meet the emergencies that are expected as Europe moves along the road of trade liberalization.

It is almost inevitable that reduction of trade barriers will produce temporary dislocations in certain segments of the economies of some countries. It is impossible to predict with accuracy the results that may flow from such acts as removal of tariffs or lifting import restrictions. Availability of such a reserve fund for use to help participating countries that are making real sacrifices in the direction of freeing trade will cause those countries to be less reluctant to take steps in this direction. Thus, it will be possible for the ECA to use these funds to stimulate the economic integration of Europe.

(c) International power projects

Of the $85,000,000 in the special fund, $40,000,000 is expected to be reserved for the development of thermal and hydroelectric power plants and transmission lines whose construction or operation is international in character (i. e., involving two or more participating countries.) The plans for these developments are being considered by the OEEC Electricity Committee. The ECA contribution of $40,000,000 will cover only about 30 percent of the total cost of the developments, the balance of the funds coming from the participating countries in the form of local currencies. The development of these international projects will be an effective way of breaking down trade barriers between European countries and will encourage the economic integration of Europe.

(d) Overseas development

The remaining $45,000,000 in the special fund will be used to encourage the development of projects in overseas territories of the ERP countries. The main purpose in setting aside this incentive fund is to encourage the development of projects in overseas territories which may become substantial sources of dollar earnings, or savings. To some extent these projects can be developed without dollar financing but in many cases materials or services needed are available only in the United States. The projects submitted for consideration during the current year call for ECA financing for only about ten percent of the total cost. This seems a worth-while investment of ECA funds designed to alleviate the dollar shortage of the western European countries after ECA aid is terminated.

C. PROGRESS OF ERP TO DATE

11. OVER-ALL PROGRESS TO DATE

When the Congress first authorized ERP, Europe's economy was facing a total break-down. Six years of war had brought about a dislocation of trade patterns, loss of invisible income, inflation and other financial problems, and deterioration of war-worn machinery. The resultant sinking of European morale was accelerated by repeated Communist attempts to sabotage recovery, and the strain of an unusually severe winter and dry summer. Industrial production was fighting an uphill battle since essential imports had to be cut down, the working population was discouraged and tired, and labor unrest disrupted the economy.

Industrial production

The committee is very much encouraged by the progress made these past 2 years. The increase in production has exceeded the most optimistic estimates and hopes. Industrial production now stands at 20 percent above the prewar levels. During the 2 years of ERP aid hard coal production has expanded 17 percent, steel 52 percent, electric power 21 percent, and cement 58 percent.

The following tables show the progress to date in over-all industrial production and in selected industries.

INDUSTRIAL PRODUCTION

...... has risen 25 percent since European Recovery
Program was started

Agricultural production

In the last 2 years total grain production has risen 30 percent; sugar, 40 percent; meat, 16 percent; milk, 19 percent; and fats and oils, 19 percent. Yet agricultural output as a whole is still below prewar levels and a further rise of over 15 percent is necessary by 1952-53 to return to the prewar per capita rate of production. The loss of imports from eastern Europe together with the population increase in western Europe make it necessary for the OEEC countries to make an even greater effort in order to achieve the 1952-53 goals set by them. The following table illustrates the problem.

AGRICULTURAL PRODUCTION

The rampant inflation of 1947-48 has ended and prices are largely stable. Prospects for financial stability are good. The committee, however, was concerned about the inefficiency of the tax-collecting machinery in some participating countries, and hopes that the Economic Cooperation Administration will continue its efforts to assist in the improvement of this situation.