Foreign Relations of the United States, 1964–1968, Volume XIII, Western Europe Region

207. Memorandum of Conversation¹

Washington, September 26, 1966, 11 a.m.

SUBJECT

• Offset and Troop Levels

PARTICIPANTS

• Chancellor Ludwig Erhard
• President Lyndon B. Johnson
• Mr. Kuesterer (German interpreter)
• Mr. Obst (American interpreter)

The President welcomed the Chancellor and suggested the Chancellor give him a summary of his thoughts to begin the conversation.

The Chancellor started out by saying the two were meeting at a difficult time in the world. There was much uncertainty. He and the President were personally involved in many difficulties. There were always people searching for somebody to put the blame on, but both of them were used to that by now.

The public was expecting some progress out of these talks. He was hopeful that progress would be achieved. He wanted to assure the President that his Government would stay on course and would continue the very close cooperation with his American friends. These close and friendly ties were a stabilizing factor all around the world.

There were some trends in Germany to lean closer to France. He was convinced that Franco-German reconciliation was important for Europe as otherwise there could be no progress on the road to economic and political unity of Europe.

Those that wanted to lean more towards France and away from the United States were in the minority but they made a lot of noise and the number of them were to be found right in the Parliament. He did not believe in a bilateral arrangement with France but all the free European countries should get together as one unit.

There were two big issues the two should talk about which could not be exhausted in this initial conversation.

First, there was the offset problem with a deadline coming up on the 30th of June. A new formula would have to be found in a follow-up agreement at that time.

Secondly, there was the question of the US troops stationed in Germany. Their presence was the best protection and guarantee for German security.

On both these points he felt sure solutions could be found that would be useful to the United States and practicable for the Germans. Such solutions would have to be connected with the general aspect of the strategy of defense for Europe. Technical changes had taken place and also changes in philosophy. These had injected an element of uncertainty and insecurity. There was no lack of trust in the United States but the German people wanted to know where exactly they stand at this point in terms of security, how they would be protected in the event of the conclusion of a non-proliferation treaty. They would have to know which voice they would have in nuclear strategy. Nobody was expecting a “hardware solution” any longer. What was needed and desired was a common solution under NATO. As affirmed in the Peace Note, Germany had renounced the right to produce ABC weapons nor did they want national control of such weapons. However, there was an arsenal of MRBMs in Eastern Europe as well as mobile launch facilities threatening Western Europe. The question was where the Germans’ voice would come in on the spectrum that might range anywhere from 0.1 to 100. And the point to be chosen would have to be believable to the public.

He believed both questions (offset, troops) were soluble. He was under great pressure because of the reports circulated by the press and the public opinion generated by it. He knew the President had similar problems. It would be advisable, therefore, for them to put things into a clear language.

He had had a two-hour discussion in depth on the previous day with Secretary Rusk and Under Secretary Ball where a lot of ground had already been covered.² He did not know if the President had been informed of this meeting.

The President said no, he had not been informed yet. He had only come back to Washington late yesterday.

The Chancellor stated that he had expressed his willingness to engage in tripartite talks if they should be necessary, but he thought the bilateral talks should first continue.

The President could be assured of the continuing loyalty to the Alliance and deepest friendship of the German people.

The President replied he respected greatly the leadership of the Chancellor and he had a great personal affection for him. He generally agreed with all the Chancellor had just said. This was a critical time in the world and both countries were in a serious situation. He was anxious to help the Chancellor wherever he could. He was sure constructive solutions could be found. He was anxious to hear and interested in any ideas the Chancellor might want to expound.

The Chancellor said that not only he himself but all the Germans knew how much they owed to the United States. They were deeply appreciative of the American sacrifices for freedom in Viet-Nam. The German Government wanted to again review how much more they could do to support the US in Viet-Nam. If it was not for the firm stand of the US there, the insecurity, for instance in Berlin, would be much greater. The loyalty of the US to its commitment as demonstrated in Viet-Nam was a beacon of hope to the Germans and deeply appreciated by them.

He hoped the President would not misunderstand him but he wanted to say that a different German Government that might succeed his Government may not show the same loyalty and determination to cultivate close ties with the United States. Though such a Government would not turn its back on the NATO, it might, however, contribute to at least a moral loosening of the NATO ties.

He hoped the President would not misinterpret this remark. He was not concerned about himself but was only thinking of the common good for the two countries.

With regard to the offset problem, which he knew had played a big role in the US balance of payments situation, he wanted the President to understand that the Government found itself in a very difficult situation. The steep economic growth curve of the past had flattened out. Germany had made financial commitments in the past counting on the continuation of such growth. They had now been forced to make serious reductions in their forthcoming budget. The situation was so bad that about thirty existing laws calling for certain expenditures would have to be changed, though they had already been passed and approved. One could imagine what the reaction would be in Parliament and in public opinion.

The Government had been forced to propose a stabilization act which was just taking effect. There were some hopeful signs for the future. Prices showed a trend of stabilizing in the recent past and the exhausted capital market showed some signs of recovery.

However, out of the current budget it would not be possible to fulfill all financial obligations under the current offset agreement to the full amount. This did not mean that Germany would not stand by its promise. The whole amount would definitely be honored in full. What was needed was just some easement for the current time.

The Central Bank was contemplating certain possibilities, as far as feasible under the limitations of the Central Bank Act. Under the current two year agreement $450 million in treasury bills would have to be purchased still this year. The FRG could pay $250 million of this amount still in 1966. This would leave $650 million still to be paid by June 30, 1967.

This problem might be tackled in a business-like way. A businessman finding himself in unexpected cash difficulties may sometimes ask to pay with a note. This would not necessarily make him any less trustworthy. He wanted the President to understand that the FRG would of course pay as much as at all possible by July 1, 1967 out of their budget as well as other available sources. Any remainder would have to be carried into next year’s follow-up agreement. The military budget would be raised proportionately next year.

The attitude of the FRG towards the American dollar had shown their goodwill. The FRG had bought $750 million worth of Roosa Bonds, had raised the swap-line from $250 million to $400 million, had not sold any dollars or bought any gold since 1962. The trade balance, apart from the offset payments, was showing a favorable balance in the amount of $800 to $900 million a year for the United States. Private US investment in Germany had risen from $50 million to $250 million over the last six years and no change in the generous German attitude in this field was anticipated.

He was just mentioning these data to illustrate the basic goodwill and sympathetic attitude of the FRG. The President might recall that the German Government paid some war debts off ahead of time to help the American position.

As far as the amounts in question here were concerned it should be easy to find an agreeable solution acceptable to both sides. A new agreement on July 1 could settle any remaining questions.

The President asked the Chancellor to tell him something about the nature of the new Stabilization Act.

The Chancellor explained the reasons for the necessity of this Act and its basic provisions to the President and volunteered to send him a copy of the Act if he should be interested.

The President said yes, he would appreciate getting a copy of the law.

He said he agreed with the Chancellor that the two points he had singled out (offset, troops) represented the critical area in the current relations between the two countries. If anything, his problems were even more severe than those of the Chancellor. It was not quite clear to him what the essence of the Chancellor’s remarks was. In the past he had always taken the German word for granted. The US situation in this respect was serious enough even if the Germans would keep their commitments. Maybe some of them could be covered by non-military purchases. If the Germans could not keep their commitments it would put them in a very serious and disconcerting position. He would have to look at this very carefully then. This would just nullify the existing agreement. The Chancellor was aware of his problem here with regard to the troop situation. This was very disheartening to him. However, he would try to be as flexible as possible. Did the Chancellor mean to say he could not fulfill his obligations through military purchases alone or did he imply other things were to be included like buying bonds? Or not at all? How could he (the President) defend himself if the Chancellor was not meeting his commitments?

On troops, it might be easier to find a solution. Certain reductions could be made, if the Chancellor was willing to take the lead. He asked the Chancellor to specify exactly what he could not do this year. Could he not do anything in space cooperation and bonds either?

The Chancellor pointed out that in the overall foreign exchange position the US showed a favorable balance of about $510 million a year, despite the support of troops on German soil. To the FRG this was not so much a balance of payments problem as a serious budgetary problem. The FRG was determined to fulfill the offset agreement to the last dollar. All that was asked, and he hoped the President would understand this, was a prolongation for a certain amount at the current time. A new agreement could specify how the rollover would exactly be paid and it would be paid just like that. He would check and see if more could be paid by July 1 through inclusion of purchases of computers, space equipment and items of a similar nature.

He regretted it very much if the impression arose on the outside that maintenance of US troops in Germany was directly connected to the German financial payments. In the past this matter never presented any problem. The FRG had to build an army from scratch. But now the process was completed, the defense needs are lower, and the two ends did no longer fit.

Another possibility might be to free through the Central Bank, if this turned out to be feasible, $220 million in postwar aid, bearing an interest rate of 2.1 percent, and falling due only in 1989. This might be paid this year and, of course, would not be deducted from the total offset obligation. This, together with the $250 million previously mentioned, would allow the FRG to buy $470 million worth of bonds.

The President reiterated his disappointment about a German commitment not being truly honored. He said he had been able to always completely count on the German word in the past. This was now putting him in deep trouble. He did not want to be arbitrary with the Chancellor, but if he could not keep his word it would seriously aggravate his own position, financially and otherwise. He suggested both sides refer this to their experts (Bank, Defense, Treasury) to see what proposals they could come up with. He understood the Chancellor’s problems. He wanted to be a true friend to him. However, he did not want to see a situation created that might have regrettable results for both of them.

He did not want to be too inflexible. Otherwise he might win the argument but lose the sale.

The Chancellor replied it was bitter for him to hear the President say he could not trust the German word. The President had no reason to doubt the German sincerity and loyalty. The FRG was not unilaterally saying it would not pay or would not stand by its promise. The agreement would be honored to the last penny. Only some easement in time was asked. The FRG would make every effort to pay as much as at all possible by July 1. He would never break a promise. The President had no reason to doubt the German sincerity. The past had shown their ties of friendship to be very close and these two items should and would not interfere with this.

The President suggested they join the other members of the delegation in the Cabinet Room and take the matter up with them.

The Chancellor agreed to this and added, as long as they were still alone together, he would like to pronounce another very special request.

He would like to very warmly invite the President to come for a visit to Germany at a time that would be suitable to him. Next spring might be a good time. The President could not at all imagine how much this would mean to Germany. It would disperse a lot of doubts. He was certain he would get a tremendous spontaneous reception. Such a visit should be extremely valuable to both countries. By modern standards it had been a long time since an American President had visited Germany. Such a visit would make some problems in Germany a lot easier to solve and would make the German people more willing to make sacrifices for the common cause. It would be a great thing for both countries.

The President thanked the Chancellor for the invitation. He said he would think about it and suggested they now join the rest of the party in the Cabinet Room.³

1. Source: Department of State, Central Files, FN 12 GER W. Secret; Exdis. Drafted by Obst and approved in the White House on December 2. The meeting was held at the White House. Chancellor Erhard visited Washington September 24–27.
2. A memorandum of Erhard’s conversation with Rusk at 4:30 p.m. on September 25 is ibid., DEF 12 NATO. A memorandum of their conversation at 10:30 a.m. on September 26 is ibid., FN 12 GER W.
3. A 2-page memorandum of conversation in which the Chancellor and the President briefed their senior advisers is ibid. For text of the joint communique, issued on September 27, which recorded the agreements reached by the two sides and summarized their discussions, see American Foreign Policy: Current Documents, 1966, pp. 403–406.