9. Memorandum of Conversation1

Foreign Participants in the “Camp David” Meeting

  • Federal Republic of Germany
  • Hans-Dietrich Genscher, Vice-Chancellor, Foreign Minister
  • Hans Apel, Minister of Finance
  • Hans-Herbert Weber, Assistant Secretary, Ministry of Finance
  • Peter Hermes, Assistant Secretary for Economic Affairs, Foreign Ministry
  • France
  • Jean Sauvagnargues, Minister of Foreign Affairs
  • Jean-Pierre Fourcade, Minister of Economic Affairs and Finance
  • Jean-Pierre Brunet, Director of Economic and Financial Affairs, Ministry of Foreign Affairs
  • Jacques de Larosiere de Champfeu, Counselor, Ministry of Economic Affairs and Finance
  • Constantin Andronikoff, Minister-Counselor, Ministry of Foreign Affairs
  • Japan
  • Masayoshi Ohira, Minister of Finance
  • Toshio Kimura, Minister of Foreign Affairs
  • Taroichi Yoshida, Vice-Minister of Finance
  • Hiromichi Miyazaki, Director General, Economic Affairs Bureau, Ministry of Foreign Affairs
  • United Kingdom
  • Denis Healey, Chancellor of the Exchequer
  • Derek Mitchell, Second Permanent Secretary, Treasury
  • Donald Maitland, Deputy Under Secretary, FCO
  • United States
  • Henry A. Kissinger, Secretary of State
  • William E. Simon, Secretary of the Treasury
  • Arthur Burns, Chairman, Federal Reserve Board
  • Jack F. Bennett, Under Secretary of the Treasury
  • Thomas O. Enders, Assistant Secretary of State for Economic and Business Affairs
  • Charles Cooper, Assistant Secretary of the Treasury

Meeting of Big Five Foreign and Finance Ministers, September 28, 1974, 3 p.m.

Kissinger: How about a picture. Acquiescence means acceptance.

First of all I would like to welcome you all here. I know it was difficult for some of you, especially Ministers Genscher and Healey. But I thought we could take advantage of the Finance Ministers being here for the annual Bank and Fund meetings2 to have an informal exchange of views.

We have had preliminary discussions here and with your permission, Bill and I would like to open by explaining the situation as we see it. Later, we would like to put forward some suggestions as to possible actions we might take. Then in another month or so this group could meet again, or some other group like it. But we are not here today to try to agree on a concrete program of action. Is this procedure agreeable? If so, let me begin with our analysis of the current situation.

We all know the economic dimensions that high oil prices have imposed on us. These problems are insoluble on a bilateral basis, except perhaps for the United States. But if we were to proceed bilaterally, the political weakness among us that would result would destroy the cohesion of the Western world. And therefore we reject the bilateral approach.

We believe instead that we should develop a coordinated response to the current economic situation. This is based on the fact that no one of us can long withstand the economic and political damage caused by the current high oil prices. These prices, moreover, are the result not of market forces but by the political decisions of the producer governments. Therefore the prices should be subject to political decisions by consumer governments as well.

The stakes involved go beyond oil prices and economics, and involve the whole framework of future political relations. If producers continue to manipulate prices and consumers have no effective response, the producer governments will attain huge political power over the coming years. OPEC countries will have $110 billion revenue this year compared with $25 billion last year. We estimate revenues of [Page 31] more than $125 billion for 1975. The gap between OPEC revenues and spending is about $55–60 billion this year, of which 85 percent is concentrated in OECD countries. In our judgement, these revenues are not merely entries in bank accounts, since sooner or later they will be converted into command over resources, and thus into political power. This will have three major political implications:

First, producer countries will have power over economies in consuming countries from the effect of shifting financial assets, whether intentional or unintentional. The producers could develop a strategy to provoke a major political and economic crisis in the Western world. But their actions do not have to be malicious, and their inability to interpret their power in terms of the global uncertainties that will result could also have disruptive effects. Iran will have an aid program this year equal to that of Japan; the recipients of this aid can become economic and political hostages. Maybe we should welcome the producer countries becoming larger aid donors but if they follow the example of Libya, this development will result in a massive shift of political influence as well.

Second, Arab revenues can become a threat to global and regional peace. Weapons are flowing into the Middle East in huge quantities and the threat of war can grow enormously.

Third, and most worrisome, is the direct effect on the unity and strength of our countries that have been the basis for our resilience to the threats from Soviet power through the years. Italy is only the first example stemming from current trends that could divide us. Italy could slip into LDC status, become a supplicant to the Middle East, and be subject to influence from radical left and right wing political forces. We all know the consequences of such a development for Europe.

Therefore, we must respond to the political as well as the economic implications of current trends. It is true that oil revenues must come back to Western financial centers, but producers will still control the assets and can shift them about and use them for direct political leverage. We need to discuss how we can avoid letting producers make the decisions. We do not want confrontation, but we want to move to a position where all of us can influence current economic trends.

We will later put forward some specific suggestions as to how we might respond. At this point I will just make some general points, which Bill Simon may then wish to elaborate further, particularly with regard to the financial situation.

There are first the political components of our response. We must persevere in the Arab-Israeli negotiations. To the extent that those negotiations are linked to oil they become insoluble. Even if producers see [Page 32] them as linked, we cannot proceed. We will continue to make major efforts toward peace in the Middle East, and we welcome assistance from others.

In addition, we must demonstrate that major consumer countries are willing to protect their interests through consumer solidarity. We are prepared to share the leverage that we have, financial, research and development capability, and political influence, with those here. We should not be deterred from collective efforts because they are branded as confrontation by producers. That will happen in any event. Our hope is to pursue a calm, deliberate strategy to make less likely the charge of confrontation, and to eliminate the weak links among consumers.

Toward this end we feel three areas should be addressed:

First, demand restraints. It is difficult to negotiate effectively while consumption is rising, and the ability to demonstrate restraint will at the same time demonstrate solidarity. I applaud the bold and imaginative French action of the past week3 as the first concrete step in the right direction.

Second, financial solidarity. We will need adequate access to financing if we are to maintain economic growth. The distribution of financial reflows is very uneven. We must arrange borrowing and lending among ourselves so that the petrodollar reflow becomes more flexible. We should do this however without the producer countries in order to avoid political leverage by them over us. We will make concrete proposals on financial measures later in this meeting.

Third, we should study whether present economic policies in our countries are best, and seek ways to improve producer-consumer relations. We want a dialogue with producers, but what if they don’t and push a policy of embargo? We have no specific proposals on this issue, and suggest the establishment of a working group.

These are not final American proposals. We are very open to suggestions from others. We are holding this meeting to stress the political and economic consequences of the present situation. Ten to fifteen years hence it will be hard to explain why we didn’t do anything about the serious problems that now confront us.

Simon: The current economic situation is the most serious challenge since the reconstruction after World War II. It can only be met cooperatively. There are three major concerns: the overall state of the world economy, the recycling problem, and most important, high oil prices.

[Page 33]

We don’t believe the world is drifting toward depression. But inflation threatens the fabric of our societies. Inflation has been caused in large part by the rise in oil and other commodity prices, but it is not just from the commodity price rise. Underlying fiscal and monetary policies must be dealt with if we are to bring inflation under control. If we drift into depression, we could pursue expansionary policies. But the greater risk at this point is inflation, and we must make a common commitment to bring inflation rates down. A month ago we spoke of the need for constant communication and cooperation in this field.

On recycling, the bulk of it up to this point has been handled by the private sector, and official backup facilities stand ready to assist. I will distribute some material and data on recent financial flows.4 Please keep this information closely held.

I am not convinced that the structure of reflows will change greatly in the months ahead. Oil producers will continue to seek productive outlets for their revenues. Should more surplus revenue be recycled to the U.S. financial markets, foreigners can tap this market. About 25% of oil revenues have been invested in the United States, and in recent weeks the U.S. share has been somewhat less. Remarkable confidence in the capability of markets was expressed by us a month ago, and I continue to hold that confidence.

At the Summit meeting just concluded5 there were many appeals to cooperate and meet the economic challenges before us. If we wish to maintain confidence in markets, we must link together. Therefore, we should study additional mechanisms to give official support to private markets when needed.

With regard to oil prices, we don’t believe the industrialized countries can accept continued high oil prices as inevitable. High oil prices are central to all our problems. Countries will be unwilling to accept the mounting debt involved. Oil prices must come down and oil producers must take on a substantial share of the burden.

The United States is prepared in principle to associate itself with a major new international initiative to supplement existing financial mechanisms. We will present detailed proposals later, and I would like at this point only to state four general guidelines:

First, we must pursue intensified financial cooperation, energy cooperation, and a commitment to beat inflation. In addition, we should develop international cooperation on conservation until oil prices are [Page 34] reduced. The IEP agreement last week provides a solid basis for such cooperation.6

Second, we need consumer solidarity vis-à-vis producers.

Third, our financial cooperation should be independent of oil producers, except for highly concessionary lending to poor countries.

Fourth, official financial transfers should be supplements to and not substitutes for private market flows. The terms should not be such so as to undercut sound national programs.

We are flexible as to how to proceed, but we feel that a concrete program is needed as soon as possible. I hope we can reach agreement here on the concept of such a program and how to go about developing it.

Healey: I welcome this opportunity to look at the oil problem as a whole, and to look ahead to the situation ten years hence. You, Henry, did not exaggerate the risks involved, and in fact left two of them out, which I would like to mention:

First, because of the buildup of armaments in the Middle East, the threat of a breakdown in oil supply is a real one. War among the Arab states becomes a real possibility. At the same time, if we threaten military action against the producers, the Arabs may well blow up their oil facilities.

[Page 35]

Second, social and political instability will be created in producer countries by the acquisition of wealth. The technical elite lies almost entirely in the military. As in many African countries, there may first be a struggle among the generals, then among the colonels, and then among the captains. They can go on fighting for years.

We may think that if we work together and develop a concerted response in a rational way that we can assume that the producers will react in a rational fashion as well. But we cannot make that assumption in the Middle East. I can illustrate my point perhaps best by the familiar story of the scorpion and the frog. A scorpion, wanting to get across the Suez Canal, and seeing a frog preparing to swim across, asked the frog whether he could ride on the back of the frog. The frog responded that this was dangerous since the scorpion might sting and kill him. The scorpion responded that if he did so he too would die by drowning, and so it was logical that he would not harm the frog. The frog thereupon agreed to carry the scorpion, and half way across the water he felt the deadly sting of the scorpion. With his dying breath the frog asked why the scorpion stung him, contrary to his own self interest. Is this not completely illogical? I know, responded the scorpion, but this is the Middle East.

We should never assume that the Arabs will react as rationally as Bismarck could count on other Europeans to react during the last century.

We must also distinguish the importance of issues from the urgency in dealing with them. Some of the most important, such as reduction in oil prices, will be extremely difficult and slow to achieve. It may therefore be a mistake to try and integrate all issues in too coherent a way, or to put them all into one organization. I prefer the approach of overlapping organizations, so as to be able to move in one area or another as circumstances permit. I am not convinced that the creation of a new umbrella organization is the right way.

Turning to surplus producer revenues, we think that the $50 billion level this year will increase to $80 billion in years ahead, which means both a cut in demand and the feeding of inflation. These surplus revenues cut economic activity just like an increase in taxes. There is no doubt that cost-push is a major element in current inflation rates, but oil prices will also contribute through the remainder of this year.

It will take 12–18 months for most demand restraint measures to take effect. Bill, if we wait for a recession, it will be too late. We all believe, as does the OECD, that we will have a recession next year and a slump the year after. We need to act now. Disagreement among economists here at the Summit as in England is apparent. The most important threat of oil prices after inflation is its impact on reducing world demand.

[Page 36]

As for your proposed action program, I welcome cooperation in all the areas you have outlined. But in view of the instability and emotionalism of OPEC countries we should be very wary of their response. We must be careful in developing our collective rhetoric. If one of us appears to threaten them—as in one or two remarks by U.S. officials recently—this can have a serious consequence. We must maneuver into a position to exert pressure, but we must not go off half cocked, until we are in the position to exert such leverage. In particular we should avoid any military threats against producer countries.

As for Bill’s new supplemental financial measures, we all agree that a financial problem will develop over the next year, and in response, the faster we get our boat into the water the better.

In conclusion, I stress the extraordinary diplomatic care we must exercise vis-à-vis the OPEC, as well as the need to recognize the length of time that may be needed to accomplish our various objectives.

Simon: We have no disagreement on the petrodollar surplus of $55–65 billion this year. Your judgement that it will go up to $80 billion is based on three assumptions: no increased spending by OPEC countries; prices remain at the current high level; and consumption in consumer countries will continue to increase.

Regarding economic policies, it is obvious that there is a lag between implementation and effect, and we must be careful in our timing. At this point we need fiscal restraint but we don’t yet have it. We still have a budget deficit.

Apel: It is the same situation with us.

Healey: But whatever the size of the surplus, it restricts demand.

Apel: Not necessarily. But we can discuss this tomorrow among Finance Ministers.7

Healey: The size of the surplus is less on a calendar year than measuring from June to June, but in any event the problem is colossal.

Kissinger: If you are right, Denis, the problem is even greater.

Healey: Whether the share of petrodollars that will flow to New York will increase or decrease is a matter of judgement.

Kissinger: As to whether we are heading toward confrontation with OPEC, I do not know the unnamed U.S. official who mentioned military takeover, but this is not a part of our present strategy. We do not want confrontation in a rhetorical sense. The producers will consider any cooperation as a form of confrontation. But this is not necessarily bad. I had a talk with the Syrian Foreign Minister this morning, and there was no indication that our relations have suffered.

[Page 37]

I agree we need to coordinate on rhetoric. We had a need to call public attention to the problem. Now having done so, however, there is no further need, and we should from now on act rather than talk about the problem.

Kimura: There is no question that the world economy is seriously affected by high oil prices. A lowering of oil prices would be very desirable. However, the specific steps involved raises many difficult questions. We must have close international cooperation in all fields, and a cautious attitude with respect to oil producers. We should proceed on many fronts so as to see where action is possible.

We need to deepen cooperation on economic policies among industrialized countries. In the current worldwide inflation situation, we must respond to price increases through demand management policies, but not so as to develop into world recession.

We should seek appropriate means for recycling oil revenues from a short term to a longer term basis. On another front, we must assure that protectionism does not creep into the world. We already have the OECD pledge to avoid new trade restrictions. We should also pursue freer trade through the upcoming multilateral trade negotiations. In this regard, we look to early passage of the trade bill.

With regard to investment, a normal flow situation should be developed. We should continue to have steady cooperation among industrialized countries and good relations with producers to make them more responsible for maintaining trade flows. Oil producers appear to want to diversify their investments. In this regard, if we can increase their understanding for reasonable and appropriate financial flows, we can move on to a more desirable situation.

We could attempt to do these many things through one uniform organization, but there would be many difficulties in this, and perhaps it is not possible to do this. Perhaps we should seek to use all available channels, so as to shift to medium and long term investments and thus to achieve a more stable flow.

Sauvagnargues: Although we are here as one of the major industrialized countries to exchange views on the current economic situation, we cannot take decisions since some EC countries are not here. We have just decided to embark on a Community energy policy.8 We would want the Community to participate in international cooperation of this kind.

[Page 38]

As for the seriousness of the current situation, we endorse the analysis of the United States, and we should not wait with frightened tremors while producers gain economic advantage. Cooperation therefore is necessary.

Any concerted effort by us will be interpreted as confrontation by producers. We should not endorse such a description of confrontation, but we must be careful of avoiding confrontation. The Secretary of State has described the situation as highly political and so as to appear as an alliance of the rich against the poor, and thus to set up blocs of rich, poor, and producer countries. However, the producer countries are not united. But if we set up a bloc of consumers we may be triggering the formation of a bloc on the other side.

Therefore, we should like to adopt a stage by stage approach. We have a global situation with many aspects, including the oil price issue, and the petrodollar reflow which must be faced even if there is some change in oil prices.

At a given time, therefore, we should sit at the table with those who hold the petrodollars to make them understand that these dollars will become paper if we cannot reach agreement on acceptable financial arrangements. I don’t believe that the holders of petrodollars would be indifferent to economic crisis among industrialized countries and the danger of this for Arab investments.

I welcome the several proposals put forward. We need solidarity and cooperation. We also need a certain machinery for carrying this forward, but I am not sure that all issues should come under a single umbrella organization, for two reasons. First, a single organization could cover too much ground. Second, we in Europe are concerned that Europe presents a special situation, more dependent on oil than the United States. We must concert with the United States of course but not set up an organization that would prevent a Community approach.

We must use the carrot and stick approach. We must concert our policies on the one hand while pursuing the producer-consumer relationship on the other. Setting up an organization with the producers does not appear necessary. But we may wish to give stability and guarantee for their investment to insure development of their countries. We have initiated an EC-Arab dialogue. A global solution may also be possible, but this should not be done in a threatening way so as to trigger a bloc response by the producers.

We must take the first step now to reduce consumption. This will demonstrate to producers that we are serious. Steps can be taken on a national, European, or wider framework of broadly coordinated programs. We should also move ahead to develop substitutes for oil.

Although we see an urgent need for a concerted approach, we are not sure that we should attempt an overall comprehensive approach on [Page 39] an urgent basis. But we should restrict consumption now, as the only deterrent which will not appear as a political threat to the producers.

As for financial measures, there is a need for a show of solidarity, but combined with some opening of a dialogue with Arab producers. Perhaps we could do this within a small grouping as suggested by Yamani. The group could consist of the United States, Japan, the EC, perhaps Canada, some major LDC consumers like India and Brazil, and the main producers. It would be a study group, and not a means to take decisions. It would make the producers realize however that unless there is some solidarity by the producers and consumers, they will lose their markets.

Fourcade: I would like to make some specific comments on the economic situation after this political discussion. The French trade balance was in surplus in 1973 but with the 4-fold increase in oil prices there will be a deficit in 1974. The French Government however has set an economic policy over the coming 18 months to bring the trade account back into balance by 1975. This trade balance forecast for 1975 has been used as the basis for the French budget. The oil price problem is our central concern, and trade cannot be balanced if oil prices continue to rise. We have therefore set a ceiling on imports of crude oil as follows: we take the real consumption of crude in 1973 (127 million tons), the CIF price of oil at the end of 1974, and we then will set a 1975 ceiling equal to 90% of the 1973 volume of imports X the end 1974 price.

We will use two methods to bring this about. First, the customs tariff so that we can control how much oil goes to the refineries. Second, we will work to reduce consumption through speed limits, traffic limitations, and other such measures.

In 1974 compared with 1973 we will achieve a 5% reduction in consumption. In 1975 our new measures will reduce consumption even further. We must in any event compensate any price increases by reduced consumption in order to achieve a trade balance.

Genscher: I agree with the Secretary of State’s political analysis of the current situation. There is a great shift in political power underway, and I see considerable danger to the political structure of the industrialized democratic countries, and for the LDCs. We should however seek cooperation with producing countries and not confrontation. We cannot confront them now. The Federal Republic has an energy program, including rationing to restructure energy consumption, but this will take time. Changes in prices are the most effective method for doing this. We welcome the September 17 Council decision of the Community to establish an EC energy policy and the September 20 decision of the Energy Coordinating Group.

We must carry out a program of cooperation that goes beyond words. Producers may say that such cooperation is confrontation, but [Page 40] they will not really consider it as such. They must realize that we will stand together.

We must not cooperate by sitting together like rabbits waiting for the snake to strike. The EC energy policy is an important element in this. It is not an energy program, in itself, but a way of insuring that national energy programs are coordinated.

Apel: I have five supplemental comments to Minister Genscher’s presentation. First, the sum of net transfers of petrodollars to Arabs is not such a terrible number in relative terms. I do not share Mr. Healey’s concern that this could trigger a crisis for our economies. There is however a political danger involved. In addition, even before the oil crisis some European countries had lived beyond their means, and this has increased the precarious balance among industrialized nations of the West in the monetary field. Some countries try to solve the problem in a rational manner by redistributing resources within the economy, but others instead let inflation run its course. The Federal Republic was in better shape than others before the oil crisis. But inflation is a major problem, which could lead to social unrest, and is a threat to our political structure.

Second, it is foolish to believe that industrialized countries can each move in its own way. Solidarity is essential, but it is not a one-way street. There have to be economic and political objectives as well as interim financial measures.

Third, I agree with Den Healey. I agree we should first solve urgent problems, leaving some important problems for later. But as I have learned from the futurologists, we must tackle problems early if we are to have an effect on the future outcome.

Fourth, it is of course foolish to try confrontation with producer countries, because our objectives are not realizeable in this way. We can only do what is possible. Whatever we do, there should be no front drawn between the United States and Europe. The EC common energy policy is not in any way a reservation on cooperation with the United States.

Fifth, I have listened with great interest to the United States proposals and have several initial reactions. We can only succeed internationally if our own house is in order. In addition, world trade must continue to prosper. As for recycling, we must perhaps use as many approaches as possible to solve this problem. Finally, to the question will we be able to cooperate technologically, this may seem as seeking a miracle to some, but we must begin to believe in miracles.

Kissinger: There seems to be substantial agreement on several points. Demand restraint is desirable, although there may be various ways to bring it about. Solidarity is essential in many areas.

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We have no theoretical preference for a single all-embracing approach. We can develop new institutions or utilize existing ones. There is some merit in the overlapping institution approach suggested by Denis Healey. The worst way to proceed however is to take only a little bite, leaving the rest for later. We must agree on the gross magnitude of the problem.

The facts are that the deficits are large and growing, and they cannot be limited by unilateral actions. The French approach to demand restraint would be increased exponentially if followed by all. Producers would then be faced with a major cutback.

The existence within our group of certain countries that cannot reduce their deficits to tolerable levels is bound to produce catastrophic consequences. They can be addressed by the concerted actions of consumers or by involving the producer countries. The latter course would produce a massive shift in political leverage against us. Therefore, our preference is for the first alternative, concerted action by consumers. This is not the rich against the poor, but the rich producers against the industrialized countries.

What we need is financial solidarity to strengthen cohesion among us. The least developed countries in contrast need broader help through international institutions.

I will just add that how the European component is organized is up to Europe. Nothing in our proposals is inconsistent with a European approach. It is up to Europe how they wish to participate in broader consumer cooperation.

Healey: Regarding conservation, if we compare various countries, the U.K. is already down 9%, reflecting a drop in industrial production. Moreover, the U.K.’s per capita consumption is about one-half that of the United States because we tax energy consumption heavily. The United States has a long way to go on the conservation front, but perhaps if we talk of consumer cooperation, it could help the United States to act.

Kissinger: We are the principal villains.

Healey: The LDCs are hurt most in relative terms. But none of the LDCs at the Commonwealth meeting9 support the white Commonwealth countries view that oil prices are too high. They see the situation as legitimate exploitation of market power rather than unfair use of monopoly power. They will not therefore help get prices down. At the same time, they cannot finance their deficits, even with the Witteveen [Page 42] facility,10 which is quite small. Come Monday morning11 we will all be in the same boat vis-à-vis the LDCs.

Regarding the trade bill if we are to generate public support in the energy field, especially on proposals that will come to be known as U.S. initiatives, you must pass the trade bill.12

Kissinger: There is a very good chance to do this. We are pursuing highly diplomatic negotiations with Senator Jackson, and it looks hopeful.

(Break for Coffee)

Kissinger: Let me now present our ideas in more specific terms. We will distribute a paper with major headings of possible cooperation.13 We are not asking for agreement now, but perhaps by the beginning of January we can agree to parts or all of this program. We can however set in motion a high level study group at this meeting, and then meet again in 4–6 weeks.

The demand restraint and financial solidarity programs presented here are necessary to avoid the political and economic dislocations we described earlier. The program is not just related to oil price policy, since it will become even more essential if prices don’t come down.

This program does not deal with LDCs, which we feel should be addressed in the IMF or other broader institutional frameworks.

There are three major parts to our proposals:

First, demand restraint, aimed at a collective saving in oil imports of 3 million barrels per day below the 1974 level. This amounts to 7–10%.

Second, a degree of financial solidarity in which participating countries will pledge some $15 billion per year to a common trust fund, [Page 43] which would be cumulative through the oil crisis. The fund would be used as needed for loans to participating countries suffering from hardship from oil prices, and to finance research and development to reduce dependence on imported oil. I repeat that if Europe wants to work out similar programs on a regional basis, this would be totally consistent with our proposal.

Third, developing economic relations with producer countries. This would include two elements: an attempt to build a dialogue with producers concerning various policies, and the preparation of countermeasures if producers should choose a deliberate policy of economic pressure against us.

Perhaps, in developing such a program, we could agree to a first meeting at senior level in October, and later move to the new OECD Energy Agency developed within the Energy Coordinating Group. But we are very open to ideas concerning procedural matters.

Simon: These proposals are not meant to be an end product. The 3 million barrels per day figure is somewhat arbitrary and perhaps should be 4 million barrels a day or larger. There may be some merit in developing percentages by countries. The United States should bear its proportionate share, and each country should be able to use whatever means it desires to reduce demand.

As for the $15 billion trust fund, it would be call capital and not mandatory contributions.

Healey: Shouldn’t contributions be based on the share of petrodollars received?

Simon: I would want to think about that, and not dismiss any ideas out of hand.

Healey: There are serious risks in attempting a comprehensive program under a single institutional umbrella. This paper attempts to do that. If this paper is leaked and it is said that there was consensus on the proposals we will have a major problem. The U.K. has already come down almost 10% in its consumption. Some in Europe would expect the United States to do all of the 3 million barrels per day. It is therefore uneven to state that there should be solidarity with respect to the degree of cuts.

As for financial solidarity some, including myself, subscribe to an IMF approach, although it would have to be larger than the Witteveen facility. Such an approach, at commercial rates, could be acceptable to producers. The U.S. proposal before us, if it makes any sense, would have to concern recycling, and then contributions would have to be proportional to the receipt of recycled funds. In this circumstance, it would appear analogous to the recent U.K. scheme to compensate tourists who go bankrupt abroad. It would seem to me there are better ways to handle recycling.

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Finally, concerning relations with producers, we should explore ways to cooperate, but there are many disadvantages to presenting this as a three-month program. It gives the appearance of confrontation.

Apel: The recycling of oil money is an important question. Do you intend to add a 4th or 5th part to your program to develop common ideas about the problem of recycling? This interim financial scheme does not solve the problem. We must also include economic policies.

Simon: This proposal complements what is already happening now. The private market has performed marvelously. Commercial banks and the Euro markets have been able to absorb the inflows. As for Minister Apel’s question, this financial solidarity needs to be coupled with economic solidarity.

Healey: Is this solely to secure recycling?

Burns: Let us drop the term recycling, and use your analogy, an insurance scheme . . .

Healey: I don’t want to drop recycling. I believe the recycling flow will not match deficits. Some countries have good credit. But some, and Henry called Italy a potential LDC earlier, may not. My Government believes we must deal with recycling.

Simon: The basic problem is oil prices. This proposal is a mechanism to help in a secondary way to redistribute funds in the recycling process.14

Healey: But this looks like any other financial proposal.

Burns: What if it is? Does it have merit as such?

Healey: No.

Burns: This is a new proposal to me as well, and I have questions about it. But it does deal in some way with recycling to help redistribute financial flows among this group of countries.

Healey: If taken seriously, the basis for subscription to this fund would have to be made on recycling. I have circulated quite a different proposal for OPEC countries to deposit funds in an IMF facility. Then the IMF, by what other method, could distribute the funds to countries that need them.

Fourcade: I have three comments:

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First, we are emphasizing great concern because of the disorganization in the financial system. It seems to me better to go in Minister Healey’s direction, to use the IMF for recycling. How would this new mechanism proposed here function vis-à-vis the IMF?

Second, does this fund presuppose a common energy policy among us? The two are not necessarily the same.

No matter what the figures are for recycling, the size of the sums involved indicates that we must use all means available: private markets, bilateral arrangements, and existing institutions. It would be better politically to use existing institutions than to create new ones.

Sauvagnargues: One point is not clear to me. Will the new insurance scheme be linked to participation in the new energy agency of 12?

Kissinger: As this paper is written, yes, but that is a soluble problem.

I would like to make two points. First, I fail to understand the argument that if consumers organize, this is confrontation. Twenty years from now, no one would understand if 800 million people in the advanced industrialized countries stood mesmerized while 50 million people in certain producer countries control the situation.

Second, I make no secret that I am not an economic expert. But the intention of creating a financial institution is not technical, but political. For the less developed among the advanced industrialized countries, there are two possibilities: to be financed by the OPEC countries, or to be financed by us. The new institution would help those of us more vulnerable.

We will welcome OPEC participation with regard to the less developed countries of the world outside of our grouping. But we want to avoid the kind of crude maneuvers that Libya tried in Italy last year that could have major consequences for us. To accomplish our aims, other proposals might meet your economic concerns. Perhaps we can relate to recycling. This is secondary to the question of who manages the deficits of the weaker members among us.

Healey: It is a political action to sidestep existing institutions. The IMF has taken on this objective. We have already incurred risks by holding this meeting. We should limit the scope of our activities, in treating world problems à cinq. We should hive off as much as possible to broader groups. There are big problems in developing all issues among us by January. We should try to identify the problems, but not appear as a repository of ultimate wisdom.

For recycling, the IMF, the earlier German proposal for an Arab development bank, etc. should be considered.

[Page 46]

We risk damaging the unity of the West if the five of us try to solve problems to the exclusion of others. We should use existing institutions as much as possible.

Simon: The politics and the economics are inextricably linked.

Sauvagnargues: We wish to have a certain degree of solidarity in energy policy, perhaps not identical policy but concerted policies. This paper stresses demand restraint in a good way. But I agree with Minister Healey that we should concentrate on identifying the problems. We agree that demand should be restrained and that these actions should be concerted.

Apel: I agree we can only talk about the problems and not put solutions on the table. There are procedural problems with this group, as there were with the finance ministers last time. Otherwise, we will not only have confrontation with producers but with other industrialized countries as well.

As for demand restraint, we are doing this already, mainly through use of the price mechanism. Each country should choose its own path.

On financial matters, I agree there is a problem of solidarity, and we need to concert among the Nine15 as well. But we should have no illusion about the magnitude of the problem. This fund, if it comes about, is only a temporary emergency measure.

Re producer countries, we must be careful to avoid confrontation. We must respond to common problems created by OPEC countries in a measured way.

In summary, economic relations with producer countries is the most difficult issue, and it is here that we are on the brink of a volcano. The other two headings—demand restraint and financial support—have technical problems which the Finance Ministers can address tomorrow.

Kissinger: As for relations with producers we have no concrete proposal. I will say however that we will be dancing on the edge of that volcano with or without a concerted policy.

Sauvagnargues: It will be difficult to deal with the recyling problem without linking it to the relationship with producers.

Simon: Petrodollars will reflow in any event. They will continue through all the mechanisms we discussed earlier. This proposal just redirects some of that reflow.

[Page 47]

Kissinger: The fundamental problem is whether the industrialized consumer nations will have a common conceptual approach, and a common emergency fund is of decisive importance in this respect. Whether OPEC should participate is of profound political consequence.

As for dialogue with the producers, unless we know what we want, producers have the advantage in dealing with each of us on a bilateral basis. If we have a common conceptual approach, then we can have an effective dialogue with the producers. We are all having individual dialogues with producers now. We need a concerted approach.

As for LDCs, we can leave this problem to broader institutions. We do not want a small club to run the world, but we do want a club to run our own destinies.

Kimura: The United States intention to develop solidarity is worthwhile, but I have several comments to make. It is desirable to conserve resources. In Japan the economic structure is being adjusted on the basis of a long term strategy. But a 3 million barrels per day reduction, pro rated, would not be desirable, particularly with regard to the oil producers.

Financial solidarity should be viewed in the longer term context of recycling. I do not know whether producer country contributions are workable. Such an approach would be difficult to achieve.

Healey: We all want as much common action as possible. But we want to pursue as much as possible in existing fora. We should not concentrate our efforts in this core group of five.

We want to restrain demand but we will never reach agreement on the 3 million barrels per day. Similarly with the fund, it is not worthwhile unless directed to recycling of dollars. I reiterate that I support an IMF approach in order to avoid having to agree on quotas and contribution shares here. This would be as difficult as burdensharing within NATO. There is a better chance for progress in the IMF.

Regarding confrontation, we must take account of how others will react. If we appear to be acting too precipitously, it will provoke others.

Simon: I sometimes believe in miracles, and the ability of people to agree on common objectives. We agreed recently to emergency sharing under a reasonable system.

Healey: I have had much experience in burdensharing in NATO, and after 20 years we still don’t agree even on the basis for calculation.

Apel: But this isn’t the question. The real question is more profound: Do the 5 of us here want common action to secure the future situation, or are we just going to muddle through? This is a farreaching question.

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Sauvagnargues: Industrialized countries, not only the 5 but all, must manifest solidarity. This must also lead, however, to dialogue with producers. All of these mechanisms are palliatives if these two steps are not taken. I agree with Secretary Kissinger that the organization of relations among consumers is not confrontation with producers. But the kind of organization makes a difference. And for this reason, we may wish simultaneously to slow down specific joint approaches by consumers, and to make a first approach to producers. This would not be dangerous, and at the same time we could continue strengthening solidarity among consumers.

All of the chapter headings are interesting and constructive. The first thing, and I agree with Secretary Kissinger, is to decide what we want. We must define our goals.

Kissinger: I agree with the question put forward by Minister Apel. However unsatisfactory our proposed answers might be, the question remains.

I would like to raise two things before Minister Genscher has to leave. Where do we go from here and what do we say to the press?

We don’t need to reach conclusions at this meeting. We could agree to meet again in 4–6 weeks time or to keep in contact.

Healey: We should not indicate to the press that we plan another meeting. It would be unwise to have another meeting until officials can see if we can agree on some issues. If we can agree on financial measures tomorrow, along the lines of my proposal, this would be an important step. As for demand restraint we should not announce targets unless we are sure of obtaining results. We should have another meeting before Christmas, but 4 to 6 weeks may be too short a time.

Kissinger: Officials should be in touch with each other to see if a basis exists for another ministerial meeting.

Sauvagnargues: There is a danger in setting up a standing group of 5. This kind of meeting is useful but we should not have a standing group. This is an informal group, not a directoire. We will keep in official contact.

Healey: We should be very cautious about the proposal for a trust fund.16 Some of us are not at all attracted by it. If the poorer countries [Page 49] think the rich are setting up a mutual aid society, we will have a difficult situation. It will be like Greenspan setting up a special fund for the stock brokers.

Kissinger: We will give no briefing on the substance of our proposals but merely state that we have reviewed the problems facing us and have had a general discussion of the categories of possible solutions.

Simon: We will be asked about this in the IMF briefings next week and we should keep general in our response.

Apel: Can we agree that there will be no briefing today and tomorrow.

Simon: We can discuss that tomorrow.

Genscher: We will do no briefing at all.

Kissinger: We can say that we discussed generally the subjects of conservation, financial measures, etc. We had an exchange of views but reached no conclusion, and contact will be maintained. We will make no mention of the paper we circulated.

Sauvagnargues: I will say there was an exchange of views on problems in the energy field. We can say nothing more until we brief our Community partners.

Kissinger: It is not in our interest to start public debate about particular schemes. We will not put forward our scheme.

Healey: The Germans have already put forward a scheme for an Arab investment bank and I have publicly put forward my IMF proposal. I assume we can pursue proposals already on the record.

Simon: We have problems with the size of your (Healey) scheme.

Sauvagnargues: It would have political impact if we discuss the specifics of such proposals, particularly if we do not mention it in the context of a dialogue between producers and consumers.

Kissinger: At regular briefings, we have said nothing. It may appear more ominous to ignore the question of consumer-producer dialogue.

Healey: It would be easier if you would call off Operation Candor.

Kissinger: I wish you would say that publicly.

Kimura: We have no choice but to meet the press. We will present the Japanese position, nothing else.

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Kissinger: Fine, as long as this does not become a critique of U.S. proposals.17

(Meeting ends—7 p.m.)

  1. Source: National Archives, RG 59, Records of Henry Kissinger, Lot 91D414, Box 21, Classified External Memoranda of Conversations, May–November 1974. Secret. The list of participants is marked Secret; Sensitive. The G–5 Foreign and Finance Ministers met in Washington and Camp David September 28–29.
  2. The annual meeting of the World Bank and International Monetary Fund opened on September 30 in Washington.
  3. The French Cabinet mandated a cap on national spending for oil imports.
  4. Not found.
  5. Over the weekend of September 7–8, Simon and Burns met with U.K., French, Italian, Japanese, and West German Finance Ministers and officials in the village of Champs-sur-Marne near Paris. No record of the meeting has been found.
  6. The Energy Coordinating Group met in Brussels September 19–20 and reached agreement on the International Energy Program and on a draft OECD Council decision establishing a new energy agency to implement the agreement. (Telegram 7300 from Brussels, September 20; National Archives, RG 59, Central Foreign Policy Files, D740265– 0526) The final text of the IEP was agreed in Brussels on September 27 by Belgium, Canada, Denmark, West Germany, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, the United Kingdom, and the United States. (Ford Library, National Security Adviser, NSC Europe, Canada, and Ocean Affairs Staff: Convenience Files, Box 48, Energy (2)) The Agreement on an International Energy Program was adopted at the OECD Council meeting on November 15 and signed by the 16 founding members of the OECD on November 18. (Scott, The History of the International Energy Agency, vol. I, pp. 46–57) The Agreement expressed the signatories’ desire to “promote secure oil supplies on reasonable and equitable terms.” It also expressed their determination “to take common effective measures to meet oil supply emergencies by developing an emergency self-sufficiency in oil supplies, restraining demand and allocating available oil among their countries on an equitable basis.” The “Emergency Sharing System” could be triggered by a participating country when its oil supply fell below 7 percent of its consumption during the base period. Furthermore, through the agreement, the participating countries sought “to promote co-operative relations with oil producing countries and with other oil consuming countries” and endeavored “to play a more active role in relation to the oil industry by establishing a comprehensive international information system and a permanent framework for consultation with oil companies.” For the full text of the IEP Agreement, see ibid., vol. III, pp. 405–410. Also adopted at the November 15 OECD Council meeting was the decision on the establishment of the decision on the establishment of the International Agency. See ibid., pp. 405–410. A report on the meeting is in telegram 27328 from USOECD Paris, November 15. (National Archives, RG 59, Central Foreign Policy Files, D740331–0029)
  7. No record of the meeting has been found.
  8. At its September 17 meeting, the EC Council adopted a resolution that represented a commitment to draw up a common EC energy policy. (Telegram 7166 from Brussels, September 18; National Archives, RG 59, Central Foreign Policy Files, D740261–0765)
  9. The Commonwealth Finance Ministers met in Ottawa September 25–26.
  10. The program was established by the IMF to help nations pay for oil imports based on lines of credit from oil producers. H. Johannes Witteveen was the IMF’s Managing Director.
  11. September 30, the first day of the World Bank and IMF annual meeting.
  12. Passed in the House of Representatives, but stalled in the Senate by impeachment proceedings, opposition from labor groups, and debate over whether normal trade relations should be extended to non-market economies that restricted emigration rights, the 1974 Trade Act would, among other things, provide U.S. representatives with the authority to negotiate trade deals in the Tokyo Round of the General Agreement on Tariffs and Trade launched in September 1973.
  13. The paper, “Illustrative Proposals,” undated, begins: “It is agreed that plans for a comprehensive economic program should be drawn up as quickly as possible for implementation not later than January 1, 1975. A major goal of the program is to establish a framework for cooperative actions that would have the effect of reducing the price of oil in world markets.” The paper then described the elements that “should be considered for inclusion in the program.” It is attached as Tab F to a September 25 memorandum from Enders to Kissinger. (Ford Library, National Security Adviser, Presidential Subject File, Box 1, Camp David Meeting: State Briefing Book 1)
  14. The third part of the paper, under the heading “Economic Relations with Producing Countries,” proposed that “economic relations with producers would be reviewed in an effort to identify additional bilateral or multilateral producer/consumer dialogue, oil company policies as regards pricing and the distribution of liftings, import and export policies, offsetting measures to price increases by producers, export credits, and loans and policies of international financial institutions.”
  15. The nine members of the European Community: Belgium, Luxembourg, Denmark, France, West Germany, Italy, Ireland, the Netherlands, and the United Kingdom.
  16. The “Illustrative Proposals” paper recommended, under its second heading “Financial Solidarity,” that “participating countries as a group would agree to provide as needed funds totaling up to $15 billion a year to a Common Trust. This obligation would be cumulative and would continue for the duration of the oil crisis. These funds would be made available for the use of the Trust at such times and in such amounts as might be needed for: 1) loans at market rates of interest with maturities of up to seven years to participating countries suffering economic hardship as a consequence, direct or indirect, of high world oil prices; 2) investment in energy R&D projects which promise to provide a significant reduction in the group’s dependence on imported oil.”
  17. When asked the next day by Ford about the Camp David meeting, Kissinger replied: “I told you they could turn us down now. They didn’t. The Germans were 100%. The French were openly okay but said we had to take steps with the producers. The Japanese made a big speech that they can leak with the Arabs but they will wait and see. The British were bad. They said okay but we finance. Labour is cowardly.” After comparing the British Labour and Conservative Parties, Kissinger continued: “The West is not strong; only the U.S. is. The Japanese are not weak, just treacherous. The Germans were very good—especially Apel. The British didn’t want to pay money or cut consumption. I said, with Apel’s support, that there is only one issue; whether the West would get control of its destiny or whether we would pay a political price to get the producers in.” (Ford Library, National Security Adviser, Memoranda of Conversations, Box 6)