84. Memorandum From Secretary of the Treasury Connally to President Nixon 1

At the Rome meetings,2 we continued to make the point that part of our needed balance of payments adjustment should be an improved arrangement for defense burden-sharing. This point was explicit in your August 15 speech. We took the position that this was a matter that had to be discussed in the NATO forum. Thus, if we fail to carry through with this position at the NATO ministerial meeting in Brussels this week, we will have passed up the obvious time and place. That will leave us in a weak position for pressing the issue later.

This means that we need to decide now whether the Administration is to rely solely on the European Defense Improvement Program, which gives us no financial help, or whether we should also seek some multilateral arrangement for sharing the foreign-exchange burden of defense. The extra effort we are asking our Allies to make with their own defense forces requires only an additional fraction of one percent of their Gross National Product. What we need from them as financial burden-sharing comes only from their excess dollar reserves. It would not require added manpower or use any of their real resources, although it might add to their internal budgets.

I believe we have a proposal we could put on the table along with the European Defense Improvement Program. It is to designate all [Page 208]extra-territorial military bases in NATO Europe as “NATO bases.” These consist mostly of American, British, and Canadian bases in Germany. The annual costs of about $1.2 billion of operating these bases—though not the pay and equipment of the forces manning them—would be placed in a NATO bases budget, to which NATO members would contribute negotiated shares. An appropriate offer by the United States as to its share of this new budget would be the same 30 percent now borne by the United States in the NATO infrastructure budget.

As a component of a larger settlement with the European nations, the United States could also press France to pay off over a reasonable period of, say, four years the NATO losses of approximately $700 million that resulted from premature termination of the agreement to station NATO forces in France. Four hundred million dollars of those losses were incurred by the United States.

This proposal for a NATO bases budget is reasonable. I believe that other countries would support the principle. There have been many indications from key Europeans, particularly from the German Government, that they are anxious to find some new and more stable basis for continuing the American presence in Europe. In my meetings with finance ministers, I have found philosophical agreement that there needs to be some arrangement of this kind. We can expect resistance when it comes to budgetary impact and negotiating a formula for shares, but there is recognition of the principle. The mood in the Nation and in the Congress makes it urgent that we obtain such an arrangement. The benefit would be political as well as financial.

The merits of the proposal aside, we should not give away this issue for nothing. Even if we fail to get financial burden-sharing, vigorous pressure for it may help us arrive at better economic arrangements in other fields.

Therefore, it would be most helpful if Secretary Rogers emphasizes burden-sharing at the NATO ministerial meetings this week. Indeed, if this issue is to be kept alive, we will need to make a proposal for a multilateral financial arrangement on the table at NATO. If you agree, the attached draft statement outlines our approach for the use of our delegation.3

John Connally 4
  1. Source: Washington National Records Center, Department of the Treasury, Records of Secretary Shultz: FRC 56 80 1, JBC Memoranda for the President-71. Secret.
  2. Reference is to the G-10 Ministerial meeting in Rome November 30-December 1; see Documents 200 and 201.
  3. Not printed. The draft statement was for Secretary Rogers’ use at the NATO Ministerial meeting December 9-10. According to the communique of the meeting, the European Defense Improvement Program (EDIP) was reaffirmed but a NATO bases proposal was not adopted. (NATO Final Communiques, 1949-1974 (Brussels: NATO Information Services), pp. 266-272)
  4. Printed from a copy that indicates Connally signed the original.