45. Memorandum of Conversation0

PARTICIPANTS

  • Mr. Stikker, Secretary General of the NATO
  • Mr. Saint-Mleux, Chief of Cabinet to the Secretary General
  • Secretary Dillon
  • Ambassador Finletter
  • Mr. Sullivan1
  • Mr. Tobin, State Department2
  • Mr. Curtis
[Page 117]

SUBJECT

  • International Economic Questions and the NATO

Secretary General Stikker indicated that, in addition to discussing many political questions at State, he had also had talks with Mr. Ball on economic matters. He then cited the reference to NATO discussions made in the U.S. aide-memoire to the Germans last February,3 as well as the role which Secretary General Spaak had played in resolving the earlier problem of U.K. troop costs in Germany, and inquired whether we were intending to bring the NATO into the current U.S.-German balance of payments talks in any way.

Secretary Dillon replied that we were not, and that earlier statements suggesting we would had not been well thought out. Explaining the way in which we see this problem, he mentioned that there had been a sharp improvement in the U.S. balance of payments since last winter but said the turn in the cyclical situation here could be expected to create pressure on our balance of payments again. Therefore, there was need to keep on working on this question. The essential problem here was to make our export earnings cover our non-trade international outlays, and the largest of these were our military expenditures abroad. Our outlays for foreign economic aid were less of a burden on our balance of payments because of our policy of tying these expenditures to exports; last year the balance of payments effect of foreign aid had been perhaps $1 billion but in the next year or two we were hoping to reduce this effect to about $500-$700 million per year.

With respect to Germany, he said, we felt that their balance of payments surplus was the counterpart of both the U.S. and the U.K. deficits. Action by us alone to correct the situation would merely result in shifting our deficit to the British, and therefore the primary need was for the Germans to take appropriate action. We could not, of course, tell them just what actions they ought to take. Their recent revaluation of the Deutsche mark was directed to this problem, but was not by itself adequate to resolve it. Larger capital exports by Germany were another way of dealing with it, and here he thought that progress was being made. Finally, we had thought one easy way for the Germans to meet this problem would be for them to increase their procurement of military equipment abroad. The Germans had recently reached agreement with the United Kingdom on an increase in such procurement. Our own talks with the Germans were continuing, and were not too satisfactory so far.

Independently of these negotiations, he said, it looked as though German military procurement orders from the United States would increase somewhat this year, but this would not be enough. The gap between [Page 118] such German procurement here and our own military expenditures in Germany currently amounted to around $400 million per year. Our own directives designed to minimize the foreign exchange spending of our military might reduce this gap, possibly to something like $200-$250 million. Thus, if we could get the Germans to buy about $200 million more of military equipment from us annually, that would largely solve this problem. We felt this was a reasonable request, in view of the German financial strength and their lack of a large domestic armaments industry, and therefore we were continuing to press them on it. Another subject we were also discussing with the Germans—which he indicated the Ambassador was familiar with—related to possible joint use of various military facilities.

He mentioned that, in the earlier stages of our talks with the Germans, they had responded that this was a multilateral matter—why should we pick on them alone? However, when we had taken them up on this and agreed that the problem of their surplus was multilateral in its effects, they seemed to lose interest in multilateral discussions. Thus, we now had no specific intentions of any NATO discussion of this matter. The earlier U.K. case, which the Secretary General had cited, was really quite different in a number of respects. We did of course want all appropriate international organizations to continue the general multilateral pressure on the Germans to do more about their surplus, but we intended to keep our procurement talks with them on a bilateral basis.

Ambassador Finletter suggested that the Secretary General might, however, want to consider—when the currently-planned discussion and review of NATO military planning was completed—whether some of the countries with greater financial capability could usefully be asked to provide appropriate military equipment assistance to other NATO countries. The Secretary noted that, during our talks last year with the Germans, we had tried to suggest their extending such military assistance to other NATO countries but had been unsuccessful. If the NATO could, as its review of national military plans proceeded, get the Germans or others to do something along this line, that would certainly be fine. We had come to recognize that there was merit in the German reluctance to provide such military aid on a bilateral basis, and had stopped pressing them on it.

Summing up, the Secretary reiterated that, despite what had been said in our February aide-memoire, both we and the Germans preferred to keep our talks on a bilateral basis. However, he was in agreement with the Ambassador’s suggestion that an ultimate decision by NATO calling for greater conventional forces might create a problem of military assist-ance programs among NATO countries which would be of a multilateral character. Mr. Sullivan called attention, in this connection, to the great difficulties which had been encountered in arriving at a satisfactory multilateral [Page 119] sharing of the relatively small costs involved in the NATO infrastructure programs. The Ambassador and the Secretary General felt this experience was not necessarily conclusive, and possibly a large multilateral NATO cost-sharing arrangement would be easier.

The Secretary General then inquired whether he could assume, similarly, that the United States did not have any idea of pressing in the NATO for establishment of a burden-sharing formula. The Secretary replied that this was correct. Establishment of any such formula was a very difficult and complex matter and would not be feasible—although we had in connection with discussions in the DAG, for example, made reference to the statistics on the relative burdens which are being carried by various countries. In doing so, we had included defense costs along with other considerations—and, in the U.S. case, this of course meant our total military costs, including for example our large expenditures on atomic energy. The Germans, he indicated, had backed away from discussion of formulas after looking at the U.S. figures, and the references made to burden-sharing in our February aide-memoire had been intended only to exert general pressure on them to deal with their balance of payments surplus.

The Secretary General mentioned the question of the United Kingdom and the Common Market, indicating he had some doubt whether the British would decide to join on conditions which would be acceptable to the rest of us. In response, the Secretary referred to the impressions Mr. Ball had gained from his conversations. He himself felt there had clearly been a marked change in the U.K. position, but we could not of course be equally certain of a successful outcome. There had not been any change in the U.S. position on this matter.

The Secretary General alluded, finally, to the problem of the NATO mission to Greece and Turkey. Only the Italians had so far offered a candidate. The Germans also were willing to, but the British had no interest and he was still looking for a third candidate. It was possible the Netherlands might supply one. The Secretary asked whether Tinbergen might be available. The Secretary General agreed Tinbergen was a very good man, but thought the Netherlands Government might be reluctant to propose him. The Secretary suggested they might perhaps do so if no other candidate were found.

Donald W. Curtis 4
  1. Source: Kennedy Library, Dillon Papers, Memoranda of Conversation, 1961. Confidential. Drafted by Donald W. Curtis (Treasury/OIF) on June 20, although the date at the top of the source text is June 19. The source text is stamped, “Approved by the Secretary, June 25 1961.” The meeting was held in the Secretary’s office.
  2. presumably Charles A. Sullivan, Special assistant to the Secretary of the Treasury.
  3. Irwin M. Tobin (EUR/RA)
  4. For text, see American Foreign Policy: Current Documents, 1961, pp. 472-474.
  5. Printed from a copy that bears this typed signature.