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

68. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Ford¹

Washington, April 30, 1975.

SUBJECT

• Review of the US Approach toward Enhancing the European Contribution to the Defense of NATO

Congressional review of the FY 76 Defense budget will once again raise the matter of US troop strength in Europe, and particularly the issue of how our NATO allies can be encouraged to assume more responsibility for the defense of Europe. The NSC Defense Program Review Committee (DPRC) has recently completed a review of our approach on this issue.

Background

For several years now Congress has felt that our allies should increase their contribution to NATO’s defense by assuming more of the costs associated with the US troops stationed in Europe. This conviction has resulted in repeated calls upon our allies to offset the balance of payments drain resulting from our troop deployments in Europe and to reimburse us for the added budgetary costs of stationing our troops there rather than in the US. The highest priority has been given to balance of payments relief, and in 1974 Congress enacted the Jackson-Nunn amendment which directed that US force levels in Europe be reduced by the same percentage that our allies failed to fully offset the US FY 74 military balance of payments deficit in NATO Europe. (Through the cooperation of our allies, we have been able to comply with the Jackson-Nunn amendment and avoid invoking the troop-cut provision.)

The world economic situation has changed dramatically since Congress began demanding US balance of payments relief. Most importantly, the end of fixed exchange rates and of official dollar/gold convertibility has undermined the whole rationale for seeking relief in a single component of the overall US balance of payments, such as NATO military expenditures. Furthermore, general inflation and higher oil costs have depressed the allied economies more severely than our own, and added substantially to their balance of payments problems. Finally, the allies have increased their defense spending in recent years in real terms, while ours has declined.

We want to encourage our allies to contribute more to the common defense of Europe. But seeking this contribution in the form of an offset for US balance of payments costs no longer makes much sense. We need to seek Congressional support for an approach to the Alliance which encourages a more meaningful contribution from our allies.

A New Approach

We have just completed an interagency review which has examined what form an enhanced European contribution might take. This examination focused on improving the “burdensharing” concept associated with NATO defense. Under this concept, the contribution of our allies to the common defense would be judged primarily by their willingness to increase the size and quality of their own forces, and only secondarily in terms of offsetting US troop costs. This would include efforts by our NATO allies a) to increase their own defense expenditures; b) to undertake “force improvement” programs to upgrade their own military hardware; and c) to eliminate the costly overlap and duplication that exist in virtually all areas of NATO activity (through so-called “rationalization/standardization” efforts).

Despite the unanimous agreement that we get much more benefit from emphasizing these force improvement efforts with our allies than we do from focusing on balance of payments offset, all agencies also agree that we will have to bring Congress around to this view slowly. Thus, the interagency review concluded that we should adopt a mixed approach in dealing with both our allies and Congress on the issue of enhancing the European contribution to NATO defense. To our allies, we would emphasize the three elements of the improved “burdensharing” concept that relate to their own forces—increasing the percentage of their GNP devoted to defense, eliminating overlap and duplication within NATO, and undertaking force improvement programs. With Congress we would emphasize that seeking balance of payments relief from our allies no longer makes sense in economic terms and in any case is much less important than allied efforts to expand and improve their own forces. US troops are in Europe to protect US security interests and cannot safely be withdrawn until European forces have developed to the point where withdrawal can be accomplished without jeopardizing our interests. The force improvement efforts emphasized in the improved burdensharing concept would make a real contribution to this development.

Until Congress has clearly accepted this argument, the interagency review concluded it was important to “hedge our bets” against renewed Congressional interest in offsetting US troop costs through balance of payments relief and budgetary support—the requirements of last year’s “Jackson-Nunn” amendment. We would therefore remind our allies in a low-key fashion of Congressional interest in these forms of assistance and encourage them to place their “normal” military procurement in the US. But we would drop, at least temporarily, insistence on 100% offset of our military balance of payments costs.

An Eighth German Offset Agreement

As yet another hedge it was recommended that we seek a new German Offset Agreement when the present one (the seventh such two-year agreement) expires at the end of FY 75.

With the most US troops stationed there, Germany has been the site of greatest US balance of payments drain. For this reason Germany has traditionally been singled out for special offset arrangements. These arrangements have in recent years included procurement of US military hardware, loans to the US at concessionary interest rates, and FRG funding of the rehabilitation of US troop facilities in Europe.

Germany can afford another offset agreement. It has the strongest balance of payments position in the NATO Alliance. While the Germans will argue (quite rightly) that the economic underpinnings of past offset agreements are no longer valid, they will probably be willing to conclude another agreement for political reasons. As you know, the German Offset Agreements have been popular with Congress, and to drop the concept now could trigger an unwanted Congressional refocusing on the troop strength/balance of payments issue.

The agreement should not, however, be allowed to become a major irritant in US/FRG relations. To insure that this does not occur, it would be useful before initiating formal negotiations to obtain highest level German reaction to the idea of another offset agreement. To obtain this, the interagency study recommends that you send the letter at Tab A to Chancellor Schmidt. Once we receive his reaction, we can decide how we want to proceed on a new German offset agreement.

Recommendation

1. That you authorize me to sign the NSDM at Tab B, endorsing the mixed approach to enhancing the European contribution to NATO defense as recommended by the interagency review.

2. That you initiate efforts to seek another German Offset Agreement by signing the letter to Chancellor Schmidt at Tab A.

1. Summary: Kissinger reported on a recent review of the U.S. approach toward enhancing the European contribution to the defense of NATO.

   Source: Ford Library, NSC Institutional Files (H-Files), Box 59, NSDM 293—U.S. Approach Toward Enhancing the Allied Contribution to the Defense of NATO (1). Confidential. Sent for action. Tab A is Document 285. Tab B is Document 69. A stamped notation on the memorandum indicates the President saw it. Ford initialed his approval of the first recommendation and signed the letter to Schmidt.