§ On 3rd December, 1957, Her Majesty's Government requested the assistance of their N.A.T.O. partners for a solution of the foreign exchange difficulties which would arise for them in 1958–59 as the result of stationing British forces in Germany. This was under a N.A.T.O. 12W procedure established in 1957 to deal with currency problems arising from the stationing of forces in other member countries of the Alliance. At the same time Her Majesty's Government invoked Article 6 of Protocol II of the revised Brussels Treaty whereby "if the maintenance of the United Kingdom forces on the mainland of Europe throws at any time too great a strain on the external finances of the United Kingdom" Her Majesty's Government … "will invite the North Atlantic Council to review the financial conditions on which the United Kingdom formations are maintained"; Her Majesty's Government accordingly invited the North Atlantic Council to carry out such a review.
§ The United Kingdom case for financial relief was endorsed early last January by three independent experts appointed by the Secretary General of N.A.T.O. in accordance with the N.A.T.O. procedure. They found that the United Kingdom was experiencing serious balance of payments difficulties and that the cost of stationing forces in Germany represented a heavy additional burden on the United Kingdom balance of payments. The North Atlantic Council accepted these conclusions.
§ There have been extensive discussions in the North Atlantic Council and elsewhere. An arrangement in N.A.T.O. has now been reached on a three-year basis, that is to say, covering the years 1958–59, 1959–60 and 1960–61.
§ Under this arrangement the German Federal Government have for their part undertaken, as a measure of mutual aid under Article 3 of the North Atlantic Treaty, to make in 1958–59 and each of the two following years an annual payment to Her Majesty's Government of £12 million; to deposit with Her Majesty's Government interest-free a sum of £50 million for arms orders and to repay in 1958–59 £22½ million of their post-war debt which would otherwise be due to be repaid over the years 1962–64. (This will require certain waivers from other parties to the London debt agreements of 1953 and the Federal Government are initiating the necessary action to obtain these waivers.) Negotiations are also to take place for reducing the interest rates on the balance of the sum which was deposited with the Bank of England in 1957 to meet the instalments of the post-war debt due to be repaid in the years 1957–66. The annual payment of £12 million and the deposit of £50 million for arms orders will be new money across the exchanges but the advance repayment of £22½ million of the debt will be made to the Exchequer out of the sum already deposited with the Bank of England.
§ Her Majesty's Government for their part have declared their readiness to continue to maintain a substantial British force on the Continent, not only in 1958–59 but also in 1959–60 and 1960–61 within the limits of what can be afforded in relation to the balance of payments. Under this arrangement Her Majesty's Government have declared to N.A.T.O. their intention to maintain the British Army in Germany at the strength of 55,000 men throughout the calendar year 1958, and thereafter up to the end of the financial year 1960–61 to maintain a minimum strength of 45,000. In addition they have declared their 13W intention to maintain the Second Tactical Air Force at its present strength until towards the end of the year 1960–61. They have undertaken to find the balance of the D.M. costs involved, after taking into account the three annual payments of £12 million to be received from the Federal Government.
§ Discussions are taking place in N.A.T.O. which it is hoped may lead to further financial arrangements that would enable the British Army in Germany to be maintained at the strength of 55,000 throughout the year 1959. Her Majesty's Government do not themselves feel able to make any additional financial contribution in such further arrangements.
§ Her Majesty's Government are sure that their Allies recognise the importance of the contribution which Her Majesty's Government are making in the arrangement which has been reached, one of whose major advantages is that it should provide stability over a period of at least three years, removing the necessity for annual discussions and the uncertainties which they create within the Alliance. Her Majesty's Government welcome the contribution which is being made by the Federal German Government, who have shown understanding of their difficulties. They also express their appreciation of the valuable part which has been played in working out the arrangement by the Secretary-General of N.A.T.O., M. Spaak, and the N.A.T.O International Staff.