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

85. Memorandum of Conversation⁰

Bonn, December 11, 1959.

SUBJECT

• Under Secretary Dillon’s Meeting at Bonn

PARTICIPANTS

• Chancellor Konrad Adenauer
• Deputy Chancellor Ludwig Erhard
• Foreign Minister Heinrich von Brentano
• Finance Minister Franz Etzel
• Defense Minister Franz–Josef Strauss
• State Secretary Albert–Hilger van Scherpenberg
• Under Secretary Douglas Dillon
• Ambassador Walter C. Dowling
• Minister Henry J. Tasca
• Mr. Weir Brown, Treasury Representative
• Mr. John Leddy, U

Following a half hour meeting with Chancellor Adenauer and State Secretary Van Scherpenberg,¹ Under Secretary Dillon met for two hours with the Chancellor and Ministers Erhard, Von Brentano, Etzel and Strauss. The subjects covered included problems involving the European Economic Association and the European Free Trade Area, dollar liberalization, aid to underdeveloped countries and a brief reference to defense spending. Under Secretary Dillon presented the United States viewpoint on these subjects in terms similar to his earlier discussions in London and Brussels.² He stated his belief that the dangers of a political “split” in Europe were exaggerated and expressed the willingness and desire of the United States to participate in conversations between the Six and the Seven in order both to be informed of developments and to contribute usefully to the discussions. The Under Secretary said that he had no great enthusiasm for a full FTA, including the Common Market, since this would give the impression that the European countries were ranged against the United States and the rest of the world. Such an impression would only serve to strengthen protectionist and regionalist sentiments in the United States.

Regarding less-developed countries, Under Secretary Dillon cited statements by President Eisenhower and others on the problem of economic development which the United States regarded as one of the most important of this century. Although the United States preferred private investment to government aid as far as possible, private means were insufficient and the efforts of all financially-strong countries were required to take up the slack. The United States was not asking European countries to substitute for the United States share, but rather to increase the total aid available. The United States considered the Federal Republic as one of the principal countries obliged to increase its financial assistance to the developing countries. Under Secretary Dillon acknowledged that there were problems involving the types of institutions to administer assistance and the forms which such assistance might take. These problems were matters for each country to solve on its own terms. However, it was clear that the over-riding needs of the less-developed countries were for long-term credits or grants. The IDA would play an important role in this regard, but it could not be expected to do all of the job.

With particular regard to India, Under Secretary Dillon emphasized the importance of this country to the Free World. If economic progress were to continue at the present rate in India, greater foreign assistance had to be provided. Indian sterling balances had been heavily depleted. The British were, however, willing to contribute substantially to India and Under Secretary Dillon hoped that the Federal Republic would also step up its aid to that country. Under Secretary Dillon mentioned Greece and Turkey as areas similarly needing continued assistance.

The subject of development aid required further coordination and the United States considered the IBRD an appropriate coordinating agency for specific programs. Consultation on other matters was also required. The United States, for instance, saw the desirability of consulting on matters involving the Six and the Seven, as well as in the aid field. Under Secretary Dillon thought that probably the same forum should be used to consider both matters. These consultations should be continuous and at a high level. He thought that perhaps a small committee could be formed among the European countries without necessarily including the entire OEEC.

In response to an inquiry from the Chancellor about the financial condition of the United States, Under Secretary Dillon replied that the United States was naturally concerned, but that this anxiety was exaggerated in the press. He referred to plans for a balanced budget and said that the outlook for the trade balance was improving. He stated that the United States sought comprehensive liberalization of restrictions on American products and hoped that the Federal Republic would move faster than required under the terms of its GATT waiver. The Under Secretary assured the Chancellor that the value of the dollar could be adequately maintained through sound financial measures.

Defense

The Chancellor inquired if the Under Secretary had anything to say on defense. Mr. Dillon replied that he wished to correct certain misconceptions about American intentions to alter its defense policies. The United States had no intention to reduce its forces in Europe, and if this idea should arise in the future, it would be discussed in close consultation with interested countries. President Eisenhower would wish to assure the Chancellor in Paris next week about inaccuracies appearing in the press on this subject.³ The Federal Republic was already bearing all the costs of its own build-up, which was not true of certain other countries which the United States felt were now able to shoulder such expenses. The Federal Republic could perhaps increase its share of financing infrastructure costs, although the amounts involved were not large relative to the global defense burden. In addition, the Under Secretary suggested that the Federal Republic might be able to assist such countries as Turkey militarily as well as economically.

Chancellor Adenauer

The Chancellor thanked Under Secretary Dillon for his clear and reassuring statements on the United States position. He underscored Mr. Dillon’s views on the importance of Greece and Turkey, whose people led sparse lives, had high unemployment, and were important to the West. In his view, coordination of aid efforts was important, but the needs of Greece and Turkey could not wait until a mechanism for coordination was perfected. He would like the United States to study this problem and assured the Under Secretary that the Federal Republic would cooperate in the extension of such aid. The Chancellor also agreed that Germany could and should do more for the less-developed countries. He took exception to the citation of India as a country to which the Federal Republic should increase its aid. He said that the German conscience with respect to India was clear. Africa might be mentioned by the Germans to the President in Paris as presenting a special economic-political problem; not Algeria, but the equatorial regions and mid-Africa, where the Communist infiltration was causing anxiety.

Minister Erhard

Economics Minister Erhard welcomed the Under Secretary’s statement of United States willingness to take part in negotiations between the Six and the Seven, and inquired exactly how far we were willing to go. He asked whether the United States and Canada would become a really active third political force in such negotiations. Cooperation among these three groupings could be more important to the world than the GATT. Under Secretary Dillon rejoined that while participation in negotiations was possible for the United States, cooperation in the form of a Free Trade area that would include the United States would not be appropriate. This would create problems in our relations with Latin America, Japan and other countries. Cooperation could assist and prepare for GATT discussions, but would not be a substitute.

Japan

Under Secretary Dillon stressed the need for associating Japan, a country with a strong, resurgent people and a vital role to play in Asia, with any developments and discussions in a reorganized OEEC. Other countries also could not continue overt discrimination against Japan in trade matters without serious difficulties. Minister Erhard subsequently addressed himself to this problem by noting the inability of European countries to agree on a common policy with regard to Japanese imports. This made it difficult for one country alone to pursue a generous policy.

Six and Seven

In reply to a question by Adenauer as to the willingness of the United States to participate in discussions between the Six and the Seven, Mr. Dillon stated that the United States would be interested in participating in talks between the Six and the Seven which looked toward a settlement. This did not mean that the United States was interested in a big Atlantic FTA. That was another question which was certainly premature. In the United States’ view, any settlement between the Six and the Seven would have to provide a resolution of political differences in addition to being in accordance with the GATT. It should not lead to increased discrimination against United States and other third countries. The United States would expect to take part as an observer which would be a different role from a participating member of the Six or the Seven, or from taking part in the active negotiations. Concessions exchanged in any specific negotiations between the Six and a third country should, in the United States’ view, be generalized by most favored nation treatment and be made available to other GATT countries. The United States could not, of course, expect to be present in such negotiations. In commenting on Minister Erhard’s announcement of further liberalization on January 1, the Under Secretary expressed the hope that the GATT-approved schedule under the waiver would be accelerated.

Minister Erhard stressed the problem of relations between the Six and the Seven as very serious since 60 percent of Europe’s trade was intra-continental. Economic developments had political aspects and vice versa. He believed that if the Six and the Seven met to settle outstanding issues and to agree on mutual tariff concessions, it would be useful if the United States also participated.

Minister Etzel

Minister Etzel agreed with Minister Erhard that the Common Market should be as liberal as possible and should protect America’s interests. He urged United States participation in conversations between the Six and the Seven. With respect to underdeveloped areas, Minister Etzel noted the Chancellor’s agreement that the Federal Republic should increase its aid and he stressed again the Federal Republic’s willingness in this respect. However, he believed that the Federal Republic was doing more than was generally realized and pointed to its participation in various international programs, including the Common Market’s Overseas Development Fund, European Investment Fund and its Social Fund. Germany’s assistance was approaching one percent of its GNP, as compared with only slightly more than one percent for the United States. With respect to Germany’s surplus payments, he noted that this did not help its budgetary problems. The surplus was also inflationary since the Bundesbank had to pay out marks for foreign exchange. As to the United States’ balance of payments, he agreed that the situation was not really disquieting, but considered that the Federal Republic could make contributions to lighten the situation. He proposed an additional prepayment in the amount of $200 million on Germany’s debt to the United States for postwar economic assistance.

Minister Strauss

Defense Minister Strauss referred to the effective contribution the Federal Republic would eventually make in the field of defense in the form of combat-ready forces with full nuclear capability for the Army, the Air Force and partially the Navy. He considered the use of infrastructure percentages as a measure of a country’s financial contribution as being theoretic, noting that the Federal Republic had paid 50 million pounds for infrastructure at the outset as an “entrance fee”. Minister Strauss stated that the Federal Republic’s support of Greece and Turkey in the nuclear field was already taking the form of substantial armament orders (DM 740 million for Turkey and DM 60 million for Greece). In addition, it was generous on prices thus giving in fact economic assistance. He noted the great volume of orders being placed by Germany in the United States and stated this would continue as the build-up of the Bundeswehr progressed.

Chancellor Adenauer stated that the additional aid proposed by the Federal Republic indicated what great importance the Federal Republic attached to the Soviet threat which would be continued for many years to come.

State Secretary Van Scherpenberg

State Secretary Van Scherpenberg proposed a meeting prior to the OEEC Ministerial Conference in January⁴ among a small group representing five or six countries to discuss relations between the Six and the Seven. The Chancellor interjected that the Commission of the EEC should be included. Van Scherpenberg then stated that the Federal Republic attached importance to the development of methods to coordinate aid to less developed countries and referred to the possibility of a standing committee being established for this purpose.

Under Secretary Dillon stated that he would attend the January OEEC meeting and looked forward to the possibility of discussing these matters with other countries as suggested. He would consider it very helpful if the European Commission were represented. In addition, he would be interested in discussing further ways and means of coordinating aid to less developed countries. He noted that the World Bank was useful for the purpose of coordinating information, but some other mechanism at a higher level was needed to formulate over-all policy questions relating to foreign aid.

0. Source: Department of State, Central Files, 100.12-DI/12–1159. Confidential. Drafted by Tasca, Brown, and Leddy and cleared in U on December 21.
1. See Document 84.
2. See Documents 81 and 83.
3. Eisenhower and Adenauer were to meet at the December 19–22 Western Heads of Government meeting at Paris.
4. January 14, 1960.