Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

128. Memorandum of Telephone Conversation¹

Washington, June 12, 1967, 9:30 a.m.

PARTICIPANTS

• John J. McCloy
• Frederick L. Deming
• Francis Bator

SUBJECT

• Mr. McCloy’s Trip to Germany

Jack McCloy called up on Monday morning to give a brief telephonic report of his visits to Francis Bator and me. He expects to get something down in writing in more detail.

He spent all evening (dinner) with Abs,² having a three or four hour conversation. He talked with him about personalities and what the state of thinking is with respect to international liquidity. Abs seemed to be quite knowledgeable and up to date. He seemed to be convinced that new reserves were needed and said that there was a good deal of such sentiment in France in the private banking community. He also said that Emminger is a close friend of Chancellor Kiesinger and they exchange views frequently (Emminger has never mentioned this to me). Abs commented that Minister Schiller was quite sensitive about our interpretation of his performance in Munich. He was hurt that general U.S. opinion was that he had failed at Munich. His own position is that he had brought France a long way. Abs advised against McCloy talking to Strauss or Kiesinger on this visit. In any event, Strauss was away in Bavaria, so it would have been difficult to have seen him. McCloy had had previous word that Strauss had wanted to see him, but he did not press.

McCloy had lunch with Blessing³ and Emminger. Emminger did most of the talking, and Blessing seemed content to let Emminger carry the ball. In McCloy’s words, Blessing seems to be coasting. Blessing seemed to be quite antagonistic to the French approach to the whole liquidity exercise.

Emminger was quite optimistic that an agreement could be worked out by the time of the Rio meetings. He thought the only real issue was the repayment issue, and he thought France might go considerably further than present indications. In any event, he thought that, in order to get France isolated, it was necessary to give others (EEC) the impression that they have used all possibilities to bring France along. He thought the final agreement would work out somewhere between the Munich Communique and the U.S. position.

Emminger noted that, in his own judgment, it was a losing game to talk in terms of units. At the same time, he said the unit case was really not entirely lost, and there was a possibility that the plan might end up as a unit plan (it is not clear whether he was talking about a plan to be approved at the Rio meeting or something that might evolve in the future).

Emminger made two strong points. He said that he wished the U.S. would concentrate more closely on what we mean by “reconstitution.” The language we have used so far is too general. What actual terms of reconstitution could we live with? Schiller repeated this point to McCloy.

Second, is there anything more that the United States can do to stress the fact that its concern about international liquidity is not rooted in its feeling that this would be relief for its balance of payments position. He said there needed to be more “propaganda” on this, that he had mentioned this point to me on several times (which is true). One positive suggestion he made was that it would be useful to get an article published in the Neue Zuricher Zeitung (Franz Aschinger is the economic writer for this paper). He thought the paper would do a good job and that this would be quite useful.

Emminger stressed the point that he hoped I realized that he, Emminger, is trying to exhaust all possibilities with France before isolating them. He also noted that the Belgians were more on the U.S. side than the U.S. thinks. They are beginning to talk in terms of an asset and seem to be moving more in the direction of flexibility. Finally, Emminger noted that the Middle Eastern crisis had operated in favor of contingency planning.

McCloy saw Schiller only briefly as he came off the Bundestag floor to talk to him for a few minutes. An unexpected budget hearing had been scheduled and Schiller was very much on the defensive with the budget—he was being attacked both by his own party members (SPD) and by some of the Free Democrats.

The only point McCloy concentrated on with Schiller, given the short time, was to stress the fact that we wanted Germany to be objective—that we weren’t asking them to follow slavishly a U.S. line. We were convinced, and Schiller seemed to be, that we needed agreement at Rio.

McCloy confirmed that Schiller was very defensive and hurt about our evaluation of Munich. He was bringing an expert with him to Washington to sit in on the meetings on Monday, June 19. He mentioned Secretary Fowler’s recent letter,⁴ although not substantively.

Schiller insisted that he was very close to Debre and thought he could have some influence on him.

McCloy spent quite a lot of time with Schiller’s personal assistant, Fritz Fischer. Fischer took a lot of notes and promised to get them to Schiller. McCloy followed the general talking paper line with Fischer.

McGhee did not accompany McCloy to see Schiller since he was away. McCloy talked to McGhee only on the phone, and McGhee stressed the point he has made on many occasions—that we were put-ting more pressure than was desirable on the Germans.

McCloy mentioned, in conclusion, that he had stressed with Abs, Blessing, and with Fischer that, in the general political situation, we needed more symbols of unity in the alliance. He bore down hard on the problems we faced in the future and the necessity for getting a good arrangement on international liquidity as part of the financial wall for the alliance. He thinks he got these points across most strongly to Abs and Fischer. He also stressed with all of them that the IMF reform proposals, if taken precedent or parallel with the liquidity exercise, would slow down the whole process. Emminger was in agreement on this point but responded that, as long as we tell them that we are willing to talk about this letter, he thinks it will be alright. He thinks it may be necessary to permit France to take a reservation on this point with respect to contingency planning, by which I take it to mean that he thinks France might still use this as a lever with respect to activation. Emminger thoroughly agreed that it would complicate things to talk about this now.

Frederick L. Deming ⁵

1. Source: Johnson Library, Bator Papers, McCloy Trip, June 1967, Box 8. Confidential. Drafted by Deming.
2. Hermann J. Abs, President of Deutsche Bundesbank.
3. Karl Blessing, Central Bank Governor of the International Monetary Fund for West Germany.
4. See footnote 1, Document 126.
5. Printed from a copy that bears this typed signature.