147. Memorandum From the Chairman of the Council of Economic Advisers (Greenspan) and the President’s Assistant for National Security Affairs (Scowcroft) to President Ford1


  • Puerto Rico Summit Overview

The Summit is intended to permit an intimate and serious discussion by the leaders of the industrialized democracies of a number of issues of common concern. It underscores the fundamental interdependence of the industrialized nations, conveying the common desire of their leaders to work together in addressing major problems before them and to approach challenges and opportunities with determination and a sense of shared purpose.

As with Rambouillet, the Summit provides you with an opportunity to exercise constructive American leadership both in focusing attention [Page 528] on key problem areas and in setting positive directions for future cooperation among the industrialized democracies and for future evolution of the international economic system as a whole. Specifically, your leadership can help to focus the meeting on the following priority objectives:

  • —To reach agreement and a common effort to insure that the transition from recovery to expansion now underway in many industrialized nations will be sustainable, so that efforts of individual nations to reduce the high levels of unemployment and to achieve stable growth in incomes will not be jeopardized by a new wave of inflation. Such stable growth presupposes a shift of resources into investment and away from private and public consumption.
  • —To stress the need for countries to take the necessary policy measures to reduce payment imbalances—with some countries allowing their surpluses to decrease and others taking domestic corrective measures to their deficits; and to reach agreement to develop a general mechanism in the context of the IMF, which will be able to provide financial assistance to developed countries in special need, preconditioned on special corrective programs to insure a return of sound economic equilibrium. (Here you would be implying possible future support for Italy, but strengthening the internal position of those in Italy favoring major economic discipline by stating that there will be no aid without strong corrective measures.)
  • —To restore a sense of common purpose in industrialized nations’ relations with developing countries, strengthen industrialized country coordination, and both underline, and clarify the essential features of the constructive U.S. approach to the developing nations.
  • —To secure support for increased momentum in the Multilateral Trade Negotiations for continued resistance to protectionism, and for the longer-term goal of an increasingly open trading order.
  • —To secure reaffirmation of the importance of a liberal climate for financial and direct investment, and of firm industrialized nation opposition to illegal corporate payments.
  • —To emphasize the necessity for stronger consumer country actions to reduce dependence on imported oil, and for improved developed country cooperation in the dialogue with oil producers.
  • —To focus attention on the need for the industrial democracies to examine, and develop a consistent set of broad objectives with respect to, our evolving relations with communist countries.

The meeting will take place against the backdrop of a substantial improvement in the economic activity and lower rates of inflation in most industrialized nations, and a successful post-Rambouillet effort to maintain an open world trading order despite the deepest recession in post-war history (which you can point to as an extraordinary example [Page 529] of mutual restraint and responsibility by the major trading nations). It also follows the January Jamaica agreement to reform the International Monetary Fund, to which the Rambouillet agreement contributed substantially. Despite the generally improved economic outlook, problems of individual countries, especially in the international financial area, have sharpened since Rambouillet. Both Italy and the United Kingdom have had sharp exchange rate depreciations while at the same time increasing their foreign indebtedness to what appear to be their natural limits. France is beginning to move into a precarious financial position, although this has not become overt as yet. In all these countries, inflation rates have been—and are continuing to be—significantly higher than compatible with the goal of reasonable external stability.

In addition, despite the generally improved economic situation in most countries the difficult political circumstances in which many leaders find themselves will cast a shadow over the meeting. The political situation in Italy will take weeks to clarify. The Labour government in the UK governs by a paper-thin majority. The US and Germany face national elections in the fall. Giscard is under attack from both the right and the left. Miki might well be removed from office soon after the Summit. Trudeau’s support has weakened considerably in recent months. The assembled leaders will, therefore, all be attempting to make domestic political capital out of the Summit, and will be under pressure from their publics to demonstrate that it was worthwhile rather than simply an electoral ploy.

These circumstances make all the more important our pre-Summit strategy of emphasizing to the public that this meeting should not be characterized as an attempt to produce dramatic results, but as part of an essential and continuing effort by industrialized nations’ leaders to address common problems, to improve mutual understanding, to anticipate problems, and to develop approaches which prevent problems from becoming crises. The complexity of our economies and the intensity of our growing interdependence requires that leaders no longer wait for major difficulties to arise, and then, by dramatic meetings, attempt to resolve them. It requires instead that leaders concert their efforts to prevent crises from building in the first place—to shape the future rather than reacting to it.

It is with these objectives in mind that the Summit is being held. Success must be judged in terms of the ability of the assembled leaders to agree on responsible directions for their economies, on areas for improved cooperation among the industrialized democracies and on desirable objectives of such cooperation. Such a success could strengthen the internal political positions of the leaders present, providing each with improved ability to pursue sound and responsible policies at home, and in general indicate to domestic audiences that governments are in control of their economic destinies.

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The International Setting for the Summit

Since Rambouillet, the circumstances and concerns of your Summit partners have changed considerably. Now their countries are on the whole considerably stronger economically, but they personally are weaker politically. Last November at Rambouillet economic recovery was the central issue. Today, the assembled leaders are under domestic political pressure from a number of sides. All look to the Summit to improve their standing at home:

  • Giscard’s authority is under major pressures from the Gaullists and from the left. While his own term does not expire until 1981, he is greatly concerned about a left-wing victory in the 1978 parliamentary elections, which could force him to have Socialist leader Mitterrand2 as Prime Minister. To avoid this, Giscard has increased reliance on the Gaullists, who oppose a number of his more liberal domestic reforms, and who resist too internationalistic a foreign policy, in particular closer cooperation with the U.S.

    Giscard will use the Summit, as he did Rambouillet, to project his personal influence on the international stage, to convey his confidence about the future of the French economy, and to stress his country’s dedication to a constructive North-South dialogue. Giscard will reiterate his view that greater stability in international financial markets is needed and that this is mainly the responsibility of the United States and Germany. Giscard will also avoid appearing to be locked into common Western positions vis-à-vis the oil producers, the developing countries, or the Socialist countries and will resist any additional commitments on trade and any hint of greater cooperation with the International Energy Agency. Because some of his advisers see this as a “show” to strengthen your electoral position and are skeptical that it will produce major results, Giscard will probably avoid any public enthusiasm for the exercise until he is convinced of its success. If he perceives failure, he may attempt to disassociate himself a bit from the venture.

  • Schmidt’s governing coalition of Social Democrats (SDP) and Free Democrats (FDP) faces a major electoral challenge in October from the opposition Christian Democrats (CDU). The latter have succeeded in eroding support for Schmidt’s coalition at the same time that divisions have taken place between the SDP and FDP. The FDP may be tempted to form a coalition with the CDU, if the CDU makes electoral gains in October. Schmidt’s position as one of Europe’s strongest leaders, his thirst for a major international role, and his expressed desire for stronger Western cooperation make him a natural enthusiast for [Page 531] this Summit. Schmidt has campaigned domestically on the platform that “no one in Europe has it better than Germany” in order to underline the success of his leadership. He may use the Summit to continue his urging of other European leaders, whose economies are suffering higher rates of inflation than Germany, to exercise greater economic discipline. He is also likely to press for stronger industrialized country cooperation vis-à-vis the developing countries, and in reducing energy dependence.
  • Miki is under strong domestic pressure to resign. His popularity level is very low as a result of his secretive way of doing business and general criticisms of poor management of the government. But his “clean” record has convinced many that he should stay for a while longer to clean up the “Lockheed affair.”3 Nonetheless, intensive inter-party maneuvering is now taking place among factions in the LDP to select his successor. Miki sees the Summit as a possible hope to improve his domestic stature and thus prolong his term in office.
  • Callaghan leads a Labour Party which governs by an extremely narrow majority in the parliament, and often must rely on Liberal Party votes to pass legislation. While having succeeded in negotiating a wage restraint pact with the unions, the U.K.’s continued large budget deficit has led many financial analysts to believe that the recent $5.3 billion financial assistance package to support sterling will eventually fail and that the pound will fall dramatically in the near future. If this is the case, Callaghan’s position will weaken further in coming weeks. Callaghan sees the Summit as a major opportunity to play an international role, but he will be extremely sensitive about implied criticism of U.K. economic performance.
  • Moro, five-time Prime Minister of Italy, and now leader of a caretaker government, has just come out of the June 20–21 elections with his party stronger but still in a highly uncertain position. His position will be the weakest of all participants at the Summit. He is likely to play a cautious and low-key role, protecting Italian interests but taking no initiatives.
  • Trudeau’s leadership image has been tarnished by the impact of the recession and by the lack of popularity of his anti-inflation program. While the Canadian economy is picking up, in part as a result of U.S. recovery, Trudeau’s policy is still under major assault. Participation at the Summit will strengthen Trudeau’s role by giving Canada international recognition as a key economic power, which Canadians believe is their due. At the Summit, Trudeau will probably support a number of U.S. objectives, although Canada is generally closer to the [Page 532] developing nations than the U.S., but take care not to be seen as an unquestioning supporter of U.S. positions.

The Europeans attending the Summit face in addition to their domestic problems the destabilizing psychological effects of the recent drift in the EC. Although the EC has been reasonably successful in establishing a customs union, strengthening political cooperation, and solidifying a “European approach” in a number of areas it appears to have lost forward momentum in such areas as establishment of an “Economic and Monetary Union.” In addition, economic disparities among member states have increased in recent years with attendant ill effects on economic policy coordination within the EC, in equilibrium in exchange rates and in the EC’s ability to work with the U.S. and other nations over the longer term. Some of the smaller EC nations believe that failure of the EC to participate at this Summit will aggravate the present mood of weakness and drift within the Community, a development which they stress would be contrary to the long standing and often reconfirmed interest of the U.S. in the European unification.

Your Participation

As the Chairman you will open the meeting and designate lead speakers for each item. While these have not been “formally” established and will not be announced publicly, there is an understanding on who will “break the ice” on each subject. Unlike Rambouillet, the subjects will be discussed in “clusters”—recovery and expansion together with monetary and financial issues on Sunday evening; trade and investment together with East-West issues; and North-South together with energy issues on Monday.

After your welcoming introduction, you should call on Giscard to “break the ice” on the afternoon’s discussion of recovery and expansion, and monetary and financial issues. Miki will “break the ice” on trade and investment; Callaghan on East-West issues; Schmidt on North-South issues; and Trudeau on energy. You and the other participants will have the opportunity to comment at least once on each topic.

Your initial presentation will provide an opportunity to place the Summit in the proper political and economic framework by stressing:

  • —The central economic, political and security importance of the industrialized countries to one another, and to the world.
  • —The enormous interdependence among our societies, and the complexity of our problems, which require a strong cooperative commitment to anticipate problems and take the actions required to avoid them becoming major crises, which would disrupt our economic and our broader relationships.
  • —That because of our interdependence, individual efforts to solve our problems can only have lasting success if supported by common efforts.
  • —That our problems should be resolved by political will and a spirit of cooperation; differences should be considered in the light of our broader common interests.
  • —That the industrialized democracies are central to the world economy and especially to the prosperity of the developing countries. Thus we should not be vulnerable to developing country pressures to take positions leading to economically unsound solutions which work to the long term disadvantage of all countries.

With respect to the individual issues, we believe the following scenarios might be followed:

The U.S. economy is clearly leading the way, with Japan, Germany, and France also moving toward vigorous economic expansion. Canada follows, with Britain and Italy now out of recession but projecting less vigorous recoveries.

All leaders will recognize the need to reduce the present rate, and prevent a resurgence, of inflation. But they will also be concerned about reducing unacceptably high levels of unemployment. All participating countries agreed at the just concluded OECD Ministerial meeting on a strategy for sustained economic expansion based on the premise that the steady growth needed to restore full employment and satisfy rising economic and social aspirations will not prove sustainable unless all industrialized nations make further progress towards eradicating inflation. Thus, the Ministers agreed that their governments should direct their policies to greater price stability and lowering unemployment through achievement of an economic expansion which is moderate but sustained.

Your statement emphasizes that achievement of high employment levels depends upon a reduction in budget deficits and a further reduction of inflation rates, which in turn will lead to a more favorable investment climate stimulating the necessary growth in capital stocks to absorb unemployment. It thus stresses that avoidance of a resurgence of inflationary pressures requires sound fiscal and monetary policies, realistic economic growth goals accepted by the public at large and a shift in resources to private investment. While the French do not place as much emphasis on monetary and fiscal restraint as does the U.S., Giscard’s statement is likely to stress the need to hold down inflation, along with strong emphasis on lowering unemployment.

Schmidt will presumably echo your sentiments and perhaps even point the finger at a few countries who have not, in his view, exercised appropriate monetary and fiscal restraint. Both Callaghan and Moro, facing high rates of domestic inflation (over 15% consumer price increase over the last 12 months) and high unemployment will probably agree wholeheartedly with the objective of lowering inflation, although neither country now has in place a policy of restraint which gives reasonable [Page 534] prospects of bringing this about. Callaghan may stress his successful wage restraint pact with the trade unions; but his huge budget deficit is seen by analysts as portending a continuation of substantial inflationary pressures, and an ultimate breaking down of the wage restraint pact.

Trudeau last October announced a wage and price restraint program, but this has not been as successful as hoped (7.1% increase in consumer prices over the last 12 months), is strongly resisted by labor, and has proved difficult to administer. Miki’s government has managed to achieve good results (4.8% growth in consumer prices over the last 12 months) in efforts to control inflation, particularly in holding down wage settlements, and will probably stress this success.

Monetary and Financial Issues

Giscard, leading off, is likely to comment on the performance of the Rambouillet agreements and the subsequent Jamaica IMF agreement. At Rambouillet it was recognized that stability in underlying economic and financial conditions was necessary to achieve international monetary stability. Giscard may comment on the recent erratic movements in some European currencies. He may argue that the depreciation of the pound and lira has improved the competitiveness of the British and Italian exports, making if difficult for other countries to resist pressures for countermeasures to curtail the imports from such countries. He may also point out that more intervention is required to achieve exchange rate stability and to prevent the erosion of currencies of key trading countries. It is unlikely that Giscard will comment on the Italian situation in any detail.

Your presentation stresses the need for industrialized countries in weak external financial positions to implement strong domestic stabilization programs in order to eliminate persistent payments deficits. It also stresses the obligation of surplus countries to accept, and not to counter, market induced reduced current account surpluses or even deficits as their contribution to the elimination of payment imbalances. It also proposes that agreement be reached, in the context of the IMF, on a mechanism to supplement official credit for countries in special need, preconditioned on a vigorous corrective domestic program. Schmidt will probably also emphasize the need for firm corrective action in countries facing large payments deficits. He will not agree on the need for surplus countries to take extra-market actions to reduce surpluses or increase deficits.

Moro will probably seek to avoid any undue pressure on Italy to take domestic corrective actions, and certainly would resist the idea that supplemental official credit be tied to a rigorous corrective program. Callaghan, recognizing that the U.K. may be forced to apply for supplemental credit from any new mechanism, might take a line similar [Page 535] to Moro’s. Miki and Trudeau are likely to agree with your line of argument but will probably do so in a less forceful way than Schmidt.

Trade and Investment

Miki, leading off, is likely to emphasize the need for increased momentum in the Multilateral Trade Negotiations and the need for reducing trade barriers consistent with the Tokyo Declaration4 and the Rambouillet commitments of last year. He will further stress the need for resisting new protectionist pressures. The Europeans are likely to be very cautious in this area, suggesting little that is new and resisting any initiatives that would imply a commitment by them to positions not already authorized by the total membership of the Community. Schmidt could be the exception; he might make a statement which prods the Community along toward a freer trade posture, but he will probably not go too far for fear of treading on Community, and especially French, toes. Your statement emphasizes the need to accelerate progress in the MTN, to continue to resist protectionism, and to seek agreement on the long-term goal of maximum reduction in trade barriers. Trudeau may take a similar line.


All leaders are likely to endorse the recently agreed OECD investment package—viz. a Declaration relating to guidelines for multinational corporations, national treatment of foreign investors, international investment incentives and disincentives, and consultations and review of these matters.5 Some may stress the need for international action to deal with the bribery issue. Moro and Miki may treat the bribery issue a bit carefully given their internal problems in this area; but they will certainly want to appear to be strong in their objections to bribery in order to help “cleanse” their governments back home. Your statement stresses the need for liberal treatment for international capital flows, expresses satisfaction at agreement on the OECD investment package, and addresses the need for international agreement dealing with the issue of bribery. Trudeau is sensitive on the issue of “national treatment” of foreign investment in Canada, but Canada agreed to the OECD investment package with only minor reservations. Giscard may object to a strong public agreement on [Page 536] liberal treatment for capital flows because the French like to maintain flexibility to control capital movements from time to time.


Trudeau, leading off, is likely to support the general theme of more intensive efforts by consuming countries to reduce dependence through conservation and increased production, as well as the need for a constructive dialogue with the oil producing countries. (Canada is co-chairman of the Paris Conference on International Economic Cooperation.) The Europeans are likely to place substantial emphasis on the consumer/producer dialogue in the Conference on International Economic Cooperation in Paris.6 Schmidt will likely repeat his Rambouillet warning that the industrialized countries have still not addressed the energy issue in a serious enough way nor convinced their peoples of the necessity of acting collectively. Giscard is likely to stress the primary importance of an improved dialogue with the oil producing countries. Callaghan and Miki will be somewhere in between. Italy will probably take a line similar to France. Your statement emphasizes the need for a more ambitious and vigorous effort by the industrialized democracies to reduce collective vulnerability through stronger domestic energy programs, agreement on targets to reduce dependence, and long-term consumer country cooperation; it also emphasizes the need for consumer country cooperation in the dialogue with oil producing nations.

Relations Between Developed and Developing Countries

Schmidt, leading off, is likely to point to the disarray among industrialized countries at the recent UNCTAD meeting in Nairobi and stress the need for stronger cooperation among the industrialized nations. He may cite the very strong OECD Ministerial statement calling for close collaboration and strengthened coordination among industrialized nations in the dialogue with the developing nations. He will also underline the importance of policies toward the Third World which meet key development needs in a manner which “efficiently” utilizes available funds and does not distort the market. Your statement is likely to be similar to Schmidt’s; it will emphasize the need for a coordinated, developed country approach to issues of interest to the developing countries. It will also clarify our position on the commodity issues which provoked so much confrontation at UNCTAD, and emphasize a number of positive elements in our approach to the Third World. Giscard’s approach will likely concentrate on the importance of a constructive dialogue with [Page 537] the Third World, avoiding any implication that the industrialized countries would establish a “bloc” or require strong performance conditions by developing nations. The French place great emphasis on winning political credit in the developing world, even if it means at times subscribing to schemes which do not make good economic sense. They do not want to be restrained by a strong commitment to cooperate with such countries as the U.S. and Germany which are more demanding of economic effectiveness in their assistance efforts or by strictures stressing that solutions must be market oriented. Callaghan and Miki will probably come out somewhere in between you and Giscard. Trudeau and Moro will likely lean toward the French approach.

  1. Source: Ford Library, President’s Handwriting File, Subject File, Box 49, Trips—Foreign—Economic Summit—1976 (4). No classification marking. A stamped notation on the memorandum indicates the President saw it.
  2. François Mitterrand was the leader of the French Socialist Party.
  3. See footnote 11, Document 140.
  4. See footnote 4, Document 123.
  5. On June 21, OECD member countries adopted a “Declaration on International Investment and Multinational Enterprises.” The OECD Council also adopted decisions on three issues: “inter-governmental consultation procedures on the guidelines for multinational enterprises,” “national treatment,” and “international investment incentives and disincentives.” Texts of the declaration and the decisions are in Department of State Bulletin, July 19, 1976, pp. 83–88.
  6. The CIEC met December 16–19 in Paris. See Document 300.