133. Memorandum of Conversation1

SUBJECT

  • Economic Stabilization of Western Europe

PARTICIPANTS

  • Henry A. Kissinger, Secretary of State
  • Alan Greenspan, Chairman, Council of Economic Advisers
  • Charles W. Robinson, Under Secretary of State for Economic Affairs
  • Rutherford M. Poats, E, Notetaker

Greenspan: I have been doing some thinking about our international economic relationships in the light of our pledges of cooperation at Rambouillet. I have had a chance to talk briefly with the President [Page 476]as to what type of response he would be prepared to make to the several economic problems that have developed in Western Europe.2 The problem is economic and political. Italy and Britain, particularly, are in a situation in that not unlike New York City—they have been consuming at levels beyond their production, meeting their external deficits through borrowing, and their budget deficits through monetary expansion, consequently inflating their price levels and spreading inflation to the whole community. The recent issue over exchange rates and maintaining the "snake" is only symptomatic of this largely political/economic problem.

At this point I believe that it has become a matter of concern to all of us that joint steps be taken to achieve greater stability in the industrial nations.

The United States for the first time in years now has the capacity, particularly in cooperation with the West Germans, to do something about this. We need to find some mechanism, some form of financial aid programs tied to commitments by the sick countries to move ahead on steps that they now seem willing to undertake to stabilize the whole economic situation.

I discussed this with the President and he urged me to talk immediately with you.

Kissinger: Would the Europeans do it, that is, could they do it politically, accept United States leadership?

Greenspan: That is a political question. As to the economic possibilities, it is just possible that we could succeed.

Kissinger: I'm in favor of another Rambouillet type meeting. I discussed the idea with Giscard, without talking substance. The question is what could be accomplished. Something must come out of it. What could the United States put before that meeting?

Greenspan: We could offer to support a program of financial stabilization, in cooperation with Germany. We are the only ones who could do it.

Kissinger: Giscard thought it would be a good idea to have another meeting and was willing to come here.

Greenspan: The first step would be to discuss it with Schmidt.

Kissinger: He is coming here in July.3

[Page 477]

Greenspan: That would be too late. I told the President that if we don't do something soon, the situation in Britain and Italy will continue to deteriorate. We don't know, of course, what will happen in Britain as a consequence of their devaluation.

Kissinger: (To Robinson) What do you think?

Robinson: The first step is to get the Financial Support Fund operating. I have just been testifying on that before the Senate Foreign Relations Committee.

Kissinger: I will be glad to get together with you, possibly for breakfast, as soon as you get back. In the meantime (to Robinson), work on a paper but don't circulate it all over this place.

I am in favor of it, that is, another Rambouillet type meeting.

Greenspan: This must be resolved within four weeks. Otherwise we will be up to the political convention time and nothing can be done.

Kissinger: Then we will have to send George Shultz to Europe—someone Schmidt trusts.

Robinson: In the meantime, I will talk further with Alan and will start developing some ideas.

Kissinger: Good.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820117–1477. Confidential; Nodis. Drafted by Poats and approved in S on April 5.
  2. On March 25, Ford met with Greenspan and Cheney in the Oval Office from 5:50 p.m. until 6:10 p.m. (Ford Library, President's Daily Diary) No memorandum of conversation from this meeting has been found.
  3. Chancellor Schmidt visited the United States from July 14 to 20, stopping in Washington, Williamsburg, Baltimore, Philadelphia, and San Francisco.