240. Telegram From the Embassy in Germany to the Department of State 0

1783. Paris also for USRO. From Ball for Secretary Rusk, McGeorge Bundy and Ambassadors.1

Under Secretary Ball met with Chancellor Erhard on Nov 12 for one and a half hours. He was accompanied by Ambassadors McGhee and Thompson, and Kaysen. Westrick was present on German side.

Ball opened the discussion after the usual courtesies by saying that it was his desire to explore those matters which the Chancellor wished to discuss in Washington. In response to the Chancellor’s question, Ball said that the first topic which we considered important was to reach a common judgment on the situation in Eastern Europe and the Soviet Union and a common policy line on the basis of this judgment. It was clear that there was a rapid development of events in the Communist bloc which presented us with both dangers and opportunities.

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Erhard agreed that the situation was a changing one. He was under no illusion that large changes in East-West relations were now feasible. However, he thought it important to remain in contact with the Soviet Union, to continue conversations, and to make such arrangements on smaller matters as would prove possible. He was happy to observe that Mr. Ball and the US share his view on the dangers of the extension of long-term credits to the Soviets by the West. It was unwise for us to help Khrushchev build up his long-run strength.

Ball said that the question of credits was urgent. We have a fair basis for judging Soviet reserves of gold and foreign exchange. We estimate that they will be paying some $800 million to $1 billion for wheat purchases this year and next, and we estimate their gold production at from $200 to $300 million per year. The Soviets had obtained credits in the past which are now coming due, and the amortization of these credits was about equal to the new credits they are obtaining. Khrushchev has stated that the Soviets intend to spend some $3 billion a year over seven years for chemical fertilizer plants. It was clear that their new land venture has been a failure and that they are taking these steps to solve their continuing agricultural problems. We estimate that about 40 per cent of this would be machinery and equipment, which they might try to purchase abroad. This investment program posed difficult choices in resource allocation and it seems certain that they will have to cut back on military expenditures and possibly on troop strength. This should dispose them to be more interested in measures of arms control and possibly even disarmament. This situation of resource pressure could also constitute a potential bargaining lever on political questions and thus it was important for the West to achieve a common position on long-term credits. Ball thought it would not be easy to achieve a common position on long-term credits in NATO. The Italian position was ambiguous, as was the Canadian; the UK appeared to desire to extend long-term credits; and Norway would probably take the same position. He said he would be seeing Mr. Heath 2 and probably Foreign Minister Butler in a few days and would discuss the matter with them before it was taken up in the NATO Council.

Erhard responded that he shared Ball’s estimate of the Soviet situation. Trade alone would offer the Soviets very limited opportunities, since they had little to supply to the West. Therefore, credits were the central problem in Soviet economic relations with the West. He also shared Ball’s skepticism on the position of the UK. Germany, of course, would support the US position very strongly. It was his judgment that France would also support this position since it was consonant with De Gaulle’s general views on relations with the Soviets. It was less clear [Page 632] what the others would do. Germany thinks it equally undesirable to extend long-term credits to the satellites, but does wish to improve trade relations with them to change the somewhat rigid position which had previously governed their relations.

Ball agreed in general, but thought it useful to make a distinction between the Soviet Union and the Eastern European countries. There was a growing divergence between these countries and the Soviets which we should do our best to encourage. He quoted Khrushchev’s statement to Harriman that the Soviet satellites were now too big to spank.

Erhard asked whether Khrushchev would see improved trade relations between Germany and Eastern European countries as hostile to the Soviet Union.

Thompson responded that while Khrushchev would not be particularly pleased, he could hardly object.

[Here follow extensive discussion of wheat prices and France’s role in Europe.]

At Ball’s request, Thompson made some observations on the Soviet situation.

The Chancellor asked Thompson whether we had a reliable and full explanation of the Soviet motives in blocking the convoys recently.

Thompson thought that the impulse had originated in the Soviet armed forces. It was clear to him that when Gromyko was calling on the President, Gromyko was ignorant of what was happening on the Autobahn. Khrushchev would not have ordered an interruption at that moment. If he had wished to have one, he would have done it earlier or waited for Gromyko’s return.

The Chancellor observed that this might be a sufficient explanation for the first incident, but asked how it bore on the second.

Ambassador Thompson pointed out that once the prestige of the Soviet military was engaged, Khrushchev had to support them. He naturally desired to try to push us when he readily could, and he was not free to ignore pressures from the army. These, of course, were matters of conjecture; we could not speak with certainty on them. As for the Soviet economic situation, it was clearly difficult but not desperate. An increase in the supply of fertilizers alone would not solve the agricultural problem. Present supplies are being wastefully used, partly because of poor distribution and partly because of peasant ignorance. The allocation of resources would continue to trouble the Soviets, and while industrial output grew, agriculture would be a problem for some time.

Erhard asked two questions. First, how strong was the embourgeoisement of the Soviet people; and second, how deep were the differences between the Soviets and Communist China.

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On the first point, Thompson said he thought this had gone very far indeed. He gave as examples the inability of the government to suppress the artists and poets whom they had criticized, the toleration by Khrushchev of jazz to the point of his appearance at an American concert, and the great interest of the ordinary citizen in Western dress. Nonetheless, the Communist Party and not the people ran the country, and the influence on policy of these changes in attitudes was not clear. On the second question, Thompson said that Soviet-Chinese conflict was irreconcilable, as long as the present leadership ruled in the two countries. The immediate question was how far the struggle would go in the Communist Parties all over the world; whether there would be an open break within these parties and their front organizations. As far as state relations between the Soviets and Chinese went, he did not expect a formal break, although continued frontier fighting conceivably could lead even to this.

Erhard inquired whether we had any specific intelligence on military movements on the frontier.

Thompson said we had some reports of military reinforcements on both sides and some rumors of fighting. It was possible that fighting could take place without our knowing about it.

Chancellor Erhard closed the conversation by observing that he would not be bored in Washington and that there would be plenty to talk about and do.

The discussion lasted about an hour and a half.

  1. Source: Department of State, Central Files, POL 7 US/BALL. Secret; Immediate; Limit Distribution. Passed to the White House and repeated to London, Moscow, Paris, and Brussels.
  2. Ball was in Bonn on the first stop on a trip to Germany, the United Kingdom, and France for talks on economic questions.
  3. Edward Heath, British Lord Privy Seal.