154. Information Memorandum From Ernest Johnston of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)1


  • Political Repercussions of the European Monetary Crisis

Though somewhat bypassed by events, attached at Tab A is a memorandum to the Acting Secretary of State by the Bureau of European Affairs on possible political repercussions of the European monetary crisis.2 The situation will take time to become clear, but after the joint Community decisions over the weekend, State’s memorandum seems a bit alarmist. Nevertheless, it raises fundamental problems which will persist.

The memorandum lists four political trouble points:

  • —European resentment against the United States for our balance of payments policy, which contributed to the crisis.
  • —U.S. Congressional hostility toward a German revaluation, which will increase costs of troop support in Europe.
  • —Internal strains within the Common Market over delay in EC monetary unity and particularly over inevitable adjustments in the Common Agricultural Policy.
  • —Spill over effects on British entry negotiations.

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The markets today have been relatively quiet with a comparatively small transfer of money. Though the Germans got pretty much what they wanted—Community agreement to their float—the agreement was dressed up in such a way that the Community appeared to reach a collective decision. The Germans did promise to put into effect some of the controls the other members wanted and to aim at restoration of the previous exchange parities. Consequently, since there is no public admission that the other members were faced down, some of the bitterness mentioned in State’s memorandum may be avoided.

Most of the European central bankers do blame the United States for the underlying circumstances that brought on the revaluation, but generally the governments have avoided pointing too much in our direction.

We should be able to counter any Congressional reaction on higher troop costs with the solid economic argument that the German revaluation will contribute to improved U.S. balance of payments. We shall, however, definitely feel this pressure in regard to German offset arrangements.

Community disputes over the Common Agricultural Policy would be dampened by a reasonable German position at Tuesday’s meeting of the Agricultural Ministers although much will depend here on how much the Germans insist upon avoiding any lowering of their farmers’ high agricultural prices. However, France will resent the delay in implementation of EC monetary unity. The weekend’s events made it obvious that such unity would at best be tenuous until closer agreement is reached on common monetary and fiscal policies, as the Germans had clearly prophesied.

Reports from France so far do not indicate that the French will seize the revaluation as an excuse to fight the Germans on UK entry, but this issue will not be clear for some time. The final result may even favor French support for British entry, since the German power play will alert the French that they may need help in controlling a stubborn and strong Germany.

Though the German/Dutch float and the Austrian/Swiss 5 to 7 percent revaluations have undoubtedly caused great turmoil in financial circles, we have definitely gained on the economic front because of the impetus that these moves will give toward greater exchange flexibility, which is an essential element for continued liberal trade policies. In addition, German and French persistence in appearing to reach accord within the framework of the Community policy apparatus will have a positive effect despite the fact that the currency crisis has shaken some of the substance of agreed Community policies.

  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Subject Files, Box 32, European Common Market, Volume II 1971-1972. Confidential. Concurred in by Sonnenfeldt.
  2. Not printed. A copy of the undated memorandum for the Acting Secretary of State was forwarded to Kissinger without comment under cover of a May 8 memorandum that Robert Brewster signed on behalf of Executive Secretary Theodore L. Eliot, Jr. (Ibid.)