Foreign Relations of the United States, 1981–1988, Volume I, Foundations of Foreign Policy

88. Action Memorandum From the Acting Assistant Secretary of State for European Affairs (Holmes), the Assistant Secretary of State for Economic and Business Affairs (Hormats), and the Director of the Bureau of Politico-Military Affairs (Burt) to Secretary of State Haig¹

Washington, March 25, 1982

SUBJECT

• Linking the Economic and NATO Summits²

Issue for Decision

We recommend you review informally with senior White House officials the linkage between the Summits and ideas for maximizing our leverage at both.

Essential Factors

The two forthcoming Summit meetings are linked in terms of timing, preparation, and substance. Success at Versailles will carry over to Bonn; conversely, the way we prepare the NATO Summit issues will affect the outcome of Versailles.

The issues at Versailles will probably be even more important and more difficult than those at Bonn, but we need significant results from both meetings. The fundamental inseparability of economic and military strength for an effective Western defense should come through in both.

Organizationally, Versailles will concentrate on the economic issues, with emphasis on the ways and means of re-establishing vigorous economic growth in the West. We will want to concentrate political discussion at Bonn, and therefore will avoid a formal political agenda at Versailles. In particular, we do not want unproductive and, even worse, acrimonious exchanges on regional issues (e.g., Central America, the Middle East) on which our views differ sharply from those of our Allies. Insofar as informal and unstructured political discussions do take place at Versailles, they will be an opportunity to set the political context for East-West economic decisions and to prepare the ground for the NATO meeting.

At Versailles, we will seek to:

• Reconfirm the wisdom of a policy to curb inflation and stimulate private sector activity as the best means of revitalizing Western economies;
• Place greater emphasis on policy coordination in pursuit of these goals;
• Obtain a political commitment to resolving problems which face the multilateral trading system and to a productive GATT ministerial this fall;³ and
• Obtain agreement on the objectives of, and a mechanism for monitoring and limiting official credits to the Soviet Union.

The Europeans and Japanese hope to come away from Versailles with assurances that American economic policy will be tempered by due regard for the international effects of monetary and fiscal moves. They will be looking, before as well as during the Summit, for concrete evidence of American sensitivity to their concerns about interest rates and on exchange variability. Japan will be particularly concerned that it not be singled out for criticism of its trade policy.

Aside from reaffirmation of the health and vitality of the Alliance (as exemplified by Spanish entry),⁴ our major objective at Bonn will be agreement on a special Charter on Improved Conventional Defense. Among other things, this will include:

• Commitment to achieving a significantly improved conventional defense posture within five years through improving forward defense by increasing readiness of reserve forces, enhancing reinforcement capabilities, maximizing the effectiveness of existing forces, and applying new technologies.
• Shift in emphasis from measures of defense input to defense output while reaffirming the commitment to the minimum of 3% annual real increases.
• Resolving to devote more resources to defense as the economic situation improves.
• Strengthening the existing force planning process.

Before and at Bonn, our Allies will be seeking evidence of renewed American commitment to arms control, most specifically as it relates to the opening of START and to the U.S. approach to nuclear arms negotiations. We, in turn, will be emphasizing that greater Western solidarity towards the USSR, including on economic questions, would help us on the full range of East-West relations, including moving ahead on geopolitical issues and arms control.

If we cannot produce the assurances which the Allies seek on U.S. economic policy, we may have great difficulty in achieving our East-West economic objectives at Versailles and our defense objectives at Bonn. The Allies might take the line that the economic outlook prevents them from restricting trade with the East or undertaking a commitment to devote more resources to defense in the years ahead.

These factors suggest that we emphasize the following in our pre-Summit preparations:

• Exploiting any economic policy decisions between now and June, especially on reducing the prospective budget deficit, to convince the Europeans and Japanese that we are responding to their economic needs, and to seek some quid-pro-quo either in the Versailles or Bonn context.
• Pushing hard for agreement on a mechanism to monitor and restrict the volume and terms of official credits and credit guarantees to the Soviet Union.
• Staying with our firm approach to the Soviets on geopolitics and arms control, and continuing to seek Allied support.
• PM believes that we should impress upon appropriate European leaders that Allied cohesion on East-West economic issues would facilitate movement by us on arms control, particularly START. Specifically, agreement by the Europeans at Versailles on a mechanism to monitor credits to the East would allow us to give greater prominence to arms control at the NATO Summit. We might wish to be even more precise with Schmidt and suggest that we would be willing to announce before the April 18–23 SPD Party Conference the opening of START if he were to promise to work for Summit agreement on a credit monitoring mechanism. PM recognizes that given the pace at which domestic pressures are building for START, we may not be able to secure much from the Europeans through such a linkage, but believes the effort nevertheless worth making. EUR, EB, and S/P do not believe that we should link the question of credits for the Soviet Union to progress on arms control, because that could make the commencement of START hostage to resolution of other difficult issues and would not be credible to the Europeans. However, in pressing very hard for agreement on credits, we should point out that the U.S. regards limiting Western credits to the USSR as an urgent element on the Allied agenda, one which is essential in establishing an acceptable East-West balance.

To convince our Summit partners of our willingness to coordinate economic policies, an end to the current stalemate with the Congress, leading to significant reductions in the projected deficits for 1983–86, is fundamental. If an “oil import fee” were part of the budget package, it would have particular appeal to Europe and could be used to extract some concessions on energy security. However, this issue is and should remain primarily a domestic one. In fact, introduction of foreign policy concerns prematurely could thwart achievement of domestic political objectives. Nevertheless, we should ensure that senior officials at the White House understand the potential benefits of any eventual budget compromise for the President’s success at the two Summits.

Recommendation

That you make the points in the attachment to senior White House officials.⁵

1. Source: Reagan Library, Executive Secretariat, NSC Trip File, Summit File, NATO Summit/Linkage 1982; NLR–755–13–24–5–8. Secret. Sent through Eagleburger, who did not initial the memorandum. Drafted by George Ward Jr. (EUR/RPM); cleared by Niles, Thomas, Ray Caldwell (EUR/RPM), Theodore Russell (EUR/RPE), Marshall Casse (E), Dobbins, and Kaplan, and in draft by Gompert. Ward initialed for all clearing officials except for Dobbins. Bremer’s stamped initials appear at the top of the memorandum. A stamped notation indicates that it was received on March 25 at 8:38 p.m.
2. The Versailles Economic Summit meeting was scheduled to take place June 5–6; the North Atlantic Council meeting was scheduled to take place in Bonn, June 10. For additional information about the respective meetings, see footnotes 2 and 3, Document 104.
3. See footnote 11, Document 63.
4. Documentation on Spanish entry in NATO is scheduled for publication in Foreign Relations, 1981–1988, vol. VII, Western Europe, 1981–1984.
5. Attached but not printed is a set of undated talking points. Haig did not approve or disapprove the recommendation. Under a March 30 memorandum, Haig sent the President a paper, which he described as “a framework for approaching both Summits in a coordinated manner.” He also wrote: “Your European trip will be a major foreign policy event, and can set the framework for Allied economic and security cooperation for years to come. The international institutions established in the immediate post-war period need modernizing. Your participation in the June Summits can energize this process.” (Reagan Library, National Security Affairs, Office of Assistant to the President Files, Chron File; NLR–812–81–16–6–7) The memorandum is scheduled for publication in Foreign Relations, 1981–1988, vol. VII, Western Europe, 1981–1984.