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

26. Memorandum of Conversation⁰

Washington, January 8, 1962.

SUBJECT

• Meeting at the White House Between President Kennedy and Professor Erhard, German Minister for Economic Affairs

PARTICIPANTS

• The President Professor Erhard
• Mr. Lilienfeld
• Mr. George W. Ball
• Mr. Foy D. Kohler
• Professor Heller
• Mrs. Lejins, Miss Boure (Interpreters)

Professor Erhard indicated that he considered it a great honor to be able to meet with the President. He conveyed the greetings of Chancellor Adenauer who, like Professor Erhard, was hopeful that the United States would become more determined and clear in assuming world leadership. Professor Erhard stated that in his earlier meetings in the Department today, he had indicated that this was a historical moment. Over and above the many things the West was at present doing for the defense and security of the free world, for economic development and industrial production, Professor Erhard had come to realize more and more that, in order to withstand the onslaught of communism and totalitarian mentality, the spiritual strength and values of the West would have to be bolstered. The West needed to develop an ideology in order to survive.

Professor Erhard continued by saying that he had felt a real need to meet President Kennedy. He felt that here was a political force that had freed itself from the conservative past. Here was a man who saw life as a whole and not divided into many different compartments. Unless we can succeed in convincing the people of the world that our present problems must be viewed as part of one indivisible whole, Professor Erhard feels that we shall get lost in a multitude of technical and technological details. Judging by the President’s recent talks, Professor Erhard feels that the President has the courage to do what is needed. The Minister had told Mr. Ball¹ that, just as the value of the Marshall Plan had been less of material rather than spiritual or ideological nature, having brought about in Europe a consciousness of the oneness of Europe, what was needed at this moment was a spiritual inspiration which would lift the world above material considerations. Professor Erhard feels that we have reached the crucial hour. The old ideas of a century ago will no longer do. At the same time Professor Erhard wishes to assure the President that in political life it is easier to put across big, broad sweeping ideas rather than small, technical details. The President’s ideas on international trade, Professor Erhard continued, are well designed to cope with the dangers of discriminatory actions such as threaten to grow out of, for instance, UK membership in the Common Market. The ills of the world can be healed only by following the type of ideas put forth by the President in this respect, and Professor Erhard promised to do everything in his power to push this approach.

The President indicated appreciation for the Minister’s statements. He agreed that discussions concerning the Common Market should not over-emphasize techniques, reserve lists and dollar balances, but deal with the broader aspects to a greater extent. Nevertheless, the President stated, there were a number of matters in this respect which were of concern to the United States. The US had given its support to the Common Market in spite of the degree of economic disadvantage which this would entail for the United States, because of the distinct political advantages which this type of arrangement meant for Western Europe. The matters which concerned the President were, more particularly, first, that France had been withdrawing more and more from world concerns since 1945, and the United Kingdom was doing the same, both countries concentrating more and more on Europe. For this reason the United States was left not only with an excessively heavy burden of military commitments in Europe, but also the burden of aid to under-developed countries all over the globe. In other words, the United States was now trying to do to an even greater extent what England and France had attempted at an earlier period. The President was concerned that the United States have the power to carry on the negotiations with the Common Market in such a manner that they would not lead to friction between the United States and Europe, but rather result in the establishment of closer ties. Secondly, the President was concerned about the effect which the Common Market, which meant so much to Europe, would have on countries outside the Atlantic Community, especially the countries of Latin America and Japan, for instance. It was necessary to keep in mind at all times our obligations toward the rest of the world, and the President was hopeful, therefore, that the Common Market would concern itself with the development of these countries and with their security. Latin America was in an especially vulnerable situation, and every effort must be made not to cause any damage to these countries. The countries of Africa were in a somewhat better situation because of their former or present ties with France and England; but real damage could be done in Latin America.

The President then asked Professor Erhard’s opinion on what might be done to revitalize the spirit of the Atlantic Community. He enumerated the international organizations such as DAG, OECD and others through which the United States is attempting to work, but he felt sure that additional measures are possible to improve the existing ties so that no country of the free world be excluded from the possible advantages.

Professor Erhard stated that he had always been a strong supporter of the Common Market, but he had also always feared that the stressing of certain economic and political aspects would lead to a kind of European inbreeding. For this reason he had always tried to do whatever he could to keep the Common Market open for the admission of additional countries, since he felt that the larger the area involved, the more liberal it would have to be in the policies it applied. He then turned to the concept of the Atlantic Community, a term which he had been using for about two years. Professor Erhard envisaged the Atlantic Community as a spiritual force rather than an organizational or formalized entity. He stated that he agreed with Mr. Bundy, who had put things in the proper perspective in his recent speech.² It was clear to Professor Erhard that there can be no tariff union which does not create different conditions inside and out. Thus, during the next seven to eight years during which the Common Market will be coming fully into effect, there will be constant bickerings with third nations who feel discriminated against, and the European Community will have to spend a great deal of time to listen to these complaints, to make adjustments, make gifts, heal wounds, make compromises and appease. The only way to improve this type of situation, as Professor Erhard sees it, is to follow the lead indicated by President Kennedy by adopting an extremely liberal policy which would place the entire non-Communist world on one and the same footing. This would result in real strength. The Minister stressed that he knows whereof he speaks. He himself lowered German tariffs, unilaterally, at a time when it took real courage to do so, and therefore he feels that he can appreciate the President’s situation, and can permit himself to speak of these matters. The West is in a bad situation. Although Professor Erhard knows US military power, and Germany is extremely thankful to the United States for the support given in the Berlin question and to West Germany as such, Khrushchev can come up at any time with a statement that Western “capitalism” is decaying, dying, and devoid of spiritual force, and that the future belongs to Communism. What can the West reply to all this? We can hardly counter this type of statement by citing automobile statistics or other production figures. We must have an ideology. We must have the faith that the West is and will remain united. We must not always be beset by Khrushchev’s idea that we are existing within an obsolete capitalistic system. We must awaken the realization that this is a new era, with new ideas and with new content; but we have not yet accomplished this. Professor Erhard shares Chancellor Adenauer’s view that Europe, which is not a political unit and in which there is a great deal of diversity, cannot assume spiritual leadership. Therefore Chancellor Adenauer and Professor Erhard would be happy to see President Kennedy consolidate his Administration and assume world leadership with determination. Unless the free world can show unity to the outside, it cannot hope to maintain itself vis-à-vis communism.

The President stated that he is of the conviction that we ought to emphasize to the outside world that the basis premise of the communist interpretation of the world situation is wrong. The Communists are constantly speaking of the decay of the Western World, while our efforts to draw closer to the Common Market are an actual reversal of Communist prophesy. It is the West that is drawing closer together, while the Communist world is falling apart.

Another problem which is of concern to the President with regard to the relations between the Atlantic Community and the rest of the world is that it would be most unwise to give the impression of our creating a rich white man’s club. The Common Market is not enough for the solution of the world’s problems. For this reason the President is appreciative of the intentions expressed by Professor Erhard with regard to Latin America and the Asian and African countries, all of whom are so very much dependent on us and who will judge or determine their future conduct by what we now do. Thus, if the Common Market is to become more than an economic exchange, it must concern itself with the needs of the under-developed countries. Both Germany and the United States will be called upon to do their utmost in this respect. France did a great deal in the past, but concerned itself primarily with its colonial territories. The United Kingdom had done a good deal but now finds itself in difficult straits. Italy has not done very much and probably never will. That leaves Germany and the United States to carry the brunt of the burden. The United States, this coming Thursday, will recommend the largest aid program in its history, with three to four billion dollars of aid planned for this hemisphere, including one billion dollars for the year. The President expressed hope—he had discussed this matter with the Chancellor in the spring—that Germany would be prepared to play an ever greater role in the aid program. If Germany will not go along in this, the efforts of the Western world will fail, because the United States does not have sufficient resources to do it alone.

Professor Erhard stated that he had been fighting in Germany since 1953 to awaken the realization there that once the needs of the German population were taken care of, Germany should fulfill its obligation vis-à-vis the rest of the world. Professor Erhard was happy to see that Germany has been assuming this responsibility increasingly, especially since 1959 and 1960, and that the understanding of this problem has been achieved to a gratifying extent. He indicated that in the period 1960–1961 Germany committed itself—although this has not been paid out in cash—to foreign aid payments in the amount of 1-1/2 billion dollars or six billion marks. He is convinced that the needs in this respect will grow rather than decline. At the present moment, Professor Erhard stated, it is not known what obligations Germany might have to assume in connection with the special arrangements which might become necessary as the result of the association of the African countries with the Common Market. He pointed out that the German situation with respect to foreign aid differs somewhat from the situation of the United States. For instance, it is extremely difficult to raise the necessary budgetary means in Germany, and it should not be forgotten that Germany’s gross national product amounts to only 80 billion dollars as compared to the 550 billion dollars of the United States. At the same time, Germany is in a more favorable position than the United States with regard to trade balances and payments surpluses and the resulting absence of transfer problems. Professor Erhard feels that Germany has done justice to its international obligations by making the necessary debt prepayments and by making its defense purchases overseas. That too, he feels, contributes toward an improvement of the free world financial situation. Nevertheless, Professor Erhard is prepared to work for increased aid efforts, since he views this matter not so much as an economic, but as a moral question. President Kennedy indicated that he fully recognized what Professor Erhard had said but that he was eager to stress that without German help the United States could not hope to accomplish the necessary aid assistance on a global scale. While the agreement reached in the fall by Mr. Gilpatric was a definite help, there was no denying that the United States was carrying an extremely heavy burden as the result of its troop commitments in Western Europe, the aid programs in the Far East and Latin America and the military commitments with reference to the Congo, to mention but a few. The fact that the United States has lost 5–1/2 billion dollars in gold during the last four years showed that the well was not bottomless. For this reason it was important that a certain ratio be established between a country’s gross national product and the amount it was prepared to put into foreign aid. France had been contributing somewhat over one percent, but most of this had been directed to its colonial territories. The President hoped that the Common Market would not assume France’s obligations in this respect but would devote itself to other and additional programs instead. Moreover, the kind of aid being given was of considerable consequence. If very high interest rates were demanded, the loans thus extended did not prove really helpful in the economic development of the under-developed countries. At the same time the donor-countries should also consider accepting re-payment in local currencies. The President pointed out that the matter of foreign aid was always a very difficult one to justify before the US Congress. Matters would be much easier, however, if we could go before the Congress and show that a country which once upon a time was the recipient of such aid itself is now our full-fledged partner in our endeavors to help the world. The loss of US gold has been a very serious matter and has had its effects. Only if Germany is prepared to assume its full share of the responsibility can we hope to convince our Congress of the merits of our aid plans.

Professor Erhard indicated his conviction that the stability of the dollar is a very vital concern to the entire world. Germany feels that this is Germany’s problem too, and he so told Professor Heller. Professor Erhard pointed out, however, that he himself is more confident in this respect than US opinion appears to be.

Then Professor Erhard stated that he would feel better if he were absolutely convinced that the aid that is being given is really the correct thing. Unfortunately, he is not entirely convinced that these very generous gifts are the best kind of aid. He fully realizes that one cannot expect to apply the usual type of commercial terms to matters of this kind, but he fears that too great generosity may not necessarily be the best thing. At the same time, he pointed out that Germany was on the way to adapting itself to the apparent needs of the aid program and might be willing to consider eventually accepting local currency. It was very important, however, to discuss these matters thoroughly, particularly the best kind of aid, and he was sure that DAG would take these matters up. Professor Erhard pointed out that something appeared to be wrong if one considered the truly remarkable contribution made by the United States in the foreign aid field, and the results thereof, and then looked at how little the Soviet Union had done and the reaction of the world thereto. Professor Erhard felt prompted to ask whether it had been the right investment. Perhaps it could be done better. Professor Erhard continued to say that he was afraid that the six member countries of the Common Market would take over the French aid obligations instead of devoting themselves to additional programs. He could not say so finally, but this is how it appeared to him. Perhaps Germany could assert influence and leadership in this respect.

The President indicated that the Soviet Union had a much easier problem with regard to foreign aid than the United States. The Soviet Union could achieve a great deal of effect by concentrating its efforts on a few selected spots, for instance, United Arab Republic, Indonesia, or Guinea, or, in Latin America, Ecuador, Bolivia, and Brazil, while the United States had the entire non-communist world or an entire hemisphere to deal with.

Professor Erhard voiced the opinion that perhaps we are not doing the right selling job from a spiritual or an ideological viewpoint. We must be able to awaken the under-developed countries to the fact that by association with us they can save their lives and improve their lot in freedom. This, however, is the area of our weakness, and Professor Erhard has not found the answer.

The President came back to the question of the French contribution and that it would not be desirable if this amount were now spread over the six countries of the Common Market. Much more was needed with reference to Africa alone and Mr. Kennedy was hopeful that France might be persuaded to continue to carry the load with reference to the former French colonies and that the other Common Market countries could therefore be spared for other aid programs.

Professor Erhard indicated that a few millions one way or another don’t matter so much. Of greater importance was that in the equatorial area of Africa a preference zone might be created which might discriminate against another equatorial territory, namely Latin America. This would resuit in a very bad situation.

The President fully agreed and expressed the hope that what with British and French interests in their former possessions, the Common Market would not concentrate its efforts in the same area. Latin America and its development was of concern to the entire free world. If Germany, for instance, would stop buying its coffee and bananas in Latin America and shift to Africa instead, this would lead to disaster.

Mr. Ball interjected at this point that the problems created as a result of the African situation were under discussion with the Common Market and that it was hoped a preference system might be avoided and a free flow of trade be attained by attacking the problem on a commodity basis.

Professor Erhard stated that with reference to this problem Germany had already proposed that if a preference system were established for Africa, then the tropical or subtropical products of all countries were to be accorded a 50 percent cut in tariff and that within a six years’ period, when the Common Market will become finalized, the tariff on such products the world over should be brought to zero.

The President stated that he had accorded so much time and emphasis to this matter because the situation of Latin America was an extremely precarious one and like a razor’s edge, since the countries there depended on three or four commodities, a small shift with reference to these could result in complete collapse. He mentioned Brazil in this connection.

Professor Erhard replied that he would certainly take home one thing from his present visit to the United States and this would undoubtedly have a political effect. He promised to try seriously to do away with the high consumer taxes still levied on coffee, tea, and similar products, which were no longer justified. If the President indicated that such procedure would help improve the situation in Latin America and was in line with American policy, Professor Erhard was prepared to make every effort in this direction.

The President indicated that this would be a great help. Professor Heller added at this point that he could remember the days when joint efforts were made in Germany some years ago to increase the taxes on such matters since it was considered wise for Germany to keep such products out. But times had changed.

Professor Erhard stated that the whole world had changed unexpectedly in many ways. Thinking back of the Marshall Plan, he recalled that Europe thought in those days that the dollar gap would be with us eternally; now it no longer existed. This showed what could be accomplished with political will and determination. Professor Erhard was convinced that the present currency problems would likewise be solved in time.

In closing, the President indicated that his brother would visit Berlin and Bonn in February.

0. Source: Department of State, Conference Files: Lot 65 D 533, CF 2029. Secret. Drafted by Kohler, approved in U on January 23 and in the White House on January 29.
1. No record of a conversation between Erhard and Ball prior to this one with the President has been found, but a memorandum of Erhard’s discussion with Ball on January 11 on tariffs and trade legislation is ibid., Secretary’s Memoranda of Conversation: Lot 65 D 330.
2. For text of Bundy’s address to the Economic Club of Chicago, December 6, 1961, see Department of State Bulletin, March 12, 1962, pp. 419–425.