Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

116. Memorandum From Secretary of the Treasury Fowler to President Johnson¹

Washington, January 23, 1967.

SUBJECT

• Meeting at Chequers

Attached you will find a copy of the communique on the meeting of the Finance Ministers this past weekend.

It was a very useful meeting and accomplished as much as we could reasonably hope.

I believe all present have a sincere conviction that further easing of monetary stringency in the major industrial countries and capital markets “would be helpful in the context of the development of their own economies and of the world economy as a whole”. Whether or not they will be able to assure that the monetary policies of their respective countries “should have regard to the effect on other countries” which is particularly applicable to the Germans, the Italians and, to a lesser degree, the French, remains to be seen.

As you can see, the last sentence in paragraph three amounts to a “best efforts” agreement to cooperate in such a way as to “enable interest rates in their respective countries to be lower than they otherwise would be”. The telling part of the paragraph is, of course, the qualifying words “within the limits of their respective responsibilities” which spells out that the central bankers have considerable to say in this area and, of course, Parliaments or the Congress insofar as taxing and fiscal policy is concerned.

At the very least, the meeting set a very good tone on this subject and focused attention on the need for cooperation by the Common Market countries if we and the U.K. are to keep our rates on a downward path without causing substantial balance of payments outflows.

The Germans moved down their bank rate a half point last week but need to do a great deal more for their own good (because their economy looks relatively stagnant) and to reduce the gap in rates as pictured in the attached chart entitled “Central Government Bond Yields”,² which has been expanding over the last three years.

The situation in the money market rates (see attached chart on money market rates)³ does not particularly point to Germany. There we must watch the Eurodollar rate which, happily, has been coming down with our short-term money rate.

I had a brief side exchange with Mr. Debre, the French Minister, concerning his recent antics in connection with gold and the liquidity negotiations.⁴ Also, I had several side conversations with Chancellor Callaghan who expects to be here next month for a series of bilateral meetings with us. I would like to fill you in sometime on these side meetings since they were highly relevant not only to our financial but to our overall political situation vis-a-vis Western Europe and the U.K.

Henry H. Fowler

Attachment⁵

COMMUNIQUE

1. Ministers of France, Germany, Italy, United Kingdom and United States met at Chequers on January 21st and 22nd 1967 for informal discussions about the international interaction of their respective countries’ economic and monetary policies. The Ministers taking part were M. Michel Debre, Minister of the Economy and Finances of France; Professor Karl Schiller, Minister of Economics of the Federal Republic of Germany; Signor Emilio Colombo, Minister of the Treasury of Italy; Mr. Henry Fowler, Secretary of the Treasury of the United States; and Mr. James Callaghan, Chancellor of the Exchequer of the United Kingdom. The meeting was arranged at the invitation of Mr. Callaghan.

2. The Ministers welcomed recent steps taken by some of the countries represented to ease credit and monetary stringency which in the past had played a useful part in moderating their domestic inflationary pressures. They agreed that in some countries some further easing would be helpful in the context of the development of their own economies and of the world economy as a whole.

3. The monetary policies called for in the present situation should be adapted to the different conditions obtaining in their respective countries and should have regard to their effect on other countries. The Ministers agreed that they would all make it their objective within the limits of their respective responsibilities to co-operate in such a way as to enable interest rates in their respective countries to be lower than they otherwise would be.

4. No other question was dealt with at the meeting.

1. Source: Johnson Library, Bator Papers, Chequers Trip, Box 8. No classification marking. A covering memorandum from Walt Rostow to President Johnson, January 23, briefly summarizes Fowler’s “preliminary report,” adding that Bator, who accompanied Fowler to the United Kingdom, will upon his return “give you his impressions of the Chequers meeting as well.”
2. Not found.
3. Not found.
4. A memorandum of Fowler’s conversation with Finance Minister Debre on January 22 is in the Johnson Library, Fowler Papers, International Classified Material: International Monetary Conference, 1967–1968, Box 58. The Deming Group Papers contain DG/67/58, a January 10 Press Release to which is attached a translation of Debre’s interview on gold and international monetary reform that appeared in Le Monde on January 8–9. DG/67/57 is a February 15 paper from Willis to Deming on “First Reaction to French Proposals for Reform of IMF,” an assessment of the French proposal that was to be presented to the EEC Monetary Committee February 15–16. (Washington National Records Center, RG 56, OASIA Files: FRC 75 A 101, Deming Group)
5. No classification marking.