Foreign Relations of the United States, 1961–1963, Volume XIII, Western Europe and Canada

258. Memorandum of Conversation⁰

Washington, July 20, 1962, 6–6:50 p.m.

SUBJECT

• Payments Arrangements Among the Atlantic Community

PARTICIPANTS

• U.S.
  • Acting Secretary Ball
  • Mr. Johnson, E
  • Mr. Tyler, EUR
  • Mr. Beigel, WE
• French
  • M. Giscard d’Estaing, French Finance Minister
  • M. Pierre-Brossolette, Finance Minister [Ministry]

The French Finance Minister was invited by the Acting Secretary to meet in the Department. He said that the purpose of the recent French gold purchase was to raise the gold ratio of the French reserves from 65 to 70 percent, in order to bring it into line with the recently prevailing ratio of 70–75 percent. He said that France preferred not to have had a public statement but recognized its usefulness to the U.S. The French Government was nonetheless surprised by some of the adverse press reaction. He said that he had indicated this to the President in their talk this morning¹ and that he was pleased to see that the President understood that the French intention was primarily to contribute to the stabilization of the U.S. balance of payments.

The Acting Secretary said that the President is preoccupied about raising the consideration of this general problem from the level of central bankers to the level of political management, as a way to give meaning to the Atlantic partnership in this area of our relations. He said that thinking about details here is still somewhat rudimentary, but the principle we have in mind is to seek political agreement to stabilize payments among the major industrialized countries. He said that we hope to prepare some suggestions in this direction.

M. Giscard d’Estaing said that in his view any unilateral action by either side to deal with this problem would be undesirable, either to devalue or to change the dollar parity. He said that the comment in this direction seemed mostly to be in the British press with a little in France. He thought that such a move would be disastrous and would impair any possibility of increased confidence in the stability of the dollar. He went on to say that any change in the parity would only lead others to follow suit or even go further.

The Acting Secretary said that official opinion is quite clear here that any unilateral action is undesirable.

M. Giscard d’Estaing went on to say that there must therefore be a multilateral approach, and the question is, which one? He said that it is important to consider the subject with great secrecy, not like the experience of the IMF expansion last year. He said a discreet procedure must be found to work out an agreement. He said that he had spoken along this line to the President and had suggested that discussions go forward under cover of the OECD, with a restricted number of countries and with ministerial contacts as well. He thought that the countries should probably be the U.S., the U.K., France, Germany and Italy. He thought that to include the Benelux would be too many.

The Acting Secretary agreed that discussions could very well take place among the representatives to Working Party 3 as well as on the occasion of ministerial meetings, and that the four countries represented the most important interests.

M. Giscard d’Estaing said that the behavior of the creditor countries will be important while the U.S. is taking actions to bring its external accounts into equilibrium. He said that the restricted group of countries could consider a common balance of payments policy which would involve abstention in gold purchases on the creditor side. They should in his view also consider rates of interest, capital flows and regulation of capital markets, but they should particularly develop a multilateral attitude not to utilize their dollar reserves for a certain period. He said the problem will be what attitude should be taken toward those who might not be willing to accept such discipline. He thought that there would be a problem with the U.K. in this regard, but went on to say that the U.K. is likely to cooperate in view of its desire to join the Common Market, provided a discipline is reached among the Six in this matter.

The Acting Secretary said that we have in mind such possibilities as minimum gold reserves and an agreement regarding the ratio of gold to dollar holdings above the minimum. He said that the Finance Minister’s presentation was very close to our own thinking. He went on to say that if we remain under constant pressure of unilateral action from abroad, while we continue to run substantial deficits, the pressures here to institute restrictive trade measures will be much more difficult to resist. He said that the U.S. is now undertaking certain measures that are certainly not to his liking, such as the military Buy American measures that have been announced within the past week. He said that in his view we should endeavor to solve our basic payments deficit through non-restrictive measures. He reiterated that if the possibility of unilateral action abroad is removed it will be possible to eliminate the restrictive measures and instead seek a solution through an expansionist approach. He said that the solution of course partly depends upon the actions of others, in such fields as capital exports. He said that if we can move this entire subject into the forum of multilateral decisions the results should be beneficial to all concerned.

Mr. Johnson said that the U.S. could of course bring its over-all payments position into equilibrium rather quickly if it were to institute measures that we do not wish to undertake and which would be undesirable.

The Acting Secretary noted in this connection that the U.S. had an ascending tariff level up to 1933 which in part contributed to the worldwide depression. He said that if this general problem is to be solved through sound, expansionist means it will require multilateral political decisions, which will be a good test of the Atlantic partnership.

M. Giscard d’Estaing said that the determination of the President and the principal officers of this Government to deal with the problem in this manner was in his view not well known abroad. He said that he intends to report to the French Government the strong determination voiced to him by the President. He said that if there is an occasion to do so, it would be desirable for the U.S. to make its attitude better known abroad.

The Acting Secretary drew attention to the President’s balance of payments message to Congress in February, 1961, in which the first point was the statement of determination to defend the dollar through expansionist measures.²

M. Giscard d’Estaing wondered how the present press campaign could be accounted for and Mr. Ball suggested that the New York financial community frequently expressed views that were not in accordance with the thinking of the Administration. M. Giscard d’Estaing said that their views were not without influence in the European financial community.

The Acting Secretary said that there is not the slightest sympathy within the U.S. Government for the views appearing in the press regarding devaluation.

M. Giscard d’Estaing thought that it would be very useful to make more widely known in Europe that many other measures would be taken by the U.S. before consideration would be given to any devaluation.

The Acting Secretary said that in looking at the foreign reserve situation, such as the German position with some $2.5 billion in dollar holdings, it is apparent that our exposure to these holdings is not really serious. He said that the loss, for example, of twenty percent on balances of this size would be very small in terms of the size of the American economy. He said that in face of these realities, it should be possible to work out multilateral political decisions which could involve our giving the kind of assurances necessary to other Treasuries, thereby enabling the U.S. to resolve our basic payments problem in an orderly and nonrestrictive way.

M. Giscard d’Estaing said this should be possible if everyone cooperates and that it seemed to him to be worth the risk. He said a problem would arise for him if the French were to see the British or the Swiss managing their reserves differently. Mr. Ball said that perhaps the Swiss would have to be included in the discussions among the other four.

Mr. Johnson said that we must also find a method to handle situations in the future that may arise in the case of other countries.

M. Giscard d’Estaing said that he agreed to this in principle but that it did not seem possible to him that both the immediate and the long-term aspects could be dealt with at once. The long-term aspects could only be considered over time in view of the several approaches that had already been suggested and the need to involve many other countries as well as the IMF. He said that we now need time to help the U.S. solve its problem and then turn to broader questions of international liquidity. He said that the solution that might be adopted by smaller countries, such as devaluation, cannot be adopted by the U.S. He noted that if the U.S. went very far in this direction it would soon face the question of gold parity. He thought that in three or four years a more general study of gold versus liquidity proportions in reserve holdings would have to be made, which would inevitably raise broad questions of devaluation or other measures to increase the liquidity base for the industrialized countries as a whole.

Mr. Johnson said that we would agree it is not desirable to inject discussion of the various plans for international liquidity into the present situation.

The Acting Secretary said that we are thinking of an agreement among the major countries on something that would at first be much more limited in scope, and that we could thereafter turn our consideration to more permanent solutions on a broad scale. He asked whether the position of the pound is likely to become an important element in negotiations between the U.K. and the Common Market.

M. Giscard d’Estaing said that the former Chancellor of the Exchequer had in fact invited him to London this weekend to discuss this question. This was prior to his dismissal. He said that the agenda suggested by the British had begun with an item on the consequences for the pound of U.K. entry. He said that it may seem too much to the British to solve this as well as the other problems they face in connection with entry into the Common Market, and they may therefore like to see the pound become the currency of the Common Market. He said the Common Market has no monetary problems of this nature now but that the U.K. is undoubtedly interested in such matters..

The Acting Secretary recalled the discussion at lunch in which the Finance Minister thought that effective tariff negotiations, including some zero rates, would require a greater concerting of economic policy. He said that while we agreed with this in principle, to the extent it would involve planning of the allocation of production it would be very difficult for us. He said that this would run counter to the history and assumptions underlying the U.S. economy. He said that we do recognize that a concerting of domestic economic policies in general is important, and perhaps inevitable with the growing degree of interdependence among the advanced countries. He said that the more this concerting develops the greater is the tendency for it to continue. He thought that this could go forward on a broad basis without getting involved in any planned allocation of resources.

M. Giscard d’Estaing said that the success of new tariff negotiations would probably depend upon the economic situation prevailing while the negotiations are taking place. He said that if the situation is less expansionist than today, which he felt is likely to be the case, it would be difficult for the European countries to go very far in the absence of other kinds of economic action. He said that it would be difficult to advocate a further opening of the Common Market unless there were other measures of discipline that could be undertaken.

The Acting Secretary suggested that the Common Market does not have a central direction in this respect. M. Giscard d’Estaing agreed with this but said that discipline prevails to avoid unfair competition. He said that he felt the regularity of growth that has been achieved among the Common Market countries has been due to the coordination that has taken place under the Rome Treaty, and he will be interested to see if historical analysis bears out this belief. He said that the test may come as we head for more troubled times. Mr. Ball noted that there is nonetheless very little dirigisme as such in the institutions of the Common Market.

0. Source: Department of State, Secretary’s Memoranda of Conversation: Lot 65 D 330. Confidential. Drafted by Beigel.
1. Giscard d’Estaing talked with the President at 10 a.m. (Kennedy Library, President’s Appointment Book), but no other record of the conversation has been found. In a memorandum to the President, July 18, however, Ball recommended that, without prejudice to any solution of the problems discussed, the President welcome Giscard’s initiative and his desire to explore the balance-of-payments problem. (Department of State, Central Files, 033.5111/7–1862)
2. For text of the President’s message to Congress, February 6, 1961, see Public Papers of the Presidents of the United States: John F. Kennedy, 1961, pp. 57–66.