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

205. Telegram From the Embassy in Belgium to the Department of State¹

Brussels, November 24, 1971, 1810Z.

3910. Dept pass Treasury and FRB. Subj: G-10 meeting in Rome.

1. Summary. During discussion of forthcoming G-10 meeting on November 24, Belgian FinMin Snoy told Charge he saw a possibility of substantial progress at G-10 meeting in Rome if U.S. were agreeable to modest devaluation of dollar. Otherwise he foresees a deadlock which would force the Europeans to seek their own solution, beginning with the Pompidou-Brandt meeting. Snoy expressed concern that the deteriorating economic situation in many countries including Belgium would make it increasingly difficult for governments to meet U.S. desires. It was, therefore, urgent to reach agreement soon. Snoy believed that settlement of exchange rate question would still leave the problem of dealing with the convertibility of the dollar. He also recognized existing problems in the trade field which needed to be discussed. In response to Snoy’s defense of Community proposal for EFTA non-applicant members, the Charge said that efforts to avoid new restrictions between former EFTA members should not be used to raise impediments on trade between Europe and the U.S. End summary.

2. Charge accompanied by Economic Counselor called on FinMin Snoy Nov 24 to seek Belgian thoughts on forthcoming G-10 meeting.

3. Snoy said he thought it best public posture to approach this meeting without too much expectation. He was nevertheless deeply concerned by the dangers of the present situation. He referred to the deterioration of the economies of Germany, Belgium and elsewhere. This deterioration increases protectionist pressure on governments and makes it more difficult to make adjustments desired by the US. He mentioned that increasing unemployment in Belgium and a sharp drop in investments were reflected in the success of recent Belgian state loan.

4. Snoy, therefore, sees urgency of early agreement. He was confident that such an early agreement would be possible if it could include a modest devaluation of the dollar by perhaps 5 percent. If that were impossible there would be a deadlock in Rome. He said that some progress on the European position had been made in Versailles, but this had more to do with the procedure than with the substance. Further steps would depend on the G-10 meeting. Regardless of what happens Snoy thought that some progress on the first stage of the Werner Plan would have to come out of the French-German meeting. Furthermore, if there were no success in Rome, the urgency of the European situation might well make essential an ad hoc European solution in the monetary area and the Pompidou-Brandt meeting would just be the beginning of this process.

5. Snoy thought that even if agreement were reached on exchange rates there would still be the question of convertibility of the dollar. He foresaw that the need would continue for foreigners to accept dollars even if agreement were reached. He did not see how a solution of this problem would be possible without discipline of the IMF. For example, central banks would not hold dollars without some assurance through IMF on their value and usability. He asserted that US Treasury had so far resisted IMF discipline such as had been accepted by the British.

6. On the degree of flexibility that would be required he thought it depended on the degree of realignment. The closer the realignment to US desires the less flexibility that would be required.

7. Charge referred to the question of trade. He stressed that an outward looking attitude by the Community on a number of questions such as grain stocks, agricultural prices, and citrus fruits, would be useful over the short run. Snoy was sympathetic, but noncommittal. He suggested that if the dollar were devalued it would be helpful to the Community on agricultural prices. This would make it possible to retain the unit of account and make it easier to resist protectionist pressures that would otherwise emerge in establishing a new unit.

8. While he recognized that EFTA non-applicants were a problem, Snoy pointed out that Community could not increase “boundaries” on trade between former EFTA members. The Charge responded that the US is not interested in creating such new “boundaries” but at the same time does not believe that the EC reconciliation with the EFTA should result in new hurdles for US trade. He stressed that US ability and willingness to accept new elements of discrimination had greatly changed over the last 10 or 15 years, and more active attention by Europe to third-country interests would be in order.

Boochever

1. Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Box 124, Morning Summaries. Confidential. Repeated to Bonn, Bern, London, Luxembourg, Paris, Rome, The Hague, Tokyo, USOECD, and USEC.