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 You are in: Under Secretary for Public Diplomacy and Public Affairs > Bureau of Public Affairs > Bureau of Public Affairs: Office of the Historian > Foreign Relations of the United States > Nixon-Ford Administrations > Volume III
Foreign Relations, 1969-1976, Volume III, Foreign Economic Policy, 1969-1972; International Monetary Policy, 1969-1972
Released by the Office of the Historian
Documents 195-221

195. Information Memorandum From the President's Assistant for International Economic Affairs (Peterson) to President Nixon/1/

Washington, November 15, 1971.

/1/Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Council on International Economic Policy--Peterson. Confidential. A stamped note on the memorandum reads: "The President Has Seen." It is attached to a November 24 memorandum from Huntsman to Secretary Connally informing him that the President suggested Connally receive a copy but that "the President does not endorse any of the views expressed herein."

Status of International Economic Negotiations--Your Meeting This Morning with John Connally/2/

/2/According to the President's Daily Diary, there was no meeting between the President and Connally on November 15. Connally had talked with the President twice by phone following his return from his Asian trip on November 14 and he and Mrs. Connally had dined with President and Mrs. Nixon that evening, probably obviating the need for a November 15 meeting. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary)

1. At the informal news conference upon his arrival, John Connally is reported to have said that the current monetary uncertainty could continue for "an almost indefinite period", that the U.S. would not suffer if it did and that the U.S. "is doing very well"./3/

/3/See The New York Times, November 14, 1971, p. 1.

This precipitated telephone calls to me from a variety of sources expressing concern that we did not understand the "precarious" stock market situation and the other effects on U.S. companies of this continued uncertainty and impending European recession.

Also, Treasury has indicated that Connally's speech before the Economic Club of New York tomorrow evening is a "major policy" statement. Apparently, the draft will not be ready until sometime today./4/

/4/Connally addressed the Economic Club of New York on November 16. The press reported that "the Treasury Secretary's address had been billed in advance, perhaps mistakenly, as a major policy statement." See ibid., November 17, 1971, p. 65. The text of Connally's remarks is printed in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1972, pp. 232-236.

In some of these calls to me, I am asked to do what I can with yourself and John Connally to "cool it", quit the "saber rattling", and stop the "don't give a damn attitude".

You might want to give John Connally some overall guidance on what you want our overall stance to be on the international negotiations.

2. Assuming that you decide that we should begin negotiations reasonably soon, I believe we should convene a small group in a setting that you think appropriate to resolve where we go from here.

There are a couple of open items.

I am having some intensive work done on the problems of selective lifting of the surcharge on a country-by-country basis, or hemispheric basis./5/ State feels it cannot be done because it abrogates some of our international treaties and obligations. I have two other sets of lawyers trying to figure out how we can do it.

/5/On December 1 Peterson sent President Nixon a paper on "Selective Lifting of the Surcharge." Peterson referred to the President's concern over relations with Latin America (see also footnote 4, Document 185), but noted that selective lifting of the surcharge would be contrary to GATT MFN obligations and similar provisions in many Friendship, Commerce and Navigation treaties. One option would be to lift the surcharge for all developing countries, which he thought would encounter little opposition from developed countries. (Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, CIEP--Peterson)

On trade negotiations, I thought the agencies were virtually in total agreement on what we wanted and how to go about it. This weekend, Treasury submitted a paper saying we should expand significantly our requirements from the European Community./6/ Since a top Treasury man chaired the trade task force, it is of course possible that this rather surprising reversal is simply a signal that we may not really want to proceed with negotiations.

/6/Not found.

If you decide the time has come to get serious about some forward movement in these negotiations, we could be ready as early as next week to present you with negotiating options.

3. At Arthur Burns' request, I met with the ex-Prime Minister of the Netherlands (now President of the Netherlands Bank and the Bank of International Settlements) who has been operating behind-the-scenes to see if he can suggest the elements of a deal with the Europeans that would have a reasonable chance of meeting both our requirements and their economic and political situation./7/

/7/See footnote 2, Document 215, regarding the Working Paper Jelle Zijlstra sent Secretary Connally on November 23.

He brought up the gold price question and I told him of your strong views on this. On the question of zero or very limited convertibility, he was reasonably confident that this would not be a serious problem. On the gold price question itself, he said he hoped you understood that, with impending recessions and significant political (labor) problems in some of the key countries, it would be extraordinarily difficult for them to initiate a revaluation. He is, at the same time, aware of your political problem here and is working on a way of doing this through an IMF action which might put off any requirement for U.S. legislative action until after next year's election. A very similar approach was worked on by my coordinating group and shows some promise.

While I agree completely that we have very little to gain at this time by indicating flexibility on this gold question, I think it's going to end up being a "crunch" issue. Each percentage point of exchange rate realignment vis-a-vis the dollar improves our balance of payments (trade) by about 800 million dollars. If, indeed, the difference between some or no gold price change, or its equivalent, is 4% to 5% in overall exchange rate realignment, this issue could mean as much as 3 to 4 billion dollars difference in our trade account.

To sum up, I think you will soon have to decide whether you want the U.S. to adopt a more positive stance on the international economic negotiations. To repeat what I've said elsewhere in more detail, beginning a serious negotiating process does not mean, in my view, "caving in" and certainly does not mean accepting a "bad deal". It does mean, however, conveying to the U.S. public and foreign countries that it is in our mutual interests to take positive steps to try to resolve this situation constructively.


196. Telegram From the Embassy in the Netherlands to the Department of State/1/

The Hague, November 15, 1971, 1010Z.

/1/Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Morning Summaries. Secret. Repeated to Ankara, Athens, Bonn, Brussels, Copenhagen, Lisbon, London, Luxembourg, Oslo, Ottawa, Paris, Reykjavik, Rome, USEC, and USNATO.

4157. Subject: SYG Luns concern about economic split in Alliance.

1. Summary: During his official visit to Netherlands SecGen Luns called at Embassy Nov 12 on informal and confidential basis to convey his mounting concern re effects of commercial and monetary rift developing between U.S. and NATO partners and to propose that matters be addressed at NATO Ministerial December. End summary.

2. Luns told me that he had discussed with PermReps in Brussels and in Bonn with FonMin, DefMin and Chancellor Brandt his mounting concern over effects on Alliance of monetary and economic crisis and differences with U.S. He said that while MBFR, CESC and Berlin were important he thought top priority belonged to economic crisis which affected all these other issues. He fears that if differences go unsettled for four or five months, they will get wound up in internal politics, especially U.S. elections, and will get out of control. There will then be retaliatory measures on both sides, recession with further diminution of defense budgets, and general dissipation of confidence in Atlantic Community.

3. Luns said under such circumstances exchanges of paper formulae with Soviets on balanced force reductions would become complicated and meaningless. Soviets will simply sit back to see what happens, while Western Europeans make own trade and monetary arrangements and relations with U.S. deteriorate. Luns said he thought necessary precondition to progress on this issue was that France and FRG should compose their present differences. He also felt this matter was too crucial to be left to financial technicians such as Schiller and Giscard, and that political leaders of governments should get involved.

4. Luns has therefore proposed to Germans in Bonn and to other PermReps in Brussels that matter should be introduced on agenda for NATO Ministerial Dec 8 to 10. He had at first envisaged (1) item entitled implications of current monetary and financial problems for Alliance, and (2) participation of MinFins in NATO meeting. But in view of modus operandi of MinFins and danger of their getting separated from context of main meeting, as well as personal problems (Schiller-Giscard), Luns thought it better not to push for their participation. He also found it better to water down terminology of item so it could be treated under heading "state of Alliance" and thus avoid implication NATO was horning in on OECD, EEC, GATT, etc. Luns plans therefore include strong pitch in his opening remarks as SYG which he would circulate to PermReps in advance.

5. Luns said he had discussed matter fully in Bonn and Brussels. He had found Schmidt, Scheel and Brandt very positive. Brandt was greatly concerned with problem and reacted favorably to Luns proposal. (Chancellor also confirmed he would meet with Pompidou before end November but was not very optimistic.) In Brussels Luns said his approach had been generally well received with some reservations; French were unhappy over NATO injection into financial matters but he detected some signs of anxiety on their part over continued crisis and consequences of rift with Germany. In any event Luns concluded that he thought it imperative for SYG and NATO to register strong concern so that by osmosis, urgency of situation as it affected Alliance should get quickly to national govts even though NATO could take no formal action itself.

6. I told Luns I quite agreed regarding urgency of situation both for domestic and general economic reasons but I stressed need for European action. I said I had spoken with officials in Washington including Under Secy Volcker and had impression that some real European movement (even if not total solution) on currency values, CAP problems and on burden sharing was essential if present deadlock were to be broken. Luns agreed but said that press and specially U.S. reporters were unduly playing up EDIP shortfalls and failing give any credit for European contributions, for example, from Germans and British. On other hand he was dismayed by Danish decisions to cut Navy and reduce troops to seven thousand and he anticipates rough session with Krag when he makes official visit to Copenhagen.

7. After above was drafted Luns telephoned to say that FonMin Schmelzer had also reacted favorably to his proposal. Schmelzer had added, however, that time was too short to solve all aspects of transatlantic economic problems within next few months. For positive NATO impact, rather than waiting to take all issues in one bite, Schmelzer thought one should try to register some progress soonest on European revaluation and gold price with perhaps some start on trade barriers, reserving other trade and monetary issues for later negotiation.

8. Dept may wish pass Treasury.



197. Telegram From the Embassy in France to the Department of State/1/

/1/Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Morning Summaries. Confidential. Repeated to Bonn, Brussels, The Hague, London, Rome, and USEC.

Paris, November 15, 1971, 1555Z.

19279. Subj: Growing French concern about delay in settling monetary crisis.

1. I am increasingly concerned about the effect that prolonged delay in resolving the international monetary crisis is likely to have on our interests in France and in Europe, in the weeks immediately following Aug. 15. The GOF behaved with restraint and in fact went out of its way to assure us that it was seeking to minimize the damage the NEP might cause to Franco-American relations.

1. In the last few weeks, however, I have detected a disturbing change in the French attitude. Key French officials have begun to warn us that, if we do not soon indicate clearly what our terms for a settlement are, opinion will turn decisively against us, with incalculable consequences for our political interests in Europe (Paris 18571).2 Our British colleagues have told us they are convinced that, if the next G-10 Ministers' meeting is unproductive, the French will lose hope of reaching an agreement in that forum and will start considering alternative possibilities (Paris 19092)./2/ Leading financial journalists like Alain Vernay of Le Figaro are increasingly critical in their conversations with Embassy officers of what they describe as US intransigence, and increasingly pessimistic about the future. There have been disturbing signs recently that measures aimed at the multinational corporations are being considered more and more seriously by the French authorities.

/2/Not printed.

3. The underlying cause of the French malaise is a growing feeling that, by failing to indicate more concretely what our terms for a settlement are, we are blocking a negotiated solution of the crisis. Continued delay in settling the crisis has led to growing uncertainty among French businessmen and is beginning to cause them to defer important investment decisions. The effect the crisis is having on Franco-German relations and on Germany's economic prospects is also a matter of growing concern to the GOF. Behind these immediate concerns lies the deeper fear that if the crisis is not ended soon nations will be increasingly inclined to take defensive measures, with the resulting contraction of world trade leading to a world recession.

4. The result of all this is a growing conviction among government and business circles in France that a solution of the international monetary crisis in any acceptable time frame (i.e., before US and France are swept up in their respective elections campaigns), is no longer possible. If this view becomes established GOF policy, serious damage to important US interests seems inevitable. Initially, this might take the form of action, presumably in concert with France's EC partners, to protect the French trade position through the adoption of special export incentives and a more restricted policy toward US imports.

5. But as the atmosphere deteriorates, the French are likely to move from protective measures to outright retaliation. The most obvious area in which they could retaliate is foreign investment (about 10 percent of the $24 billion of US direct investment in Europe is in France), since here they can act independently of their EC partners. They could adopt a much more restrictive policy on approval of new investment requests (although this is unlikely so long as they are not assured American investors turned down in France could not go elsewhere in the EC). More likely forms of retaliation would be (1) restrictions against borrowing by US firms in overseas markets and withholding of government-owned credit facilities in France and (2) imposition of exchange controls to block multinational firms from repatriating earnings. (In 1970, US firms repatriated $6.2 billion in profits; about $100 million of them came from France.)

6. Another consequence of failure to get an early settlement of the monetary crisis, as pointed out in Paris 19092, would probably be an effort by the GOF to get a purely European agreement on a return to fixed parities. This would not be in our interests, since one feature of such an agreement would undoubtedly be some lowering of the present level of the Mark relative to the dollar.

7. Admittedly, the French position has not been helpful. The French have adamantly refused to consider the revaluation of the franc, and this has made it difficult for the Germans to agree to a higher revaluation of the Mark. Their allegation that we have failed to lay our cards on the table overlooks the fact that we have tried unsuccessfully in WP-3 and the G-10 to [gain?] acceptance of our estimate that we need a $13 billion swing in our balance of payments to get us out of our chronic deficit. French (and European) insistence on a small increase in the price of gold injects a large element of inflexibility into their position. The fact remains that today we are perilously near a stalemate, and the longer this persists, the greater becomes the danger that the French and the other Europeans will take measures which will seriously damage important US interests on this continent.

8. This makes it essential, I believe, that the field play a far more active role than it has been able to play so far in combating the increasing pessimism and negativism of the French. To do this, we will need more informative and timely guidance on our objectives in the monetary crisis than we have been getting. In particular, we must be better prepared to deal with the charge that the US has not stated its objectives precisely enough to permit meaningful negotiations. While this charge is unfair as applied to the realignment of parities, it has considerably more substance as applied to the trade side.

9. What all this adds up to is a conviction that time is not necessarily on our side and that, therefore, a major effort on our part to break the present stalemate is needed.



198. Letter From the Chairman of the Board of Governors of the Federal Reserve System (Burns) to President Nixon/1/

Washington, November 16, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Name Files, Box 810, Arthur Burns. No classification marking. Attached to a November 18 memorandum from Hormats to Kissinger recommending Kissinger sign a transmittal memorandum to the President that summarized Burns' memorandum. On Hormats' memorandum Kissinger wrote "OBE."

Dear Mr. President:

I think you ought to know this: Unemployment in recent months has risen in every foreign country belonging to the so-called "Group of Ten"; namely, Belgium, France, Germany, Holland, Sweden, Switzerland, the United Kingdom, Canada, and Japan. For some reason that eludes me, the Italian figures on unemployment are ambiguous; but it seems clear from other data, particularly on industrial production, that Italy is in trouble.

I am by no means ready to conclude that an international recession has begun. But the evidence at hand does seem to support the view that the rate of growth of the outside economy is definitely slowing down. This may have far-reaching implications for the kind of monetary and trade settlement that we can work out with the outside world.

Sincerely yours,



199. Telegram From the Embassy in Germany to the Department of State/1/

Bonn, November 17, 1971, 1450Z.

/1/Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Limdis; Greenback. Repeated to London, Paris, Rome, Brussels, The Hague, USEC, and USOECD.

14309. Subj: Emminger on international monetary question.

1. Summary: In a conversation with the Financial Attache, Bundesbank Vice President Emminger outlined the type of agreement on international monetary problems which the EEC thought possible now along lines similar to those previously reported and stressed that in his view the deteriorating economic situation in Germany and pressure for an interim EEC solution would make it impossible to arrive at even this type of agreement by the spring of 1972. If an agreement along the lines outlined is not acceptable to the US, everyone, therefore, would have to make his arrangements for a long period of non-agreement. The Bundesbank would have to start to drive the appreciation of the Mark down to lower level. End summary.

2. Emminger said he felt that the postponement of the G-10 meeting had been due to a great misunderstanding by those (he specifically mentioned the Dutch) who had suggested it to us. Actually, Europe was now as prepared as it would ever be and it was in everyone's interest to meet quickly and if at all possible to settle the currency issue within the next six weeks or so. With recessionary tendencies coming more and more to the fore in Germany and elsewhere in Europe, it would be politically impossible next spring for the European governments to settle on as high a parity change vis-a-vis the dollar as they would be willing to do now.

3. Emminger confirmed what we had previously heard in Bonn and what has also been reported from London and Paris concerning the outcome of the last EEC Finance Ministers' meeting. Giscard for the first time clearly indicated that France would "hold still" for a modest dollar devaluation provided that the UK and Italy also would "hold still" and the DM would appreciate by 5-6 percent vis-a-vis the French franc (always compared to the pre-float parities). While Emminger did not specify the degree of dollar devaluation in such a package, he mentioned 6 percent "as an example." Emminger said that he had calculated that--assuming a 12-14 percent Japanese appreciation (vis-a-vis the dollar, less vis-a-vis gold)--the kind of package envisaged at the EEC Finance Ministers' private meeting would involve an average 9 percent "devaluation" of the dollar. It would take some hard negotiations to persuade the UK that the pound should "hold still" in such a situation. Hard bargaining might also succeed in adding another percentage point, or at the very most 2 percentage points, to the average dollar "devaluation" versus other currencies. Finally, it might be possible to get "something", but not very much, on trade policy and burden sharing (mainly in the form of promises to try to work something out) as part of such a package and some agreement on wider bands, continued dollar non-convertibility into gold, and on the general direction of the reform of the international monetary system (which, however, would take two years or so to work out and agree in detail).

4. It was important for the Europeans to know if such a package was acceptable to the US as a basis for the quick return to fixed parities and including the dollar devaluation involved (and presumably also the removal of the surcharge). Emminger stressed that in his opinion such a package was possible only if agreed quickly. The business cycle situation would make it politically unsaleable in Europe next spring. Germany, for one, could not wait that long. While Germany was willing to see a 10 percent appreciation of DM vis-a-vis the dollar, it could not continue to accept such an appreciation vis-a-vis other currencies, and particularly vis-a-vis the franc. French steel imports were already causing serious difficulties and automobile imports were next. Schiller would not be in a position to resist pressure for help from these two important industries. In the absence of an agreement now, Germany, therefore, would have to start to drive the DM rate of appreciation down from its current level. Emminger professed great confidence that this would be done relatively easily through monetary policy. He pointed to the present DM 19 billion short term indebtedness of German industry abroad. By lowering the German interest rate below those abroad, the Bundesbank could induce the outflow of these funds and a consequent easing of the DM rate of appreciation. The Bundesbank was reluctant to do this now because it foresaw a 10 percent revaluation of the DM against the dollar in a general settlement and this would be psychologically difficult if the rate now dropped significantly below this. But in the absence of a quick general settlement, the Bundesbank would have to proceed.

5. In the absence of a general settlement, Emminger felt it would also be impossible to resist a "European solution" now. Such a solution most likely would involve an appreciation against the dollar considerably less than that in the type of international solution outlined in para 3 above, with some more controls and some very sticky and relatively small outside flexibility. While Emminger felt that Germany could live with such a solution, it would be definitely a second best from everyone's point of view.

6. In this connection Emminger warned that one should not over-estimate the strength of Minister Schiller to insure that whatever would be done would not be too nonsensical. Schiller's position in the Cabinet now was weaker than Emminger had ever seen it. He was under vicious attack by the SPD left (Economics Ministry Parliamentary Under Secretary Rosenthal's resignation and criticism of Schiller had been announced just prior to the conversation). He was under constant attack by the "Europeans." Industry and the right were attacking him for a float. Schiller, according to Emminger, simply was not in a position to continue the float. He had to return quickly to a fixed rate or the Cabinet would disavow him. Emminger almost visibly shuddered at the thought of what might happen in the economic policy field if Schiller, with his constant liberal and outward (beyond the EEC) looking influence, should be forced from office.

7. Emminger reiterated that for all of these reasons, the US would not be able to get a better deal by next spring than it could now. If the US now indicated that the type of deal outlined in para 3 was not acceptable (with minor improvements), then everyone would have to settle down for a long period with no worldwide agreement and make his arrangement accordingly. Emminger urged that in looking at the deal, the US bear in mind that: (A) wide margins would in effect make it possible to increase the "dollar devaluation" 2-3 percent beyond the parity changes agreed, and (B) the US "concession" of a dollar devaluation in fact would work out to an advantage since it would increase the value of our gold reserves. Emminger said that all their reports and conversations with visiting American bankers indicated that a gold price increase had become much less of a political issue in the US, and he hoped this would not be a stumbling block. It was the only way by which Germany could upvalue 10 percent against the US without also doing so against France, the UK and the rest of the EEC. Emminger (protect) mentioned that while he realized Congressman Reuss was not the US Congress, it was interesting that Reuss had told him that he, Reuss, could "guarantee" that Congress would pass a dollar devaluation bill within two days, provided it was vigorously supported by the administration and it was part of a sensible package of international parity realignments and at least some elements of international monetary reform. The Financial Attache asked Emminger whether he had the impression that Reuss would consider the kind of realignment outlined in para 3 above as sufficient and whether Reuss would also "guarantee" no Congressional amendments to an "insufficient" package. Emminger replied that, of course, Reuss wanted a larger realignment, but with strong administration support and the further flexibility provided by wide margins, he, Emminger, hoped that the type of realignment now negotiable could be made acceptable to the Congress.

8. Emminger asked that he should not be quoted to any German or foreign official. Please protect.



200. Editorial Note

On or about November 18, 1971, the Office of Management and Budget and the Department of the Treasury circulated papers proposing negotiating strategies to resolve the international monetary impasse. A copy of the 8-page OMB paper, dated November 16 and entitled "Tactics for an Early Conclusion of the Surcharge Round," was sent to Kissinger on November 18 at the request of Director Shultz. The OMB paper has three attachments. Haig forwarded the paper to Kissinger under cover of a handwritten note that reads: "Shultz cut at surcharge round." (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters) In a November 20 note from Coleman to Kissinger regarding the paper's disposition, Coleman offered four options: "Send to Staff, File, Hold, Other." Kissinger checked the Hold option and wrote "This is HIGHLY sensitive--as are all monetary matters. Please put in separate file." (Ibid.) Hormats summarized the OMB paper for Kissinger in a November 22 memorandum. (Ibid., Box 376, President's Economic Program)

The undated, 21-page Treasury paper is entitled "Proposed Approach Toward Monetary-Trade-Burden Sharing Negotiations Over the Next Month." It is accompanied by a "Scenario" paper and Attachments A-I. A handwritten note on the paper reads: "From Secretary Connally. Copy sent to HAK in NY 11/20/71." (Ibid.) Another copy of the Treasury paper is accompanied by a November 22 memorandum from Hormats to Kissinger entitled "Monetary-Trade-Burden Sharing Negotiations," which expressed the opinion that the paper was a reasonable attempt at a position to remove the surcharge. Hormats recommended that "the main elements to stress are that the surcharge is a wasting asset and that the longer it is on the greater the likelihood that other countries will compensate economically, that retaliatory measures will take place, and negotiations for its removal will be more difficult." (Ibid., Box 356, Monetary Matters)

Both papers look to significant exchange rate realignments and trade and burdensharing agreements. Neither considers restoring convertibility. OMB adheres to the President's directive that there be no increase in the price of gold (see Document 189), but Treasury, with a view to France as the greatest obstacle to a successful negotiation, reluctantly leaves open the door for a possible accommodation.

In his November 22 commentary on the OMB paper, Hormats noted that if the United States remained firm in its intention not to devalue the dollar vis-a-vis gold, one outcome could be the U.S. purchase of francs with dollars to push up the value of the franc relative to the dollar, a unilateral declaration by the United States that the franc was revalued. If the United States bought francs to increase the franc's value and if France attempted to maintain the original parity by using francs to buy dollars, the result would be politically disastrous.

Tab C of the OMB paper, "An Outline of a Possible Statement on International Monetary Negotiations," contains the following:

"A. If our principal trading partners (Japan, Canada and the EC) will meet our minimum trade and burden-sharing requirements and if they are prepared to revalue as follows:

Canada--Maintain float

"then we will immediately lift the surcharge as to all countries.

"B. For the present we will only consider lifting the surcharge on an MFN basis. But we recognize that this policy permits one country to hold up surcharge lifting as to all countries (including LDCs). Hence: 1. We may be forced to consider whether selective lifting may not be the only way to reach final elimination of the surcharge. 2. We will entertain proposals from any country as to how recalcitrant countries can be induced to take part in the global settlement."

The Treasury paper contains the following: "An average exchange rate depreciation of the dollar vis-a-vis G-10 countries of 10% (11% in terms of G-10 appreciation), as compared to May 1, 1971, would be consistent with a depreciation of 17% against Japan, 13% against Germany, and 8% against France, the U.K. and Italy, assuming a Canadian commitment to revalue (which is unlikely). These figures are not consistent with a $13 billion adjustment . . . they are somewhat above a realistic appraisal of settlement terms for most countries, and the Canadians will presumably only agree to a float. Such a proposal thus appears to leave ample room for realistic negotiation in comparison to a probable counter offer of 15% Japan, 10% Germany, and 5% France, U.K., and Italy."

The G-10 Communique from the November 30-December 1 Ministerial in Rome; a transcript of Connally's remarks at the end of the Ministerial, pages with Connally's handwritten notes and doodles during the Ministerial; Volcker's handwritten notes/comments that were presumably passed to Connally who chaired the meeting (e.g., "If the Group of 10 cannot discuss trade, why are they discussing the surcharge, etc.?"); and a typescript that highlights the interventions in the November 29 G-10 Deputies meeting (see Document 210), along with additional documentation, is in the Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/71.

Background material is also ibid., including a November 22 paper entitled "Scenario for G-10 Meeting and Aftermath," which suggests actions in late November, at the Ministerial, and follow-up in December at NATO, and undated papers including "Summary of Proposed Approach Toward Monetary-Trade-Burden Sharing Negotiations Within the Next Several Weeks" (Document 201), "Selective Lifting of the Surcharge," and papers on bilateral issues with the European Community, Canada, and Japan. This material, along with other background papers, is in a Briefing Book in the Washington National Records Center, Department of the Treasury, Office of the Assistant Secretary for International Affairs Central Files: FRC 56 86 24, World/1/544, Monetary-Trade-Burden Sharing Negotiations. A November 9 CIEP paper requesting interagency defense burdensharing studies and the Treasury Department's proposed strategy, which was thought to be different from the State Department position, is also ibid.

There is no indication that these papers came to the President's attention but they provided the context for his advisers during their meetings with the President on November 23 and 24 (see Document 203). The essential elements of Volcker's proposals at the November 29 G-10 Deputies Meeting in Rome (see Document 211) are also contained in these papers.


201. Paper Prepared in the Department of the Treasury/1/

Washington, undated.

/1/Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/71. No classification marking. Prepared as background for the G-10 Ministerial meeting; see Document 200.


This memorandum outlines briefly proposed initiatives in the immediate future for a resolution of the pending issues in monetary, trade and burden-sharing matters. It is hoped that these proposals would be negotiable; they do involve a limited movement on the gold issue. The basic objectives would be:

If the negotiations are successful: Substantial improvement in our external position; removal of the surcharge, retention of leverage for subsequent negotiations; avoidance of extended uncertainty; and forestalling of political tension that could accompany a prolonged impasse.

If the negotiations are unsuccessful: More favorable U.S. position to the public; better base for continuation of the present situation, or for alternative strategies, including interim settlements with particular countries or areas entailing selective removal or reduction of the surcharge.

I. The Present Setting

Since August 15, the yen has appreciated about 9-1/2%, but the overall exchange rate change (in terms of our weighted OECD trade) has been only about 3%; since May 1, 1971, it has been about 4-1/2%. This is well below the needed adjustment.

France has managed to avoid revaluation, at least on trade transactions, and has enjoyed some depreciation relative to Germany and some other competitors. Thus France, with some other countries, can bring pressure on their trading partners. France, Japan, and some other countries have instituted new controls. These conditions, together with the existing uncertainty and fears of recession, limit the maneuvering room for Germany and some other countries and increase the pressures for settlement.

The principal negotiating obstacle is the inflexible position of France, its pressure on its immediate trading partners, particularly Germany, and its emphasis on the gold price.

Despite a strong urge for an interim settlement evidenced by our leading trading partners, especially Canada and Japan, and the general awareness of a firmer U.S. position than we have taken in the past, there is still an unwillingness or inability to recognize the size of the needed adjustment, as we perceive it.

A continuing impasse, without an American initiative based upon a proposal that can be publicly defended as "reasonable," courts the risk of increasing criticism of the U.S. for blocking agreement. If other matters (i.e., the exchange rate realignment and trade and burden-sharing issues) could be resolved, a strong effort is warranted to unblock the opposing positions of the U.S. and France for an interim settlement regarding gold.

II. Our Judgment of Present Negotiating Positions

Canada. Will continue to float and perhaps make some commitments to keep float "clean," but adamantly opposed to overt revaluation. Will likely make some trade concessions of high symbolic importance, but it is doubtful we can attain our full objectives.

Japan. Willing to appreciate by some 15% and, under pressure, slightly higher (perhaps to 300 yen to the dollar), provided they are within 4 or 5 points of Germany. Extent of trade action uncertain, but some movement likely.

Germany. Flexible on exchange rates, provided mark revaluation not more than 4 or 5 points above the French franc. Cannot long tolerate present differential of some 9% revaluation above the French franc; continued impasse would probably trigger controls and lower exchange rate.

France. Will accept exchange rate revaluation of 5%, or perhaps slightly higher, if achieved entirely through U.S. devaluation relative to gold, and franc maintains present relationship to sterling and lire.

United Kingdom. Likely to adhere to the French line and maintain present exchange rate with French franc.

Common Market. Intransigent on short-term trade adjustments, apart from the marketing of current surplus crops. We seek a commitment regarding any change in the support price under EC Common Agricultural Policy (CAP). Agreement upon framework for subsequent negotiations on CAP appears very difficult. No "give" apparent on preferences for remaining EFTA countries, African affiliates, etc.

III. Proposals

A. Trade. Trade negotiations must proceed bilaterally and intensively in coming weeks. While we are flexible, some "tangible progress" must result with Japan, Canada, EC, and LDC's, and a framework established for longer range negotiations. Key issues:

Auto Agreement
Used Cars
Defense Production Sharing
Industrial Policy
Tourist Allowances

Disposal of Current Surplus
CAP Price and Unit of Account
Preferences (pursue GATT remedies and seek compensation)
Steel Accord

Agricultural Quotas and Tariffs
Numerous High Technology Industrial Items
Commitment to Bilateral Trade Balance

U.S. Car Discrimination
Mexico Tourist Allowance
Longer Term Review of LDC Commercial Policy

B. Defense-Burden Sharing. We must decide promptly if U.S. wants to press beyond the European Defense Improvement Program. If so, we should so state in the G-10, laying the basis for subsequent NATO discussion. Most promising, but still difficult approach: NATO assumption of bases (and related costs) where manned by troops in a foreign country (e.g., U.S. bases in Germany)./2/ Maximum savings from this approach would run above $600 million annually.

/2/See Document 84.

C. Exchange Rates. An average exchange rate depreciation of the dollar vis-a-vis G-10 countries of 10%, as compared to May 1, 1971. This would indicate 17% against Japan, 13% against Germany, and 8% against France, U.K., and Italy, if Canada revalued (which is unlikely). These figures are consistent with $9.6 billion adjustment on IMF calculations, which we consider optimistic. Probably counter-offer will be 15% Japan, 10% Germany, and 5% France, U.K., and Italy, and Canada will presumably only agree to float.

All rates agreed upon would be provisional, subject to review before long-term reform.

D. Wider Bands. We should propose 3% bands, although the French and others will resist 3%. Persistent one-way intervention within the band should be avoided, with IMF surveillance. Two-tier markets of the French variety should be forbidden.

E. Convertibility. We should insist on absence of convertibility, stressing probable inadequacy of the exchange rate adjustment. We should have support from Japan, Canada, and (apart from a probable common EC position) Germany; but the issue is extremely sensitive for others, because of the connotation of a full "dollar standard."

F. Gold. An immovable U.S. position on the gold issue may well prevent any monetary solution for some time, or at least prevent an adjustment of a size adequate to justify removal of the surcharge. Some U.S. flexibility on this issue may substantially improve our bargaining strength on other matters and permit satisfactory interim solution.

To reach some accommodation with the French (and the French-dominated EC position), the U.S. could offer to put to a vote of the IMF Governors a proposal to declare a modest de facto devaluation of the dollar. The amount of the devaluation to be voted on would be determined either (a) on a "horse-trading" basis by agreeing upon an arbitrary figure, perhaps arrived at by "splitting the difference" with the lowest revaluer (the French), or (b) a formula approach aimed at keeping the price of gold unchanged in terms of a weighted average of all relevant currencies. With such a vote free of entanglements with other elements of the bargain, the LDC's might join with us to keep the dollar price of gold unchanged.

An alternative possibility would be to put to an IMF vote an increase in the dollar price and the gold price of the SDR, and thus to "devalue" the dollar against the SDR instead of against gold. This would be accomplished by raising the gold content of the SDR. Such a change would boost the role of SDR's without boosting gold. Procedurally, relying on emergency provisions of the IMF Articles, it would require unanimous approval by the IMF Executive Board and by 80% of the IMF Governors.

In any event, we should insist upon establishing a framework for negotiation of long-term monetary reform, including perhaps an enlargement of the G-10 membership.

Attached is a possible scenario for the proposed initiatives./3/

/3/"Scenario for G-10 Meeting and Aftermath"; not printed, but see Document 200.


202. Information Memorandum From Robert Hormats of the National Security Council Staff to the President's Assistant for National Security Affairs (Kissinger)/1/

Washington, November 22, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury Volume II, 1971. Secret.

Talking Points for your Meeting with the President and Secretary Connally, Tuesday, November 23, at 10:00 a.m./2/

/2/On November 22 Kissinger and Shultz sent a joint memorandum to President Nixon with talking points for his meeting with Connally. Their talking points were similar to those that Hormats suggested. (Ibid.) President Nixon met with Secretary Connally from 10:04 to 11:40 a.m. on November 23. Kissinger joined the meeting from 11:11 to 11:39 a.m. For a summary of the discussion, see Document 203. Shultz did not attend, but met with the President later in the day from 5:38 to 6:07 p.m. The President also talked with Connally by phone from 5:44 to 5:47 p.m. and again from 5:58 to 5:59 p.m. (National Archives, Nixon Presidential Materials, White House Central Files, President's Daily Diary)

The meeting will focus on negotiations on the international aspects of the New Economic Policy--specifically, conditions for removal of the surcharge. There are several points which you might wish to make:

--It would be useful to view the international negotiations connected with the New Economic Policy in terms of two "rounds"--a surcharge round (in which we achieved conditions which would allow us to remove the surcharge), and a gold-convertibility round in which we achieved reform of the international monetary system and negotiated trade concessions. We should not expect in round one to achieve all we want in terms of exchange rate adjustments, trade, or defense burden sharing. Our objective should be to arrive at an interim solution which enables us to get a significant appreciation of exchange rates and some trade measures while remaining firm in our intention not to restore convertibility. With regard to gold we should be in a position to discuss raising the dollar price of gold and perhaps reach tentative agreement to do so but not, in any case, resume gold convertibility. Convertibility will be our major point of leverage in bringing about the exchange rates we want in the second round and in achieving major reforms of the international monetary system.

--When we remove the surcharge, there is still significant pressure on Europe to resolve the monetary situation in a way which is favorable to our interests. The EC has five basic options:

--Each country could continue to do as it is doing (i.e., no European "solution").

--The EC countries could return to fixed parities vis-a-vis one another, but float together against the dollar.

--The EC countries could return to fixed parities against one another and float together against the dollar with capital controls, and perhaps trade controls, to decrease the appreciation of their currencies.

--The EC countries could return to fixed parities vis-a-vis one another and the U.S. without trade and capital controls (which would mean that Europe would again take in large amounts of dollars, unless the new parities were fixed above present levels).

--The EC countries could fix parities vis-a-vis themselves and the U.S., with capital and trade controls to limit the intake of dollars.

In the long run, Europe will probably be unwilling to take in large amounts of dollars and probably unable to maintain capital controls. It is thus likely that there will be pressure on it to float collectively against the dollar or to appreciate their currency values so that capital controls are unnecessary and they do not accumulate larger amounts of dollars. The one thing we should guard against is an EC-wide dual rate system (which means one exchange rate for trade transactions--a commercial rate--and another presumably higher rate--a financial rate--to reduce the inflow of capital). Such a system would reduce the pressure on Europe to float their trade (commercial) rate upward, and thereby be counterproductive in our efforts to realize a trade surplus.

--If we do not make any moves at all to accommodate the Europeans on the gold question, we must recognize that we will not get the amount of dollar devaluation vis-a-vis the other currencies which we believe is necessary. France has stated that it does not intend to revalue the franc vis-a-vis the dollar, but instead wants the dollar to be revalued with respect to gold. If France will not revalue, Germany will probably reestablish the value of the mark at no more than 6 percent higher than the value of the franc (it is presently about 9 percent above the franc and dollar), and Japan will permit the value of the yen to rise no higher than 5 percent above the value of the mark. These appreciations will be far less than will be adequate to bring about the improvement we seek in our balance of payments. (The value of the dollar is now approximately 3.5-4 percent below the overall value of the other major currencies as of April.) Treasury estimates that for every 1 percent devaluation in the value of the dollar, our balance of payments improves by $800 million dollars. Thus, we should seriously consider measures to devalue the dollar, if possible, without having Congress involve itself in our negotiations, and without going back to convertibility.

--The negotiations should be handled in such a way that we do not attempt to play one European country off against another. Any scheme to deal harshly with one European will lead all Europeans to believe that we are attempting to split the Common Market countries, and is likely to lead to a severe reaction in Europe. Throughout these negotiations we should consider the EC as one entity and, while we may wish to use Brandt as an instrument for influencing Pompidou and the others, we should not attempt to split Germany and France.

--We can get maximum economic advantage out of the surcharge within the next month or so. If we go beyond that, countermeasures will increase, there may be an increasing number of retaliatory actions, and the U.S. will be increasingly viewed as a "scapegoat" for Europe's economic woes. This will certainly make negotiations difficult, and it will be less easy for us to accomplish our economic objectives.

--On the political side, the longer we go without a reasonable U.S. position, the more confused our friends become, the more skeptical they are that we want to cooperate to solve the present problem, and the more vulnerable they are to the importunements of those who wish to develop a European position counter to our interests on economic issues, and political/security issues as well.

--We should be careful not to demand too much in the area of trade. Other nations feel that we have as many restrictions on imports of their products into this country as they do on our products. And, they view trade as an area in which reciprocal quota and tariff reductions should be negotiated, not as an area in which countries should make unilateral concessions. (The Common Market feels especially strongly about this, while Japan seems somewhat less reluctant to move unilaterally on specific issues.) While we may be able to get some concessions, and the promise of negotiations on a number of issues, we should not make removal of the surcharge contingent upon a long list of major concessions from other nations.


203. Editorial Note

On November 23 and 24, 1971, the President had several meetings with his economic advisers. He was scheduled to travel to San Clemente on the evening of November 24, and this was his last opportunity to take up international economic policy with his advisers before Connally and Volcker traveled to Rome for the G-10 Deputies and Ministerial meetings November 29-December 1.

According to a tape recording of their meeting on November 23, Connally told the President he would have a bilateral meeting with the Italians before the G-10 Ministerial and would seek bilaterals with the Japanese and Canadians as well. Connally said the international matter could be settled and it was only a question of how much to give. He repeated what he had told the President on October 28 (see Document 187), that currency realignment alone would not be too meaningful to the average American. Connally wanted agreement on trade issues as well, which would be politically important to the President. He nonetheless agreed with the President's recap of his position that a monetary deal would have to be concluded before a trade deal, which would take a long time, particularly because of European difficulties in negotiating on agriculture, which Connally had discussed with Ossola earlier that morning.

The President asked for Connally's views on gold before Shultz and Burns came in (they never arrived at this meeting). Connally said, "gold is a crucial point. The French have a phobia on gold." Connally gave the President a lengthy explanation of issues and possible magnitudes of changes in exchange rates between the dollar and other currencies, and among the other major currencies, and summarized Ossola's presentation that morning that if the United States changed the price of gold and removed the surcharge, the Community would be willing to discuss trade. Connally said, and the President agreed, "the real money is in the realignment, but the politics are in the trade issue." Connally thought the United States was in an excellent negotiating position and said he would hate to bargain away both gold and the surcharge for an inadequate realignment package. He considered the possibility of having Volcker, prior to the G-10 Ministerial, perhaps in a press conference or during a Deputies meeting, indicate that the United States was prepared to submit to Congress a bill to increase the price of gold in return for a 17 percent revaluation of the yen, etc., and would remove half the surcharge now and the remainder once a package of trade concessions had been agreed upon. Connally did not believe gold was important domestically, but advised the President against giving in to Pompidou without getting something in return. The President agreed, and thought the gold issue might be held in reserve for the Summits.

Following Kissinger's arrival at 11:12 a.m., Connally, Kissinger, and the President agreed that a forthcoming Peterson trip should be scrubbed, that there was no reason for him to be meeting with European Prime Ministers or even Economic Ministers at that time. The President did not want any of his economic advisers, Peterson, McCracken, Stein, or Stans, traveling at this stage in the negotiations. The three agreed that they, along with Shultz and Burns, should meet the next day; that Peterson should not be included; and that Connally's proposal should not go beyond their limited group. The President was inclined to reserve on gold at the G-10 Ministerial, and instead take it up with Pompidou. Kissinger expressed the opinion that Connally should stand fast on gold and work it out with Pompidou who would need something from the Summit. Connally outlined his approach to the Rome meetings: "All we have to do is make progress. We can both make proposals the others cannot accept. The fact of the meetings will maintain the momentum." (National Archives, Nixon Presidential Materials, White House Tapes, Recording of a Conversation Among President Nixon, Connally, and Kissinger, November 23, 1971, 10:01-11:40 a.m., Oval Office, Conversation 623-3)

On November 24 the President met with Connally and Burns on international monetary and trade matters from 11:45 a.m. to 12:27 p.m., and, after a meeting with Secretary Rogers, lunched with Connally, Burns, Shultz, and Kissinger in the Executive Office Building from 1:13 to 2:35 p.m. The tape of the luncheon conversation is almost inaudible, and no reliable policy conclusions can be extracted from it. (Ibid., Recording of a Conversation Among President Nixon, Connally, and others, November 24, 1971, 1:13-2:35 p.m., Old Executive Office Building, Conversation 305-1) The tape of the earlier conversation with Connally and Burns, however, is good, and the President was clearly told there would have to be some change in the price of gold. All three also agreed there had to be some progress in Rome.

During the conversation the President reported on the announcement that morning of the schedule of Summits, including the Azores Summit with President Pompidou "to wrap up this whole thing." Concerning the gold price and convertibility, the President told Burns, "you, John and I should get the tactic together for the luncheon."

Connally told the President that he and Burns had discussed the international economic issues at breakfast that morning. Connally said he suggested trading the surcharge for a 17 percent revaluation of the yen, etc., but that Burns had "wisely" advised against giving specific percentages for particular currencies, which would reveal the U.S. bargaining position. Instead, once the others in the G-10 make an inadequate offer Connally would counter with a proposal for an average realignment of perhaps 11 or 12 percent. Pursuant to the President's sentiments, they agreed that at that stage they could not touch gold, but in view of the French position on gold they eventually would have to give something on the gold price. Burns said he was "convinced" they could not get a settlement without giving something on the gold price.

The President returned to the question of convertibility. Burns and Connally, at some length, explained why, for technical reasons, the United States would have to agree to provide limited amounts of reserve assets from time to time--gold, SDRs, or something else--but that would not be restoring convertibility in the traditional sense. During their explanation of the technical reasons, Connally revisited the gold price question and said that if the United States were to increase the price of gold, it should be "our deliberate decision," unrelated to procedures in the IMF, and the administration should submit it to Congress for its action. Connally said convertibility would come up in the G-10 meeting, but the important issue was the realignment and, politically, all that could be achieved on trade. He dismissed the other matters as "nickels and dimes stuff." The President said he would like to get something on offset as well, but in the end would rather get something from Germany on trade. If press questions about their luncheon arose later that day, the agreed line was that the President thought it important to have progress in Rome. Principles would be agreed on there for consideration by higher authorities. (Ibid., Recording of Conversation Among President Nixon, Connally, and Burns, November 24, 1971, 11:46 a.m.-12:27 p.m., Oval Office, Conversation 624-20)

The November 25 edition of The New York Times carried an article entitled "Nixon Is Hopeful on Money Talks" (page 61). The Times reported that in a brief statement following a meeting with the President, Burns said that "President Nixon 'expects definite progress' to be made at the meeting in Rome next week of the Group of 10." The same Times story reported that during an informal news conference Volcker said the world should not expect a "settlement" but that he hoped for "real progress." Volcker also reportedly said the U.S. delegation in Rome would have "expertise" in the fields of trade and agriculture despite the fact that the G-10 normally dealt only with monetary matters.


204. Memorandum From the Chairman of the Council of Economic Advisers (McCracken) to President Nixon/1/

Washington, November 24, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 216, Council of Economic Advisers. No classification marking. The memorandum is Tab A to a December 1 memorandum from Hormats to Kissinger that summarized three reports on foreign reactions to the international aspects of the New Economic Policy. McCracken's November 24 note sending Kissinger a copy of this memorandum noted that he was sending it to Kissinger "because my major impressions from this meeting seem to center more in the political than in the economic domain." Tabs B and C were papers from the Department of State.

At the Economic Policy Committee meeting of the OECD in Paris last week two matters emerged that are worth calling to your attention.

First there is growing concern among the major industrial nations about their own domestic economic conditions, and this does have implications for the exchange rate appreciation, relative to the dollar, that we can expect from them. As they become more worried about rising unemployment, they will tend to become less generous about the appreciation they will accept--with its adverse effect on their international competitive position relative to the United States.

Because of these growing domestic economic concerns, these countries will tend to pursue more expansionist monetary policies. This is particularly true in Germany, where not too long after the turn of the year, easier monetary policies can be expected. In private conversations they made this clear to me. As these occur, international monetary flows will be induced that will tend to move the exchange rate of the D-mark downward. It is not reasonable to expect the Germans to agree to any change in the exchange rate pattern which would require their moving the D-mark exchange rate up above its then present level. Their exporters are already bringing heavy pressure to bear on the German government because the D-mark appreciation is giving their exports an increasingly hard time in world markets.

The clear implication of these developments is that the exchange rate adjustments we can expect from other industrial nations are apt to be smaller as we move beyond the turn of the year.

Second, a pro-American French line/2/ was evident at the meeting. Traditionally in these Economic Policy Committee meetings the French delegation could be expected to flay the American position at some point in the deliberations. This time any intimation of any anti-American comment from the French spokesman was conspicuous for its complete absence.

/2/On another copy of the memorandum the President circled this phrase and in the margin wrote: "K-note." (Ibid.)

Moreover, at his initiative, I had dinner (at Laserre) with M. Jean Rene Bernard, Economic Adviser to President Pompidou. This dinner was at M. Bernard's initiative, and he came to the dinner from having been in bed with the flu. I know him well enough for a serious conversation, but not well enough for him to have arranged a purely social evening. The dinner was, therefore, presumably arranged for him to communicate a basic message.

M. Bernard also took the same intensely pro-American line. While this might be dismissed as tactical, I believe it was more than that. The French do seem genuinely worried about the political implications of a continued international monetary problem. For one thing, he considered it quite important that the G-10 meetings November 30 and December 1 should at least start the process for an orderly solution in order that the Pompidou-Brandt meeting on December 3 would not take place against the backdrop of a continued international monetary impasse. He also expressed the view that if this could be resolved, the United States could then resume its overall international leadership without which, in his judgment, it might be difficult for European unity to survive.

He was cool to "regional" solutions (including a European regional system), and not optimistic about their workability. And he seemed concerned about longer-run relationships between France and Germany.

I pass these observations along because they may be pieces of a larger jigsaw puzzle that carry implications beyond economic policy in the narrow sense.

Paul W. McCracken


205. Telegram From the Embassy in Belgium to the Department of State/1/

Brussels, November 24, 1971, 1810Z.

/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.

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.



206. Telegram From the Embassy in Germany to the Department of State/1/

Bonn, November 24, 1971, 2045Z.

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

14641. Department pass Treasury and Federal Reserve. Subject: German views on the G-10 Ministerial and the Brandt-Pompidou summit.

1. Our discussions with German officials on their preparations for the G-10 Ministerial and the following Brandt-Pompidou Summit meeting have essentially only confirmed information reported by a number of posts regarding the parameters of the European position. The Germans continue to seek a quick, world-wide solution. The Foreign Office has stressed, in this regard, that a quick solution will avoid a confrontation with the US which might otherwise develop, and will prevent a long delay in resolving issues which, if left open much longer, could turn US/European economic/commercial and political relations in the wrong direction. The Foreign Office insists that the EC is ready to play its part in attaining a world-wide solution which would include at least something on the trade side. We are told that the Germans are optimistic the French would go along. From our side, the Europeans need an indication that the US also wishes a quick world-wide solution and that the US is prepared to make a contribution itself to this end./2/

/2/Earlier in the day the Embassy had reported on a meeting of the Bundesbank's Central Bank Council and President Klasen's comment that there was a real chance for a successful G-10 meeting in Rome, but no chance without a dollar devaluation (i.e., an increase in the official price of gold). (Telegram 14625 from Bonn, November 24; ibid.)

2. In order to maximize the results of the subsequent Brandt-Pompidou discussions, the Foreign Office has urged that the US be as specific as possible at the G-10 Ministerial as to its wishes on trade. The Foreign Office has held out to us a hope that the Germans could make a contribution to the problem of what to do about the value of the unit of account of the CAP by limiting its revaluation in the general upward realignment of EC currencies. The Foreign Office has also reflected a positive attitude toward the limitation of price increases in the agricultural sector; towards helpful agricultural storage policies; and towards a reciprocal trade package in industry. We are told that what is needed, however, is concrete US trade proposals which would "thereby put the ball clearly in the European court."

3. The alternative to an early world-wide solution is, according to the Germans, an interim European solution which would be less desirable from everyone's point of view.



207. Telegram From the Department of State to Certain Posts/1/

Washington, November 25, 1971, 0021Z.

/1/Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential; Priority. Drafted in Treasury by Assistant Secretary Petty on November 24, cleared in State in E/OT and by Kempe and Katz, and approved by Deputy Assistant Secretary Weintraub (E/IFD). Sent to Bern, Brussels, Ottawa, Paris, Bonn, Rome, Tokyo, The Hague, London, Stockholm (G-10 capitals) and to USOECD, USEC, and the Mission in Geneva for Eberle. Repeated to Canberra, Copenhagen, Dublin, Helsinki, Madrid, Oslo, and Vienna.

213813. For Ambassador. Subject: G-10 Ministers' meeting.

No specific action suggested now at your initiative, but following is for your use as appropriate.

On August 15 the President launched his New Economic Policy designed to restore vitality to our economy at home and competitiveness to our goods abroad. Our international financial position had deteriorated to the point where we were not able to sustain our policy of redeeming dollars for gold, necessitating the painful decision to suspend gold convertibility. In addition, the President's announcement provided an opportunity to intensify our efforts to foster trading practices which would improve market access to U.S. goods as well as to the goods of other countries.

Immediately following the President's August 15 statement, we commenced intensive negotiations with our trading partners to achieve the exchange rate realignment necessary to restore equilibrium to the U.S. international financial position. At the same time contacts regarding outstanding trading issues were intensified. Many of these trade issues such as those with Canada and Japan are best pursued bilaterally, and that is what has happened. With respect to the Economic Communities, we have proceeded with discussions in Brussels and Washington.

There is a close interrelationship between the exchange rate realignment and trading practices if the latter tend to vitiate the increased competitiveness which exchange rate adjustments are designed to achieve. Most importantly, the Common Agricultural Policy could well operate to deny to our agricultural exports any benefit which an exchange rate adjustment would otherwise provide. Likewise, the extension of the preference system to a broader area of trade further compromises the most favored nation principle. Already a major portion of world trade is conducted at preferential duty rates, and the portion is increasing. We believe at this critical turning point in financial and trading relationships, we must press for reconsideration of the trends in these areas.

We recognize that these are difficult and contentious issues involving practices which have developed over the years and that they are not given to easy solutions. But we must impress upon other governments that the time has come to reverse trends which prejudice our trading position, not only because of economic importance but because political support for liberal, outward looking policies in U.S. is dependent on visible evidence of improved treatment. The United States believes that with the exchange rate realignments and monetary questions now under negotiation, opportunity must not be lost to make progress on trade front as well.

European governments strongly wish to separate monetary and trade issues. The United States recognizes that the compartmentalization of financial responsibilities and trade responsibilities in the organization of governments, including the U.S. Government, and international institutions have impeded joint negotiations in the past. Thus, we are concerned that lack of progress on trade matters, particularly with EC, could block acceptable general settlement. However, desire for monetary settlement should encourage willingness to examine trade issues if European governments understand movement in trade area (particularly greater recognition of interests of other countries in CAP) is necessary part of settlement.

Our position is consistent with communique of G-10 Finance Ministers, meeting in Washington on September 26, which referred to "some other measures outside the exchange rate field designed to improve the U.S. balance of payments."

Specifically, the U.S. Delegation to the G-10 Ministers' meeting in Rome on November 30 will be seeking to advance the negotiations on trade matters, with particular emphasis on agricultural matters in the EC. (Bilateral discussions with Japan and Canada are reasonably well advanced.)

We believe EC Finance Ministers will be generally more sympathetic with our concern over CAP than other elements in EC governments. However, because these matters are not normally in the jurisdiction of Finance Ministries, it is important the weight we attach to these matters be kept in mind in your contacts with host governments.

For London: Our trade complaints with the EC regarding the Common Agricultural Policy are consistent with the U.K. concern.

For Tokyo and Ottawa: This is not intended to indicate any dissatisfaction with pursuing our bilateral trade issues through the channels now being employed.



208. Telegram From the Embassy in France to the Department of State/1/

Paris, November 26, 1971, 1815Z.

/1/Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential. Repeated to Bern, Bonn, Brussels, The Hague, London, Rome, Tokyo, and USEC.

20133. Subject: Bank of France Governor on international monetary situation.

1. Summary: Governor Wormser of Bank of France professes not to have any hard-or-fast views about outcome of next week's G-10 Ministerial. He thinks that if U.S. were prepared to undertake small devaluation of dollar against gold, general rate realignment would fall into place fairly easily. He is more concerned about several questions that would arise once new rate structure decided: width of support margins; responsibility for defense of new parities as between U.S. and other countries; appropriateness of U.S economic policies as means of consolidating new dollar parity. Embassy officers stressed to Wormser that any settlement satisfactory to U.S. would of necessity have to have sufficient weight to trade aspects of B/P problem. End summary.

2. Economic Minister and Financial Attache called on Governor Wormser of Bank of France today for reading of his views on international monetary situation on eve of Rome G-10 Ministerial next week. Wormser professed not to have any hard-or-fast feelings about what might happen at Rome. He commented that even if U.S. were prepared make "contribution" to parity realignment by small devaluation of dollar against gold, it was by no means clear to him that Secretary Connally would be willing to play this "trump card" next week. If it was true--as alleged this morning in private newsletter published in Paris--that the Secretary was making plans for new meetings of Group of Ten in January, it would appear that in U.S. thinking, settlement of monetary problem was still some distance away.

3. Wormser remarked that assuming small U.S. "contribution," general rate realignment should fall into place fairly easily. In his opinion, of far greater importance, and far more difficult to answer, were several questions as to what would follow decision on new rate structure.

(A) What would be width of margins around which new parities would be defended? This seemed to Wormser a question on which views diverged widely from country to country. In particular, Six did not see eye to eye, and certainly U.S. and French positions were quite far apart.

(B) Who would be responsible for defending new parities? If U.S. continued to take position it had no responsibility therefor, this problem would be pushed back on other central banks, which would face possibility of having to accumulate additional unwanted, inconvertible dollars, since it was clear that massive U.S. deficit would not go away overnight. In other words, when exchange markets started operations under new rate structure, what, if anything, would Federal Reserve be prepared to do to defend parity of dollar in New York exchange market, as Bank of France and other central banks did in their markets?

(C) For how long would new dollar parity remain valid unless U.S. could create firm basis for new parity by following "orthodox" economic and financial policies? When we asked Wormser what he meant by "orthodox policies," he referred to reports that U.S. FY 1972 budget deficit would be $28 or $29 billion, and said this was an example of what was not "orthodox." No currency devaluation had ever been successfully consolidated where fiscal and monetary policy was loose.

4. Drawing on State 213813,/2/ we emphasized U.S. view of close interrelationship between exchange rate alignment and trading practices. We said U.S. delegation to Rome meeting would specifically be seeking to advance negotiations on trade matters, and that only a settlement which gave sufficient weight to this aspect of balance-of-payments problem would be satisfactory to U.S. Wormser took note, but made no comment.

/2/Document 207.



209. Information Memorandum From the President's Assistant for International Economic Affairs (Peterson) to President Nixon/1/

Washington, November 27, 1971.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 218, Council on International Economic Policy. Secret. Attached to a December 8 memorandum from Hormats to Haig recommending the NSC not object to Peterson's memorandum going to the President.

IMF Views on NEP Abroad--Messages for You

Pierre-Paul Schweitzer of the IMF was particularly anxious that I convey some messages to you. Earlier, this same group met with Paul Volcker with the same messages for John Connally./2/

/2/No records of Schweitzer's meetings with Volcker or Peterson have been found.

First, there were the deep concerns about world recession, trade and investment retaliation, blocs, etc., but you've heard these more than once.

On the gold price issue, they were particularly persistent that you have their views. Schweitzer has just seen some of the European prime ministers and he wanted you to know why their revaluing was "politically impossible".

(1) Italy--IMF claims Italy is already in a recession, with serious political problems with labor unions. A revaluation by Italy that makes their exports less competitive and generally deflates their economy and costs jobs would be "politically impossible".

(2) France--Pompidou devalued in August 1969 and at "great political risk"--given de Gaulle's adamant stand against devaluation. It is now argued that for him to reverse himself and revalue this soon would be "politically impossible". The other reasons related to the "Gaullist gold mentality" you've heard before.

(3) England--Heath is in a major battle with the Labor Party over entry into the E.C. Unemployment is up significantly and any initiative on revaluation would make Heath look insensitive to the critical jobs problem.

You asked exactly what we would get out of a willingness to devalue. The IMF's answer is as follows: the U.S. will get a substantially larger total exchange rate alignment since certain countries which agree to hold their exchange rates at present levels if the U.S. devalues by 5% or so, would not take the initiative and the political heat of revaluing on their own--even if the economic effects are the same. Also, certain countries (like Germany) are deeply concerned about their relative position vis-a-vis other countries (like France). Thus, the less the franc/dollar rate changes, the less Germany will do vis-a-vis the dollar.

Here are the kind of numbers they suggest:

Exchange Rate

With a U.S.

Without a


Change in

Change in

vis-a-vis the Dollar

Price of SDRs or Gold

Price of SDRs or Gold










France, Italy, Britain



Various experts estimate that each additional percentage point of exchange rate realignment gets the U.S. an additional $800 million of positive trade effect. Thus, since a change in the dollar price of SDRs or gold reportedly buys us an extra 5% total realignment, it means about a $4 billion improvement in the U.S. trade picture. When you recall that our total 1971 basic balance of payments deficit is something over $8 billion, the gold price issue could be decisive.

In view of all this, the entire IMF group said they are at a loss to understand why we are being so difficult on the gold price issue, particularly since it is "no longer much of a political problem to the U.S." They claim that Reuss, Proxmire et al now make it much easier, as does changing the price of SDRs (rather than the price of gold)./3/ I responded by saying (1) they were greatly underestimating the potential for U.S. political demagoguery, particularly in an election year; (2) they did not understand yours and John Connally's resolve to reform the monetary system and to maintain non-convertibility during the interim period while the new system was being worked out. (They acknowledged that the climate for negotiation on non-convertibility was much better than it had been.)

/3/On November 18 Congressman Reuss and Senator Javits introduced legislation to permit the United States to change the price of gold in the context of an international realignment of currencies. A Treasury release that day said the administration did not support the legislation. (Volcker Group paper VG/Uncl. INFO/71-47; Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, VG/Uncl. INFO/71-1-)

Where do I come out? We should not yield on the gold/SDR price issue now since it will be taken for granted and we could get less in other areas, such as trade and defense.

However, if and when John Connally has clear evidence that the total deal is a good one that can be presented to the U.S. as a great Nixon Administration success, and if it can be orchestrated politically (by changing the price of SDRs, getting bipartisan support, etc.), then, but only then, would I recommend that you consider the gold/SDR price change.

In the meantime, unless you tell me differently, I tell anyone who asks that the U.S. position on a gold price change is negative and firm.


210. Editorial Note

The G-10 Deputies met in Rome on November 29, 1971, at 3:30 p.m. A paper entitled "Highlights of Meeting of Deputies of the Group of Ten," which summarizes the Deputies' discussion, is in the Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/1971. Section I of the paper was drafted in Secretariat format and may be Chairman Ossola's draft of his prepared remarks for the opening of the G-10 Ministerial on November 30. Section II is presumably a U.S. draft of Volcker's response to Ossola and remarks of other Deputies following Volcker's intervention.

Section III of the paper, entitled "Comments on Volcker Statement of U.S. Substantive Position," is the U.S. record of the Deputies' debate about releasing the U.S. position. "After the Volcker statement, including his intention to make the statement public, all of the other nine delegations expressed the view that publication of a formal U.S. statement before the Ministers met would inject an element of inflexibility into the U.S. position that would change the whole atmosphere of the discussions. The French, in particular objected to the last sentence of paragraph 5 dealing with no dual markets, mentioning this passage as not appropriate in light of the forthcoming Nixon-Pompidou meeting. . . . Mr. Volcker argued that the U.S. statement was an attempt to put forward a reasonable, realistic position that met the desires of others for the U.S. to be more specific. The U.S. was concerned that parts of the U.S. position would be leaked in an unfavorable light. The position had to be seen as a package."

The paper that Volcker presumably gave the G-10 Deputies was transmitted to the White House on November 30; see Document 211. No other paper that might have been the text of that proposal was found in White House, Treasury Department, or State Department records. In his memoirs Volcker reports giving the Deputies a paper with the U.S. proposal. (Paul A. Volcker and Toyoo Gyohten, Changing Fortunes: The World's Money and the Threat to American Leadership, Times Books, 1992, page 85)

On November 30 Secretary Connally met with Prime Minister Colombo and Treasury Minister Aggradi at 9 a.m., prior to the G-10 Ministerial that would convene later that day. Colombo said that he understood the United States had distributed a document to the G-10 Deputies the previous day. Subsequently, Aggradi returned to that point and said "the document distributed by the U.S. yesterday has caused concern to all the Europeans. The document seems to broaden the debate back to general principles rather than focusing it on specific problems. He was afraid that when the Ministers of the Six would meet at 11:00 A.M. that morning they would be very reticent to go forward with the idea of presenting their common proposals to the G-10 meeting."

Connally replied that "he could not agree that the United States' document was broadening the issues. We have been consistent from the very beginning in holding that the areas for discussion were three: currency realignment, trade issues and burden sharing. It is true that up to now we have not been very specific on trade and burden sharing because we were afraid of being put in the position of seeking to dictate to others. However, the United States has been taken to task as being overly silent, and thereby of obstructing negotiations, because it did not put forward specific proposals. Now that we have been more specific there are objections because we have done so. What is the European position then? Do you want us to be specific or don't you?"

As the discussion concluded Connally made two points: "First of all, he recognized that the G-10 was not the ideal forum for tackling questions of trade and burden sharing. Yet it was after all true that the ultimate decision on these matters rests with heads of government and not with individual ministers and the decisions could therefore be expressed in this forum. Secondly, in a philosophical vein, he wanted it understood that in these times of fast change the United States is deeply committed to continuing and to strengthening free trade policies. We are strongly concerned that the existence of various international entities such as the IMF, the OECD, the EEC and the GATT are not always coordinated and tend to impede the solution of problems. In a fast moving age, when problems arise we cannot afford to be bogged down by hide-bound institutional arrangements or by considerations of pride and prestige of nations or heads of State." The memorandum of the conversation is in the Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/71.


211. Telegram From Secretary of the Treasury Connally to the White House/1/

Rome, November 30, 1971, 1243Z.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Back Channel Files, Box 423, Europe-Mid East-Latin America 1971. Secret. [text not declassified] According to a handwritten notation, the telegram was distributed to Kissinger, Haig, and Shultz, and an attached November 30 note indicates that Haig directed that a copy be given to Hormats.

456. To White House for Henry Kissinger and George Shultz.

U.S. Proposals for Settlement of Monetary and Related Issues/2/

/2/This is presumably the text of the U.S. proposal that Volcker gave to the G-10 Deputies on November 29; see Document 210.

Analysis of recent developments and statistics confirm, in the judgment of U.S. authorities, the basic validity of the analysis that a massive swing will be required in the underlying balance of payments position of the U.S. over the period ahead to assure a strong dollar, a firm basis for liberal trading policies and the continued discharge of the U.S. responsibilities for aid and defense, and international financial stability.

Over the first nine months of 1971, the U.S. basic deficit has run at an estimated annual rate of $10 billion or more.

The most recent forecasts suggest that, in the absence of exchange rate changes and the surcharge the deficit would remain in that magnitude in 1972.

For seven months, our trade position has been in deficit by some $3 billion at an annual rate, calculated FOB. (Calculated CIF on imports as is the practice of many other countries, the deficit rate would approximate $7 billion.)

Based upon earlier discussions and information available to us at this time, the principal trading partners of the U.S. apparently do not contemplate exchange rate and other actions that would permit adjustment commensurate to the forecasted need. At the same time, there is a widespread desire to achieve a prompt settlement of outstanding issues in a manner that will permit elimination of the U.S. surcharge and more fundamentally provide an environment in which trade and payments can proceed with reduced controls and greater certainty.

In the interest of expediting such an early settlement, the U.S. is making an integrated set of proposals to the Ministers of the Group of Ten countries.

The U.S. proposals must be considered an integrated package. They are based on the presumption of no change in the official dollar price of gold; in the present position of the U.S., there can be no presumption of convertibility of the dollar into reserve assets, nor is the U.S. in a position to offer exchange guarantees. United States policy also continues to be based on a presumption that its present restrictions on capital outflows will also be eliminated over time, and that some liberalization steps are anticipated shortly.


1. The U.S. will eliminate its ten percent surcharge and the related provision of the proposed investment tax credit.

2. To assure better a successful adjustment process consistent with freer and fairer trade, tangible progress is required in dealing with artificial restraints on the competitive opportunities of U.S. exporters. Early decisions on some matters of immediate consequence should be made, particularly with respect to agriculture, and commitments are necessary with regard to ensuing negotiations. These matters have been under intensive bilateral review with Canada and Japan. We have sought a similar review with the EC and its members. The U.S. is prepared to continue to negotiate intensively in coming weeks.

3. Progress is needed toward achieving a better sharing of mutual defense expenditures. To this end, certain bilateral matters are near decision, and multilateral efforts should be intensified at the forthcoming NATO meeting./3/

/3/The NATO Ministerial was held in Brussels December 9-10. In the final communique, the Ministers "noted with satisfaction the further, specific and important efforts announced on 7th December by those European member countries which participated in the European Defence Improvement Program, and recognized the emphasis which the European member countries are placing on modernizing the equipment of their forces, land, sea and air." (NATO Final Communiques 1949-1974 (Brussels: NATO Information Service))

4. A pattern of exchange rates should be established providing, at the minimum, a weighted average appreciation of currencies of all other OECD countries of eleven percent, measured in U.S. cents per unit of foreign currencies, with a base point of May 1, 1971. (The appreciation is calculated on the basis of weighted share of U.S. trade with these countries.) Based on an appraisal of individual country positions, depreciation of foreign currencies in terms of its own trading partners should not be contemplated.

5. The new exchange rates should be accompanied by margins of three percent, plus and minus. IMF surveillance should be directed to assure that there be no heavy market intervention in exchange markets within the band for the purpose of keeping market rates artificially low. There should be no manipulation or arrangements of exchange markets designed to maintain undervaluation of exchange rates for current account or trade purposes.


212. Editorial Note

When the G-10 Ministers met in Rome November 30-December 1, 1971, Secretary Connally was under some pressure about the issue of the gold price. At a December 2 White House Staff Meeting, which was not attended by the President, Shultz spoke as follows:

"Problem. Connally offered devaluation of the dollar and it now appears Arthur is winning on convertibility. These are both firmly opposite to the President's directions [see Document 189]. We now have changed the price of gold and the problem is how we get this through Congress. The price of gold doesn't matter if it is not convertible, but the real problem of devaluing is in the Senate and now everything hangs on this and we have to have Congressional authority.

"Question. Is Connally doing this under pressure of the meeting?

"Now back to a procedural problem. What are we doing? What is our policy? Change in the price of gold is now irretrievable. How do we make it an asset and market it through the Senate?" (Haldeman's handwritten notes; National Archives, Nixon Presidential Materials, White House Special Files, Haldeman Notes, October-December 1971)

On December 8 Hormats sent a memorandum to Haig regarding Peterson's November 27 memorandum to the President on the NEP, Document 209. Concerning the gold price issue, Hormats wrote: "given events in Rome, I have sent Peterson a 'line' on gold which I have cleared through Treasury" and which "should bring Peterson's views on gold up to date." He attached the following two Questions and Answers:

"Question: What is the U.S. position on the price of gold?

"Answer: The U. S. delegation to the Rome meeting of the Group of Ten made no offer or commitment regarding a change in the official dollar price of gold. However, in discussion of various hypothetical changes in exchange rates, moderate increase in the official gold price was mentioned by the delegation. We have made clear that we don't want to see an emphasis on gold in the monetary system, and have been opposed to a change in the price of gold for that reason. Several other countries do want a change. The question is whether such a change would contribute to a better all-around solution--and we haven't seen the evidence on that.

"Certainly it should be clear we do not intend to resume convertibility into gold.

"Question: Has the U.S. offered to devalue the dollar by raising the price of gold, in order to help solve the monetary crisis?

"Answer: No. At the Rome Meeting, the U.S. took the position that we could accept an average exchange rate adjustment of 11 percent provided it was accompanied by progress on trade and burden sharing. To facilitate discussion, alternative methods of achieving adjustment of that magnitude were discussed in a purely hypothetical way. Neither the U.S. nor any other country made any offers or any commitments." (Ibid., NSC Files, Agency Files, Box 218, Council on International Economic Policy)


213. Telegram From the Department of State to Certain Posts/1/

Washington, December 3, 1971.

/1/Source: Washington National Records Center, Department of the Treasury, Secretary's Memos: FRC 56 74 17, Classified Miscellaneous 1971. Confidential; Immediate. Drafted in Treasury by Assistant Secretary Petty on December 3 and sent to the State Department for transmission to Bonn, Brussels, The Hague, London, Luxembourg, Paris, Rome, USEC, and USOECD. According to telegrams from the addressees (see Document 215), it was transmitted as telegram 219288.

To the Ambassador.

1. Please deliver the following message:

2. "You should be aware of the following which transpired during an executive session of the recent Rome meeting with myself, Chairman Burns, and Under Secretary Volcker in attendance. After prolonged and difficult discussion, the G-10 Ministers of the Six on Wednesday/2/ unmistakably understood and accepted trade issues to be part of the current negotiation. Italian Minster Ferrari-Aggradi, speaking formally on behalf of the Six during an executive session of the G-10 Ministers, solemnly assured the USG that the EC Ministers were directing the Commission to begin immediate repeat immediate trade negotiations looking toward constructive resolution of problems. This commitment followed prolonged EC caucus suspected to include consultation with capitals by some Ministers. 'Immediate' was defined as beginning that afternoon. EC Commissioner Barre, who was present, was asked directly if he understood the instructions. After he indicated concern that EC members were not acting in formal Council meeting, it was accepted on all sides that such formal action should be taken to ratify action but that negotiation would indeed begin immediately.

/2/December 1.

You should be advised of this considered commitment which was critical part of the Rome meeting. It was an ingredient essential to the progress that was made there. It is an ingredient essential to future progress.

It is of the utmost importance that no USG official reflect any doubt whatsoever on this commitment. Since commitment made in executive session without written record we want to be alert to any possibility of EC bureaucracy dragging its heels on trade through procedural delays and otherwise, particularly in view of public view recently expressed by the Commission representatives that trade negotiations would have to await interim monetary settlement. We have been assured by the FinMins of the Six that any such statements by the Commission have been totally unauthorized.

For your background, extensive discussions in executive session identified the following trade areas of prime interest to the U.S. in the short run: most-favored-nation treatment of citrus; tax harmonization scheme on tobacco; 10% grain stock piling for 2 crop years; and the common support prices for grain, including both the unit of account and the inflation factor. We also look for framework for negotiation on other areas, such as preferences and farm price policy, during 1972. Mr. Barre was not present during most of this discussion which identified these areas of prime interest but EC Finance Ministers took exception to none of these as legitimate areas of negotiation.

Ambassador Eberle will be returning to Europe next week to pursue with the Commission the negotiation of these matters.

Ambassador Eberle, as Special Trade Representative, has been authorized by the President to conduct these negotiations on behalf of the USG, with the assistance of State, Agriculture, and Treasury officials as necessary./3/ John B. Connally."/4/

/3/In a December 6 memorandum to President Nixon, Connally noted that he had sent a message to the U.S. Ambassadors in the Common Market countries and the United Kingdom. He also suggested that when the President asked Secretary Rogers to convey Presidential greetings at a Chiefs of Mission meeting in Paris December 6-8, he ask Rogers to remind the Ambassadors to give every possible support to Ambassador Eberle. (National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury Volume II, 1971)

/4/Printed from a copy that bears no signature.


214. Telegram From the Mission to the European Community to the Department of State/1/

Brussels, December 3, 1971, 1523Z.

/1/Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Box 124, Morning Summaries. Secret; Exdis. Repeated to Paris for Deputy Under Secretary Samuels. Similar messages were received from the Embassies in Bonn (telegram 15042, December 3) and Rome (telegram 7658, December 4). (Both ibid., Central Files 1970-73, FN 10)

4012. For Julius Katz, E; for Eberle (STR) from Schaetzel. Subj: EC trade aspects of monetary settlement.

1. In response to your telephone message,/2/ I have talked with Barre, Dahrendorf and Ruggiero. We have also been in touch with Hijzen. The EC Commission is still sorting out its understanding of what happened. But they are aware that Ferrari-Aggradi said, in effect, that the Community could negotiate with us on a trade component if a mutually satisfactory monetary deal is near at hand. The Commission understands that the EC side would have the right to raise trade problems that the Community has with the US.

/2/Not further identified.

2. Under these circumstances, a Commission delegation which will probably consist of Dahrendorf, Mansholt, Hijzen, and Ruggiero, is ready to meet with a Washington delegation led by Eberle on Wednesday, December 8.

3. The Commission wishes to be clear about the basis on which this meeting will take place. They emphasize this in order (A) to take into account the political and constitutional imperatives inherent in the Community's internal procedures and (B) to avoid misunderstandings that could detract from the improved atmosphere developed at Rome.

4. In essence the Commission cannot "negotiate" with us until it receives a mandate from the EC Council of Ministers. The Commission would have to make a proposal, have it vetted at the official level with the member states (Perm Reps and Article 113 Committee), and have it formally approved by the Council. A Council of Ministers meeting was already scheduled for next Saturday, December 11. Provided that the member governments give the necessary political directives, the normal Community procedure can be speeded up and telescoped at least in part. We are of course urging the Commission to move quickly.

5. In light of the considerations outlined above, the Commission advises us that they have no choice but to view the December 8 bilateral US-EC meeting as an exploration with us of the agenda of trade items advanced by the American side in Rome.

6. Please advise us urgently as to (A) whether we should confirm the December 8 meeting with the Commission and (B) the composition and travel plans of the US team./3/

/3/No record of the details of arrangements for trade talks have been found, but Hormats, in a December 9 memorandum entitled "Economic Policy at the Summit," informed Kissinger that Eberle would begin trade negotiations with the Community during the coming week. (National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters) In telegram 23063, December 23, the Department of State informed various European posts that Eberle had undertaken a series of negotiations with the Commission, based on understandings reached in Rome and Washington. (Ibid., RG 59, Central Files 1970-73, E 1 US) See Document 221.

7. I personally believe it important, at this juncture, that the team come from Washington and lay out the US position. For one thing, the Commission needs to have as clear an understanding as possible during the next critical week or so when it must take the initiative in putting together a Community position.



215. Telegram From the Embassy in the Netherlands to the Department of State/1/

The Hague, December 6, 1971, 1315Z.

/1/Source: National Archives, RG 59, Central Files 1970-73, FN 10. Secret; Exdis. Repeated to Bern, Bonn, Brussels, London, Luxembourg, Ottawa, Paris for Deputy Under Secretary Samuels and Ambassador Middendorf, Rome, Stockholm, Tokyo, USEC, and USOECD.

4366. Pass Treasury for Connally and Federal Reserve for Burns. Subject: Dutch views on monetary and trade settlement.

Summary: Zijlstra and Oort, chief architects of Dutch monetary policy, are convinced from outcome of Rome G-10 meeting that all parties now have political will for early solution. Main imponderables now are how far dollar can devalue without pulling sterling, franc, lire, and krona down too, how far US is willing to pare down 11 percent revaluation demand, and how much further revaluation Canada can stand. Dutch feel issues of margins and IMF convertibility of dollar must also be addressed at next G-10. For their part, Dutch are ready to accept revaluation of 9-11 percent if necessary to early settlement. End summary.

1. Ambassador Middendorf, accompanied by Econ Counselor, met Dec 3 with Treasurer General Oort and Dec 4 with Central Bank Governor Zijlstra and received following impressions on what transpired at Rome G-10 meeting and what is likely to happen next. In single instance where their accounts differed Oort's version is shown in parentheses but we consider Zijlstra's version more reliable as he was present in executive sessions.

2. Both paid high tribute to Connally's chairmanship. Zijlstra called it "masterful display of leadership." Both felt that high degree of secrecy maintained and discussion of key issues in executive session were vital preconditions for success achieved.

3. Meeting got off to unpromising start because of tough US proposal unofficially surfaced at Deputies' meeting, but things went smoother at Ministerial meeting where discussion focused on Zijlstra's package proposal./2/ On monetary side this called in essence for 5-1/2 percent devaluation of dollar and weighted average revaluation of major currencies against dollar of 11 percent over 1970 parities. This formula modified during discussion to permit possibility of deeper dollar devaluation and use of May 1, 1971 as base date for 11 percent revaluation (i.e. require that 11 percent be over and above Canadian revaluation of 8 percent accomplished prior that date). Since this would have effect of raising US BOP swing from $8.9 billion under Zijlstra formula to $10.5 billion, most members thought it excessive (Oort said, on other hand, that no one seemed "shocked" at figure).

/2/Presumably Zijlstra's undated paper entitled "Working Paper," a copy of which he sent Secretary Connally under cover of a November 23 letter. Zijlstra noted that he had prepared the paper in compliance with a request made at the Annual Meeting of the IMF in Washington in September. (Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, Rome G-10 Meeting 11/30-12/1/71) For the U.S. proposal at the G-10 Deputies meeting, see Document 211.

4. Discussion then centered on Zijlstra formula for splitting bill among other nine. This formula, which Zijlstra said he developed after extensive discussions with all Governors and Ministers involved, would call for dirty float currencies (UK, France, Italy and Sweden) to maintain gold parity (i.e. revalue by 5-1/2 percent against dollar), Germany, with weight of 10 percent in US imports, to revalue by 12-15 percent against dollar, Japanese, with weight of 19 percent, to revalue by 15-20 percent against dollar, and Benelux to revalue halfway between "dirty four" and D-Mark, i.e. 8-10 percent. No one flinched audibly at this formula, including Dutch, but it was soon obvious that unless Canada, with weight in US imports of 25-36 percent (depending on definition) is in position to contribute additional 4 percent more in revaluation, other countries would have to push their revaluation to unacceptable levels to reach US 11 percent target. Monetary discussion terminated at this point and discussion on trade ensued along lines of State 219288 (Exdis)./3/ Elements of Zijlstra package covering burden sharing, agriculture, margins, and convertibility were not seriously addressed.

/3/Document 213.

5. Zijlstra considers there are three variables in monetary formula to be resolved between now and Dec. 17. He is uncertain what his role can or should be in bringing his considerable influence to bear on these issues in interim period but Ambassador expressed hope he would leave no stone unturned to promote their satisfactory resolution. Zijlstra commented that happy coincidence of BIS meeting next week will provide good opportunity for further missionary work. Three variables are:

A. How much less than 11 percent average revaluation ($10.5 billion BOP swing) is US prepared to accept?

B. How much more revaluation can Canada stand and how can floating Canadian dollar be strengthened even if this is intent?

C. How far can dollar be devalued in terms of gold without triggering pursuit by "dirty four"?

6. Zijlstra anticipates that Dec 17-18 G-10 will concentrate on four issues: monetary variables, progress on trade negotiations, margins, and restoration of limited dollar convertibility in IMF.

7. On margins, Dutch favor 2-2-1/2 percent maximum and maintenance of 1/2 percent in EEC.

8. On convertibility, Dutch see no reason why dollar could not become convertible for minor IMF debt repayments. Zijlstra feels US should have enough assets to absorb this in view of (1) additional SDRs forthcoming Jan 1, (2) availability of gold tranche and (3) likelihood of early repatriation of up to $10 billion in speculative dollars invested abroad as soon as new fixed parities are established. Zijlstra considers fixed parities without convertibility unworkable and over longer haul favors his own proposal to let IMF decide what mix of assets Central Banks must accept in conversions through Fund, although he recognized some ad hoc arrangements will have to be made to accommodate British debt to IMF and to pare down $59 billion (as of Aug 18) in hands of non-residents. (According to Zijlstra, $45 billion in hands of Central Banks, $14 billion in individual hands.)

9. Perhaps most significant observation Zijlstra made about Rome meeting was that he is convinced that all ten major currency countries now have political will and strong desire to achieve immediate settlement of monetary and trade issues. Dutch, who have so much to lose from international trade war, clearly share this will and desire. Although Dutch are deeply concerned about present downward trend in their business cycle, which up to now has been due to excessive wage settlements, they are even more fearful of growing atmosphere of corporate uncertainty engendered by floating exchange rates. Their improving BOP outlook for 1970 gives them little comfort because it is due more to declining imports of investment goods than to rising exports (except to Germany). Thus we are inclined to believe that they would now settle for guilder revaluation in terms of dollar of as much as 11 percent, provided this is essential to agreement and provided D-Mark revaluation is at least 3 points higher.



216. Telegram From the Department of State to Certain Posts/1/

Washington, December 7, 1971, 0050Z.

/1/Source: National Archives, RG 59, Central Files 1970-73, FN 10. Confidential. Drafted in Treasury by Petty on December 6 and cleared by Volcker in draft; cleared in State by D.B. Timmins (E/IFD/OMA) and approved by Weintraub (E/IFD). Sent to G-10, OECD, and NATO capitals and to USEC and USOECD.

220210. Please deliver at opening of business December 7. Subject: Summary of G-10 Rome Meeting. From Secretary Connally.

1. In view of the importance of the negotiations and the prominent treatment in the press I wanted to provide you with my assessment of the Rome meeting and give some guidance on what I see lying ahead.

2. Multilateral negotiations between a sizable number of Finance Ministers and Central Bank Governors involving precise--even if hypothetical--exchange rates are a matter of highest sensitivity on the markets around the world. By restricting discussion to only the principals, a very lively and free give and take was achieved. This procedure is likely to continue in Washington./2/

/2/The G-10 Ministers were scheduled to meet again at the Smithsonian Institution in Washington December 17-18.

3. On Monday afternoon, Under Secretary Volcker at the Deputies meeting made a specific proposal incorporating a substantial concession by the United States./3/ Our analysis has determined that a roughly $13 billion swing is needed if we are to return to approximate equilibrium in our basic position. This would involve, in the absence of other measures, an exchange rate adjustment on the order of 15-20 percent. Mr. Volcker said the U.S. could accept an 11 percent adjustment (figured from May 1, 1971), provided it was accompanied by progress on trade (particularly agriculture) and burden sharing. However, because the adjustment proposed was below what is likely to be necessary for a secure external position, Mr. Volcker emphasized the offer was based on a presumption of no convertibility into reserve assets and no change in the dollar price of gold. It was pointed out the U.S. could not assume responsibility for maintaining exchange rates when other countries would agree to substantially less change than what we felt was necessary to achieve equilibrium.

/3/See Document 211.

4. The U.S. was prepared to publish this offer, but withheld at the unanimous request of other Deputies.

5. On Tuesday the Common Market Ministers and the U.K. sought a common position and, as previously, they were able to agree mainly that the U.S. should offer to change the gold price.

6. To facilitate discussions on various formulas for achieving the exchange rate realignment the U.S. proposed discussion proceed in a hypothetical manner by asking what exchange rate changes might ensue with the U.S. changing the gold price in various ways. The ensuing discussion (and silences) made it apparent that despite the strong politically motivated desire in Europe for a gold price change, most European countries desired only small and inadequate exchange rate adjustments. It was apparent to all in the discussion that the U.S. could not unilaterally determine its exchange rate by any mechanism.

7. No country made a specific offer. Each nation has maintained its full prerogatives and future negotiations will proceed with all options open. However, each of us is now more intimately aware of not only the range of possibilities but also of likely magnitudes of adjustment.

8. As reported to you earlier, much time was spent in firmly establishing the point that trade measures must be part of the solution. We left Rome having created a strong momentum for a monetary settlement. However, large differences of substance remain. I cannot predict that settlement will be found in Washington. Too much depends on the trade negotiations, the prospect of which is difficult to assess at this time. Moreover, it is clear that exchange rate realignment which many countries are prepared to allow us is substantially below the minimum requirement which Mr. Volcker announced Monday of 11 percent and also below what the OECD and IMF studies have considered necessary. So in Washington I hope to find that the other countries have raised their sights a bit. In sum, the sense of progress which the press has reported and which the markets have reflected are justified. I hope it will be possible to have agreement by early in the New Year. However, to achieve that result, the time has come in which our trading partners must be more forthcoming than has been apparent so far.



217. Telegram From the Embassy in Germany to the Department of State/1/

Bonn, December 10, 1971, 1152Z.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters. Secret; Exdis. Repeated to The Hague, Luxembourg, London, Paris, Rome, Brussels, and USEC. Attached to a December 9 memorandum from Hormats to Kissinger regarding economic policy at the Summit.

 15341. Subject: Nixon/Pompidou meeting: EC trade negotiations. Ref: Bonn 15229; Paris 2977 (exdis)./2/

/2/Neither printed.

1. Summary: I am concerned that the GOF might hold up approval of the EC trade negotiating mandate until the Nixon/Pompidou meeting. Department should be alert to the possibility that Pompidou might also concede on grain prices in full recognition of the fact that it would be politically difficult for the Germans to move on this issue./3/ I believe the GOF should not be allowed to shift the entire burden for seeking a grain CAP modification to the USG but should share the responsibility with other EEC members of working out an overall acceptable trade response. End summary.

/3/In his December 9 memorandum to Kissinger (see footnote 1 above), Hormats noted that Connally believed that he received a commitment from the Europeans at the G-10 meeting in Rome to empower the Commission immediately to begin trade negotiations. Hormats then referred to reporting from Paris that at the EC Ministers' meeting on December 11 France might oppose giving an immediate mandate. Hormats concluded it was far from certain that the international economic situation had been resolved.

2. I have noted reports suggesting that GOF might seek to hold up the EC mandate on trade negotiations so that Pompidou can gain political mileage by reaching agreement with President Nixon. It is also conceivable that Pompidou will offer us some satisfaction on grain during the Azores meeting while at the same time expecting that this would be politically impossible for the Germans as stated in para 3 reftel B. Such a development would admittedly put the Germans in an extremely difficult position. However, in my view this would not necessarily be detrimental to our interests; such a move by Pompidou might thus bring additional pressure on the Germans to offer some satisfaction on grain prices; perhaps also the reverse system could be used with Brandt to put pressure on the French on other "impossible" issues.

3. For some time now the Embassy has urged the FRG to reduce grain prices. We have made it clear that present CAP prices are a serious burden to American agriculture and undermining support for liberal trade in the U.S. In recent weeks we have strongly re-emphasized the necessity for a reduction of EC farm prices and the use of production neutral income payments to compensate German farmers for the effects of revaluation and requested price reductions.

4. Admittedly grain price reductions will be extremely difficult for the Germans. Brandt and the SPD are dependent on the Free Democratic Party to continue in power. The FDP has important strength in agricultural constituencies making Brandt particularly dependent on Minister of Agriculture Ertl who is a conservative member of the FDP and a Bavarian farmer. Alienation of Ertl could bring down the Brandt government thus explaining the difficulty of obtaining any price movement on grain prices in the short-run.

5. However, as is clearly evident from ref B, all difficult agricultural decisions are politically impossible in the EEC in view of the unanimity rule involving significant policy issues. Therefore we must keep pressure on to bring about economically essential solutions to trade issues and their possible adjustments. This should of course be done in a manner as not to jeopardize our relations with the FRG or our broader European policy interests.

6. I believe the Department should be alert to all the various political and economic infighting now going on in the EEC such as is clearly evident in ref B. This applies especially to responsibilities for trade policy in agriculture, making it essential that the US place emphasis and responsibility on the total EEC for its trade actions rather than in any way supporting one country against another.



218. Telegram From the Mission to the European Community to the Department of State/1/

Brussels, December 12, 1971, 0114Z.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters. Confidential. The copy of the telegram printed here does not have the list of posts to which the telegram may have been repeated. It is attached to a December 11 memorandum from Peterson to Kissinger entitled "Trade Negotiations Status--To Take With You to Azores Meeting."

4124. Pass Treasury for Secretary Connally/White House. Pass Eberle. Subject: EC-US trade negotiations.

1. Due to French opposition, the EC Council was unable at its meeting on December 11 to adopt a formal mandate to the Commission to begin trade negotiations with the United States. Instead, the Council adopted a "declaration of intent" (text not available) which stated that the Community should open negotiations with the US "as soon as possible." The Counsel instructed the EC PermReps to prepare a formal mandate, and said that the Commission should report to the council on the results of the negotiations at the end of January.

2. According to Commission Secretary General Noel, the mandate which the PermReps will prepare will require formal Council approval before negotiations can actually begin. This could be accomplished, however, by "written procedure," which would not require a meeting of the Council. Noel, Commission Vice President Mansholt and other Community officials expressed doubt, however, that a mandate will be approved in time for negotiations to begin next week.

3. The "declaration of intent" adopted by the Council also states that a realignment of parities should lead the Community to make a significant contribution to the solution of trade problems and the balance of payments problems of the United States. It says that the special characteristics of agricultural trade and the growing importance of non-tariff barriers open up opportunities for new initiatives, which could include adjustments in the GATT. It says that the Community is prepared to negotiate on the basis of mutual advantage and reciprocity.

4. During the Council discussion, the EC Commission and all the member states except France strongly advocated immediate adoption of a formal negotiating mandate, on the basis of the commitment made by Italy's Treasury Minister Ferrari-Aggradi at the Rome meeting of the Group of Ten. French Foreign Minister Schumann maintained that Ferrari-Aggradi's statement had not been a Community commitment. He pointed out that the member states had only received proposals from the Commission on the day before the Council meeting, and said that serious matters of this kind required careful consideration. Schumann stressed that the Community should not put into effect any trade concessions in the United States before it was certain that the US could participate in a general realignment of parities (i.e., before Congress approved a change in the price of gold).

 5. While the other member states sought approval of a mandate at this meeting, most of them expressed the view that the US has been pressing too hard and that the belief that trade negotiations could produce results in the course of next week was beyond the realm of the possible.



219. Editorial Note

President Nixon and French President Pompidou met in the Azores December 13-14, 1971. Memoranda of the Presidents' conversations, plus memoranda of Kissinger's breakfast meetings with Pompidou on both days regarding international monetary and related issues, are in the National Archives, Nixon Presidential Materials, White House Special Files, President's Office Files Beginning 12/12/71. The joint statement issued at the end of the Summit dealt only with international economic issues. For text, see Public Papers of the Presidents of the United States: Richard M. Nixon, 1971, pages 1190-1191.

Among the briefing materials for the economic dimension of the Azores Summit is a December 10 paper entitled "Framework for Monetary and Trade Settlement." A number of the elements in the draft agreement Kissinger marked up during his December 14 breakfast meeting with President Pompidou are in this paper; see footnote 1, Document 220. Also included in the briefing papers is a 17-page, December 10 memorandum from Connally to the President entitled "Monetary and Trade Issues Aiming at the Azores Meeting." In it Connally reviewed the role of France in the European Community, touched on its NATO role, and highlighted its economic differences with the United States. He included a number of specific recommendations for items Nixon should concentrate on with Pompidou, including, in the hope of a final agreement that would include trade and burdensharing, U.S. consideration of a change in the dollar-gold price, despite the fact that it was not clear if "a negotiable package serves our economic interests as well as a long period of floating exchange rates." All the briefing materials are in the National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters.

Ambassador Watson reported in telegram 20627 from Paris, December 3, that President Pompidou's agenda at the Azores Summit would include, in addition to the international economic, financial, and monetary situation, other items such as the changing global power alignments as China emerged more fully on the world stage and bilateral narcotics issues. (Ibid., RG 59, S/S Files: Lot 73 D 153, Box 124, Morning Summaries)

A set of materials that includes papers on non-economic issues at the Summit, problems involved in its scheduling, and how the meetings would be conducted is ibid., Nixon Presidential Materials, NSC Files, President's Trip Files, Box 473, Azores-Pompidou. These records indicate the broad scope of the Summit and President Pompidou's desire to meet privately with President Nixon, avoiding as much as possible expanded meetings.

Based on the President's Trip Files, the memoranda of conversation, and the President's Daily Diary, the course of the Summit went as follows: On December 13 Kissinger breakfasted with Pompidou (accompanied only by interpreters) to discuss a framework for monetary negotiations. Pompidou agreed that Kissinger might join the two Presidents for discussion of monetary issues. Presidents Nixon and Pompidou then met privately from 10:05 a.m. to 12:45 p.m. to review non-economic issues, accompanied only by their interpreters (Walters on the U.S. side). Simultaneously, Secretary Rogers and Foreign Minister Schumann met on "political issues" (accompanied by Kissinger, Ambassadors Watson and Kennedy, Assistant Secretary Hillenbrand, and Sonnenfeldt on the U.S. side) and Connally and Volcker met with Finance Minister Giscard d'Estaing on economic issues. Following the morning session, President Nixon lunched alone with Kissinger (according to the President's Daily Diary), but Kissinger reports that Connally was also present (according to White House Years, page 961), and Connally agreed to provide Kissinger with a proposal for Kissinger's breakfast meeting with Pompidou the next day.

On the afternoon of December 13 Presidents Nixon and Pompidou met from 3:35 to 6:13 p.m. (accompanied by interpreters and Kissinger on the U.S. side). The majority of the discussion entailed an exchange of views on international monetary and related matters. President Pompidou emphasized the importance of fixed parities, a devaluation of the dollar in relation to the price of gold, and the eventual restoration of convertibility. The Presidents touched on acceptable exchange rate margins and target parities for a number of currencies, subjects they took up in greater detail on December 14. Simultaneously, the Rogers-Schumann political meeting and the Connally-Volcker-Giscard economic meeting continued. That evening both Presidential parties attended a dinner given by Portuguese Prime Minister Caetano.

On December 14 Kissinger again breakfasted with Pompidou to discuss monetary reform and related matters. Kissinger worked from a draft set of undertakings drawn up in consultation with Connally, which he marked up during the breakfast meeting. See footnote 1, Document 220. Presidents Nixon and Pompidou then met from 9:35 a.m. to 1:35 p.m. (accompanied by interpreters and Kissinger on the U.S. side) for detailed discussion of monetary and related matters. At 11:05 a.m. Connally, Volcker, and Giscard (according to the President's Daily Diary) plus Rogers and Schumann (according to the memorandum of conversation) joined the Summit and remained with their principals until the conclusion of the meeting. Following exchanges on a number of specific issues, President Nixon asked Pompidou if he could agree with the general terms of the U.S. draft. Pompidou equivocated, suggesting there was room for give and take. The memorandum of conversation does not further elaborate on an agreement, but the Presidents did sign a confidential agreement on a framework for a monetary and trade settlement. See Document 220.

In their brief statements at the end of the Summit both Presidents referred, without any specifics, to wide-ranging discussions, but the joint statement released at that time referred only to the economic issues. The December 13 remarks of Secretary Rogers and Foreign Minister Schumann on trade and foreign policy matters and Connally's December 13 press briefing on economic and monetary affairs are printed in Weekly Compilation of Presidential Documents: Week Ending Saturday, December 18, 1971, pages 1656-1660.

 220. Paper Agreed by President Nixon and President Pompidou/1/

Angra, The Azores, undated.

/1/Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 356, Monetary Matters, Envelope marked Bermuda. No classification marking. Initialed by Presidents Nixon and Pompidou at the bottom of the first page and signed by both at the end. An earlier version of the paper that Kissinger marked up, apparently during his breakfast meeting with Pompidou on December 14, is ibid. According to the memorandum of conversation of that meeting (see Document 219), Kissinger read Pompidou the proposed text of item 6 as formulated by Connally. Pompidou said he could not agree to the statement as read; he could not accept the absence of any mention of fixed parities. Kissinger wrote in the left margin of the draft: "Fixed Parity must be in." In the expanded meeting at the conclusion of the Summit, Connally noted that the item 5 language had been modified. See also footnote 4, Document 223. The text of the earlier version of the paper is indicated in footnotes 2-9 below.


The following proposals providing a framework for an early settlement of monetary and trade issues should be considered as an integrated whole:

1. The U.S. will remove the ten percent surcharge and the related provisions of the Job Development credit.

2. The U.S. will propose to the Congress a suitable means for devaluing the dollar in terms of gold to $38.00 per ounce/2/ as soon as the entire set of related measures (including short-term trade measures) is available for Congressional scrutiny.

/2/Instead of "to $38.00 per ounce" the earlier paper read "by ten percent." In the margin Kissinger calculated this to be an 8.6 percent change, but when Pompidou held out for $38, Kissinger said "we would not raise our voices on that."

3. The French Government will reaffirm its intention, under these conditions, to maintain the present gold parity of the French franc. Consistent with this decision, it is anticipated the German mark will be revalued by 5-6% and the Japanese yen by 9-11%./3/ It is anticipated also that sterling and the lire will remain in line with the French franc.

/3/The two percentages were "4-5%" and "8-10%," respectively, in the earlier paper.

4. Pending resolution of longer-term means of monetary reform, provisions will be made for 2-1/4 % margins/4/ of exchange rate fluctuation above and below the new exchange rates.

/4/The earlier paper read "three percent margins." During breakfast Pompidou said France could accept 2 percent margins. Kissinger told Pompidou he would prefer to wait on this and would be prepared to discuss it if there were agreement on other matters. He said the President was prepared to split the difference between 2 and 2-1/2 percent. In the closed Summit meeting Kissinger noted the U.S. preference for 3 percent margins and the French willingness to accept 2 percent margins. Connally reportedly was prepared to accept 2-1/2 percent and left it to the principals to work out the difference. President Nixon said he would "bow" on 2-1/2 percent and would give 75 percent.

5. The United States intends to assist in the stability of the system and the defense of the newly fixed/5/ structure of exchange rates in particular/6/ by vigorous implementation of its efforts to restore price stability and productivity.

/5/The earlier paper had "established" instead of "fixed."

/6/The words "in particular" were added to the final text.

6. Discussions will be promptly undertaken in appropriate forums to resolve longer term issues of international monetary reform. Attention should be directed to the appropriate monetary means and division of responsibilities for defending stable exchange rates and for insuring a proper degree of convertibility of the system;/7/ the proper role of gold, reserve currencies, and Special Drawing Rights in the operation of the system; the volume of liquidity; re-examination of the permissible margin of fluctuation around established exchange rates and other means of establishing a suitable degree of flexibility; and other measures dealing with movements of liquid capital. It is recognized that decisions in each of these areas are closely linked./8/

/7/This phrase ended with "defending established exchange rates" in the earlier paper.

/8/The earlier paper read: "suitable flexibility in exchange rates. It is recognized that decisions in each of these areas will be interdependent."

7. Questions of trade arrangements are recognized as a relevant factor in assuring a new and lasting equilibrium in the international economy. The French Government therefore will support an appropriate mandate for the Commission of the European Community to enter into negotiations immediately with the U.S. to resolve pending short-term issues/9/ at the earliest possible date and to establish an appropriate agenda for considering more basic issues in a framework of mutual cooperation in the course of 1972 and beyond.

/9/The parenthetical phrase "(particularly affecting agricultural products)" was included at this point in the earlier version. The memoranda of conversation do not indicate when it was deleted. At the end of the earlier version of the paper, Kissinger wrote: "World organization of grains." During the initial, limited Summit meeting on December 14 Pompidou said the EC had adopted a draft statement that once monetary measures had been taken France was ready for general trade discussions. He said citrus was not a problem for France but would be for others. Tobacco could be on the table, but for the time being cereals production, except for soft wheat could not. "If the leaders were to give the European farmers the impression that they were tampering with European agriculture, it would create an impossible political problem." Pompidou later returned to the point and said "frankly (and this was very favorable to the U.S.)" that as French and Europeans they were ready to discuss world grain market organization with the United States and Canada, a point on which President Nixon expressed satisfaction.

8. The United States believes commitments undertaken at the recent NATO meeting represent a constructive approach toward dealing more adequately with a proper sharing of defense burden./10/

/10/See footnote 3, Document 211.

9. The United States and France will join with other nations to consider promptly means of appropriately facilitating the operation of the International Monetary Fund.

G. Pompidou

Richard Nixon


221. Editorial Note

The G-10 Ministers met at the Smithsonian Institution in Washington on December 17 and 18, 1971, and agreed on a realignment of exchange rates similar to that agreed to by Presidents Nixon and Pompidou in the Azores. See Document 220. Addressing the Ministers at the conclusion of the meeting, President Nixon called their agreement "the most significant monetary agreement in the history of the world," even in comparison with the 1944 Bretton Woods agreement that had established the postwar regime of fixed exchange rates and the International Monetary Fund. For text of the President's address, see Public Papers of the Presidents of the United States: Richard M. Nixon, 1971, pages 1195-1196.

At his press conference with Federal Reserve Chairman Burns, Under Secretary Volcker, and Governor Daane following the G-10 meeting, Secretary Connally said the dollar would depreciate by an average 12 percent against other OECD currencies, but declined to disclose what the new exchange rates would be. Connally said the Ministers had agreed that each country would announce its parities at the time and in the manner it saw fit. Connally also said the administration would approach the Congress for authority to increase the gold price to $38 per ounce, and that the 10 percent import surcharge would be lifted, probably during the coming week. A transcript of the press conference and a copy of the G-10 Communique are in the Washington National Records Center, Department of the Treasury, Volcker Group Masters: FRC 56 86 30, 1971, VG/Uncl. INFO/71. The President's statement and the G-10 Communique are also printed in Department of State Bulletin, January 10, 1972, pages 32-34. President Nixon announced the removal of the surcharge on December 20, during his meeting with British Prime Minister Heath in Bermuda. See Public Papers of the Presidents of the United States: Richard M. Nixon, 1971, page 1197. The G-10 Communique and the President's statement lifting the surcharge are also in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1972, pages 369-371.

Reports from the Embassy in France indicated that Finance Minister Giscard d'Estaing on December 21 announced the new franc parity for current account transactions, but said the financial franc would not be bound by the 2.25 percent margins agreed to in Rome and Washington. The Embassy reported that on December 21 the commercial franc was trading at 5.22-5.23 per dollar, within the new 5.23 ceiling, but that the financial franc was as high as 5.28. (Telegram 21746 from Paris, December 21; National Archives, RG 59, Central Files 1970-73, FN 10 FR)

In response to President Pompidou's remarks during a TV interview on the international economic situation, during which Pompidou reportedly said there could be no damage to the Community's Common Agricultural Policy in the trade negotiations (see also footnote 9, Document 220), the Department of State provided certain European Missions with Departmental press guidance for their use as appropriate. The guidance indicated that Ambassador Eberle had undertaken a series of trade negotiations with the Community's Commission based on understandings reached in Rome and Washington and that the administration intended to submit the trade package "for Congressional scrutiny at the same time we submit our legislation on a change in the price of gold." (Telegram 230632, December 23; ibid., E 1 US)

Reporting from Bonn [text not declassified] indicated that Chancellor Brandt thought that the fact that the G-10 reached agreement was evidence of "cohesion in the Western Alliance" despite the "fact that in reaching an economic agreement 'some nations' had 'ganged up' on the FRG and placed before the Germans some already-agreed-upon decisions" (understood to be the Azores Agreement). Brandt reportedly hoped it would be possible to reach agreement with France on agricultural policies, but Minister of Agriculture Josef Ertl highlighted difficult obstacles to an agreement with the United States as U.S. proposals would depress the prices received by German farmers. Minister of Economics and Finance Schiller was concerned with reaching agreement with France on the Mark-franc exchange rate and "complained that the French were insisting on fixed parities and were not agreeing to the general guidelines laid down by the Ten, particularly as far as parity bands were concerned." (Telegram [document number not declassified] from Bonn, December 23; ibid., Nixon Presidential Materials, NSC Files, Country Files--Europe, Box 686, Germany, Volume X 9/71-12/71)

Background information provided to Congress in February 1972, when the administration sent forward the proposed legislation on modification of the par value of the dollar included the following tabulation on new parities:



Percent appreciation

Old exchange

New exchange


against U.S. dollar

rate per dollar

rate per dollar


vis-a-vis par values




on April 30, 1971





















625 lira

581.5 lira



360 yen

308 yen















.42 pounds

.38 pounds"


(Ibid., Subject Files, Box 376, President's Economic Program)

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