48. Telegram From the Embassy in France to the Department of State1

20620. Subject: Call on French Minister of Finance Giscard d’Estaing.

During a call I made on Finance Minister Giscard d’Estaing this afternoon, he emphasized his concern with the current monetary situation. He said he felt U.S. political leaders did not understand the seriousness of the political problem which the decline of the dollar to a rate 10 percent below the February 12 parity was causing the French Government and other European governments too. He mentioned a recent talk he had had with a French businessman who had expressed the fear he would be unable to compete in the U.S. market at the present dollar/franc exchange rate and would have to let off substantial numbers of people. If unemployment and political difficulties were thus to spread in Europe, that would make monetary problem very much harder to resolve.
I questioned Giscard as to what alternative he saw to floating rates in the present transition period. Giscard replied that the important thing was for the U.S. to show willingness to support the dollar, repeating that he believed the dollar was substantially under-valued perhaps as much as 10 percent. He said he thought it could be supported at the present level through the use of swap facilities without getting into the more complicated problem of consolidation of balances. He feels objective should be at a minimum to keep rate from falling below present level and, if possible, to achieve some recovery—say, by about four or five percent above its present value. He said he was not arguing we should support the dollar all the way back up to the level resulting from the devaluation. He felt the U.S. had made a mistake in taking a completely “hands off” attitude after the last devaluation.
I took issue with Giscard’s suggestion that the U.S. was indifferent to the strength of the dollar. I noted that the U.S. had more than met the President’s target of keeping government expenditures below $250 billion in FY 1973 and that the final budget deficit for FY 73 was $14 billion rather than the $18 billion forecast in January. I mentioned that President Nixon had expressed his determination to achieve a balanced budget in FY 1974. I called attention to the strong Phase IV program [Page 183] for dealing with the immediate inflationary problems. Finally I pointed to the second quarter trade results as evidence that our efforts were beginning to bear fruit. Giscard agreed these were important developments.
In further discussion it became clear that Giscard feels that U.S./European differences over the monetary situation can have important repercussions on other issues, particularly on the EC itself, and on defense and security questions. Resolving monetary problems would not resolve all other issues he said, but a failure to resolve the monetary problems would certainly exacerbate other issues.
In parting Giscard commented that “in diplomacy mistrust is deep-rooted” and hoped we could work together to deal with such mistrust by full and frank exchanges. Accordingly we agreed to pick up discussion again in September.
In light of the seriousness of French concerns, however, I urged Giscard to speak directly to Secretary Shultz in Washington next week to explore possible solutions.
  1. Source: National Archives, RG 59, Central Foreign Policy Files. Confidential; Immediate. Repeated to Bonn, Brussels, London, Rome, The Hague, USEC Brussels, and USOECD Paris.