Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

193. Telegram From the Embassy in the United Kingdom to the Department of State¹

London, November 12, 1971, 1744Z.

10453. Dept pass Treasury and FRB. Subject: UK reaction to Secretary Connally’s Tokyo press conference.²

1. A.D. Neale, Second Permanent Secretary, HMTreasury, called in Treasury Attache to express their concern over today’s Times report on Secretary Connally’s remarks at press conference in Tokyo. Derek Mitchell, HMT Rep in Washington, was also present. Times reports Secretary Connally saying that settlement of monetary crisis depends entirely on other nations and that European countries were having difficulty in finding common position. Hence, he would not be surprised if the present unsettled situation dragged on beyond the end of the year. On G-10 postponement, Times says Secretary said reports from Europe had indicated that substantive progress would not be possible (septel gives full report on press coverage of G-10 meeting).³

2. Neale said Chancellor Barber had found this report most disturbing. He realized that Secretary had been in Far East and was not sure how much he had been able to keep in touch with most recent developments but felt that the French willingness to hold the present gold parity of the franc in face of increase in dollar price of gold was very significant concession on their part. He was thus puzzled by press report that Connally was attributing the delay to difficulties within Europe. He said that the G-10 participants had been quite willing and prepared for November 22 meeting and that the postponement was attributable to the US.

3. In response to questions to what extent Europeans had agreed on actual numbers among themselves, Neale said his feeling was agreement between French and Germans on franc-DM differential was in the offing and could be realized fairly quickly. He said that on dollar-franc differential, thinking centered around figure of 5 percent but he did not have figure for franc-DM differential. The other European exchange rates, he felt, would come along and fall into line without much difficulty. He pointed out that all this, of course, depends on how far the Japanese are prepared to move since the thinking is there must be some differential between European rates and the yen. Hence, in his view, the key rates were the franc-DM rate and the DM-yen rate. But the European settlement was dependent on the US being prepared to raise the price of gold (implicitly 5 percent).

4. We pointed out that US continues to feel that it is incumbent on the other countries to take initiatives and make constructive proposals. We were aware that French reportedly prepared to maintain the gold parity of franc but this did not seem to us a move so significant as to put the ball back into our court. Apart from the substantive issues, there was some feeling in Washington that the Europeans were approaching the problem entirely in terms of individual national interests whereas we felt a more constructive multilateral approach to a common world problem was in order. We also noted that trade and burdensharing were factors in the overall settlement and we had seen no disposition on the part of the Community to even consider what they might do in the trade area. Neale said he was not familiar with precisely what the US was pressing the Community for on trade and said he understood that we were not gunning for the UK in this area. Mitchell said that his discussions in Washington had revealed a good deal of naivete about what could be done on trade matters in the Common Market. He said they don’t seem to realize that the obverse of their various demands on the CAP were very difficult political problems for the EC countries.

5. Neale summed up by saying that if Secretary Connally is reported accurately and continues to take such a viewpoint, it would be very discouraging to all the participants and makes for a bleak outlook for a settlement.⁴ He felt that continuation of uncertainty on the international monetary front was affecting domestic economic situations, that businessmen in Europe, and he understood in the US, were holding back because of this uncertainty. He was most anxious, therefore, for some indication from the US that some progress could be made fairly quickly.

6. Comment:

British had read into US postponement of G-10 meeting possibility, or at least hope, that US reassessing its position and/or some behind the scenes discussions going on that required more time for fruition. Secretary Connally’s press conference remarks, if made in knowledge that French willing to hold franc-gold parity in face of dollar devaluation, appears to them to preclude both these possibilities. Neale today did not emphasize necessity of US declaring itself first on gold price increase, as he has before. Their immediate concern now appears to be that the US not preclude the possibility ahead of time.

In UK view, there are no real difficulties within Europe, rather the basic obstacle is the US and possibly Japan. If the US is prepared to move on the dollar gold price and the Japanese revalue enough to leave a sufficient DM-yen differential, the intra-European exchange rate realignment could be agreed among the Europeans fairly quickly. While Neale did not say how much differential between the DM and yen was required, he gave as illustrative figures 15 percent for the yen and 10 percent for the DM.⁵

Annenberg

1. Source: National Archives, RG 59, Central Files 1970-73, FN 17 UK. Confidential; Limdis; Greenback. Repeated to Bern, Bonn, Brussels, The Hague, Ottawa, Paris, Rome, Stockholm, Tokyo, USEC, and USOECD.
2. Tokyo was the last stop on Secretary Connally’s Asian tour.
3. Not found. No G-10 meeting in London during this time has been identified. The reference is probably to press coverage of Connally’s postponement of the G-10 meeting. See Document 191.
4. In a November 12 memorandum to Kissinger regarding the surcharge, Huntsman wrote: “The President noted in the November 12 News Summary that Paul Samuelson, Henry Wallich, and Milton Friedman said the surcharge must soon be ended or the nation will face a trade war that could hurt the world. Samuelson denounced as ‘a bad way to negotiate,’ Connally’s statement in Japan that the surcharge will continue until the US wipes out its payments deficit. The President suggested that you note the above remarks in your talks with Secretary Connally.” (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury Volume II, 1971)
5. On November 12 President Nixon sent Kissinger a memorandum that reads: “Before Connally returns it might be well for you to go over and have a talk with Volcker if he is in town and if not with Walker, and if both are here with both of them, to get them programmed for some of the problems we will have to discuss with Connally when he returns. It is important that Volcker and Walker not set up a cabal against the White House as we make these very important decisions.” (Ibid., Subject Files, Box 341, HAK/RN Memos 1971)