Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

46. Memorandum From Secretary of State Rusk to President Kennedy⁰

Washington, July 9, 1961.

SUBJECT

• Recent German Measures Relating to United States Balance of Payments

At our meeting yesterday,¹ you asked to be informed about recent measures taken by the Federal Republic of Germany which have had a beneficial effect on the United States balance of payments situation. As you know, our aide-memoire on this subject was transmitted to the Germans on February 17, 1961, at the time of Foreign Minister von Bren-tano’s visit to the United States, and I shall recount here pertinent German measures subsequent to the delivery of the aide-memoire.

German Foreign Aid Program

Since announcing an intention in October 1960 to provide on a continuing basis aid to less-developed countries, the Germans have made significant progress in this area and further substantial progress is expected. An aid program of DM 5 billion ($1.25 billion) for 1961-62 is under way, this amount corresponding to almost 1 percent of the German GNP, a ratio suggested by the United States as an aid target for member countries of the Development Assistance Group (DAG).

In recent testimony before the Senate Foreign Relations Committee in support of the Act for International Development, Under Secretary Ball commented briefly on the German foreign aid program. Enclosed is an excerpt from Mr. Ball’s testimony covering his remarks on this subject.²

US-German Balance of Payments Discussions

In accordance with your instructions, Ambassador Dowling has set in motion arrangements under which joint working groups composed of US and German military experts are meeting to examine (1) German military requirements over the next 5 years, looking to increased procurement in the United States; (2) military logistics facilities which may be available for joint use on a shared-expense, leasing or similar financial arrangement and (3) the possibility of reduction in costs of contractual services for our military establishment in Germany, which now amount to approximately $270 million annually.

German military orders in the United States total $208 million for the first six months of 1961, as compared with an average annual level of $225 million for preceding years. The German Defense Ministry has proposed that our Defense Department undertake to handle German military procurement in the United States on a contract basis; if this arrangement can be worked out, we would expect it to pay off in increased procurement.

German military procurement includes an order for two battalions of Pershing missiles ($130 million), which the United States has accepted subject to the possibility of changes in NATO force goals or in deployment of NATO weapons which might affect fulfillment of the contract for these missiles. This order replaced a previous contract for Mace missiles.

Defense Minister Strauss has stated his willingness to place considerably larger orders in the United States, provided what he characterized as deficiencies in some categories of US military equipment are overcome by joint US/German development. At our request, the JCS is presently examining Strauss’ assertions, looking to a discussion with him on this point when he comes to Washington on July 14.³

Other Recent Financial Actions Undertaken by the Federal Republic

As you know, the Germans revalued their deutschemark by approximately 5 percent in March 1961, which among other things will make our exports to Germany more competitive and make German exports more expensive.

The German Government prepaid $587 million of its postwar debt to the United States, leaving a balance of $200 million. This increment benefited our liquidity position.

Certain US products, notably poultry, were recently liberalized by the German Government for importation, resulting in an immediate increase in the volume of exports of these items to the Federal Republic. This action stemmed from our balance of payments discussions with the Germans.

Dean Rusk⁴

0. Source: Department of State, Central Files, 811.10/7-961. Secret. Drafted by C. Arnold Freshman (EUR/GER) on July 6 and cleared by Tyler and Hillenbrand. Attached to the source text is a July 6 memorandum from Tyler to Secretary Rusk, indicating that the memorandum responded to the President’s July 5 request for information on Germany’s actions in relation to the U.S. balance-of-payments situation.
1. Reference presumably is to a meeting among the President, Secretary Rusk, and Hillenbrand on July 5 at 11:20 a.m. (Johnson Library, Rusk Appointment Books)
2. The enclosure, not printed, is an extract from Ball’s testimony before the Senate Foreign Relations Committee in support of the Act for International Development on June 5.
3. No record of this visit has been found.
4. Printed from a copy that indicates Rusk signed the original.