Redressing the Balance

From Washington this week two grimly determined men set out for Europe bent on keeping friends--but saving U.S. gold and dollars. To strengthen their sales pitch, Treasury Secretary Robert Anderson and Under Secretary of State Douglas Dillon had a potent new persuader: the seeds of a "Buy American" policy in the cuts in U.S. spending abroad decreed last week by Dwight Eisenhower (see NATIONAL AFFAIRS). But it was unlikely that the travelers would be obliged to brandish this weapon. Unable to blink any longer the sobering fall in U.S. gold reserves, U.S. allies around the world had at last begun to move to the aid of the Western giant.

Most dramatic change of fiscal heart last week was in West Germany. On the eve of the Anderson-Dillon visit, Chancellor Konrad Adenauer abruptly cut his country's cackle about being short of spare cash: his Cabinet hastily announced "complete agreement" to launch West Germany's first real foreign-aid program in 1961. Under the projected billion-dollar program, Germany will at last make available to the capital-hungry underdeveloped nations a significant hunk of the record $7.4 billion gold and hard-currency reserves accumulated during the spectacular German economic comeback.

The new German aid fund will tap private industry for a loan of $400 million, siphon off state-government surpluses ($125 million), and drain unused Marshall Plan counterpart funds and the federal government's own customary budget surplus. Still another source: sale to the public of $125 million in shares in the Government-owned Volkswagen works, whose sales abroad have made a mighty contribution to West Germany's foreign exchange hoard. The new aid, announced Economics Minister Ludwig Erhard, would be offered to underdeveloped countries at low interest and over a long term; unlike past German pinch-pfennig credits, it will not be "tied," i.e., need not be spent exclusively for German exports.

Grim Gratitude. Washington, which has poured out $73 billion in aid since 1945, including more than $3 billion to Germany, was grimly grateful for Bonn's patched-together foreign-aid package. But for all its potential value in helping meet the insatiable needs of the new Afro Asian nations--which the U.S. cannot hope to meet alone--the German program would not reduce this year's U.S. international-payments deficit in the slightest; it was, a U.S. spokesman laconically noted, "a beginning."

Of more immediate interest to Treasury Secretary Anderson's practical intelligence was the $700 million that the U.S. spends annually on the 250,000 U.S. troops that, together with the British army of the Rhine, still constitute the backbone of West Germany's defense. Here was a point at which the Germans could help directly to stem the rising flow of U.S. gold and dollars to Europe. All along, Adenauer's government has stubbornly resisted making any direct contribution to the support of U.S. forces in Germany, on the ground that this would smack too much of the old Occupation days. But as his showdown talk with Anderson approached, the Chancellor was reportedly resigned to kicking in at least $125 million annually through some dodge labeling the money as a NATO contribution.

Getting Heavier. Behind the Anderson-Dillon mission was no mere Shylocking or even any desire to lighten the burden of international assistance, which the sweating U.S. taxpayer has borne almost alone since World War II and which is the fundamental cause of the U.S.'s international-payments difficulties. What was at stake was the dollar's ability to go on serving as the free world's basic currency --a state of affairs on which, as the allies well knew, the health of their own booming economies depended. To help support the dollar and halt the flight of "hot" U.S. capital to Europe, Britain, France and West Germany have all lowered the bank (and hence interest) rates in recent weeks. Under U.S. prodding. Western Europe as a whole has relaxed its barriers to U.S. exports enough to ensure that the surplus of U.S. exports over imports this year will be three times that of 1959. And across the Pacific even Japan, a nation that lives on trade but illogically maintains high tariff walls, has been gingerly softening its restrictions on U.S. imports.

Russia, too, knew what was at stake in the dollar's difficulties. In Moscow last week, the Soviet government announced that it was increasing the gold valuation of its ruble (from .222168 to .987412 grams). As originally proclaimed by Premier Khrushchev last May, the Soviet currency reform was to be carried out strictly for reasons of internal simplification (ten old rubles to be exchanged for one of the new "heavy" ones). Last week's bit of jiggery-pokery about changing the ruble's gold value was supposed to impress people in the underdeveloped countries as evidence that it is now worth 11% more than the U.S. dollar (gold valuation: .888 grams). But since the Soviet government does not permit the ruble, light or heavy, to be traded internationally at all, no one was much impressed.

In the midst of all the fretting over the dollar, one respected voice last week offered a detached international view. In Washington, Sweden's Per Jacobsson, perceptive chief of the International Monetary Fund, pointed out that Europe's population is growing only half as fast as the U.S. rate of 1.4% annually, and that as a consequence, "it is fair to expect that over the years to come, Europe will have more capital available than the U.S.'' As the present building boom in Germany and its neighbors runs its course, says Jacobsson, "the flow of funds will reverse. Capital will flow from Europe to other continents." Calling up a prospect of the Old World helping to redress the monetary imbalance of the New, he predicts that Europe will even export capital to the U.S.

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