two, but in all of the arrangements through this temporary council of which Mr. Harriman was chairman, they do it that way.

Senator GREEN. The appropriations are made separately by the different countries.

Mr. CLEVELAND. Yes.

Senator GREEN. I do not see how you can combine them. Suppose Belgium made all of its appropriations, and Luxemburg did not make any. You would still have the same totals here?

Mr. CLEVELAND. No. The total in that, for example, provides that, in the table of expenditures that has been handed around, their defense expenditures for the two of them are expected to be about $435 million worth of Belgian francs.

Senator GREEN. Do you have the remotest idea whether Luxemburg made any? Would you be able to tell from this?

Mr. CLEVELAND. Well, speaking for the budgetary and financial side, we do know how much the two of them, or how much each of them puts up, and naturally, in the Luxemburg case, it is about 10 million. Senator GREEN. I said, from this chart you could not tell. Mr. CLEVELAND. From the chart you could not tell, no.

General OLMSTED. I can give you the breakdown, Senator Green, if you would like it. The reason we make it that way is that is the way they made their commitment at Lisbon, and that is the reason we made it this way.

Senator GREEN. That was combined?

General OLMSTED. They agreed to put up so many divisions by the end of this year for Belgium and Luxemburg, and not separate. Senator GREEN. That explains it.

General OLMSTED. That is why we measured their force strength together.

Senator GEORGE. Those are the only two that are combined, I think, if you will look at it.

Senator GREEN. I wanted to know why.

Senator GEORGE. I presume that that was their Lisbon proposal, what they agreed to, and what they accepted there.

Senator GREEN. I have seen similar charts in the past.

Senator GEORGE. They may operate together.

Mr. CLEVELAND. They have an economic union between the two of them, and the Benelux then, of course, has been an attempt to negotiate a union with additional countries.

Senator SMITH. That does not include the Netherlands in that? Mr. CLEVELAND. The Benelux negotiations have been for the purpose of including the Netherlands, but they do have an economic union between Belgium and Luxemburg at this time.

Senator SMITH. That has been true for a number of years.

Mr. CLEVELAND. Since the end of the last war.

Senator SMITH. We used to have one Ambassador for both of them for a long time.

Senator GEORGE. We did at one time. You have got two now, certainly.

NECESSITY FOR RETAINING SOME FUNDS UNOBLIGATED AND

UNEXPENDED

General OLMSTED. May I point out one other thing about the unobligated funds that we estimate are around $400 million at the end of the fiscal year? Now, that portion of the money that has been allocated to off-shore procurement is for the procurement of end items that otherwise we would procure here, and if we are unable to keep the authority to go forward with those obligations, we lose out on that many of the end items, and it is the same way with the engineering changes and the components, the short lead time components that we are buying at a later date. And I just wanted to make it plain that the nonobligation does not eliminate the requirement or the necessity of having that money available in order to keep the program in an orderly balance.

Senator GEORGE. I understand that, General. From the standpoint of the Military Establishment, I can very well appreciate that. But from the standpoint of a sound fiscal program, I know of nothing that is more disturbing to carry forward these unexpended balances. It is very much like a businessman carrying forward contracts over the next year or two, and having had his money set aside he has got to make it good when the time does come. And nobody but a Government could do it. Nobody but a Government could carry forward such a heavy unexpended balance and preserve its fiscal soundness, that is all there is to it. It could not be done. So I have always thought that that was bad, and I do think so yet.

There is another feature to it: That it takes in large measure away from the Congress the power to look at the whole picture at the moment it is making the appropriation, because you have got such a heavy unexpended balance, and here is a new item that you are bringing in, and a new budget. I can understand it from the standpoint of the military.

General OLMSTED. May I say in that regard, I can thoroughly appreciate and agree with everything you have just said. But from the military procurement standpoint, if I might talk like a businessman, which I am essentially, and not a soldier, because you cannot go out today and buy a tank for delivery tomorrow and pay for it tomorrow, a procurement program requires a certain amount of working capital in it.

Senator GEORGE. I appreciate that, and I appreciate the fact that you have got to build this material, yes.

General OLMSTED. That is right.

Senator GEORGE. And it takes a long time to get it done, and you do not go into the open market and buy standard items to equip an army, I understand that also. But I am looking at it from the standpoint of a sound fiscal program, and it makes it very, very difficult for the Congress, and for a government, to really know its fiscal position.

SIZE OF PROGRAM FOR ARMY, NAVY, AND AIR FOrce depenDS ON THEIR RESPECTIVE MISSIONS

Senator GREEN. May I ask a question there, which shows my ignorance, perhaps, but why, in these 1952 and 1953 figures, is there a larger proportionate increase in the Army than there is in the Navy or the Air Force?

General OLMSTED. That is primarily a derivative of the missions assigned to these people.

Senator GREEN. I wondered about that. That is the same question. General OLMSTED. And the missions assigned to them are a derivative partly of their economic capabilities, as well as their military capabilities. Now, let me see if I can illustrate it like this: It is very difficult for a small country to maintain a jet air force, and so, from the standpoint of the long-range defensive strength, it might be better for that small country to concentrate more on the ground side, and let some of the stronger countries carry the air support.

Senator GREEN. Do you call the United Kingdom a small country? Senator SMITH. The general should answer the questions, but it strikes me, as a layman, that you have here a group of countries with different functions for each country, and you figure we ought to have so much, and some other country ought to have more. Senator GREEN. The general understood my question, and it was not directed to the comparison between countries. It was the same

country, year by year.

That is what you understood was the question?
General OLMSTED. Yes; I understood it.

Dr. WILCOX. Mr. Chairman, the plan this afternoon was to have Mr. Cleveland present a very brief comment to round out this picture, and if the committee proposes to recess at 4 o'clock, I wonder if it might not be advisable for him to do that so that you could start off fresh tomorrow?

Mr. WOOD. We are planning to be available tomorrow, this same group, to go into detail about each country, or to cover as many as you wish to take up.

Senator GREEN. Then it would be advisable to go off until tomorrow, and there would not be time to do that.

Mr. WOOD. That is why Dr. Wilcox was suggesting we might round out the picture for the European area on the economic side in a manner comparable to General Olmsted's presentation of the military end-item side, and then the committee would be ready to go on to a review of the situation country by country.

Senator GREEN. Can you give it to us in the next 10 minutes?

Mr. CLEVELAND. The story on the economic side really takes up from where General Olmsted left off. What he was describing was the forces in the countries that are being built, and the contribution by the military end-item program to those forces.

RESOURCES AND LIMITATIONS FOR EUROPE'S DEFENSE EFFORT

The problem, though, is to get the forces built in the countries, and that requires, or it starts with the funds becoming available, and the resources becoming available in each of those countries to make it

possible. It starts with that 13.9, or roughly $14 billion worth of European defense expenditures next year.

We believe and the countries believe that that can come true, given the utmost efforts that they can make, plus the $1.4 billion of defense support.

On these defense expenditures, country by country, we know a great deal about what the limiting factors are in each country, what the composition of the defense expenditures is; how much, that is to say, they devote to personnel, to maintenance, to operation, and to costs, and to production, and a great deal about the fundamental limitation that really holds back every one of these countries from doing more than is indicated by their part of this $13.9 billion figure. That fundamental limitation is the difficulty of paying for all of the imports that are required. You know, of course, very well, the nature of the European economy. Europe is not unlike the United States east of the Mississippi, if you take the cotton and tobacco out. Europe is dependent, in its own economy, on most of the kinds of imports that we would be dependent on in the eastern part of the United States if the West was not available. The Western Europeans are dependent upon grain, upon wool, and meat, on oil and rubber, and on most of the nonferrous metals, from imports from the outside world.

COMMITMENTS MADE BY EUROPEAN COUNTRIES AT LISBON

In each country, as you know, we have a Mutual Security Agency mission working with the embassy and with the man, who tries to arrive at its best judgment, and negotiate with the country to which it is accredited about that judgment, that is, as to how much the country can do in the way of defense expenditure and what problems or what economic problems this is going to make for the country.

In the TCC operation, in this bringing together into one room of all of the countries, laying their plans on the table and trying to check the comparative contribution of the countries, and in many cases raising their original expectations as to what they thought they could do as a result of seeing what others were doing, they did arrive before the Lisbon meeting and it was confirmed by each country at the Lisbon meeting at a sense of what each country could take on in the way of a commitment. That commitment, of course, in the Lisbon meeting was expressed in force terms.

Senator GREEN. Then you mean all of these charts were agreed to, the comparative contributions were agreed to by all?

Mr. CLEVELAND. Yes, as far as forces were concerned. That is, country A would agree to put up so many divisions by a certain time, in a certain state of readiness. Each country, in making that judgment, was also, of course, making the judgment, each executive branch, that it was prepared to go to its legislature, its parliament, for authority and for funds in its own defense budget to make these force levels come true. It was this series of estimated executive branch defense budgets that is summarized in the table entitled "Defense Expenditures and Defense Support" which has been circulated here, and which might, if you think it would be worth while, go into the record.

European defense expenditures and United States defense support, 1951-52 and

2 This is the figure indicated by the TCC analysis of Belgian economic capabilities. The Belgian Government has indicated that political and financial difficulties prevent it from reaching this level of defense expenditure. The Belgians informed the TCC that it would spend $516 million for defense in fiscal year 1953, but have subsequently indicated that actions may be taken which will raise this figure. The United States is continuing to urge Belgian Government to increase its defense expenditure and is working with them on acceptable and feasible means of so doing.

The United States is arranging to make available to France $500 millions of "extraordinary dollar receipts" during the current fiscal year. The remaining $230 million is being made available through procurement of end items, mostly in France, to support military operations in Indochina.

Includes $50 million for 1951-52 and $26 million for 1952-53 pursuant to agreement with United Kingdom of July 7, 1950.

Plus Trieste (included with Italy).
Economic aid.

This compares this year and next year, country by country, defense expenditures, showing the total defense expenditure for the group of countries considered on that chart there (that is, NATO, plus Germany, minus Greece and Turkey), going up from just under $11 billion equivalent to just under $14 billion equivalent.

DEFENSE SUPPORT REQUIRED TO FULFILL THESE COMMITMENTS

At the same time, it shows, country by country, the amount of defense support that we believe to be required if each of these countries is in fact going to make good on these commitments.

What the countries have done in effect, as a result of the discussions in Paris, and later the final discussions in Lisbon, is to take risks; to take on, in fact, an amount of military effort that is in excess of what they can really bring off unaided.

Now, the reason for the defense support, and the reason for the need for aid from the outside, is really this, in a word: When they increase their defense expenditures, they are doing two things simul