Dear Hogan,
I have your letter (F.191/59/48) of the 10th November¹ on the question of renewing our efforts to have the ERP aid extended to this country put on a grant instead of a loan basis.

McLaughlin² is undoubtedly right in thinking that feeling in Washington is moving in favour of giving us at least some part of our allotted aid by way of a grant. The U.P. message printed in this morning's paper is a strong indication that something of this kind is on foot. The question is whether, that being the trend, we can usefully do anything to strengthen it and bring it to a head.

I am inclined to think that we might do better to abstain from any positive action at the moment. For one thing, I don't see that we can add to what we said in Washington last May.³ On the contrary developments in the meantime have somewhat weakened the force of some of the arguments we used then. Moreover, a number of statements have been made on our side in the interval suggesting that our ability to repay dollar loans is really greater than we depicted it during the discussions in Washington! So far as the facts of our particular case are concerned therefore, I don't see what we can usefully say at this stage that would strengthen our case for a grant.

Personally I think that the movement of opinion in favour of giving us grant aid is due, not so much to any revised opinion of the inherent merits of our case, but to more general factors - a more friendly feeling towards us in the ECA created by our Minister's actions at Paris and the recent report of the National Advisory Committee warning against the undue increase of European dollar indebtedness. The return of Democratic majorities in the Senate and House of Representatives may also have had an influence.

If this interpretation is right, then our best line would appear to be not to focus attention again on the facts of our particular case as a separate issue but to continue support of ECA policies at Paris and do what we can to maximise the effect of the National Advisory Council's recommendation. It would probably be difficult to get the OEEC as a whole to pass a resolution reinforcing the NAC recommendation and pointing out the dangers of the ultimate objective being endangered by the creation of new dollar debt burdens. But we should do all we possibly can at Paris and Washington to keep the NAC recommendation in the limelight in the hope that it will militate against the inclusion in the new Appropriation Bill of any provision requiring a stated proportion of the aid granted to be given by way of loan. As one of the few countries which have a 100% loan allocation, we would be certain to benefit from any such acceptance of the general view that the increase of European dollar indebtedness is bad in principle.

This is how the matter appears to me but the best course, as you indicate, is to have the whole question discussed at an early meeting of the inter-departmental committee. I assume in saying this that there is a definite advantage to be gained from our point of view by getting our allocation changed from a loan to a grant basis. But is this certain? Perhaps the interdepartmental committee would consider that aspect of the matter also.