227. Telegram From the Embassy in Italy to the Department of State 1

2398. Pass Treasury and Federal Reserve; also IMF for Dale, Santiago for Zagorin. Subject: EC Finance Ministers meeting April 24-25.

1. Summary: Informal EC FinMins meeting April 24-25 touched virtually all current topics of interest this group. No definite actions taken. Ministerial views expressed on international monetary matters coincided with those expressed to Volcker over weekend at margins Ditchley Conference,2 i.e., large agreement to creation G-20 as “emanation of IMF,” to discuss monetary questions (taking into account commercial and others matters) but with Secretariat that would draw on other institutions and agencies. No definitive views on SDR creation, but France in favor and Italy revived Colombo’s link proposal. Ministers approved continuation by Benelux of narrower 1.5 percent currency margins. Most EC countries in favor declaration new parities to IMF, soon as US has done so.EC FinMins will hold special informal meeting in London mid-July to discuss international monetary questions. End summary.

2. FinMins and Central Bank Governors of EC held periodic quarterly meeting in Rome April 24-25, under chairmanship Treasury Min Colombo. Reps from four applicant members attended for first time. According Italian sources (including Ossola) following were highlights of this “interesting meeting” at which, however, no definitive decisions taken:

Forum for discussing international monetary reform

3. Views expressed by Mins and Governors fully in keeping with those indicated to UnSec Volcker at margins of Ditchley Conference last weekend. All countries of present EC, plus four applicants, pronounced themselves favorable to creation of Group of 20 as principal forum for [Page 616]discussing international monetary reform. (In view Paris 78643 we specifically asked whether Giscard d’Estaing was in accord with this view and our sources replied that Giscard clearly associated himself with those in favor of G-20.) Reasoning adduced by many spokesmen was that G-20 logical and necessary not simply because US had proposed it but in recognition that in such important discussions LDC’s should have appropriate participation.4

4. Meeting reemphasized European view that G-20 should be “emanation of IMF,” that chairman of G-20 should choose Secretariat which could call on institutions other than IMF (e.g., OECD) for necessary support and ideas and that mandate of group should be mainly focused on monetary system, although taking into account commercial and other relevant questions.

5. Mins did not discuss whether Deputies of G-20 group should be IMF Exec Directors or other competent persons nor did Mins delve into substance of international monetary reform. Not much emphasis given to question of what might be continuing functions of G-10. At invitation Chancellor Barber, Mins and Governors planning to hold special informal meeting in London in mid-July devoted to international monetary reform and progress of institutionalizing G-20. In addition EC Mins are meeting in Luxembourg in mid-Sept, prior to IMF annual meeting.

SDR’s

6. Considerable time devoted to whether or not opportune have new activation SDR’s. On negative side, Germany (Schoellhorn) argued there was plenty of world liquidity and advisable have two year pause in SDR creation. Dutch advocated one year hiatus. UK, Belgium, Netherlands, Denmark, and Ireland supported SDR creation of token amount, particularly in order meet liquidity needs of LDC’s. French (Wormser, representing Giscard who had left meeting at that point) in surprise move, reversing French position in EC Monetary Committee, advocated SDR duration of two billion dollars for two years, to complete first five year basic period. French indicated they hoped that (A) LDC’s would in one way or another become beneficiaries such SDR activation and (B) those countries receiving allocations which have [Page 617]excess amounts of their currency held by other countries should utilize new SDR’s to absorb such excess currency (finger obviously pointed to US). Colombo recalled his 1968 SDR-aid link proposal and suggested link question be studied again before decision is made on new SDR creation.

7. Thus SDR discussion inconclusive. However, Ossola noted he is planning to hold G-10 Deputies meeting on the subject June 13 in Paris.

Declaration of New Parities

8. Majority view in favor of formal declaration of new parities to IMF, as soon as US has done so.5 Germany somewhat cautious and Italy indicated it would prefer to keep “central rate” for time being. However, all EC countries agreed they would act in common.

Other Topics

9. Belgium and Netherlands proposed to continue narrower margins of 1.5 percent between Belgian franc and Dutch guilder. Other EC members saw no difficulty in accepting “Benelux worm, within EC snake, within Smithsonian tunnel.”

10. Mins agreed work should continue on drafting scheme for creating EC central reserve fund, which would gradually be given progressively wider functions.

11. On other aspects of EC economic and monetary union, Mins focused on nature of directive on economic development and stabilization which EC Commission working on. Widely recognized that in order to be able to act promptly and in concert would be useful for EC member countries to have anti-cyclical instruments akin to those which govts possess in UK (e.g., regulator) and Germany. It was, however, emphasized that institutional framework varies from country to country and that specific recommendations to be made by Commission should take account of these divergencies while at same time being as simple and concrete as possible.

Martin
  1. Source: National Archives, RG 59, Central Files 1970-73, FN 10 EEC. Confidential; Limdis; Greenback. Repeated to Bern, Bonn, Brussels, Copenhagen, Dublin, The Hague, London, Luxembourg, Ottawa, Oslo, Paris, Santiago (where the UNCTAD III Ministerial was getting underway), Stockholm, Tokyo, Vienna, USEC, and USOECD.
  2. On the margins of the Ditchley monetary conference in London, held April 22-23, G-10 Deputies met and agreed to a new group in the IMF as a forum for negotiating international monetary reform. That agreement was further refined in informal discussion by Deputies on the margins of the American Bankers Association conference in Montreal in May. See Document 229 for the record of these discussions. See also Margaret de Vries, The International Monetary Fund 1972-1978, Volume I: Narrative and Analysis, pp. 153-155.
  3. Not printed.
  4. Telegram 1595 from The Hague, May 3, reported on a discussion with Netherlands Treasurer General Oort, who indicated that the Netherlands, along with other EC partners, was generally sympathetic to an IMF-based G-20, at least as a forum for working out a new international monetary system. The Netherlands representatives thought it might be “irritating” to continue to make use of the G-10 forum and hence were displeased with Ossola’s proposal for a G-10 Deputies meeting in June. Regarding global liquidity, the Netherlands saw no need for additional SDR creation for 1973 but was willing to go along with a “token creation to keep the system alive.” (National Archives, RG 59, Central Files 1970-73, FN 10 EEC)
  5. Circular telegram 79216 to all posts, May 5, informed the posts that that day Secretary Connally had informed the Managing Director of the IMF that effective May 8, 1972, the United States would change the par value of the dollar from 1/35 to 1/38 of a fine troy ounce of gold. The telegram noted that this was the final step in implementing the Smithsonian Agreement to devalue the dollar and was made possible by the completion that day of necessary appropriation legislation in the Congress. (Ibid., FN 17 US)