24. Memorandum From Secretary of the Treasury Blumenthal to President Carter1


  • Finance Ministers Meeting in Paris Saturday, April 23, 1977

Under the Chairmanship of Prime Minister Raymond Barre of France (who is also Finance Minister), the Finance Ministers of the U.K. and Germany, the Deputy Finance Minister of Japan, and myself, accompanied by Deputies and the respective Central Bank Presidents, met in Versailles in a private meeting to review major international and economic questions of common concern.2

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The agenda was dominated by international financial issues, replenishment of the IMF, trade and relations with developing countries. All of these issues will be before the Heads of State at the Summit. The meeting, thus, provided a good preview of likely attitudes for London.

1. General

The attitude and atmosphere was cordial and cooperative. The French, German, and U.K. Ministers clearly reflected the political weaknesses of their respective governments, i.e., (a) next year’s elections in France, which the present government may well lose; (b) the extreme weakness and possible short life of the Labor government in the U.K.; and (c) the weakening position of the SPD-Liberal Coalition in Germany, marked by internal dissension and made somewhat more secure only because of the relative disunity among the opposition.

The weak economic situation in France and the U.K. added to the undertone of caution and the willingness to be cooperative. Each of these governments knows it may need help from the outside, possibly from the “economically strong” countries such as Germany, Japan, and the United States.

2. Chronic World Balance of Payments Imbalances and What To Do About Them

The chronic surplus in current account of certain OPEC countries and the corresponding chronic deficits of a number of non-OPEC LDCs, as well as some developed countries in the Mediterranean area and elsewhere were the main sources of long-term concern.

Everyone wishes to treat this issue gingerly so as not to threaten the tenuous quality of world financial confidence. Yet no one has come up with any long-term solutions to what is a potentially very dangerous problem. Most of the discussion accordingly centered on short-term measures—to provide additional loans to the deficit countries and to “recycle” the surpluses from OPEC in one way or another.

There is universal agreement that the IMF/Witteveen initiative to raise $12–14 billion in additional standby credits, with 50% contributed from the OPEC countries, is the highest priority item. All depends on whether the Saudis will agree to contribute at least $3 billion or more. A major effort is going to be made this week to get the basic commitments and to button down some of the details so that this program can be considered as reasonably firm by the time of the Summit.

Some countries are still looking at the OECD “Safety Net” idea3 originally proposed by the United States and accepted by all countries but not approved by the U.S. Congress, as a possible fallback. We made [Page 71] it clear that the chances for Congressional approval for this approach are dim.

3. Trade—MTN and Protectionism

There is a general fear of protectionism and agreement in principle that the Summit is a good opportunity for the Heads of State to counteract the trend. There is, however, no clear view on what specifically should be done beyond a general endorsement of the value of trade liberalization.

Denis Healey implied that the economically stronger countries should liberalize more than the weaker ones, a view which I strongly rejected and which was not supported by other Ministers. Beyond that, a general consensus emerged on the need to focus the MTN importantly on new agreements to limit export subsidization.4 It is felt that this is the new form which protectionism takes around the world and that formal agreement on this question within or parallel with the MTN is perhaps as important as agreement on further tariff reductions and non-tariff barrier commitments.

4. Relations with LDCs

There was fairly general agreement on a common approach on Commodity Agreements and on a cautious though positive attitude toward exploring sensible Common Fund5 ideas. I went clearly on record as opposing the German “Stabex” scheme,6 favoring instead the Commodity Agreement Common Fund or other IMF linked approach. Our viewpoint is likely to prevail although we will hear more about Stabex at the Summit.

There was general agreement on the commitment to the $1 billion added aid program to be endorsed by the Summit.

5. Portugal

The Germans and others signaled their basic sympathies to doing something for Portugal. Chancellor Schmidt will wish to negotiate his country’s commitment with you at the Summit. The other EEC members and the Japanese will come in to varying degrees, following the lead of what the two of you decide.

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The issue will require careful handling with the Germans, who are using it partly to show their displeasure over our attitude toward the German/Brazilian nuclear deal,7 and partly over the method in which the previous administration launched the Portuguese aid program without prior consultation with them. The German attitude in part also reflects some self-serving tightfistedness in that it seeks to maxi-mize Portuguese sales of gold beyond what Soares is presently contemplating.

6. U.K. Attitude

Of all the countries present at the meeting, the United Kingdom is perhaps least in tune with the other countries. To a large extent this reflects the weak internal economic situation of the British. They are pushing strongly and sometimes not too subtly for the proposition that Germany, Japan, and the United States should stimulate more, so as to help countries like the U.K. toward an export-led exit from their domestic recession. They argue implicitly that even a little inflation in the strong economies is not too high a price to pay. This is the reason why they tend to project a gloomier future for the world economy than do the rest of the countries.

This attitude is perhaps the greatest source of potential threat to a unified position on the world economic outlook emerging at the Summit. It is, of course, an attitude to be resisted and it should not be too difficult to do so.

W. Michael Blumenthal8
  1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 21, 5/2/77 [1]. Confidential. A stamped notation reads: “The President has seen,” and Carter initialed “C” at the top of the page.
  2. No memorandum of conversation of the meeting was found; an April 25 memorandum to Blumenthal and Burns from Solomon summarized the discussion. (Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 1, 4/18/77–4/30/77)
  3. A reference to the OECD Financial Support Fund. See Document 6.
  4. Carter underlined the phrase “export subsidization.”
  5. At the end of UNCTAD’s fourth session (UNCTAD IV) in Nairobi in May 1976, it agreed to consider the establishment of a Common Fund to finance a buffer stock program designed to smooth out primary commodity price fluctuations. See Foreign Relations, 1969–1976, vol. XXXI, Foreign Economic Policy, 1973–1976, Documents 304306.
  6. On February 28, 1975, the EC and 46 LDCs signed the Lomé Convention, which includes provisions for an earnings stabilization fund for LDC primary commodity exports, known as Stabex, and other development assistance initiatives.
  7. Earlier in April, in spite of protests by the Carter administration, West Germany had agreed to the sale of nuclear equipment to Brazil. (Craig R. Whitney, “Bonn to Send Brazil Nuclear Equipment, Though U.S. Objects,” The New York Times, April 9, 1977, p. 1)
  8. Blumenthal signed “Mike” above this typed signature.