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174. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter 1

SUBJECT

  • Reactions in Summit Countries to Your Anti-Inflation Program

We asked US posts abroad to report reactions to your new anti-inflation program.2

Official statements in Summit countries are favorable: The German Cabinet spokesman, the Japanese Chief Cabinet Secretary, and the French Economic Minister all issued supporting statements. Callaghan indicated a willingness to do so.

The exchange markets are, as you know, more sceptical: A Bank of Canada official expresses concern as to whether the US will “be willing to bite the bullet (and to keep biting) on macro-economic policy management.” German bankers and press cite budgetary deficits as the real cause of inflation, and predict that “with real US interest rates still low by German standards . . . pressures on the dollar would be continuing”. French exchange dealers mention the need for the Fed to raise interest rates. Bob Roosa believes that the basic reason the exchange markets are reacting so adversely is that your speech was over-billed: They expected tighter budget controls, higher interest rates, and new measures to stimulate capital formation.

Nowhere among these reported reactions is there a demand for stronger US intervention. Perhaps the demand is there but unexpressed; or perhaps they feel that the pressures are now too great to be overcome by intervention—that only domestic US policies can do the trick.

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British officials are an exception to some of the reactions described above: They seem to set more store on guidelines than the Continental countries; they fear overly restrictive US monetary and fiscal policies; and some of them doubt that domestic US policies, alone, will meet the need—international monetary action is required, as well, in their view. But they are a minority in the overall reported European reaction.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 92, Finance/International: 7/78–1980. Confidential. Sent for information.
  2. Telegram 272339 to all OECD capitals, October 26, requested reports on the response to Carter’s new anti-inflation program. (National Archives, RG 59, Central Foreign Policy File, D780440–1238) On October 24, Carter announced the program, which included reductions in government spending, Federal employment cutbacks and Federal pay limits, regulatory reform and deregulation, opposition to Federal income tax cuts, voluntary price and wage controls, and the submission of anti-inflation legislation to Congress in January 1979. For the text of Carter’s announcement, see Public Papers of the Presidents of the United States: Jimmy Carter, 1978, Book II, pp. 1839–1845. Undated letters from Carter to Andreotti, Callaghan, Fukuda, Giscard, Jenkins, Schmidt, and Trudeau describing the program are in the Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 92, Finance/International: 7/78–1980.