Billion-Dollar Poker

Postwar Europe was like a medieval market town, trying to do business with 16 different kinds of money. Hungry Britain, the ironmonger and coal merchant, was earning more German marks than it knew what to do with, but not enough kroner to buy eggs and bacon from Farmer Denmark. Italy, the green grocer, was picking up all the guilders it could use by selling oranges to Holland, but couldn't buy steel from France because it didn't have enough French francs. Almost every nation's larder was empty of the food and manufactures which its next-door neighbor was anxious to sell at cut rates.

What Europe needed was a good local bank, to issue loans, cash IOUs and convert one man's lire into another man's pounds. Marshall Planner Paul G. Hoffman proposed the European Payments Union (EPU), to do two things: 1) "liberalize" European trade by curing its ancient plague of import quotas and exchange controls; 2) act as a central clearinghouse through which the 18 Marshall Plan countries could make all their trading payments. The U.S. put up $350 million to get the bank started; 18 members opened accounts, and EPU was in business, with a two-year lease on its premises.

Rules of the Game. EPU's billion-dollar monthly turnover resembles nothing so much as an all-night poker game. When the cards were dealt in 1950, every player had a tidy little stack of EPUnits (one unit equals $1), distributed according to size. Iceland was low man with $15 million; the vast sterling area, which was admitted as a single trading partner, got $1.06 billion. If any nation went into debt, its IOUs were good, at least at the beginning. But the rules of the game made it tough on reckless losers: the moreIOUs a nation wrote, the larger the proportion of its debts it would have to settle in gold or dollars, instead of in its local currency. A converse rule protected the bank from over-lucky winners: the more credits a nation piled up, the smaller percentage of its surplus could be cashed in gold.

Then the game began:

P: European trade perked up from $9.7 billion in 1950 to $13 billion in 1951.

P: EPU nations, coaxed by the U.S., agreed to "liberalize" their trade with one another by abolishing quotas and slashing exchange restrictions. At first EPU set a modest 60% as the proportion of each nation's trade to be freed. Today most nations, except Britain and France, have "liberalized" their commerce by 75%. Italy and Portugal are at 100%, i.e., free traders within EPU.

The Winners. But Korea upset the friendly game. Rearmament and worldwide inflation rocked the sterling area, sent French prices soaring, started a run on EPU's lending department. By last week, EPU's deficit with the dollar area was still a huge $3.7 billion. Equally alarming, the Payment Union itself was out of balance. Some IOUs (e.g., Belgian francs, Swedish kronor) proved "harder" than others, easier to convert into dollars. The richer nations grew richer, the poor got poorer. Richest of all were the Belgians and their trade partners, the Luxembourgers, who had piled up an unmanageable EPU surplus of $750 million.

Holding practically everybody else's IOUs, the Belgians are getting a little tired of the EPU game. They have been ostentatiously reaching for their coats with the astrakhan collars, and loudly announcing that with the game soon to be over ("We all agreed to a time limit, didn't we?"), the losers had better pay up.

The Losers. Biggest of the losers are Britain and France. France let inflation get out of hand, to the point where French prices once topped those of her neighbors by 20%. France lost $420 million in intra-European trade in two years.

Britain, after a promising start, was hit by a worldwide slump in raw material prices which sent the whole sterling area sliding downhill, from an EPU surplus of $726 million in April 1951 to a net cumulative loss of $860 million at last month's audit. Desperately, Chancellor of the Exchequer Rab Butler slashed Britain's trade "liberalization" from 90% to a worse-than-ever 46%.

Yet even to the losers, the advantages of playing in the EPU game far outweighed the drawbacks of going it alone. Last week 18 stockholder nations held a solemn board meeting in the Chateau de la Muette, onetime Paris home of Baron Henri de Rothschild. They decided unanimously that, win or lose, the game must go on, at least for another year. But medievalism in the European economy was proving abominably hard to get rid of.

This file is automatically generated by a robot program, so reader's discretion is required.