410 Lord Caldecote, U.K. Secretary of State for Dominion Affairs, to Sir Geoffrey Whiskard, U.K. High Commissioner in Australia

Circular cablegram Z129 LONDON, 20 June 1940, 12.30 a.m.

My telegram Circular Z 106 of 13th June [1], paragraph 10. Please give the following message to the Prime Minister [2] for his Most Secret and Personal information.

The following is a preliminary review of the various factors in the economic situation arising out of the French collapse.

2. The principal economic losses and gains to Germany and ourselves respectively as a result of the German occupation of Norway, Denmark, Netherlands, Belgium and France appear to be as follows:-

(a) GERMANY Germany has acquired certain stocks of which (apart from munitions of war) the most important are oil, certain metals, textile materials, feeding stuffs and fats. While German acquisitions of the above are in some instances considerable, it is not thought that they will relieve anxiety with regard to materials of which acute shortages were previously feared. She can utilize the current output of occupied countries, notably Lorraine iron ore, but the extent is dependent on how far the power stations and other equipment to work them remain intact. She has obtained temporary stocks of meat, animal products and dairy produce, but without feeding stuffs these gains will be short lived. She has also obtained large accession of productive capacity. The value of this is conditioned by raw material and transport shortages and the probable obstructive attitude of labour. On the other hand Germany must make some provision of goods and foodstuffs for the maintenance of the invaded countries where these were previously imported, and, by losing her surrounding neutrals, she has lost opportunities of circumventing our blockade.

(b) UNITED KINGDOM The United Kingdom has lost certain sources of supplies, which it will be difficult to replace, notably dairy and pig produce, condensed milk and margarine, timber, flax and iron ore. Our capacity to import has been substantially reduced by diversion to the west coast ports, which means in general that increased shipping resources can only serve to increase the distance from which goods can be brought. Our reduced importing capacity increases the necessity for goods to be imported in manufactured forms, thereby throwing increased strain on our foreign purchasing resources. We hope to obtain some mitigation of the above by the acquisition of gold or negotiable securities formerly belonging to invaded powers, but on the scale on which our needs are now developing these will need supplementing in order to obtain from dollar and other hard currency countries the physical resources necessary to prosecute a successful war. The resources of the occupied powers' colonial empires can be used for our own purposes, in particular proportion of Belgian copper and Dutch East Indies rubber, but their chief importance lies in the foreign currency we can secure by their export to the United States. It is also hoped that control of these raw material supplies will be of assistance in our negotiations with the U.S.S.R. and Japan.

3. The following forms of assistance by the United States in the economic sphere would be most important:-

(a) Prevention of export of goods which might be of assistance to Germany and Italy and influencing other American Governments to take similar actions;

(b) Despatch to us at once of existing supplies of war material and raw materials of war, release of naval vessels and permission to United States merchant ships to ply in European war zone;

(c) Obtaining authority from Congress for extensive credits to enable us to buy supplies not only in the United States but also elsewhere;

(d) Mobilizing the manufacturing capacity of the United States in our support.

4. The maintenance and intensification of blockade is essential to defeat the enemy, and it is hoped, if this can be done, that the situation next year will be more favourable to us. It is realized, however, that, although the blockade is of great importance, it cannot by itself achieve victory, which will not be obtained until our resources enable us to force an issue by battle.

5. Co-operation of the American Continent in the blockade would materially lighten the task of the Royal Navy, and, if South American ports were not available to German supply ships, German commerce raiding would be much more difficult.

6. The active co-operation of America would provide continuous flow of aircraft and munitions to oppose existing stocks of such weapons in Germany. We ourselves must hold out until the production drive overseas gives us first parity and finally overwhelming superiority, but at best we must depend mainly on our own resources particularly in the supply of aircraft, for at least some months. The rapid adaptation of United States industries to war production means substantial reductions in civilian consumption in United States, particularly in steel, and also requires proper division of functions between United States economy and our own. The rapid improvisation of United States production with existing equipment is required rather than long- term programme. Nothing could give us greater relief than the removal of the present ban on loans and credits, which would enable us to concentrate our man power on war production and military service at the expense of our export trade and to procure war material from abroad up to the limit of capacity to supply.

1 Document 376.

2 R. G. Menzies.

[AA: A1608, G59/1/4]