Foreign Relations of the United States, 1969–1976, Volume III, Foreign Economic Policy; International Monetary Policy, 1969–1972

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

Paris, November 15, 1971, 1555Z.

19279. Subj: Growing French concern about delay in settling monetary crisis.

1. I am increasingly concerned about the effect that prolonged delay in resolving the international monetary crisis is likely to have on our interests in France and in Europe, in the weeks immediately following Aug. 15. The GOF behaved with restraint and in fact went out of its way to assure us that it was seeking to minimize the damage the NEP might cause to Franco-American relations.

1. In the last few weeks, however, I have detected a disturbing change in the French attitude. Key French officials have begun to warn us that, if we do not soon indicate clearly what our terms for a settlement are, opinion will turn decisively against us, with incalculable consequences for our political interests in Europe (Paris 18571).2 Our British colleagues have told us they are convinced that, if the next G-10 Ministers’ meeting is unproductive, the French will lose hope of reaching an agreement in that forum and will start considering alternative possibilities (Paris 19092).² Leading financial journalists like Alain Vernay of Le Figaro are increasingly critical in their conversations with Embassy officers of what they describe as US intransigence, and increasingly pessimistic about the future. There have been disturbing signs recently that measures aimed at the multinational corporations are being considered more and more seriously by the French authorities.

3. The underlying cause of the French malaise is a growing feeling that, by failing to indicate more concretely what our terms for a settlement are, we are blocking a negotiated solution of the crisis. Continued delay in settling the crisis has led to growing uncertainty among French businessmen and is beginning to cause them to defer important investment decisions. The effect the crisis is having on Franco-German relations and on Germany’s economic prospects is also a matter of growing concern to the GOF. Behind these immediate concerns lies the deeper fear that if the crisis is not ended soon nations will be increasingly inclined to take defensive measures, with the resulting contraction of world trade leading to a world recession.

4. The result of all this is a growing conviction among government and business circles in France that a solution of the international monetary crisis in any acceptable time frame (i.e., before US and France are swept up in their respective elections campaigns), is no longer possible. If this view becomes established GOF policy, serious damage to important US interests seems inevitable. Initially, this might take the form of action, presumably in concert with France’s EC partners, to protect the French trade position through the adoption of special export incentives and a more restricted policy toward US imports.

5. But as the atmosphere deteriorates, the French are likely to move from protective measures to outright retaliation. The most obvious area in which they could retaliate is foreign investment (about 10 percent of the $24 billion of US direct investment in Europe is in France), since here they can act independently of their EC partners. They could adopt a much more restrictive policy on approval of new investment requests (although this is unlikely so long as they are not assured American investors turned down in France could not go elsewhere in the EC). More likely forms of retaliation would be (1) restrictions against borrowing by US firms in overseas markets and withholding of government-owned credit facilities in France and (2) imposition of exchange controls to block multinational firms from repatriating earnings. (In 1970, US firms repatriated $6.2 billion in profits; about $100 million of them came from France.)

6. Another consequence of failure to get an early settlement of the monetary crisis, as pointed out in Paris 19092, would probably be an effort by the GOF to get a purely European agreement on a return to fixed parities. This would not be in our interests, since one feature of such an agreement would undoubtedly be some lowering of the present level of the Mark relative to the dollar.

7. Admittedly, the French position has not been helpful. The French have adamantly refused to consider the revaluation of the franc, and this has made it difficult for the Germans to agree to a higher revaluation of the Mark. Their allegation that we have failed to lay our cards on the table overlooks the fact that we have tried unsuccessfully in WP-3 and the G-10 to [gain?] acceptance of our estimate that we need a $13 billion swing in our balance of payments to get us out of our chronic deficit. French (and European) insistence on a small increase in the price of gold injects a large element of inflexibility into their position. The fact remains that today we are perilously near a stalemate, and the longer this persists, the greater becomes the danger that the French and the other Europeans will take measures which will seriously damage important US interests on this continent.

8. This makes it essential, I believe, that the field play a far more active role than it has been able to play so far in combating the increasing pessimism and negativism of the French. To do this, we will need more informative and timely guidance on our objectives in the monetary crisis than we have been getting. In particular, we must be better prepared to deal with the charge that the US has not stated its objectives precisely enough to permit meaningful negotiations. While this charge is unfair as applied to the realignment of parities, it has considerably more substance as applied to the trade side.

9. What all this adds up to is a conviction that time is not necessarily on our side and that, therefore, a major effort on our part to break the present stalemate is needed.

Watson

1. Source: National Archives, RG 59, S/S Files: Lot 73 D 153, Morning Summaries. Confidential. Repeated to Bonn, Brussels, The Hague, London, Rome, and USEC.
2. Not printed.