully big here."

Shop Where You Please. Most Marshall Plan countries do business with each other through a maze of cumbersome two-way trade agreements and currency controls. EPU will sweep away much of this clutter. It will be a clearinghouse through which the member countries will make all their trading payments.

A buyer of goods will simply owe EPU the purchase price; EPU in turn will owe a corresponding amount to the seller. At regular intervals, credits will be offset against debits and accounts settled. If a nation emerges with a net credit, i.e., if it has sold more goods than it bought, EPU will pay out part of the sum in gold or dollars, will continue to carry the rest in credits. If a nation emerges with a net debit, i.e., has bought more goods than it has sold, it will pay part of the debt to EPU in its own currency, part of it in precious dollars or gold. This provision is to keep nations from living beyond their means and getting too deeply into debt to EPU. In the long run, ECA hopes, most nations will strike a fairly even trade balance. To get it started, ECA has earmarked $600 million for EPU.

Under the old OEEC payments plan, if an Italian businessman wanted to import some new plows to sell to the Italian farmer, he first had to see what kind of currency the Italian treasury had on hand. If the treasury happened to have a pile of French francs, the businessman had to buy French plows. If he decided that Belgian plows were better or cheaper, the treasury could not let him buy them because it was short of Belgian francs.

Helping the Family. Under the new EPU scheme, the Italian businessman will be able to shop for the plows where he pleases. The Birmingham housewife will be able to buy Swiss cheese, now virtually unattainable to her because her government is short of Swiss francs. Under EPU, more than half the world's trade will be moved by currencies freely interchangeable from Sydney and Singapore to Brussels and Stockholm.

When the U.S. developed the EPU plan last January, most Western European nations thought that it was fine. But the British were afraid that if they joined the scheme, their dollar and gold reserves--which they hold as bankers for the entire sterling area--would be drained off quickly, by countries wanting dollars in exchange for pounds they had earned in trade with sterling countries. The British were also afraid that under the EPU scheme the pound sterling would lose further ground as an international exchange medium, and that, as a result, London would lose a lot of profitable banking business.

By last week, both fears had been allayed. For months, bright Hugh Gaitskell, Britain's Minister of State for Economic Affairs, had carried on delicate negotiations. Observers guessed that Gaitskell was inching toward agreement with the continental nations when his mentor, Sir Stafford Cripps, gradually withdrew from the talks and went off on a vacation. Gaitskell and his OEEC colleagues finally worked out a scheme to save Britain from an excessive dollar drain. It agreed to admit not merely Britain but the entire sterling area to EPU, and to provide special safeguards against a run on Britain's dollar reserves; e.g., member nations may not demand dollars in exchange for "old sterling" earned before July 1950. Meanwhile, other events helped to calm British anxiety about the status of the pound sterling. Gradually, as a result of last year's devaluation, Britain's trading position improved, her dollar reserves rose.

EPU will open for business July 1. Said ECA's Milton Katz, who carried the ball for the U.S. in the EPU negotiations: "This will help the European family be a family." An OEEC official had an even higher tribute. Referring to Europe's toughest traders, who have so far stayed aloof from most international schemes, he said: "Even the Swiss are for it."

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