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

282. Memorandum of Conversation¹

Washington, December 6, 1974, 11:04 a.m.–1:04 p.m.

PARTICIPANTS

• Helmut Schmidt, Chancellor, Federal Republic of Germany
• Hans-Dietrich Genscher, Vice Chancellor and Minister of Foreign Affairs
• Guenther van Well, Director, Political Department, German Foreign Ministry
• President Ford
• Dr. Henry A. Kissinger, Secretary of State and Assistant to the President for National Security Affairs
• Arthur A. Hartman, Assistant Secretary of State for European Affairs
• Lt. General Brent Scowcroft, Deputy Assistant to the President for National Security Affairs

SUBJECTS

• Economic Policy; Energy Cooperation; CSCE; Poland; United Nations; Cyprus

Schmidt: [pointing to painting on the wall of the Oval Office]: Is that an early picture of the White House?

President: It is a picture of what it looked like in the early days. You can see it was very much out in the open.

Kissinger: The Potomac used to come right by here.

President: In those days when the British burned it.

Schmidt: They did? It’s nice to know there were other enemies. [Laughter]

President: Of the present allies. The party seemed to go well.

Schmidt: As a guest, I agree.

[There was a brief discussion of the Turkish aid cutoff amendment in Congress.]

Economic Policy

Kissinger: I told the President something of your impression of the economic meeting. He was interested in hearing your impression.

Schmidt: I am concerned that you might do too little and do it too late. I listened carefully. The analysis is excellent, but I am not convinced of their tendency to hold back and wait. My impression is that you are prepared to step in if you see a deterioration.

President: That is correct. I didn’t want to talk in front of all of them. I decided ten days ago that a reassessment is required—and I asked Greenspan to do that. Yesterday I got the rough options. Today it is being announced that unemployment would go to 6.5%. It will go up farther next month because of the coal strike. The options are: First, a 20–25¢ gas tax, which would yield $17–18 billion, tied in with a rebate or reduction for low income families. And we would go from $340 billion to $320 billion for the FY ’76 budget. Second would be an import tax on oil. We would remove the price ceiling on domestic oil to let it rise to the imported oil price. And we would impose a windfall profits tax. That would get the same revenue, but spread the base at which you hit the consumer.

Kissinger: Also it hits at oil imports.

President: I told them to refine these ideas. We maybe could impose a tax at the refineries. But I doubt whether we can cut the budget so deeply. I think those ideas were along the lines you are thinking. It may not be this, but it won’t be just resting on the October plan. We can probably do it in six weeks.

Schmidt: May I make a frank remark? It is a viable scheme for saving oil. The border or refinery tax is a technicality. But I am worried about the economic impact. It doesn’t deal with the economic trend.

It will not enhance the demand for automobiles, and with all those consequences. In my view, you should plan on a deficit and step up the probable expenditure for real capital investment. It would be wrong to increase expenditures to go into private pockets. I think you will face unemployment of 7 to 8% by March. I was impressed by Burns, though he was vague in front of the other people.

President: Burns’ problem is he is jealous of the independence of the Federal Reserve. To get a loosening of the monetary policy I had to tighten federal expenditures. To keep him on board we have to keep at least an appearance of fiscal restraint.

Schmidt: We kept the appearance only and our central banker went along. Burns said he would get the interest rates down.

President: An import tax would add 3 to 4¢ a gallon to gas prices. It would spread the burden to [blank in original] and other industries.

Schmidt: That is good for that part, but now we face the prospect of a worldwide depression.

[Omitted here is discussion of energy cooperation, CSCE, Poland, the United Nations, and Cyprus.]

1. Summary: Schmidt, Ford, and Kissinger discussed economic policy.

   Source: Ford Library, National Security Adviser, Memoranda of Conversation, Box 7. Secret; Nodis. All brackets are in the original except those indicating text omitted by the editors, and “[blank in original]”, added for clarity. The meeting took place in the Oval Office.