122. Memorandum of Conversation1

PARTICIPANTS

  • The President
  • Chancellor of the Exchequer, Roy H. Jenkins
  • Secretary of the Treasury, David M. Kennedy
  • British Ambassador, John Freeman
  • Chief of Protocol, Emil Mosbacher
  • Henry A. Kissinger
  • C. Fred Bergsten

The meeting took place on the terrace outside the President’s office on a beautiful spring morning. The discussion was extremely cordial and freewheeling and was largely a get-acquainted session between the President and the Chancellor.2 A UPI photo of the group appeared in the Washington Post on May 2.

The President opened the discussion by commenting that recent developments in Europe made even more imperative the maintenance of a common ground between the U.S. and the UK. Our two countries will not always agree on specific issues but will generally fully understand each other’s views. The President expressed the hope that the Chancellor and Secretary Kennedy would develop a close relationship with complete candor its hallmark. Given the latest French development (note: the departure of General De Gaulle),3 we can expect a period of uncertainty and potential instability for as long as three months. During this period, as well as into the future, the U.S. does not wish to be alone.

Secretary Kennedy reported that he and the Chancellor had already developed such a relationship.4 In addition, he would be talking with [Page 320]the Germans in the same way. Minister of Economics Schiller wants to visit the Secretary for a day or two in mid-May.5

The Secretary reported that he and the Chancellor had discussed the prospects for German revaluation and the French currency problem. The Germans wanted company for their upward move but had not yet received any. The President asked whether the Italians were not strong enough to move, though he recognized their political problems. The Chancellor noted that Italy has a strong current account position, which would get even stronger if Germany revalued, but they face recurring capital flight which reflects their political uncertainties.

The Chancellor expressed the view that German revaluation was inevitable and, in that case, should be done sooner rather than later. The current problem is that the Germans are talking about it but taking no action. The President asked why Strauss is doing so much talking, to which Dr. Kissinger guessed that Strauss wants to delay the revaluation as long as possible and accomplish it at his own initiative.

The Chancellor noted that the Germans can talk without hurting themselves but that the talking hurts others, especially the French and the UK. He expressed the hope that Schiller would not say much publicly unless he was ready to do something. Dr. Kissinger noted that Schiller was not very strong. The Chancellor thought he was a clever man and in many ways not bad, but that he was the worst chairman he had ever seen.

The President then asked the Chancellor for his views on the French situation. Did the Chancellor think that it would change much post-De Gaulle or would the governing establishment simply carry on?

The Chancellor responded that the French bureaucracy was very strong and capable. It had held up the Fourth Republic and would continue to be effective. He was uncertain, however, of Couve’s ability to make decisions during the interim period.

The President noted that one of our academic experts foresaw little change. Dr. Kissinger agreed that there would be little change if Pompidou was elected, but he was not sure of this outcome. If the Left decides to back the Center, the candidate of the Center (presumably Poher) could win. This could occur even if the Leftist ran second on the first ballot, with Poher running third. The Center would not be able to [Page 321]deliver its votes to the Left, but the reverse could occur. The Left might wish to support Poher in order to dilute the power of the Presidency and shift power back toward the Assembly.

The Chancellor thought this would represent a return to the Fourth Republic and Dr. Kissinger fully agreed. The Chancellor was not sure that the Left would support the Center, but Dr. Kissinger responded that the interest of the Left was to destroy a strong presidency in order to produce a fairly weak government. The Chancellor did not think the Communists would clearly opt for a centrist over Pompidou, but he admitted that they would like to see a weak government emerge. Dr. Kissinger agreed and thought this argued for the thesis he had just outlined. The Gaullists would not hold together without De Gaulle, but if Pompidou wins there will be little change in the short run.

The President then asked about French economic policy. Secretary Kennedy thought that it would improve because General De Gaulle’s interference had been a major problem. Mr. Bergsten noted that the outcome of the wage negotiations was one key element in the situation and a key question was whether the new government could hold them down. The Chancellor and Secretary Kennedy agreed that these were key questions for the longer term but thought they were not decisive for the short run viability of the franc.

The Chancellor asked Secretary Kennedy whether he assumed there would be no French devaluation until their elections. The Secretary replied that the timing was very tight. Germany must move soon in view of their election and perhaps that is why Schiller wants to come earlier than originally planned.

The Chancellor noted that Strauss would be visiting him at the same time and that the U.S. and UK should therefore keep in close touch. If Strauss says the Germans will move but not until the French election, there will be massive speculation between mid-May and mid-June. The Chancellor thought it would be hard for Germany to revalue sufficiently and there was no real pressure on them since they were taking in money. The Secretary noted that such a scenario would bring sterling under pressure, given the British reserve position. The Chancellor noted that sterling had done all right today (May 1) despite flows into Germany, but he reiterated his concern about the Germans’ talking and not acting.

The President noted that this could be an explosive year in Europe politically. We do not know who the players will be by the end of the year. We must all therefore remain flexible in our policies while at the same time retaining a force for stability. The Chancellor affirmed that there was now a new political situation in Europe.

The President remarked that it was his understanding that Prime Minister Wilson now wishes to delay his visit to Washington. The Chancellor [Page 322]made it clear that the Prime Minister wishes to come when he can, and the President added that it might be better for the visit to follow the French election. The Chancellor agreed.

The President asked whether the Prime Minister would be able to keep the unions in check with his proposed new legislation. The Chancellor replied that the legislation was the right thing to do and was necessary. He thought they could get it through by the end of July although it will be a battle. (The President commented that such a proposal was “gutsy.”)

Ambassador Freeman commented that public opinion including labor was with the government on this issue. He cited a recent poll showing 60 percent support for the government’s proposal. In reply to the President’s question of why there was support, the Ambassador commented that the rank and file union members were fed up with their leadership, with the inconvenience of periodic work stoppages, and that they were beginning to understand economic problems. The Chancellor added that the great worry of union members was unofficial strikes. The UK does not lose as many man-days of work per year as does the U.S., but their strikes were less orderly. This particularly incensed the wives of the union members. One advantage of the British balance of payments problem is the development of widespread appreciation of their economic difficulties; the monthly trade figures are widely followed and the people are impatient for progress. Nevertheless, there are significant problems within the union leadership and the Parliamentary Labor Party, which includes 80 to 90 of their 330 MPs.

Dr. Kissinger noted that these back benchers would not vote against the government. The Chancellor said that some would although they would hope others would keep them from voting themselves out of power. The risk is that they would miscalculate on the offsetting votes.

The President said he was interested in discussing the question because popular attitudes reveal something about the character of a country. It was encouraging to him that the British people were undaunted. Governments could do things if their people were willing to take bitter medicine. Many experts said that the UK was finished, but he had said on his last telethon during the campaign that no one should under estimate the resilience of Britain, which asserts itself at unexpected times.

The President then commented that we might be at a watershed in history. With De Gaulle gone we have a great opportunity and need to develop new areas of strength. The character of people, including the U.S. were critical in the making of difficult decisions. Any one nation can affect others significantly by standing up for what is right.

[Page 323]

The Chancellor thought that Europe [Britain] might now achieve entry into the EEC, although it still might take a year or so. Progress toward this goal would have a great impact on UK morale. Morale was not low at the present time, however, despite the balance of payments, because the economy was in good shape otherwise.

The President commented that we should be thinking of new approaches on several fronts when the situation is as fluid as this. He would take a gingerly approach to improving the international monetary system since we can’t talk too much without exacerbating our problems. He did hope, however, that we could do some imaginative thinking in this period and not just react to crises. We need to decide on what kind of Atlantic Community we wish. It could not develop as originally conceived and the passing of De Gaulle would not make it an easy task since there would still be Gaullists in all countries. It was his hope, however, that we could make some attacks on these problems. If not, more fragmentation would set in due to lack of leadership and the world situation could become quite difficult. He admitted that this discussion might sound esoteric, but he thought strongly that we should not miss such an historical opportunity.

The Chancellor agreed and noted that we must keep monetary questions in their proper place, within the broad political framework. He said that Britain would try to find its way through to its relationship with Europe. The failure to do so to date had meant a total loss of momentum for the European movement. Dr. Kissinger noted that Poher would favor UK entry and that even Pompidou was less hostile than the General. He saw this as the major change likely in French policy.

The President added that the real question is the Atlantic world that would result. The Chancellor replied that the UK wants to enter Europe to strengthen the Atlantic Community. Ambassador Freeman noted that this was precisely the source of De Gaulle’s opposition to UK entry, which must now be probed.

The President said that he had reminded the State Department of their argument that our problems with Europe would disappear if De Gaulle were gone, and had asked for a paper on the subject. We needed to do some hard planning and thinking. A real opportunity existed given a new French government, the German election, and the Italian problem. We cannot seize the opportunity with the old stereotyped approaches, however. A new breakthrough is required. A key element is for us to remain flexible. The President expressed an interest in any new approaches, which the UK might suggest, not just in the financial field. If we develop no new approaches but just react to developments, we might see Europe fragment—this tendency was the virus of the day.

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Secretary Kennedy stated that he hoped to explore quietly with French officials what the French could do on the exchange rate before their election. He would avoid any intrusion in the political scene. The President asked whether such an approach could be private, and Dr. Kissinger asked whether it would be conducted at the expert level. The Chancellor thought an approach could be kept private. Secretary Kennedy said he would do it via Under Secretary Volcker. Secretary Kennedy encouraged the British to make an effort to find out as well, perhaps through Governor O’Brien, who is also close to the French. A discussion ensued on how best to approach the French.

The President concluded with a reminder that we should not let the movement of history pass us by while important situations change. The Chancellor agreed and Dr. Kissinger concluded that the situation had become unfrozen.

  1. Source: National Archives, RG 59, Central Files 1967-69, POL UK-US. Confidential; Nodis. Drafted by Bergsten. According to the President’s Daily Diary, the meeting lasted from 10:37 to 11:25 a.m. (National Archives, Nixon Presidential Materials, White House Central Files, President’s Daily Diary) The Diary does not record Ambassador Freeman and Bergsten as attendees, but does list John Harris, an aide to the Chancellor.
  2. An April 30 memorandum from Secretary Kennedy to the President informed Nixon that the May 1 meeting with the Chancellor would be a courtesy call where no issues of substance would be raised. (Washington National Records Center, Department of the Treasury, Secretary’s Memos/Correspondence: FRC 56 74 1, Memo to the President Jan-April 1969)
  3. Georges Pompidou gained a plurality in the first round of French elections on May 1 and was elected President in the second round on May 15.
  4. Kennedy and Jenkins met at Camp David on April 28 and discussed prospective exchange rate changes, particularly the need for an appreciation of the German Mark, SDR activation, and South African gold. A memorandum of their conversation is ibid., Memcons 1969.
  5. Kennedy and Schiller met at Camp David June 1-2; see Document 128. Kennedy had met earlier with Economics Ministry State Secretary Johann Schoellhorn and Bundesbank Director Otmar Emminger on April 29. A memorandum of their conversation, which focused on exchange rates, is in the Washington National Records Center, Department of the Treasury, Secretary’s Memos/Correspondence: FRC 56 74 1, Memcons 1969. On May 10 Secretary Kennedy informed President Nixon that the German Cabinet had decided not to revalue the Mark; see Document 126.