Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

344. Memorandum of Conversation, April 5, between President Kennedy and Prime Minister Macmillan¹

April 5, 1961

SUBJECT

• International Economic Problems

PARTICIPANTS

• • United States
  • The President
  • The Secretary of State
  • The Secretary of the Treasury
  • Ambassador Bruce
  • Mr. Walter W. Heller
  • Mr. McGeorge Bundy
  • Mr. George W. Ball
  • Mr. Foy D. Kohler
  • Mr. Charles E. Bohlen
  • Mr. William C. Burdett
  • Mr. James W. Swihart
• • United Kingdom
  • The Prime Minister
  • Lord Home
  • Ambassador Caccia
  • Sir Norman Brook
  • Sir Frederick Hoyer Millar
  • Sir Robert Hall
  • The Honorable Peter Ramsbotham
  • Mr. John Russell
  • Mr. D.B. Pitblado
  • Mr. Philip de Zulueta
  • Mr. A.C.I. Samuel
  • Mr. John Thomson

The President opened the series of talks by expressing his great pleasure at the opportunity to welcome the Prime Minister to the United States again. He recalled Mr. Macmillan’s meetings with his predecessors. The President extended a welcome also to the Foreign Secretary. He said he wished to make the visit as mutually beneficial as possible.

Turning to agenda item 1, “International Economic Problems”, the President said the Prime Minister could be of special help to us in the economic field particularly in Western Europe. The US is facing some serious decisions posed by the outflow of gold and the necessity of obtaining a renewal of the Reciprocal Trade Act. What happened in Europe, what happened on the Sixes and Sevens problem, would have a deep effect here. The President requested the Prime Minister to give us his views.

Claiming that he was only an amateur, the Prime Minister said he wished to touch on two themes which he thought ran through all of our problems. The first was the relations of the Communists and the West. During the past ten years the position of the Communists had grown stronger while ours had become weaker. They had gained and we had lost. This was because the free world was more divided than at any time since the war. Unity was essential. There must be unity in banking, monetary and trading policies. Then by trade and aid the West could help the underdeveloped countries. With the revival of Europe a third force had come into being. The European powers were not interested in problems elsewhere in the world. For example in Southeast Asia, Germany was not involved; France took a detached attitude; Italy stood aside. The Europe of the Six had declared itself non-interested. We must operate to reunite this dangerous division. Today Europe was doing to itself what it did in the 19th century. Under the leadership of the President the West must be reunited.

The second theme he wished to develop, the Prime Minister said, was economic and financial. The short-term and long-term aspects should be considered. Both Great Britain and America had balance of payments troubles. Yet ours were the reserve currencies of the world and thus carrying a double strain. He understood that plans developed by British and American experts were very close together. More pressure was required on the surplus countries. We must decide if the imbalances are epidemic and endemic. The German surplus was almost the same as the sums spent by the US and UK in that country for military purposes. This was an extraordinary paradox. As a short-term measure we should consider enlarging the IMF. Inducing surplus countries to permit currency drawings beyond their established quotas should enable us to get through this year. It is necessary to find ways to increase liquidity. The central banks have shown a most cooperative willingness to help. This cooperation might also help in the long term.

Regarding the longer term, the Prime Minister emphasized that he could not see how we could do four times the amount of trade with only two times the amount of credit. He referred to British experience during the depression of the 30’s when Great Britain had allowed money to be the master and as a result had the worst unemployment ever experienced by a capitalist system. We must increase the amount of credit whether by the Triffin or Bernstein plan or some other way. We must also correct the imbalances. One player just could not collect all the digits and just sit on the money. There must be an understanding of the rules of the game. England in the 19th century was a rich country and reinvested its capital abroad. Since the war America has done the same. Now the new Europe must do the same. There was a practical political problem involved. De Gaulle had not forgotten how he and France were treated by Churchill and Roosevelt when they were down and out. We must work through the International Bank or central banks to prevent these imbalances. Capitalist society cannot survive unless it is running at top speed. The only true thing Marx said is that capitalism must expand or collapse. Formerly, we used to consider these problems within our own countries. Now, unless the Free World as a whole can cope with them in the next few years, the Russians will attract more and more power and we will lose out in the game.

The President asked Secretary Dillon to comment. Mr. Dillon referred to the extensive talks we have been having with British experts and his continuing written exchanges with the Chancellor of the Exchequer. He said we are in fundamental agreement on what must be done immediately. We are addressing ourselves in the first instance to the short-term problem. We must get action promptly. Assets from Germany, Italy and France should be available to make an IMF drawing possible if it should be needed by the US or UK. He did not foresee such a need on the part of the US. We will meet resistance in the Fund as others will not wish to make their currencies available.

Mr. Dillon continued that we were still working on Germany but had not yet achieved the success the British had. We thought the German agreement to purchase military equipment from the UK was fine. It was the easiest thing the Germans could do to relieve the balance of payments problem.

The US is still studying the long-term matters itself, Mr. Dillon explained. The basic problem is not only to find the best solution, but to find something our Congress and the Parliaments of other countries will approve. We are really asking the countries to give up a portion of national sovereignty. We must anticipate substantial political difficulties. We should not prejudice the immediate short-term objectives by talking about the longer-term problems in a European forum now.

The Prime Minister agreed that we should concentrate on short-term matters and discuss the longer-term ones further between ourselves. The President concurred.

The President said we certainly do not wish to reduce our troops in Europe. If in another year we are still losing gold it will put us under tremendous political difficulties here. There will be pressure to reduce our aid or our military effort. We do not want to do either. It is not a satisfactory situation when keeping our troops in Europe costs $150 million. We must have a suitable arrangement with Germany or we will be under great pressure.

The Prime Minister noted that the UK was spending 170 million odd pounds on British troops in Europe. Unless something is done this drain will continue as long as NATO continues. Should we reduce our troops or should we devise a plan by which our money going into Europe comes back out? We must examine this together or NATO may breakdown. Perhaps two brigades could be brought back to England and used to protect Norway and Schleswig-Holstein from there. Maybe the UK should bring its troops back.

The President emphasized that we must dispel the unfortunate impression in Germany that our troops are semi-occupation forces. We are willing to bear the internal payments burden. The outflow must be stopped. This matter must be brought to a decision shortly.

1. “International Economic Problems.” Secret. 4 pp. Department of State, Presidential Memoranda of Conversation: Lot 66 D 149, January–April 1961.