The New Balance

In the golden autumn of the 14th year after World War II, all Europe was humming with a new prosperity. In Britain, where voters had just emphatically endorsed Prime Minister Harold Macmillan's claim that they never had been so well off, the government this week planned to improve their lot still further by abandoning, for all practical purposes, the $280 ceiling on the amount of sterling British tourists are allowed to carry abroad. On the Continent the boom was so solid that last week the foreign ministers of the Common Market met in Brussels to discuss moving forward from 1970 to 1965 the date when goods, men and money will move with complete freedom through the six-nation area that already bids fair to become the world's largest trader.

In this rosy chorus of economic expansion, the one dissonant note struck last week came from Vance Brand, director of the U.S.'s Development Loan Fund. Henceforth, in granting aid to foreign countries, announced Brand, the fund will "place primary emphasis on the financing of goods and services of U.S. origin." From now on, in other words, the Development Loan Fund is going to demand that its aid dollars be spent in the U.S., even if the same products are available more cheaply elsewhere.

Behind the optimism of Europe and the sober bankers' outlook in Washington lay a momentous shift in free world relationships. After 13 years and $40 billion of U.S. aid, Europe has caught up economically. As a result, the U.S. finds that it must do some earnest rethinking of its foreign economic policy.

Mortgage on Fort Knox. Europe's new prosperity has shifted the whole balance of the U.S.'s terms of international exchange. Last year U.S. exports dipped by $3 billion, while Europe's shipments to the U.S. have gone on growing. Last week London newspapers reported that for the first time in the 20th century Britain is now selling more to the U.S. than it is buying. Taking all items into account (exports, military costs, economic aid), the famed dollar gap has been closed; since 1950 Europe has increased its pile of gold by $8 billion, and the outside world as a whole has managed to amass short-term credits in the U.S.--all constituting potential claims against gold--of $15.6 billion. Last year about $2 billion in gold flowed out of the U.S., and this year's U.S. deficit in foreign payments seems likely to reach $4.5 billion.

All this does not mean that the U.S. is about to go into international bankruptcy. The U.S. still holds nearly $20 billion in gold, half the world's supply, and an important part of the U.S. capital outflow is private investment overseas that will pay off in years to come. If it was not for foreign aid--$5.5 billion last year--the U.S. would even have $1 billion balance of payments surplus. But the swing in the international terms of trade does mean that in defense of its long-range economic strength, the U.S. has had to take a new attitude toward Europe.

Time to Tighten Up. Treasury Secretary Robert Anderson had already proclaimed (TIME, Oct. 12) that "there is no longer justification" for European countries to maintain discriminatory restrictions against dollar imports. Washington also believes that if U.S. salesmen would get out and hustle, U.S. exports could be boosted significantly.

But the point where Washington feels most strongly that it is time for a change is in the field of foreign aid. With the original postwar objective of setting Europe back on its feet handsomely achieved, the bulk of U.S. aid already goes to underdeveloped nations; in the future even more of it will have to do so. And, add U.S. officials grimly, it had better not find its way back to European pockets quite so often as has been the case in the past. (An example that still gravels Washington: in recent years the West German government has underwritten some $2 billion worth of West German sales to underdeveloped countries at terms so stiff--repayment in four years, 6% or more interest--that time and again the U.S. has been obliged to bail out the overcommitted debtor with a dollar loan.)

The Arm Twisters. Heart of the new U.S. pitch is that the U.S. cannot--and should not have to--carry singlehanded the burden of aid to the underdeveloped nations. At every possible opportunity, from President Eisenhower's recent trip to Europe to last month's meeting of the World Bank and International Monetary Fund, the U.S. has been reminding the governments of Western Europe's booming nations that, as part of their contribution to the strengthening of the free world, they should shell out some aid too. By last week, declared a rueful European government official, the U.S. drive had reached "the arm-twisting stage."

So far, Europe's response is largely defensive. The British protest that they are already pulling their weight helping Asian and African members of the Commonwealth. Paris points to last year's $100 million to the French Community's African members. But, bit by bit, Washington's new approach is beginning to have its effect. Under U.S. pressure, the European countries and Japan have agreed to join with the U.S. in setting up the new $1 billion International Development Association (TIME, Oct. 12). And last week, after asking his countrymen "whether we have the right to enjoy all to ourselves the steady annual increase of 6% in our national product," West Germany's Economics Minister Ludwig Erhard proposed that his government review its system of foreign credits and "untie" them so that in the future underdeveloped countries would be free to use German credits for the purchase of non-German products. The U.S. could only welcome the offer, while noting wryly that burgeoning West Germany could now contemplate a variety of economic liberalism that the U.S. itself had felt obliged to restrict.

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