Western Europe and the American Balance of Payments

American political, military, economic, and financial relationships with Europe are reflected in our bal ance of payments. Surpluses were created after World War II when we gave and lent heavily for European recovery, but these have been replaced with deficits which, though they attract attention because they involve gold sales, are in a declining trend. Now that Western Europe is a potent eco nomic force, it can be expected increasingly to share the costs of defending and strengthening the free world, thus relieving some of the burden on the United States. The paradox of the situation in which the United States dollar is a "key" currency is that confidence in the dollar increases as we eliminate our deficits but the disappearance of our deficits will reduce the growth of international liquidity and could impair growth of trade and flow of capital. The present adjustment process for surpluses and deficits works slowly. To compensate, a more flexible international monetary system is required, toward which the United States has taken the initiative, chiefly with West European countries, in developing new techniques of co-operation and co-ordination. The United States welcomes European integration in the long view but anticipates mixed economic consequences in the short run because American sellers will be placed at a competitive disadvantage relative to insiders and possibly threatened competitively in third countries as well.—Ed.