Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

58. Memorandum of Conversation⁰

June 4, 1959, 3:15–3:50 p.m.

PARTICIPANTS

• Germans
  • Mr. Ludwig Erhard, Minister of Economics, Fed. Rep. of Germany¹
  • Mr. Wolfram Aloisius Langer, Chief of Basic Policy Div., Federal Ministry of Economics
  • Mr. Franz Krapf, Minister, German Embassy
  • Miss Grosse–Schware, German interpreter
• U.S.
  • Mr. Robert B. Anderson, Secretary of the Treasury
  • Mr. C. Douglas Dillon, Acting Secretary of State
  • Mr. Graydon Upton, Asst. Secretary in charge of International Finance
  • Mr. Foy D. Kohler, Acting Assistant Secretary for European Affairs

Toward the end of his conversation with Secretary Anderson, Mr. Erhard said he wanted to raise the question of the Common Market and European integration. Especially in the light of the British attitude on the subject, he would like to hear U.S. views.

Mr. Dillon replied that this was the principal item that he had had in mind for discussion with the Minister back in the State Department, prior to his meeting with Mr. Murphy, but that he was prepared to discuss the question here if this were convenient to Secretary Anderson. Secretary Anderson having indicated his agreement, Mr. Dillon said that first of all he wanted to set forth U.S. views on the question the Minister had raised. As Mr. Erhard was aware, the U.S. had consistently supported European unity and integration, particularly as represented by the Common Market, Euratom, and the Coal and Steel Community. These institutions had developed around the closer French–German understanding which had the warmest approval of the U.S. In this connection Mr. Dillon referred to the President’s strong support for moves toward European integration, mentioning in particular his Guild Hall speech in London,² which was made well before his election to the Presidency. There had been a number of false starts in the field of European integration. After the failure of the EDC, we had decided that the economic approach was probably the best. The most important development, of course, has been the Common Market, both economically and politically. We do believe that it would be useful if some form of understanding could be developed with the other eleven. In the form of the free trade area proposal this had not been a success. But efforts might still go ahead without, of course, disturbing the development of the Common Market. Now there was a new proposal for association of the other Seven countries³ which appeared to be in accordance with the GATT rules. We were skeptical as to how this Seven–nation proposal might develop but would be grateful to hear German views. Did the Minister regard it as a serious proposition or just a means of exerting pressure on the Common Market powers for adjustments?

Mr. Erhard replied that it was clear to him that the Common Market would not be affected by broader arrangements. The Common Market was a reality with its own established institutions such as the Investment Bank and the Mutual Assistance Fund. These institutions would not be affected by closer European cooperation. In his view the Seven were not homogeneous enough economically to support a special arrangement among themselves, though the proposal was politically interesting. In any event, he did not expect any results very soon. Mr. Erhard then referred to the pressures which had developed last January 1 when the first Common Market tariff and quota cuts became effective, as a result of which these reductions were extended generally. The next cuts were due on July 1, 1960 and he expected there would be the same experience and the same results. He thought the probable line of development would be toward greater freedom of trade in Europe with a tendency to extend this freedom globally, particularly to include the U.S. He understood that there was talk in the U.S. about possible harmful effects of the Common Market on U.S. trade but he did not believe this. In his view it would be helpful to everyone if tariff and quota reductions were made global.

Mr. Erhard said that the development of the Common Market had been more problematical under previous French governments which had been under the influence of protectionist elements. Now, however, France was stronger politically and economically as a result of which the Common Market had developed faster and more effectively than had been expected.

With respect to the problem of the United Kingdom, Mr. Erhard said that he had told the British not to push the proposed arrangements among the Seven as he was certain that the Common Market arrangements would continue to be broadened. He felt that British apprehensions had already been allayed and tension had significantly been reduced.

The Minister referred to the German proposal in the OEEC for the establishment of common policies to insure economic growth under conditions of economic stability, to include the U.S. and Canada. De Gaulle’s France had agreed to this proposal. Yesterday’s France would not have been able to do so.

Mr. Dillon said that we welcomed the Minister’s statement and were glad to note that our views were parallel. While the U.S. was opposed to Common Market arrangements of an exclusive nature we had not shared the views of the British. We agreed that the atmosphere is relaxed and that the UK is taking a more reasonable view. The UK had always been afraid that the Common Market would develop into a high tariff area, protecting and allowing industries to develop inside the market area and then spring out into world markets as dangerous competitors. The U.S. hopes that the Common Market will in fact develop as a low tariff area. Consequently we also hope that the spread of reductions outside the Common Market will continue, thus progressively lessening the British fears. In this connection, however, Mr. Dillon said he wanted to add that the U.S. is concerned about one thing. We would be opposed to a special arrangement between the Common Market and the United Kingdom to the disadvantage of others including ourselves. Mr. Erhard interjected at this point: “I don’t want that either”. Mr. Erhard then went on to say that the problem of relationships concerned not only the United Kingdom but some of the smaller states, such as Switzerland and Austria, which fear the political aspects of the Common Market. Their neutral status makes it difficult for them to join or cooperate closely in Common Market institutions. Thus Mr. Erhard believes that it is desirable to keep the Common Market as it is but to build bridges out to the other countries. Finally, in this connection he wanted to assure us that he and all Germans firmly believe that the German–French friendship and cooperation has been established for good.

Mr. Dillon said that we agreed with the views just stated by the Minister, if the bridges to which he referred were not in the form of special arrangements which would be discriminatory against outside countries such as the U.S., Canada and the Latin American nations. He would add a comment as respects the concept of the low tariff Common Market. He agreed that the French situation had improved and that the German–French rapprochement gives France a chance to follow less protectionist economic policies.

Mr. Erhard said that he had learned in the course of recent events that technological progress had made ours a smaller world. It was clear that a protectionist Common Market simply would not work—there is too much outside pressure. Hegel was right in saying that “history gets its way”. Maybe at the beginning some of the participants of the Common Market had thought it would give them a protected situation but all now realized that this was not to be the case.

Mr. Anderson referred at this point to his recent visit to London to attend a bankers’ gathering there.⁴ In his discussions with the British on that occasion he had found them relaxed and heard no definite talk about the Free Trade Area. He believed that they would be receptive to proposals for bridges from the Common Market outward.

Mr. Dillon then said that he wanted to mention another question, that of the German coal restrictions. He realized that the Germans had a problem in this connection but he wanted them to appreciate that we also have a very difficult domestic situation with respect to this subject. He would not pursue the matter in further detail as the subject of coal was on the agenda for later discussion with Mr. Murphy. He went on to say that he would like to hear the Minister’s views on Spain, particularly in view of the interest of the IMF and OEEC in developing a program to improve the economic situation there. It was clear that the Spaniards would require some help not only from the U.S. but from the European countries.

Replying to Mr. Dillon’s observations the Minister said that first, on coal, he wanted to stress that the German action on this matter did not indicate any change from their liberal economic policies. This action was due to very heavy political pressures in the Ruhr and nervousness with respect to Berlin. The Germans had tried to handle the matter in accordance with sound business principles, particularly that there should be no embargo without indemnity. Thus they had bargained out a settlement of the contracts. Moreover they had consulted with the U.S. and the CSC with respect to their action and had avoided a declaration of a state of crisis by the CSC which would have been harmful. The Germans were now trying to work out a rational solution to the whole problem. This effort was still in the works so he could not go further at this time. Mr. Erhard went on to say that he appreciated the U.S. desire that there should be no discrimination against the U.S. in the OEEC. He did not believe this was wholly possible under GATT arrangements relating to low price countries but that the Germans would certainly do as much as they can to avoid discrimination.

As regards Spain, the Minister said that in Paris he, along with the French, had been for the Spaniards in the OEEC. It was the Belgians who were against. Spain had a completely outmoded economic system which did not meet the norms and requirements of today’s world. He referred particularly in this connection to unrealistic multiple exchange rates with Spain. However, Mr. Erhard said it may be possible to help them to try to modernize their system.

Mr. Erhard went on to say that he wanted to raise another question, that of German external [vested]⁵ assets.⁶ This question was important to the Germans, not because of the dollars involved but politically. Lack of a return gave them difficulty in maintaining the principle of the inviolability of private property. Private investment abroad was discouraged as the investors felt there would be no security if the poorer countries saw that even the U.S. did not return these assets. He said that he did not wish to go into detail on this question as the Embassy was more informed and competent to do that.

Replying to the question of the assets Mr. Dillon reminded the Minister that the U.S. has accepted the principle that there should be a repayment to the owners. He said he felt that the new approach to the question had the advantage of separating the question of return from that of the payment of U.S. claims. We do not know what results can be expected but we will take account of the Minister’s views.

0. Source: Department of State, Central Files, 840.00/6–459. Official Use Only. Drafted by Kohler. The conversation was held at the Department of the Treasury.
1. Erhard was in Washington for meetings with various U.S. officials. A memorandum of Erhard’s conversation with Murphy on various aspects of U.S. and West German foreign economic policy is printed in volume IV, pp. 44–50. Erhard also met with the President at 11:30 a.m. on June 5. Copies of John S.D. Eisenhower’s account of this conversation, which was similar to Erhard’s conversation with Anderson and Dillon, June 5, and of Murphy’s account of this conversation, also June 5, are in the Eisenhower Library, Project Clean Up. A summary of Murphy’s account of the conversation was transmitted in telegram 2935 to Bonn, June 5. (Department of State, Central Files, 033.62A11/6–559)
2. Reference is to the July 3, 1951, speech which General Eisenhower, then Supreme Allied Commander in Europe, made before the English Speaking Union in London.
3. Regarding the organization of the Outer Seven into the European Free Trade Association, see Document 52.
4. Anderson attended the May 7–9 meeting of the American Bankers’ Association.
5. Brackets in the source text.
6. German property seized by the United States during World War II.