114. Telegram From the Embassy in France to the Department of State1

1904. For Treasury for Secretary Kennedy and Petty from Volcker. Full day of frank discussion in London raises a few questions on which guidance would be appreciated for subsequent contact in Paris.2

Chancellor expressed great firmness on sterling parity even in face of conceivable franc move within “justifiable” range should March labor negotiations in France result in large cost increases.3 French move not felt to be present contingency. However, Chancellor recognizes “speculative” pressures at any time could require new credit to support sterling parity. I responded this raises very difficult question, with continentals apparently negative and US not in position to assist unilaterally, if at all. At same time, we agreed on extreme hazards of “float,” both in terms of international monetary stability and internal British position. Question of US help in funding UK debt not raised.
This discussion against background of Chancellor’s restrained optimism on British balance of payments. He is looking to erratic but noticeable improvement in trade figures, taking one month with another. While no figure put forth, current account surplus for year clearly significantly smaller than previous official estimates (as outside observers already predict); nonetheless felt to be moving slowly in right direction. There is clear recognition of narrow range of tolerance for short-falls in trade results.
Much more concern here over resumption of speculative move into Mark prior to autumn German election than any other contingency, but they feel this danger should not materialize before summer. Consequently, hope period of calm will last for some months, but in view of tenuous nature of situation extremely reluctant to engage in any multilateral discussion that could incite market rumors of imminent changes in parities. Discussions on SDR activation felt possible, but little else in “reform” area practical in view of speculative dangers.
Chancellor firm on position vis-à-vis South Africa. (Bank of England, on other hand, would like compromise.) I took line that while [Page 302] I had not examined question in detail, September 9-10 position appeared sound.4 Said we are perfectly willing to talk to South Africa without acrimony to clear up interpretation and ambiguities through Washington contact.
Chancellor also inquired about visit to you, saying reluctant to leave before March-April budget decisions. Early visit barely possible, but would otherwise have to wait until after budget. Told him you glad see him any time, but no urgency on your part. Frank Figgures, Treasury external man, wants to come promptly in any event.
I propose sticking to (A) line that further credit extremely difficult and dependent on continental participation, while not actually shutting door in case of speculative flurry, (B) urging key importance of control of UK domestic situation, (C) above position on South Africa. Also, with your approval, will confirm you would be glad to see him as early as the latter part of week of Feb 17, if he feels able to come—otherwise wait until April. Will call you Tuesday afternoon to discuss further.5
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Country Files—Europe, Box 674, France, Volume I 1/20-4/14/69. Confidential; Exdis.
  2. Volcker traveled to Europe in February for introductory calls on Ministry of Finance and Central Bank officials following his assumption of duties as Under Secretary of the Treasury for Monetary Affairs and U.S. G-10 Deputy.
  3. In February 1969 Roy Jenkins was Chancellor of the Exchequer.
  4. See Document 145.
  5. No record of a call on Tuesday, February 11, was found.