196. Telegram From the Embassy in the Netherlands to the Department of State1

4157. Subject: SYG Luns concern about economic split in Alliance.

Summary: During his official visit to Netherlands SecGen Luns called at Embassy Nov 12 on informal and confidential basis to convey his mounting concern re effects of commercial and monetary rift developing between U.S. and NATO partners and to propose that matters be addressed at NATO Ministerial December. End summary.
Luns told me that he had discussed with PermReps in Brussels and in Bonn with FonMin, DefMin and Chancellor Brandt his mounting concern over effects on Alliance of monetary and economic crisis and [Page 547]differences with U.S. He said that while MBFR, CESC and Berlin were important he thought top priority belonged to economic crisis which affected all these other issues. He fears that if differences go unsettled for four or five months, they will get wound up in internal politics, especially U.S. elections, and will get out of control. There will then be retaliatory measures on both sides, recession with further diminution of defense budgets, and general dissipation of confidence in Atlantic Community.
Luns said under such circumstances exchanges of paper formulae with Soviets on balanced force reductions would become complicated and meaningless. Soviets will simply sit back to see what happens, while Western Europeans make own trade and monetary arrangements and relations with U.S. deteriorate. Luns said he thought necessary precondition to progress on this issue was that France and FRG should compose their present differences. He also felt this matter was too crucial to be left to financial technicians such as Schiller and Giscard, and that political leaders of governments should get involved.
Luns has therefore proposed to Germans in Bonn and to other PermReps in Brussels that matter should be introduced on agenda for NATO Ministerial Dec 8 to 10. He had at first envisaged (1) item entitled implications of current monetary and financial problems for Alliance, and (2) participation of MinFins in NATO meeting. But in view of modus operandi of MinFins and danger of their getting separated from context of main meeting, as well as personal problems (Schiller-Giscard), Luns thought it better not to push for their participation. He also found it better to water down terminology of item so it could be treated under heading “state of Alliance” and thus avoid implication NATO was horning in on OECD, EEC, GATT, etc. Luns plans therefore include strong pitch in his opening remarks as SYG which he would circulate to PermReps in advance.
Luns said he had discussed matter fully in Bonn and Brussels. He had found Schmidt, Scheel and Brandt very positive. Brandt was greatly concerned with problem and reacted favorably to Luns proposal. (Chancellor also confirmed he would meet with Pompidou before end November but was not very optimistic.) In Brussels Luns said his approach had been generally well received with some reservations; French were unhappy over NATO injection into financial matters but he detected some signs of anxiety on their part over continued crisis and consequences of rift with Germany. In any event Luns concluded that he thought it imperative for SYG and NATO to register strong concern so that by osmosis, urgency of situation as it affected Alliance should get quickly to national govts even though NATO could take no formal action itself.
I told Luns I quite agreed regarding urgency of situation both for domestic and general economic reasons but I stressed need for European action. I said I had spoken with officials in Washington including Under Secy Volcker and had impression that some real European movement (even if not total solution) on currency values, CAP problems and on burden sharing was essential if present deadlock were to be broken. Luns agreed but said that press and specially U.S. reporters were unduly playing up EDIP shortfalls and failing give any credit for European contributions, for example, from Germans and British. On other hand he was dismayed by Danish decisions to cut Navy and reduce troops to seven thousand and he anticipates rough session with Krag when he makes official visit to Copenhagen.
After above was drafted Luns telephoned to say that FonMin Schmelzer had also reacted favorably to his proposal. Schmelzer had added, however, that time was too short to solve all aspects of transatlantic economic problems within next few months. For positive NATO impact, rather than waiting to take all issues in one bite, Schmelzer thought one should try to register some progress soonest on European revaluation and gold price with perhaps some start on trade barriers, reserving other trade and monetary issues for later negotiation.
Dept may wish pass Treasury.
  1. Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Morning Summaries. Secret. Repeated to Ankara, Athens, Bonn, Brussels, Copenhagen, Lisbon, London, Luxembourg, Oslo, Ottawa, Paris, Reykjavik, Rome, USEC, and USNATO.