Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

224. Memorandum of Conversation⁰

October 24, 1959.

PARTICIPANTS

• The Secretary of State
• Secretary of the Treasury Anderson
• Secretary of Defense McElory
• Deputy Secretary of Defense Gates
• Mr. John Irwin II, Defense
• Mr. Reinhardt, State

The Secretary began by stating that the President was worried about the financial implications of our foreign commitments and was impatient with the lack of any movement toward resolving European problems.¹ The Secretary felt that a Western Summit meeting which might come off would be the best place initially to raise these questions and, in fact, if any changes were to be made, the ground should be prepared before the December NATO meeting. The Secretary hoped that if something has to be done in terms of reducing our forces abroad, we could make a virtue of necessity and do it in such a manner that it would not appear to be sign of weakness.

Mr. Gates referred to the proposal to withdraw 14 air squadrons from NATO² and commented that as far as the balance of payment issue was concerned the greatest contribution that Defense could make to the problem was in the pay of manpower and dependents abroad. Mention was made of the original understanding regarding the stationing of U.S. forces in Europe and the Secretary observed that the President and General Norstad had different concepts as to present requirements. The President did not believe that limited war was possible in Europe and thought that the NATO shield could be symbolic and did not require the present five plus divisions. Norstad, on the other hand, had reacted violently to the suggestion of any reduction.³

The Secretary referred to the possibility of getting the Germans to pay something for the support of U.S. forces there. This would be preferable to an increase in planned German strength which most European countries would not want.

Mr. Irwin said that irrespective of budgetary and balance of payment problems there was a grave situation developing with respect to NATO. We had no missile defense and the growing Soviet capability meant that all fixed installations could eventually be taken out by surprise missile attack. This in effect meant that you had no offense. [9 lines of source text not declassified]

The Secretary noted that the U.K. was worried about what they called the five-year gap and that Admiral Mountbatten⁴ had expressed the personal view that Polaris was the answer to the problem.

Mr. Gates said that Defense thinking is toward larger expenditures for hardening Atlas and Titan sites and to pushing Minute Man which, however, would not be ready until 1963. It was also proposed to offset this in part by some weakening of continental defense.

Mr. Gates said that present plans were to go ahead with the development of the B–70 which was a Mach 3 aircraft. The other services did not agree, but this plan had side implications that were important in terms of transport and non-military aviation development. The B–58 was not in the Air Force budget. Two and one half billions had been spent on this project and did not yet have an airplane. He noted that this project was practically the total business activity of Fort Worth. There were no fighters in the Air Force budget but there were some in the Navy. Mr. Gates said that we soon would be in a position which would result in the Army, Navy and Marine Corps having limited war capability and the Air Force being wholly occupied with the strategic deterrent. Mr. Anderson questioned the virtue of diverting so many resources to the B–70 if in five years hence any war would be fought solely with missiles. Mr. McElroy had joined the meeting by this point and replied by stressing the necessity of having more than one string to the bow if the deterrent was to be effective. A multiplicity of offensive systems complicated the enemy’s defensive requirements.

Mr. McElroy commented that as long as the U.S. was committed to the principle that any war with the Soviet Union was general war, the need for NATO defenses diminished. He thought there was a need to modify the shield and sword concept.

The Secretary inquired from what point of view Defense had studied Norstad’s plan for regional inspection.⁵ Mr. Irwin said that the last time he had talked with him the General was against any disengagement but was for an inspection system. Mr. Gates said that German Defense Minister Strauss had recently spoken very strongly against anything that would neutralize all or part of Germany and Adenauer had much the same view. The Secretary observed that Germany was the subject of immobilism and wanted nothing but to maintain the status quo. He said the President was annoyed at the absence of flexibility on the part of both France and Germany who simply wanted to sit tight. Mr. Irwin reported that General Schuyler, after his recent visit to the U.K., had said that the British were definitely going to withdraw 10,000 men from the Continent and that De Gaulle had told Schuyler that France would not change its position on NATO issues pending some more global arrangements.⁶

The Secretary said that the only quid pro quo he could see in connection with a force reduction was a similar reduction on the Soviet side, coupled with a zone of inspection agreement, but considering the size of the Soviet forces in Germany, this would not appear very significant. Mr. McElroy thought we should have enough ground troops in Europe up close to make it clear that in the event of any Russian action we would be committed. Additionally, we were committed to supply the deterrent in a missile era in which it was difficult to keep the deterrent up close unless it was mobile. The increasing accuracy of missilery would make questionable within five years any fixed installation. [3-1/2 lines of source text not declassified] He suggested the possible usefulness of Mace as a mobile weapon for NATO countries.

In reply to the Secretary’s question regarding what flexibility there might be in the budgetary aspect of this discussion, Mr. McElroy said that the budgetary aspect was only part of the question and he could not say that there was not sufficient flexibility and time to permit the Secretary of State to take whatever preparatory actions he might find necessary. The budget would probably be about the same as now though some 28 million might be taken out of the Air Force. The basic problem was that there was more military manpower than could be equipped with modern weapons under the present budget. The balance of payment aspect was tougher and this of course was a subject for Mr. Anderson to talk to. The Army said it could not reduce under present overseas requirements and wanted to pull the battalion out of Iceland. Everyone agreed that it was not possible to reduce in Korea and this left only Europe where a substantial reduction might be made. Mr. McElroy thought that our limited war weakness lay in the size of the strategic reserve in the United States. It would be better if two or three more divisions were here. It was urgent to change our deployments in Europe, but this should not be done in an atmosphere which allowed no time to take necessary preparatory action. The Secretary observed that this pointed up the need for the President to be ready to talk to De Gaulle and Adenauer on this subject.

Balance of Payments and Budget.

Mr. Anderson started by saying that the foreign financiers, who were recently in Washington, went away rather pleased with the situation.⁷ This was because our budget appeared to be balanced, there was no change in the money managers, the economy was good and the steel strike at that time seemed likely to be settled. The biggest problem of course was that the Treasury owed so much money and the recently oversubscribed loan had made a good impression on the visitors. In short, the financiers seemed to have more confidence than a year ago.

Mr. Anderson said our commercial balances had been less adverse recently than in the first six months of the year, but there were so many intangible and invisible items that the subsequent gain was canceled out. He noted that there had recently been a heavy exchange of U.S. and foreign securities, the significance of which had not yet been possible to evaluate. In any event, there would be between 4 and 4-1/2 billion dollars adverse balance of payment this year. In strict confidence Mr. Anderson said that the U.K. was going to repay its Export-Import Bank Loan but that this fact was being held in complete secrecy until the U.K. was ready to make it known.

Mr. Anderson continued that what worried him was not just the balance of payments but the possible sequence of events. In the past the U.S. had always had some cushion to fall back on if called. He did not think that any one development alone could destroy confidence but a sequence of events could. As an illustrative example: (1) The budget would probably wind up in deficit this year which would lead public opinion to say the government had not achieved its aim. (2) Only the price of food had saved the economy from a rising cost of living. Should there be a few more floods or a heavy freeze, the result could well be an appreciable rise in the cost of living. (3) The probable increase in the price of steel as the result of strike. (4) A 4 to 4-1/2 billion dollar adverse balance of trade. It was Mr. Anderson’s view that somewhere along the line in such a sequence of events, confidence could slip. He recounted that Mr. Pinay had suggested the U.S. could find a system whereby in the case of devaluation it would guarantee the profit to dollar holders abroad, and Pinay had also suggested that the U.S. should transfer its funds from Fort Knox into the International Monetary Fund. This was an interesting demonstration of the direction in which European thinking was moving. In this connection, Mr. Anderson referred to the different ways in which European countries traditionally held their reserves. He thought that any change in this pattern would impair confidence.

Mr. Anderson thought we could live with some adverse balance of payments but that we must reverse the present trend. The logical way out was of course to increase exports but this took considerable time; the removal of U.K. and French restrictions would also be to the good but that too would take time. December would probably be the fateful month since it would be necessary to announce the budgetary deficit before the end of the calendar year and one could expect that this would be followed by a renewed debate on the Hill on the subject of debt management. As a matter of interest, Mr. Anderson noted that the Canadian cabinet had recently reached the conclusion that the U.S. could no longer afford P.L–480.⁸ Actually this was not a large item in our adverse balance. There was discussion of the changed attitude of U.S. exporters who, as a result of rising labor costs, instead of concentrating on developing specific items for export to specific areas, were now looking for global markets and tending to build plants outside the U.S. Mr. Anderson quoted the London Economist as having editorialized that it was more important to have some dollars of constant value than more dollars of inconstant value. Mr. Anderson expressed the view that if a decision could be reached to reduce forces in Europe and bring dependents home, this would make a great difference in the balance of payments. At this point, the Secretary inquired whether figures were available on what precisely this would mean. Mr. McElroy said that no precise figures were available but that he had asked Mr. McNeil⁹ to get up such figures and would propose to have ready by Monday¹⁰ for Messrs. Herter and Anderson an estimate of the benefit which should accrue from the return from Europe of two divisions and a comparable reduction in air forces. There was some discussion of the relative importance in this context of support troops and dependents in Europe and the question was raised whether more local employees could be used for logistical support. Mr. McElroy admitted that efforts to date to cut back on Army surplus activities in Europe had not been fully successful.

Mr. Gates pointed out the great problem for the Secretary that a leak on this subject would bring. Mr. Irwin stressed the importance of a military reassessment of the strategical effect on NATO of such a move. He pointed out that irrespective of budgetary and balance of payment requirements, there was in fact need for a review of MC-70 and such a review could be used for a rationale for any changes decided upon. Mr. McElroy said that one should speak to the President before asking the Joint Chiefs of Staff for such a study. Mr. Irwin said that by moving air strength out of Europe, we would limit U.S. capability for responses to problems in the Middle East, and in the Far East would reduce flexibility to meet local situations there. He thought there was a suggestion of schizophrenia in at one and the same time moving in the direction of nuclear test suspension and pursuing a trend toward increased development and dependence on nuclear weapons as a result of budgetary and balance of payment pressures.

There was some discussion of our growing dependence on nuclear weapons in limited war situations during which Mr. McElroy expressed his belief that the use of tactical nuclear weapons would not necessarily start a general nuclear war.

Mr. McElroy said that his Department was taking the line that a decision to reduce overseas deployments must be taken even if the implementation of such decision had to be postponed. Mr. Anderson said he would like to see a decision taken that overseas deployments would be reduced, that timing should be the function of various requirements, but that action would be taken as soon as possible. Mr. Anderson agreed with the Secretary’s suggestion that he, Mr. Anderson, did not want balance of payments given as a reason for any such decision but rather that there be a review of our military posture with conclusions that were militarily desirable. Mr. Gates said he did not see how we could balance our budget unless we completely revolutionized our military strategy. Mr. Anderson observed that this would require higher taxes to which Mr. Gates retorted that perhaps that would be the courageous thing to do. The Secretary commented that unless it were possible to obtain the agreement of General Norstad and other military people to a revision of NATO strategy, it would blow NATO higher than a kite.

0. Source: Department of State, Central Files, 711.5/10–2459. Top Secret. Drafted by Reinhardt.
1. According to a memorandum of conference on October 16, drafted by Goodpaster on October 22, among the President, Herter, Reinhardt, Merchant, and Kohler, Eisenhower noted that “he would have no objection to new measures in Berlin and Germany. He commented that, for example, it is time to pull out some of our forces now located in Europe. He cited the balance of payments difficulty the United States is experiencing at the present time. He thought we should get tough with Britain, Germany and France to get them to take up more of the load. Mr. Herter said there is some indication of British thinking of shifting from emphasis upon missiles and aircraft back toward conventional forces, although he doubted that they would increase their forces on the continent of Europe. The President suggested for example making the Europeans furnish the Commander for the European NATO Command, and simply leaving one of our divisions there. He commented that the United States, after all, paid for most of the air bases and other infrastructure, and has paid the whole cost of atomic weapons. He thought we should put no more military assistance into Europe. They are now able to support themselves.” (Eisenhower Library, Whitman File, DDE Diaries)
2. In a letter to Herter, October 8, Acting Secretary of Defense Gates indicated that in the proposed fiscal year 1961 Air Force budget “it may be necessary to approve some, if not all, of the proposed squadron reductions. Accordingly, we have advised General Norstad of the possibility of shortfalls and have requested his views on their impact on NATO as well as his recommendations on how we can best mitigate the international political ramifications involved in any such force reductions in Europe.” (Department of State, Central Files, 375/10–859)
3. No record of Norstad’s reaction has been found.
4. Admiral Louis Mountbatten, British Chief of the Defense Staff and Chairman, Chiefs of Staff Committee.
5. See vol. IX, Document 132.
6. No record of General Schuyler’s discussions in the United Kingdom or with De Gaulle has been found.
7. Reference is probably to the Boards of Governors of the International Bank for Reconstruction and Development, International Monetary Fund, and the International Finance Corporation, all of which held their annual meetings in Washington September 28-October 2.
8. The Agricultural Trade Development and Assistance Act of 1954, enacted July 10, 1954, provided for the disposal of U.S. agricultural surpluses abroad. (68 Stat. 454)
9. W. J. McNeil, Assistant Secretary of Defense (Comptroller).
10. October 26.