136. Memorandum of Conversation1

SUBJECT

  • European Economic Stabilization: Rambouillet II

PARTICIPANTS

  • Henry A. Kissinger, Secretary of State
  • Charles W. Robinson, Under Secretary of State for Economic Affairs
  • Helmut Sonnenfeldt, Counselor Department of State
  • Rutherford M. Poats, Office of the Under Secretary of State for Economic Affairs (Note-taker)
  • George P. Shultz
  • Alan Greenspan, Chairman, Council of Economic Advisers
  • Robert Hormats, National Security Council

Kissinger: George, have they explained what the problem is? I have never heard your views on it, Hal.

Sonnenfeldt: My view is that we face a vicious circle. We can’t do anything effective about the Italian economic situation without the risk of bringing the Communists in; and if we don’t act vigorously the Communists also may be brought in.

Kissinger: We can’t participate in bringing the Communists to power.

Shultz: I have two initial observations: (1) The problem, which is fundamentally political, is bad in the UK, worse in Italy. (2) Solutions to such problems usually work better if they are internally generated rather than forced upon a country from outside.

Kissinger: Unless their government wants the excuse of external pressure.

Shultz: The UK has just adopted a pretty tough program of economic restraint.2 We might disagree on whether Callaghan’s incomes policy is sensible or will hold, but he is trying.

Kissinger: If I know Callaghan, if we tried to tell him how to solve his problem through a better incomes policy we would receive a volcanic reaction.

We need to separate the two problems we are considering: Should we propose a second Rambouillet meeting? And should it be an emergency meeting?

[Page 485]

Giscard asked me whether we should plan one for this summer. It would have to be in July, after the bilateral meetings. I don’t know whether we could deal with the Italian economic problem at a July Rambouillet type meeting. Alan, you say the Italian situation is on too short a fuse.

Greenspan: It is very difficult to say today whether the Italian crisis can wait that long. It is conceivable that it will go into a temporary state of remission for some months, but I wouldn’t count on this.

Kissinger: My solution would be for George to go to Europe, not on an emergency basis but on a trip to take stock of the European economic situation and of whether there should be a Rambouillet II. He would turn the conversation to Italy, test Schmidt’s reaction to doing something for Italy.

I must say that I like the idea of a second Rambouillet. It was a good initiative.

Greenspan: It is the ideal forum for considering whether we should take some joint action on the Italian problem.

Sonnenfeldt: Rambouillet II, as a practical matter, means a meeting in July at the earliest.

Robinson: Here in the U.S.?

Shultz: That’s open, but it would be difficult to do before Giscard comes in June.3 And Schmidt in July. The Secretary will be in Europe in May.4

Robinson: And at the OECD Ministerial in June.5

Sonnenfeldt: There also are EC meetings in this period.

I don’t know how Schmidt would calculate his advantages and disadvantages in considering a program in which the Germans are inevitably the big paymasters.

Shultz: Rambouillet gave the impression of progress. But I don’t think you can have another one without coming out of it with more specific results.

Sonnenfeldt: I agree that it would be better to focus it on a specific problem.

Robinson: Don’t underestimate the importance of the problem of a response to the North-South issues coming out of UNCTAD and the CIEC this summer—the question of how the major industrial countries deal with the demands of the LDCs.

[Page 486]

Sonnenfeldt: Yes, but the key issue is whether the meeting could contribute to a solution of the Italian situation.

Robinson: I agree.

Shultz: Before I go around talking to the Europeans, I’d like to have a program in mind to suggest—not just tell them what everybody knows, that Italy is a serious problem. Schmidt knows that, and he’ll say he is doing something about it.

Kissinger: How should we go about developing a program?

Greenspan: We should establish a small U.S. Government task force to define the dimensions of the problem and what is being done now, and work out a set of proposals. We have to realize that anything we may prescribe runs into the almost impossible political problem of the ability of any Italian Government to carry out a tough program.

Shultz: I agree, but there may be some ways to make it have a better than even chance of political acceptability.

Greenspan: This or that program can be conceptualized, but we don’t now have the numbers to attach to it. Worse than doing nothing is to try to do something that is not of the scale required.

Robinson: First we must consult with the Europeans on what might be politically do-able and what is not. George needs to get from Schmidt, particularly, a better understanding than we now have of how we can attach conditions.

Kissinger: I don’t like the idea of calling an emergency meeting. If we take the lead, the Communists will exploit it. The British reaction also could be explosive. I do think you should go and take stock. You can say, George, that we are concerned about Italy, but we don’t know what to do about it. You might even say to Callaghan, "we’re concerned about you, too."

Robinson: And be ready to duck.

Shultz: Whether I talk about Italy or taking stock on Rambouillet, I can do better if I have in my kit bag a set of program possibilities, so I don’t go empty-handed into the discussion.

Kissinger: How should we move on this?

Robinson: We and CEA and CIA can go to work on it right away.

Shultz: Italy is bound to come into the discussions.

Kissinger: I wouldn’t be too coy. Talk with them about Italy as an emergency problem which has arisen since Rambouillet I. Discuss the British economic situation, too.

Sonnenfeldt: As a practical matter, it is hard to see how a Rambouillet meeting could be held before July, between political conventions.

Kissinger: Then our people can point to Italy and say we’ve had another foreign policy failure. In this country we have made an art form of making foreign policy successes look like failures.

[Page 487]

Shultz: Can a Rambouillet type meeting be held in the United States between nominating conventions?

Kissinger: Every candidate would want to attend.

Shultz: Then you will organize the bureaucracy to give me what I need?

Kissinger: The first things you need are letters, to Schmidt and the others. You can’t just show up.

Shultz: Second, I need someone here to work with. The last time it was Hal.

Kissinger: You get along with Hal?

Greenspan: My impression is that the expertise on the Italian economy in the U.S. Government is pretty small. We may need to get some help from outside the government.

Sonnenfeldt: It’s not that bad.

Kissinger: Don’t bring in too many academicians. They leak like crazy.

Shultz: You’ve got to include Treasury.

Kissinger: Of course, that will be no problem.

Robinson: We’ll proceed on the next steps.

  1. Source: National Archives, RG 59, Central Foreign Policy Files, P820117–2133. Confidential; Sensitive; Nodis. Drafted by Poats and approved by Collums on July 16.
  2. On April 6, the newly formed Callaghan government introduced its budget in the House of Commons.
  3. President Giscard visited the United States from May 17 to 22, stopping in Washington, Yorktown, Philadelphia, Houston, New Orleans, and Pascagoula, Mississippi.
  4. Kissinger was in Paris on May 7. He was also in Europe May 20–27 stopping in Oslo, Bonn, Stockholm, Luxembourg, and London.
  5. Kissinger was in Paris June 20–22 attending the OECD Ministerial meeting.