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

181. Telegram From the Embassy in Germany to the Department of State¹

Bonn, February 12, 1968, 1956Z.

8266. Department pass Treasury and Defense. Subject: Rostow-Deming-Trezise-Schiller talk.

1. Under Secretary Rostow, Under Secretary Deming, Ambassador Trezise, and DCM Fessenden met this morning with Economics Minister Schiller, Under Secretary Schoellhorn, and Assistant Secretary Schlecht.

2. Schiller stated that an increase in domestic demand in Germany was desirable and advised the Under Secretary, in his later meeting with the Chancellor, to make this argument as his own view of the situation.² Schiller said that it was necessary to run down the current account surplus. Schoellhorn also stressed this point but argued that the process, on the basis of December figures, is well underway. (Comment: The December figures may well have been so much affected by the value added tax as to be quite unrepresentative.)

3. Minister Schiller argued that U.S. protectionism is very dangerous. He said that Debre, with whom he had flown from New Delhi to Paris, had said that if the U.S. took restrictive measures on trade account, France would not ratify the Kennedy Round. Schiller added, “he shocked me.” He then read a sentence from the President’s economic report saying that protectionism is no answer to the U.S. balance of payments problem.

4. In commenting on the Debre conversation, Schiller said that he found him hardening on SDR’s.

5. On unilateral Kennedy Round acceleration, which the Under Secretary mentioned as one specific thing which the EEC might do to be helpful, Schiller responded very positively. However, in this conversation we made no attempt to develop specifics of what Germans might do.

6. The final ten minutes was spent on offset. Schiller stressed the helpfulness of the Bundesbank in the gold pool operations and other monetary measures of recent months. He noted, however, that free reserves of dollars now only amounted to about DM 5 billion and claimed that offset on more than half that amount would be very difficult. Likewise, a two-year agreement would be difficult. He contended that multilateralism had doubtful merit in dealing with the offset problem.

7. During conversation, Schoellhorn said that Bundesbank was giving some thought to dividing up financial neutralization requirement. According to this proposal, Bundesbank would cover part of gap by bond purchases, while putting up remainder to government to cover by bond purchases of its own (presumably by appropriation). This is first we have heard of this notion and are unable to evaluate it.

8. Comment: As in New Delhi, Minister Schiller conveyed a sense of understanding of the U.S. balance of payments problem and program, and a desire that the FRG be helpful in regard thereto.

McGhee

1. Source: Department of State, Central Files, FN 12 US. Confidential; Priority. Repeated to Berlin for Ambassador McGhee.
2. At this meeting, Chancellor Kiesinger said he would soon respond to the President’s letter (see Document 178); and in response to Rostow’s comment that “an expansionist policy in Germany was important if the [balance-of-payments] problem was to be solved,” he indicated that he was “in the middle of the question with Schiller being very expansionist minded but others not.” (Telegram 8265 from Bonn, February 12; Department of State, Central Files, FN 12 US)