European Payments Union Research Articles

Organization for European Economic Cooperation

Council: The Council of the Organization for European Economic Cooperation (OEEC) met on May 5 and 6, 1954, and agreed on the basis of a compromise settlement of the extreme creditor and debtor problem in the European Payments Union (EPU). The settlement provided that 1) accumulated debts should be paid over a period of time; 2) debtors should in the future limit to a minimum their resort to EPU resources; 3) the rules of payment should remain unaltered; 4) if the German Federal Republic or other creditors increased their surpluses in EPU, they should extend further credit, but receive some compensation from the EPU dollar reserve; and 5) the special position of Germany should be dealt with. According to press reports, the settlement had averted the danger that the United Kingdom and Germany would withdraw from EPU. The Council, which also decided that EPU should be renewed for another year after June 30, 1954, referred the matter of further details of the settlement to the managing board of EPU. Other actions taken by the Council during its May meeting included the following: 1) recommendations to France that it abolish the compensatory taxes on imports which it had introduced along with certain measures of trade liberalization, and increase trade liberalization to 75 percent by November 1, 1954, instead of to the 65 percent which it had promised; 2) recommendations to the steering board that it submit, as soon as possible, “concrete proposals” for the abolition of artificial measures designed to aid exporters; and 3) the establishment of a ministerial group to examine the problems which would arise if a “number of countries” re-established convertibility.

Organization for European Economic Cooperation

European Payments Union: On June 30 the Council of EPU decided that the organization should continue for an additional year in accordance with Article 11 of the agreement. Special arrangements had to be made with the Belgian-Luxembourg economic union and with Portugal to settle surpluses beyond their respective quotas up to June 30, 1952. The settlement with the Belgian-Luxembourg economic union consisted of a payment by the union of $80 million in gold as part repayment of the credit and, on the part of the Belgian-Luxembourg economic union, a supplementary tranche beyond her creditor quota of 85.2 u/a settled as 42.6 million in gold and 42.6 million in credit. After the various adjustments, the cumulative accounting surplus of the Belgian-Luxembourg economic union came to 415.8 million u/a of which 33.6 million were within the quota and 85.2 million were beyond the quota. In the case of Portugal, the union waived its rights to recover $3 million in gold and the Portuguese accounting surplus was reduced to 15 million u/a settled as to 6 million in gold and 9 million in credit.

The European Payments Union

The long delayed signing on September 19, 1950-retroactive to July 1-in Paris of the agreement establishing the European Payments Union (E.P.U.) for a period of at least two years was an event of considerable importance, even if it was overshadowed by the events in Korea and its actual operation somewhat clouded by the uncertainties of the economic problems arising out of the rearmament programs. This agreement consists of two parts. In the area of commercial policy it made further progress in the elimination of trade barriers between the member countries of the Organization for European Economic Cooperation (O.E.E.C.), which includes practically all of western Europe, by committing them to nondiscriminatory treatment between themselves on current account (both on merchandise and service transactions) and by raising the percentage of import quotas which have to be eliminated from 50 to 60 per cent, based on the level prevailing in 1948. Under this provision import quotas, except for government purchases, have to be reduced by 60 per cent in each of the three major commodity classifications: foodstuffs, raw materials, and manufactured goods. A further reduction bringing import quotas to 25 per cent of the same base is envisaged for January 1, 1951. It has been pointed out that these commercial policy provisions are probably the less important aspect of the agreement. Many countries had already lifted 60 per cent of their import quotas, and in some cases more, applying to other O.E.E.C. countries, and the principle of non-discrimination between them had also been previously recognized. The specific inclusion of invisibles is, however, a step forward. Agreement on these questions of commercial policy might have been achieved without setting up the E.P.U., but it must be recognized that convertibility of currencies greatly facilitated the process. The second and more important aspect of the E.P.U. agreement is the establishment of complete convertibility between members on current account. It is this convertibility which makes the concessions in commercial policy more significant. The relaxation of trade controls, after all, has frequently been a meaningless gesture when goods were kept out through exchange controls. In what ways is this agreement a new departure? The clearing agreement of 1948/49 was simply a bilateral arrangement, even if written for many countries at the same time, granting bilateral credits which were based on estimates made at the beginning of the period. The agreement for 1949/50 was essentially the same although it provided for transferability of 25 per cent of these credits, again based on advance estimates of deficits and surpluses. As already mentioned the new agreement provides for free convertibility on current account between members with a few minor exceptions and escape clauses.

E.P.U. problems

In the present article Dr. Guido Carli, chairman of the European Payments Union Managing Board, summarises the core of his observations on the union’s problems in the following conclusions: (a) within the present E.P.U. Agreement, a combination of credit and debit positions may arise which would exhaust the dollar assets and therefore terminate the working of the institution; (b) the situation could be redressed by decreasing quotas, by altering the dollar-credit ratio within the quotas, by contributing an additional supply of dollars. This fresh contribution is liable to come either from participating countries or from U.S.A.; but as all participating countries are running a dollar deficit a contribution of theirs would increase this deficit; (c) whatever device under (b) be accepted, it would be insufficient to restore normal working conditions in E.P.U. if participating countries did not pursue economic and monetary policies calculated to bring about equilibrium of their balances of payments.