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

206. Telegram From the Embassy in Belgium to the White House¹

Brussels, November 15, 1968, 2144Z.

3310. For Walt Rostow, White House Eyes Only. From Ed Fried. Subject: Fowler mission contingency plan discussions.

Quiet, limited and very careful discussions on possible parity moves have turned up the following:

UK—1. Strongly prefer no moves now and a period of stability until next spring. They fully recognize, however, the dangers in the current situation.

2. They believe France may move unilaterally but do not fear big devaluation (25 percent) which would bring down the house. Their major fear is unilateral modest French change (10 percent) without any simultaneous offsetting revaluation by Germans and Italians. This would cause great pressure on sterling.

3. They could and would stand still, if we would, for a modest French devaluation (up to 10 percent) if there were simultaneous German and Italian moves upward.

4. They believe a German move would trigger a French move—mainly because of speculative pressure but possibly because the French would use it as an excuse.

5. They want any French or other moves—alone or in combination—to be taken multilaterally or to be approved multilaterally in a meeting of the Group of Ten called by the U.S. in Washington. They see the situation calling for a closing of the exchanges for a day or two. But multilateral agreement (along with the announcement of new credit lines) would demonstrate that this was the end of parity moves for the time being and therefore would quiet the markets and stop speculative movements. They hoped we would be able to get this message across to the Germans and the Italians.

France—At the close of their formal discussion, Minister Ortoli privately expressed interest and concern to Secretary Fowler as to what Secretary Fowler would say in Bonn regarding German revaluation.

In an unusually frank conversation at a private luncheon arranged at his request, Larre (French Treasury) outlined French position to Deming as follows:

(A) French did not want to devalue. Couve was absolutely firm on this; de Gaulle was also. There were too many political disabilities. Couve also believes there is no economic necessity for the French to devalue.

(B) If Germans moved up, Couve believed it would relieve pressure on the franc and was confident French could hold. The prevailing view in the French Treasury emphasized concern about money flows reacting on France after a German revaluation. Larre cited 1961 experience when the German-Dutch move had triggered inflows into those countries and Switzerland. Also, it was believed that a German move now might create stronger belief that a French move would be needed. Couve thought this was wrong.

(C) Larre’s further view was that regardless as to which view is right, German revaluation talk was draining French reserves. There really was no hope for stability in the present situation. No action on the mark probably would mean action elsewhere. Deming took this to mean explicitly that the franc could not be held without a mark change.

(D) Larre hoped Secretary Fowler would not be neutral on this subject in Bonn, as Fowler had intimated to Ortoli.

(E) Larre said that under proper circumstances—international meeting; public announcement that there would be no other upward parity changes except mark, lira and maybe guilder; and an adequate credit package back-up—franc could and would hold.

(F) There was no real comment about lira during most of discussion—emphasis was on mark.

Netherlands—This subject was not discussed in any systematic way with the Dutch, but at one point in private conversations Van Lennep and Zijlstra²said flatly they did not believe a German move would put pressure on the franc but that to the contrary if the Germans moved enough (e.g., 7 or 8 percent or more) it would help the French to hold.

Belgium—Ansiaux was most concerned about the pound and was worried that the British would again be forced to move and that this would give the French an excuse to move.

He believes the French will not move on their own because Couve is determined to hold the rate and is prepared to let reserves run down.

He believed a German revaluation would take some pressure off the French and would not be used by the French as an excuse to devalue themselves. He was not concerned about the possible destabilizing effects on markets of a unilateral German move—but his position on whether they should move was essentially neutral.

Deming expects to have discussion with Carli tomorrow in Rome.

Inform Bill Martin and Joe Barr and John Petty in Treasury.

1. Source: Johnson Library, National Security File, Subject File, Balance of Payments, Vol. V [1 of 2], Box 3. Secret; Sensitive; Eyes Only. Via [text not declassified] Channels. Attached to the source text is a memorandum from Walt Rostow to the President, November 15, 6:30 p.m., indicating that he wanted the President to have Fried’s report in case he was interested in looking into it over the weekend.
2. Emile van Lennep, Treasurer General, Netherlands Finance Ministry, and Jelle Zijlstra, Governor of the Netherlands Bank.