34. Memorandum From Secretary of the Treasury Kennedy to President Nixon 1


  • Conversations with European Officials

In connection with my participation in the NATO Ministerial meeting in Brussels, I visited the Netherlands, the United Kingdom, Germany and France between December 2 and 10, calling on the following officials:2

  • In Brussels—President Rey and Vice President Barre of the Commission of the European Communities and Minister Snoy and Governor Ansiaux of Belgium;
  • In The Hague—Minister Witteveen and Governor Zijlstra;
  • In London—Prime Minster Wilson and Chancellor Jenkins;
  • In Germany—Minister Schiller and Bundesbank President Blessing (I was a luncheon guest of Finance Minister Moeller);
  • In Paris—Minister Giscard d’Estaing and Governor Wormser.

In order to be in Washington for the conference on the tax bill, I had to cancel my plan to visit Minister Colombo and Governor Carli in Rome. However, Under Secretary Volcker is keeping those appointments.

On each call, I stressed the Administration’s determination to control inflation in the United States and outlined the policies being employed and our current expectations.

I found great concern over the effect which our tight money and high interest rates were having on European economies. Yet, Giscard d’Estaing told me privately that the Common Market Finance Ministers were afraid that we would not or could not control our inflation and would continue to experience such serious balance of payments deficits as to imperil world confidence in the dollar and threaten the international monetary system.

The hope was expressed that we could achieve more restraint through the budget and the reports which I had to give them on the tax [Page 86]bill were very discouraging. Schiller suggested an “interest rate disarmament” conference among a few major countries with the objective of lowering interest rates about 2 percentage points without precipitating disruptive international capital flows. I asked him to give us a little more time to break the back of inflation, but we may want to do this in the spring.

I found Schiller ready to move ahead on the studies of limited exchange rate flexibility as a means of strengthening the international monetary system. He feels that the achievement of common economic policies and uniform price movements within the Common Market is at least a decade away and agrees that in the meantime we must be able to use exchange rate changes as a means of adjustment within the Common Market as well as with other countries. Witteveen and Zijlstra also agree that a common central bank for the EC is a final step which is many years away. Rey and Barre, on the other hand, want to eliminate the possibility of exchange rate change by individual Common Market countries as soon as possible and hope to get agreement within the next year that any such changes would require unanimous consent. If we are to avoid recurrent financial crises, I believe we must make it easier, not harder, for countries to appreciate their currencies against the dollar and I am convinced that it will be necessary to preserve this option for individual Common Market countries for many years to come.

I told my hosts that in striving to improve our balance of payments we were concentrating on fundamentals—first and foremost on the control of inflation. But I also referred to our efforts to negotiate the reduction of barriers against U.S. exports, our desire to remove the disadvantage to our trade resulting from the employment of the value added tax system in Europe, and our concern over the prospective proliferation of preferential trading arrangements between the Common Market and its neighboring countries in Europe which are not prospective members. Rey made it quite clear that the Communities expect to conclude a network of such arrangements (Spain, Israel, Switzerland, Sweden, etc.). Our trade will be adversely affected and our support of the Common Market may be called into question politically at home.

While I was in Europe, the free market price of gold dropped to $35.00 and many of the Europeans were anxious to find a way to ensure that it did not drop significantly below that level. It seems apparent that if it did—at least by any substantial amount and for any significant period of time—a number of European central banks would step in to support the market, either through the Bank for International Settlements or directly. I left Under Secretary Volcker in Europe to negotiate with the South Africans on this issue, and I am hopeful that we can reach an agreement which will keep the price from falling further and thus make [Page 87]this issue moot.3 The French pointedly reminded me, however, that they have never adhered to the Washington agreement of last year and consider themselves free to buy or sell on the free market at any time.

My conversations touched briefly on a few other points. There was support for the view that the question of a possible link between Special Drawing Rights and aid to less developed countries ought not to be considered until the world has had experience with the SDR and it has been accepted. Initiating studies of this question now would be most inadvisable.

Finally, Giscard d’Estaing suggested that we might consider jointly how our two countries could deal with the enforcement problems presented by the Swiss banking secrecy laws. I plan to follow through on this suggestion.

It is evident that we and the French still have some troublesome differences of approach to the problems of the monetary system. Giscard showed a personal interest in discussing these differences and I plan to invite him to the U.S. for a further exchange.

Giscard, as well as Ambassador Shriver, indicated that Pompidou will want to discuss with you financial and economic matters.4 We will prepare a briefing paper for this visit. They also indicated that Pompidou is planning to go to Chicago and suggested that, if possible, I should plan to make a trip to Chicago.

My conversations on this trip have left me more firmly convinced than ever that the major countries of the world have become so interdependent economically and financially that not even the large European countries can achieve their economic objectives in the absence of U.S. price stability. Our responsibility to stop inflation and use our leadership wisely is not limited to the citizens of our own country but is a responsibility to the world.

David M. Kennedy
  1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 289, Treasury, Volume I. Confidential. Attached to a December 19 memorandum from Kissinger to the President that summarizes Kennedy’s report on his European trip. Stamped on Kissinger’s memorandum is “The President has seen” with a December 22 date. In a December 18 memorandum to Kissinger, Bergsten recommended that he sign the memorandum for the President and noted that “continued U.S.-French differences on international monetary policy and the threat posed by EC preferential trade arrangements to our support of the Common Market” would be of particular interest to Kissinger. (Ibid.)
  2. Memoranda of these conversations are in the Washington National Records Center, Department of the Treasury, Secretary’s Memos: FRC 56 74 17, Memcons 1969.
  3. See Document 145.
  4. President Pompidou was scheduled to visit the United States February-March 1970; see Document 36.