Foreign Relations of the United States, 1969–1976, Volume E–15, Part 2, Documents on Western Europe, 1973–1976

290. Memorandum of Conversation¹

Bonn, July 27, 1975, 9:50–10:45 a.m.

PARTICIPANTS

• Helmut Schmidt, Chancellor, FRG
• Hans-Dietrich Genscher, Deputy Chancellor and Minister of Foreign Affairs, FRG
• President Gerald Ford
• Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for National Security Affairs
• Lt. General Brent Scowcroft, Deputy Assistant to the President for National Security Affairs

[Secretary Kissinger told stories about Adenauer.]

Schmidt: Confidence and discretion are rare qualities.

These are special paintings. This one is by Nolde. He is not known in your country. This other one has no artistic value, but is by the founder of the German Social Democratic party over 100 years ago. It did not stem from Marxism. He in fact criticized it.

[There was a discussion about the suffrage.]

Schmidt: We had Giscard here yesterday. This is a regular thing. Every six months our Cabinets meet.

Kissinger: What language do you use?

Schmidt: Giscard and I always talk in English. He has a very elegant vocabulary. It is clear to me that in his attitudes toward the U.S. he is different from any French leader you have met.

The President: I feel we have a good relationship. Of course I didn’t really know his predecessors.

Schmidt: He thinks highly of you and Secretary Kissinger.

[There was a discussion of Giscard and the next French elections, and Chirac.]

The President: We had a difficult situation in Congress on this Turkish aid matter. It’s the most irresponsible matter in my 20-odd years in government. The Speaker worked hard with me, but we lost 216 to 206.

Schmidt: [To Genscher] Will you tell the President what Demirel said about Turkish aid?

Genscher: [Translation inaudible.]

Schmidt: May I add a bit about the situation in Turkey? Demirel has only a slim majority and elections are required within a year. Ecevit is considered to be associated with the Social Democratic parties in Europe. He is making a clear threat to overthrow Demirel if there are any concessions on Cyprus. We have tried to dissuade him from this, but without success. So if Demirel is to come forward with concessions, he must be able to have some success with regard to America.

Kissinger: That is exactly correct.

Schmidt: Giscard didn’t understand this.

The President: We tried to explain this to over 300 people in the House, at three breakfasts at the White House. But the Greek-Americans have a very effective lobby in AHEPA. It was more effective in this case than the Israeli lobby. They were intelligent; well organized and emotional.

Kissinger: And there was nothing specific on which to negotiate.

Schmidt: The facts are the Turks are behaving badly, and then there is this dangerous Makarios. Karamanlis is afraid of Makarios.

The President: The Greek-American community kept saying Turkey had to make concessions prior to moving, but for the reasons you gave, it could not be done.

Schmidt: Demirel is a serious man and you should show him you understand his problems.

The President: Papandreou is a very bad influence. If the Greek situation ever went that way, it would be bad.

Kissinger: If we could get a negotiation going, we think it would move fast. The dispute over territory is now between 25% and 32%. The one big problem is that Makarios would have to leave. Ecevit though wants to use Cyprus to break up the Demirel coalition.

Schmidt: Ecevit will even threaten an anti-NATO direction. In Greece also there is a strong current against NATO.

Kissinger: My fear in Greece is the young army officers will be like in Portugal.

Schmidt: Papandreou is a very dangerous man, but very skillful.

Kissinger: He is viciously anti-American. He has an American wife.

The President: Any new developments in Portugal?

Kissinger: Our analysis is that Carvalho gained.

Schmidt: Among the three, Costa Gomes is the most moderate. Goncalves is an idiot. Don’t write that down.

Kissinger: Antunes didn’t go to the last Council meeting for fear of arrest.

Schmidt: Antunes made a bad tactical move at the last meeting by asking for the removal of Goncalves. But the Portugal situation is still not clear. A rightist reaction is not to be excluded after the economic unrest. Even the brave Socialist Gomes won’t be able to govern. No one there understands how to govern, especially in the economy. Even the Communists don’t understand the economy and would have to rely on the outside and I don’t think the Soviet Union is eager for that.

Kissinger: I think if we make clear we would help the moderates but not the radicals, then we have a chance.

Schmidt: Giscard is of your thinking on Portugal—more pessimistic than the rest of us.

More serious is Italy. The Christian Democratic Party is worn out. There are only two people who have a chance—Colombo, who is weak, and Carli, head of the Bank of Italy, who is on his way out. I think we should get the Socialists and Social Democrats to join the Christian Democrats or else the Communists will enter the government.

Kissinger: We are exploring getting Martini, the Socialist, to the U.S. It is a delicate move, though. The new head of the Christian Democrats is an ally of Moro but not strong.

Schmidt: The whole economic situation in Italy, despite the appearance over the last year, is deteriorating. Unemployment will rise, the differences between North and South will grow; the Communists have shown themselves excellent administrators and have detached themselves from Moscow to become more attractive.

If the economic situation of the world were going up, the economic situation in Italy would be drawn up with the rest. If that doesn’t happen, the economic situation in Italy would deteriorate rapidly. But let’s save the economic situation for the broader meeting.

Giscard says what I have been saying since a year ago May. I have kept quiet currently because I too am pessimistic. He says the greatest threat to the West is not the Communists or the Southern flank of NATO, but the economic ability of the West. If it were a political or military crisis, the leaders would get together and act. Since it is economic, we leave it to our Finance Ministers. If we leave it this way for five years, there will be a political disaster. He thinks the Western leaders have to get together to make a last attempt. He thinks it is a dramatic situation.

Wilson is more hesitant because he fears creating expectations.

The President: His situation is different.

Kissinger: He is already in the situation Giscard wants to prevent.

Schmidt: His inflation rate is twenty percent. The Saudis are losing their money at twelve percent because of inflation. How long will they continue that? The British are aware of it—Callaghan is more afraid than Wilson.

The President: Wilson may be afraid of a meeting to expose what the situation is and raise expectations.

Schmidt: Wilson would come, but he is not enthusiastic. This is one topic for the Quadripartite lunch at Helsinki.

Let me speak a few frank words. The leadership here should be by the United States. Your strong leadership is needed, without appearing to do so.

The President: That is difficult. What would you recommend?

Schmidt: The British will have unemployment—it will soon be six percent. In France, it is also too high. Ours is too high, slightly over one million, and by February it could go to 1.5. Don’t take this down. We are an export economy. Our exports to the U.S. have fallen to less than 50 percent over the last year. Our industrial activity is down to 65 percent of capacity. It is the same with France.

The President: Ours is about 75 percent.

Schmidt: My obsession is with the fact that the economic leaders in the U.S.—Simon, Greenspan, and regrettably even Burns—look too much to domestic problems and not to world effects. For example, New York City banks are 3 percent higher, so people sell German bonds back in order to get the higher New York rates. Also the dollar is rising so people seek profit by switching from marks and francs into dollars. So floating currencies—of which I was a great advocate—when the rate is so volatile, could destroy the Western economies.

The President: I read a piece by Laffer, who is opposed to the float. But the American consensus in the United States is to float.

Kissinger: But five years ago they were all for rigid rates. The Chancellor’s point is that the uncertainties of fluctuating rates could undermine political stability.

Schmidt: In all of Europe, the boards of the big industrial companies are so skeptical they do not invest, so employment stays low. My program to create domestic demand—we lowered taxes, made money cheap, we gave investment credit, we held back wage requests by persuasion—didn’t work because foreign demand for goods dropped badly. Domestic demand reacted well, but about two-thirds of the total demand is foreign, so that is the critical aspect. Also, many of the consumers saved rather than investing. Savings are the highest since Kreisler.

The President: The same with us. Heavy investment goods aren’t selling. Housing.

Kissinger: What is your solution?

Schmidt: There is another negotiation coming. If OPEC announces a ten percent price hike—the Shah wants 30 percent—the increase will add to this pessimism. In order to get things under control, we first must show that we want no confrontation with OPEC but we will cooperate to work things out. Second, if we could tell the world we see the dangers eye to eye and will concert our actions to meet it—even if we don’t actually do it.

Kissinger: We will be under domestic pressure for a confrontation with OPEC. Would you explain this to the President and also the need to concert?

Schmidt: We would react negatively in Europe to a confrontation with OPEC. If oil prices go up, it eventually benefits the U.S. and the Soviet Union, who are rich in raw materials. But there is no chance for Europe, who could not stand a confrontation. They need stable prices and assured supply.

If there is any different outlook on oil in Europe, it is in Great Britain, which will soon have its own supply. The Europeans want to come to terms with the energy suppliers.

The President: Is there a negotiating area with respect to price and supply?

Schmidt: Yes, but we can’t join a policy of confrontation. It would so raise unemployment as to be disastrous.

The President: My immediate reaction is favorable to a meeting. Simon is a hard liner. My tendency is to work closely—on the economic side the perception of us working closely would help us with the producers and the Soviets.

Kissinger: But we should prepare carefully so there are results.

Schmidt: We have confidence in Shultz. Simon and Greenspan are domestically oriented.

Kissinger: But Shultz is difficult to use in a governmental body. Could we use a private group.

Schmidt: I agree that a meeting should be carefully prepared. Heads of government are not equipped to discuss such matters without preparation.

The President: I have full confidence in Shultz, but we couldn’t, we use him officially. He has the confidence of the Congress also.

Schmidt: If an economic conference should take place this year, we shouldn’t expect too many results. If we could create the impression we intend to work together and coordinate our policies, that will be enough. It should be done before the real winter comes.

The President: What do you think OPEC will do?

Schmidt: The Saudis will try to retard any such step until the end of the year. Not so with the Shah and Algeria. Of Perez I am not sure—he is annoyed with the United States.

Kissinger: Mostly for domestic reasons.

Schmidt: We are having a study completed now. I think there are differences opening up among the OPEC countries.

Kissinger: If we stick together.

Schmidt: Yes.

Kissinger: We have looked at commodity agreements to see how we could split up the producers.

Schmidt: I think we could separate the poor, non-oil countries from OPEC.

Kissinger: And some non-oil commodity countries. Right now they are all tied up together.

Schmidt: What is the situation in Japan?

The President: We have a meeting with Miki the day we get back. I had a good trip there last fall. I think it was a good trip and it reassured them. Economically, I think they are better off than Europe. They have oil agreements with China. I think they are better off now than a year ago.

Kissinger: The collapse of Indochina has had a more profound effect in Japan than anywhere else.

Schmidt: In what direction?

Kissinger: In a more self-assertive way to separate from the U.S. For the first time they have asked to discuss defense matters at the Prime Minister level.

The President: Yes. With Tanaka, we didn’t discuss defense.

[The party then joined the plenary meeting.]

[Omitted here is discussion of economic issues.]

1. Summary: Schmidt, Ford, and Kissinger discussed Turkey, Greece, Portugal, and Italy.

   Source: Ford Library, National Security Adviser, Memoranda of Conversation, Box 14. Secret; Nodis. All brackets are in the original except those indicating text omitted by the editors. The meeting took place in the Chancellery. According to the President’s Daily Diary, the conversation lasted from 10:00 a.m. until 11:45 a.m. (Ibid., White House Central Files, President’s Daily Diary) A memorandum of conversation prepared by Hartman that covers in greater detail that portion of the talks that occurred after Schmidt, Ford, and Kissinger joined the plenary meeting is ibid., National Security Adviser, Memoranda of Conversation, Box 14. A memorandum of conversation recording a brief July 28 discussion among Schmidt, Ford, and Kissinger on Portugal, energy, and MBFR is ibid. Ford and Kissinger visited West Germany from July 26 to 28.