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

49. Memorandum of Conversation⁰

Washington, September 14, 1962, 3 p.m.

SUBJECT

• Meeting with Vice Chancellor Erhard September 14, 1962

PARTICIPANTS

• Germans
  • Vice Chancellor Erhard
  • Ambassador Knappstein
  • Dr. Langer, Ministerialdirektor, Economic Policy Division, Ministry of Economics
  • Dr. Ernecke, Economic Counselor, Germany Embassy
  • Mr. Dittmann, Second Secretary, German Embassy
  • Mr. Jirka, Second Secretary, German Embassy
• United States
  • The Secretary (toward end of meeting)
  • The Under Secretary
  • Mr. Freshman, German Affairs

The Under Secretary stated that the Trade Expansion Act had today been approved by the Senate Finance Committee. He anticipated that it would be passed by the Senate sometime next week and go to the White House for signature. This legislation would enable the President to take great initiatives looking to trade liberalization. The Vice Chancellor commented that this was a fine development. He was confident that the law would be implemented along the lines of the President’s ideas. As soon as practicable after passage of the Act, the US and EEC should enter into detailed discussions.

Turning to the UK accession issue, Professor Erhard stressed that notwithstanding some public misinterpretation of the de Gaulle visit,¹ the German Government had not changed its attitude. It is convinced that the UK should join the EEC.

Mr. Ball doubted that intensive US/EEC discussions would commence much before 1964. He would be interested in Erhard’s views regarding the degree of likely European receptivity. He noted French views that the EEC could not manage general reductions in trade barriers without concerting with the US. In principle we favor the concerting of policy; we are convinced of the interdependence of the economies of free world countries. Where in Europe would policies have to be so concerted?

Professor Erhard agreed with the French view. Agriculture is the main problem in Europe, although we must also contend with nationalistic tendencies in some countries and industries. He noted the amazing economic recovery of France and its strong balance of payments position. Political factors will determine the next step there. The UK problems are greater. While industry accommodations are readily foreseeable, agriculture will have problems. This is also true in the Federal Republic. Domestic policies in this regard are not entirely virtuous but some allowances are necessary for obvious reasons. A world-wide conference is needed for product-by-product examination so as not to interfere with trade currents. Politically, however, a new line of argument has arisen. In the last three months the idea has arisen for a political union which would require that everyone joining the economic community also became part of the political community. This was the French view. The question in the German mind is whether the UK would join a political community. He assumed that the Under Secretary would be discussing this question with Foreign Minister Schroeder next month. Erhard felt that countries joining the EEC would be entitled to political association. The neutrals had to be taken into account, however. The German position is still reserved. They will be talking with Heath about this toward the end of September.

The Under Secretary commented that European political unity would be enormously facilitated by UK accession. We had taken for granted the fact of full UK accession. (At this point Erhard interjected “I too”.) We hope accession means full rights for the members. Separate commercial or political arrangements would be divisive and self-defeating. Mr. Ball believed that Couve de Murville saw the problem as not one of UK assimilation per se but of other nations coming along which would transform the nature of the EEC. Couve had in mind two kinds of nations, commercial and maritime. He felt that such countries as the Scandinavian group and Ireland would dilute the character of the Community. Mr. Ball said that the US, of course, is not a party to this, but would—if asked—say that UK exclusion would be very unfortunate. Other countries are another matter. Their political interests are possibly different from their commercial interests. There should be full participation, however, for the UK.

The Vice Chancellor agreed about the UK. Regarding the other countries, their participation could contribute to the strengthening of Europe. However, they couldn’t come in politically and not economically; this would be inconsistent with the historical facts. It might be possible to recast the EEC in a new political form. De Gaulle might feel that other arrangements were possible. The UK should not appear to be rejected by German public opinion. De Gaulle was made to understand in Germany the need for UK accession.

The Under Secretary asked whether de Gaulle’s visit was essentially to symbolize France/German rapprochement. Professor Erhard said that the visit had a somewhat deeper purpose. De Gaulle wanted to convince the German people that a new chapter had begun. He spelled out the reconciliation and indicated areas where forward movement was possible. He learned that the Germans had achieved an entirely new sense of national consciousness. Professor Erhard said that he had told de Gaulle that it was not possible to exclude Great Britain; that while a key aspect of European policy was French/German understanding, he didn’t mean this in the sense of an axis or clique. The UK/German relationship, however, was not the same as that of France and Germany. Erhard said the French accepted this view.

The Under Secretary expressed the view that if the UK joins, they will work with great will to identify with and become a part of Europe. He had told the Chancellor² that a great social revolution was taking place in the UK. They no longer thought of themselves as a world system but as a nation leaning closer than ever to Europe. We are optimistic about the future of EEC if the UK joins. Mr. Ball hoped the London discussions will see approval for UK action. The US present planning on trade liberalization and more systematic reallocation are predicted on UK accession. We see more clearly how Europe and the US can share the common burden, thus enabling the US to divest itself of the lonely and onerous role of carrying the load. This is something about which we must eventually have serious discussion.

The Vice Chancellor felt that UK accession was not the only problem. The Iberian Peninsula (Spain and Portugal) also wanted in.

Mr. Ball noted signs of awakening in Spain which, with European help, should be encouraged. This is likewise true of Portugal. In this regard, Europe can do more than the US. There are great resources in the Iberian Peninsula which may well be added to Free World resources.

The Vice Chancellor then asked about Turkey. Mr. Ball noted that economic progress is better than before but their financial problems are still acute. He was more hopeful than before about the situation. Europe and Germany can do a real job here. At this point Erhard said “Yes, with a great deal of money.” He offered to exchange the Turkish/German bilateral arrangements for the US/Greece bilateral arrangements. Mr. Ball felt this would require some discussion.

The Vice Chancellor and the Under Secretary agreed that communism is a considerably greater danger in Latin America than in Africa. Mr. Ball noted that an enormous effort is needed in Latin America. The dangers of expanding communist influence are considerable, as an outgrowth of the long delays in social changes. In response to Erhard’s question on this point, Mr. Ball felt that very few social changes had in fact taken place, to judge from a recent Alliance for Progress study. Some of those countries exist on a very rigid structure and the problem is therefore difficult. No stability is likely without social change, and there are very considerable elements of instability today in such key countries as Brazil, Argentina, Chile and Venezuela.

Cuba, like Berlin, is a problem for the western world. We should consider the development of common policies toward Cuba. What happens there is related to the entire free world. It is a particular source of Latin America infection. The US hoped this problem could be resolved by a common effort.

The Vice Chancellor then asked whether Khrushchev wanted to get rid of the Berlin issue. Mr. Ball replied that no move was expected before November or December, at which point the problem would sharpen. It might take the form of a peace treaty or other tests of wills. We are prepared for this test of will, which we anticipate as a real possibility. The Russians seem to be putting themselves in a position of less flexibility. The recent reference to US elections might be a ploy. The outlook for the fall or winter does not bode for an easy situation.

Erhard then turned to US policies in regard to its balance of payments situation. Under US procurement policies for its armed forces, American firms will get the business even though their bids exceed German bids by as much as fifty percent. Some relaxation is necessary so that “several million dollars” of this business could be picked up by German companies. This would help in Germany and forestall counter-arrangements in self protection.

Mr. Ball stressed his own belief in liberal trading policies. The US problem is its burdensome global commitments. Defense alone costs us $3 billion in foreign exchange annually. Our gold loss has an effect on the strength of the dollar, which we are obliged to maintain. Pressures to maintain equilibrium are very great. To achieve this, the US can (a) reduce its global obligations; (b) reduce its foreign exchange outlay; or (c) impose restrictive measures on goods and capital. We will not take the third step, however. We want to balance at a high level rather than through restrictions at a low level. The US is firmly resolved not to devalue the dollar by raising the gold price or by other measures. This would be the least desirable of a whole process of measures.

The Vice Chancellor stressed the importance of maximizing trade. This would help the US. German cost increases over the past three years have been considerable, what with a 30 percent increase in wages and other pressures on profits. US costs have stayed relatively level during the same period and it is now more competitive. The German people must practice moderation.

In response to Mr. Ball’s question about the state of the German economy, Professor Erhard said that the problem of excessive budgets has been brought under control, although it is still DM 5.2 billion short of balancing. He has pressed industry and labor to show more responsibility in the situation, but the Government must also practice restraint and thus set the right climate to make demands on the public. The budget cannot be raised beyond the real increase in GNP. Notwithstanding our belief in US principles, we can’t turn the country over to capital and labor. There must be harmony in collective agreements in which the public interest is dominant. The Government can’t continue to spend beyond its income and meet its costs in Berlin and on defense. He had so informed the trade unions.

Mr. Ball commented that the wage/price spiral also gave us problems. He pointed to the President’s intervention with the steel industry, comparing it with Professor Erhard’s action with Volkswagen. Erhard commented that this comparison is often made.

At this point the Secretary entered the meeting.

The Secretary stated that while he had to leave to testify before a congressional committee on Cuba, he wanted to take the time to comment briefly on Berlin. We see a serious situation between now and the end of December. This will require maximum strength, unity and firmness. The President is deeply concerned that we meet the situation with whatever means may be necessary. If Moscow knows that this is the Alliance position we may avoid war. If Moscow doubts this, then we may have war.

The Vice Chancellor expressed his gratitude for the unmistakable determination of the US to defend freedom. This, he said, strengthens the German intention to do everything in their power.

At this point Ambassador Knappstein reported a message from Foreign Minister Schroeder which noted that the German defense budget for 1963 would actually increase by DM 2 billion over last year to a total of DM 17 billion. This represented a reduction in the Defense Ministry request, but was nonetheless an increase in the budget.

Secretary Rusk then reverted to the Russian threat on Berlin. If we can do anything in other capitals between now and November 1 to stimulate preparations we should do so. The US and the Federal Republic have met their obligations but others have not. Perhaps the Federal Republic could address itself to this in Paris and London.

Noting that the Secretary would be testifying on Cuba, Ambassador Knappstein stated that the Federal Republic would support any US initiative in the North Atlantic Council regarding vessel charters for transporting cargo to Cuba. No German vessel is carrying arms to Cuba, under penalty of law. Legislation would be needed to prevent German shipping from delivering anything else to Cuba; notwithstanding which the Federal Republic would support a US embargo on shipping.

The Secretary stated that the American people are concerned regarding Cuba. We also face a severe crisis in Berlin. We must follow the best course in both places. He greatly appreciated the German statement of support on Cuba.

The Secretary then recalled to Professor Erhard that at their last meeting he had spoken of poultry. He thanked the Vice Chancellor for the outcome of this matter.

Vice Chancellor Erhard said that Foreign Minister Schroeder will come to the US next month. He and Schroeder agreed fully on foreign policy, European integration and UK accession. The US should encourage Schroeder on UK accession. This vital subject must be cleared up as soon as possible.

The Secretary noted Moscow’s obvious concern about the EEC prospects. He also informed the Vice Chancellor that the Soviets had acquiesced today in the Allied ban on the use of Soviet APCs in West Berlin.

0. Source: Department of State, Central Files, 611.62A/9–1762. Secret. Drafted by Freshman on September 17 and approved in U on September 18 and S on September 19. Erhard was in Washington to attend a meeting of the International Monetary Fund. A memorandum of his conversation with the President earlier in the day is ibid., Presidential Memoranda of Conversation: Lot 66 D 149.
1. De Gaulle paid a State visit to Bonn September 4–9.
2. Regarding Ball’s May 23 conversation with Adenauer, see footnote 1, Document 43.