Foreign Relations of the United States, 1964–1968, Volume XIII, Western Europe Region

193. Memorandum From the President’s Deputy Special Assistant for National Security Affairs (Bator) to President Johnson¹

Washington, August 11, 1966.

SUBJECT

• Further Reply to Erhard Letter of July 5: Two Major Decisions

You will recall that you instructed George McGhee to acknowledge Erhard’s letter (at Tab A)² and to say that you would need time to study it before replying in detail. (Before deciding on how to reply on offset, it made sense to see how the Chancellor’s rocky politics and economics shaped up.)

There is now a case for an extended answer, but your advisers differ on what kind of a pitch we should make on offset, and what we should say about the nuclear sharing/non-proliferation issue. The differences reflect basic questions concerning our objectives in Europe which only you can decide.

Issue No. 1: Nuclear Sharing vs. Non-proliferation

Erhard’s letter implicitly asks you to reconfirm that we will not exclude “establishing in the future a joint integrated nuclear force” in order to buy a non-proliferation agreement. A full-dress reply which does not explicitly do that, would almost certainly result in another Erhard inquiry within 48 hours.

On the other hand, unless you have made up your mind to stay with the present policy on non-proliferation, you will not want to repeat the assurance he wants. You know the positions of your advisers on this. Secretary Rusk, Ball and Rostow would vote for a strong reconfirmation of our earlier position. (Walt will file his own views in detail.)³ I do not know how Bob McNamara would vote. (In the past, he has been against the so-called European clause, but not against keeping open the option of a joint force with a U.S. veto.) Moyers⁴ and I would vote against reconfirming the present position until you have decided whether to test the Russians in Geneva (though Bill and I would differ somewhat on tactics). My suggestion would be that we avoid this issue by not sending a full, extended reply—except perhaps on offset—but rather a short note saying that you plan to discuss the various points raised in Erhard’s letter in September.

Reaffirm previous position (hardware option to remain open)⁵

Avoid issue by not sending a full, point by point reply

Wait with the decision—and with any detailed reply until you, Rusk, McNamara, Moyers and Rostow are all back in town and can talk it over

Speak to me

Issue No. 2: Offset

The tactical question is whether (1) to send Erhard a hard warning now that we will have to cut back troops if he does not come through with a new 100% offset deal (to follow the present one, which runs out in June 1967); or (2) simply to ask Erhard not to foreclose a renewal of the full offset before his September visit, and ask him, in the interim, to explore with us and the British a modified version of offset which would avoid the payments drain but give the Germans some extra options (buying goods other than weapons, and perhaps even buying long-term U.S. securities).

The tough language on offset at Tab B is McNamara-Rusk product,⁶ which, however, predated some of the recent evidence of Erhard’s political difficulties. McNamara still wants to go ahead with it. George Ball and George McGhee are against. I do not know about Secretary Rusk.

The tactical issue hinges on a fundamental question of our objectives:

1. Do we want to use financial pressure to maneuver the Germans into asking us to cut troops? If this worked, it would permit us to shift to a more economical military posture (dual basing, airlift, etc.), with minimum resistance from the Chiefs and their allies on the Hill.

2. Or, do we prefer to try for an arrangement which would: (i) give us the time needed to work out with the Germans and the UK an agreed position on what kind of a reduction in U.S.-UK forces in Europe would make sense in military terms; (ii) avoid large-scale U.S. troop cuts during the interim (perhaps 2–3 years), and minimize British troop cuts; (iii) still protect our balance of payments (though somewhat less so than sharp troop cutbacks).

In general, sending a tough letter now along the lines of Tab B, corresponds to the “get the Germans to invite us out” strategy. Sending a gentler one fits with the second “trying to work it out” strategy.

The Line-Up

Bob McNamara and Joe Fowler would vote for a tough letter. I would surmise—you will want to get his views in person—that Bob believes the best way out of big, unnecessary troop commitments in Europe is to insist on a 100% weapons-offset, regardless of German politics. This would maximize pressure on the Germans to build up their forces (using weapons bought from the U.S.). And if the heat gets too great, and Erhard refuses, we will have set the stage for a cutback.

On tactics, Bob would argue that the only hope of getting to Erhard in time to affect his ’67 Defense Budget is to hit him now. (If the economies the Chancellor plans are carried out, it is clear that he will not have the money to keep offset at present levels after June 1967, either for us or the UK.)

Ball, Rostow, McGhee—and, Ball believes, the Secretary—would vote for a gentler letter. So would I.

—We do not believe there is an appreciable chance of getting Erhard to increase his defense budget this summer. He is in the middle of a major parliamentary fight for an anti-inflation/spending-reduction program. (By next winter, if inflationary pressures ease, he will be in a much better position to raise some extra money for defense.)

—More fundamentally, we believe that major shifts in U.S. security policy in Europe should be based in the first instance on political/military factors. To base such shifts on money would confirm the impression that NATO is falling apart, that de Gaulle is right in saying that the British and Americans are unreliable and care more for their pocketbooks than for the safety of Europe. Further, unilateral U.S. troop cuts would reduce our assets for an eventual mutual-withdrawal bargain with the Soviets. Most important, it could seriously unsettle German politics—with unpredictable results. (Erhard is already in trouble, mainly because of his inflation problem. Latest poll results show his unqualified support down from 44% in April to 30% in July.)

There is no question that the gentler strategy would delay a shift to more economical troop deployments, and it might bring on a tougher battle with the Chiefs when we do shift later. But it would avoid the appearance of the financial tail wagging the security dog, and avoid hitting Erhard when he is down. Moreover, we do not believe that the gentler strategy means giving up on a serious offset deal. There are good alternatives to a straight weapons offset.

Additional Bator Comments. Underlying my own strong vote in favor of the softer strategy are two further judgments:

1. If we are going to take risks with German politics, I would vote that we do so in connection with nuclear-sharing/non-proliferation, rather than with offset and U.S. forces in Europe. I do not believe we should risk frustrating the Germans on both counts. Frustrating them on either one is risky—George and Walt would say much too risky. I think it worth trying to get Bonn to give up on hardware in order to test the Russians on non-proliferation—though I would do it more slowly and gently than I think Bill Moyers would. But I entirely share the Ball-Rostow view that a harsh strategy on both fronts would lead to really serious trouble in Germany.

2. It would be a very poor trade for us to take serious risks with the stability of German and alliance politics, and hence with our security position in Europe, in order to make marginal gains on our balance of payments. Given time, I think the gentler Ball-Rostow-Bator strategy would lead to a broader version of offset, good enough to protect our balance of payments. But even if that is wrong, and the result is a marginally greater balance of payments drain, that is a risk that, in my judgment, is worth taking in order to protect our basic security and political arrangements in Europe.

By taking more of a chance on our balance of payments—and on the UK balance of payments, so as to hold the British in Europe and East of Suez—we very marginally increase the chance that, in the end, we will face a run on gold. As you know, I do not share the view that such a run would be the end of the world—as long as it is not within a few months of an election. Far from it. The present international money rules place a preposterous burden on the U.S. By moving with speed and skill, following a stoppage of U.S. gold sales, we could, within a few months, negotiate new rules which would make far more sense all around. Because of our economic strength and trading position, our negotiating leverage would be enormous.

This is not to recommend that we stop gold sales tomorrow. It does suggest that we should not take serious risks with the stability of the Atlantic security system, and the so far successful effort to build Germany into the Western community, in order very marginally to reduce the chance that we will have to stop selling gold to the French at $35 an ounce.

Choices

Alternative 1: Wait with this decision—and with any extended reply—until you, Rusk, McNamara, and Rostow are all back in town and can talk it over. (Bob would worry that the delay would reduce the chances of influencing Erhard’s budget. The rest of us do not believe there is a chance of any letter causing Erhard to pull apart his anti-inflation package in the middle of a tough parliamentary fight.)

Alternative 2: If you decide now in favor of the tough (McNamara) strategy, we will send up a cleared draft reply incorporating the offset language at Tab B. (Before making that decision, you may wish to talk to Secretary Rusk, George Ball, and Walt.)

Alternative 3: If you have doubts about the tough strategy, but do not wish to wait with a decision, you will wish, before finally making up your mind, to hear out Bob McNamara as well as Rusk and Ball. You could have a small meeting tomorrow (Friday)—Bob leaves at 3:00 for a week. Or you might telephone Bob.

Wait⁷

Follow tough McNamara approach

Follow Ball-Rostow-Bator approach

Set up meeting Friday (August 12)

Speak to me

Next Step

If, after having heard out McNamara, you decide against a tough letter it is important to start a State-Defense-Treasury-White House exercise to prepare an alternative strategy on offset and troop strength for use in U.S.-UK–FRG talks.

Approve⁸

Disapprove

Speak to me

FB

1. Source: Johnson Library, National Security File, Memos to the President, Walt Rostow, Vol. 10. Secret. Another copy of this memorandum is dated August 12, 12:45 a.m. (Ibid., Papers of Francis M. Bator, Meetings with LBJ, 8/24/66, Box 17)
2. Not printed.
3. Not found.
4. Bill Moyers, Special Assistant to the President.
5. None of these options is checked.
6. Not printed.
7. This option is checked. At the end of Alternative 1, Bator wrote: “We will gamble on waiting. Draft letter asking him to be ready to discuss in Sept. and to sit on budget.”
8. This option is checked.