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FRENCH/US AGREEMENT (Framework for Monetary and Trade Settlement) [2 of 3]
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FRENCH/US AGREEMENT (Framework for Monetary and Trade Settlement) [2 of 3]
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Henry A. Kissinger's (HAK) Office Files
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MEMORANDUM OF CONVERSATION
Subject: Meeting at Azores at Mr. Pompidou's Residence
Date and Time: 13 December 1971; 0845
Present: President Pompidou
Dr. Kissinger
Mr. Andronikof
Major General Walters
Dr. Kissinger: President Nixon has asked me on one hand to discuss
the general approach to the negotiations and on the other hand to make
some concrete suggestions concerning the international monetary.
situation. In fact, he would not want you to feel that these were
unreasonable from the outset, because if there is one European nation
with whom we have special relations, it is France. And if there is
one Chief of State with whom the President feels he has a special
relationship, it is with the President of the French Republic. Your
previous meetings have shown that you have the same general view of
things, even though you may not be entirely in agreement on the details.
Your overall view is similar.
The President feels that we must have a special relationship with France
because the general stability of Europe depends in great measure upon
the general understanding between France and the United States. This
is why the President felt that the first meetings which he will have with
world leaders should be with you. We also believe that divergences or
a confrontation between France and the United States would leave Germany
free to pursue a nationalist policy and other countries might try and play
upon such a rivalry. I tell you this to describe clearly the way President
Nixon approaches the talks he will have with you.
I am not an economist myself. This lack of knowledge is for me an
argument against universal suffrage. The President felt that there would
be some advantage in my explaining to you some of his considerations on
monetary problems that he would like to examine with you more in a
historical than in a strictly commercial context. This discussion may
be somewhat complicated, as I tell you frankly that some of the somewhat
spectacular tactics which may have been used are more related to the
personality of those who favored them. This is the general framework
of the President's thinking on these matters. During your talks he is
ready to tell you that the U.S. will remove the 10 percent surcharge as
well as the measures relating to job credit, and he is ready to do this at
once. Additionally, despite the difficulties that this represents for him,
Reproduced at the Richard Nixon Presidential Library
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he will propose to Congress a change in the price of Gold which you
yourself have recommended a long time ago. He is willing to consider
a realignment of the dollar in relation to the franc of 9 or 10 percent.
Nevertheless, I tell you frankly, and this shows that I am a poor
negotiator, that this is not his last word and he will not stick on this
issue. Apart from this the DM should be located some 4 to 5 percent
above the franc, the yen 5 percent in relation to the DM and the pound
and the lira would maintain their present relationship to the franc.
The exact relationship between the franc and the dollar remains open
to discussion. Either you may prefer to revaluate and we would
devaluate to a certain relationship, or there might merely be a
devaluation on our part to establish an equitable relationship between
our currencies. For our part we would prefer a devaluation of the
dollar of about 6 percent and a revaluation of the franc of 3 percent.
This is not a hard attitude on our part and if you insist, we are prepared
to act alone.
For political considerations it would be desirable for us to reach
agreement on commercial matters. We are certainly not trying to
make difficulties for you. I don't understand these matters well, but
I believe an agreement on farm products and tobacco would be desirable
so we could show that we have obtained something. Mr. Connally has
other ideas on agricultural matters but this is the basis of our position.
Mr. Pompidou: To be frank, lemons and oranges are California and
tobacco is Virginia.
Dr. Kissinger: There is no question for the time being of returning
to convertibility, but we are ready to discuss a long-term system and
in the meanwhile to furnish the IMF with all the means it requires for
it operations.
This is the general attitude of the President. He has asked me to
describe it to you so that you will know in what state of mind he approaches
his discussions with you. We believe, in fact, that if the two Presidents
can agree on such a basis that their meeting will mark the point of
departure of a new international system. Èven more important, it would
be the symbol of the kind of relations which should be established in the
world between allied nations and more particularly between our two
countries.
Mr. Pompidou: If the world were not very complicated, I would ask
President Nixon what assistance he could give France to correct our
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balance of payments with the U.S. It is only balanced at 50 percent
and the European Community is very much in imbalance insofar as
industry and agriculture are concerned especially France which alone
bears the burden of half the deficit.
Overall it is clear that we cannot move in our parities with Great
Britain and Italy. You understand this. This means that neither
Great Britain nor especially Italy, nor France could consider a
differential of 9 or 10 percent in relation to the dollar. Nevertheless,
we can discuss this problem. Questions will arise within the
community. Germany would like a differential of 4 to 5 percent in
relation to the franc. Brandt spoke of 5 percent. I told him that
7 percent seemed necessary to us. He replied that this could be
discussed. It should be easy to find a meeting point, between 5 and
7 percent. Only, that is Brandt's opinion, not Schiller's and I don't
know who has the final word in this matter. I believe that Germany
would nevertheless be prepared to accept a substantial differential
between the pound, the lira and the franc, all the more so if the yen
were even higher. There will therefore be a discussion on figures
and one can with certain reservations look forward to the possibility
of an agreement. A movement of 9 to 10 percent in the dollar is too
much. It is not simply a matter of the reevaluation of the price of
gold but of a devaluation of the dollar in relation to gold. A reevaluation
of gold conceived of as a rise of 20 to 50 percent is out of the question
at this time. Anyway there are different ways to arrive at the figures
if you base yourself on gold or on the dollar which result in a difference
of about 1/2 percent. If you increase the price of the ounce of gold by
2 1/2 dollars you can figure it in relation to 35 (dollars an ounce) that
is 37.5. There is a difference in the way of presenting the matter.
You have the problem of Congress. We know it is not easy. Therefore
the European Community led by France has accepted the possibility of
negotiating commercial measures on condition that Congress approves
devaluation. These negotiations could begin now and decisions could
even be taken now, but they would enter into effect only after the vote
of Congress. This is what Brandt calls the "Junktim". We must,
however, know whether the new parities will be defended. At the
present time no one defends the dollar except others; Germany, France
and the United Kingdom buy it when it is below par. We feel everyone
should defend his currency.
Dr. Kissinger: That is our intention.
Mr. Pompidou: That is very important.
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Dr. Kissinger: Some people believe that it will be easier for others
to devaluate their currencies after the new parities are fixed. We
will be compelled to defend our currencies they say but others may
change theirs.
Mr. Pompidou: The European countries can commit themselves to
defend together their parities for all of the European currencies
collectively and not just individually. As far as convertibility is
concerned it is true that dollars are wandering about almost everywhere.
For a year or perhaps two, certain measures to defend the American
balance will have to be taken. I note however that you would be willing
to discuss convertibility within the framework of a general conference.
Nevertheless measures must be taken to consolidate present dollar
balances on condition that this not become a perpetual consolidation.
It will be necessary to look at the calendar to discuss in a general way
monetary as well as commercial problems. It has been said at the
European community that there would be a "Nixon Round" after the
reelection and I for my part very much hope that this will be the case.
As for the dollar balances remaining, at least over the next 18 months,
the U.S. will be able to deal with them by drawing upon the IMF. After
all, your availabilities are greater than the resources of the IMF.
From a purely French point of view we have made very careful
calculations. A devaluation, even slight, say about 5 percent such as
was discussed at the Community, would create a number of difficulties
in France and would in particular aggravate unemployment. This is
important. The 10 percent surcharge is not too bothersome, for us in
any case. But a generalized deflation would lead to a more difficult
economic situation. I too have an internal situation, and even elections.
We do understand, however, the general interest as well as yours.
There might be some advantage in talking to our finance ministers
before we talk about it ourselves. The monetary questions might, for
example, only be brought up during the afternoon meeting.
Dr. Kissinger: This is also the President's feeling. I would recall
the relationship which we would like to see between the price of gold
and commercial matters. I know that some would object to such a
connection.
Mr. Pompidou: We too.
Dr. Kissinger: Personally, I would have preferred not to see the
two questions connected.
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Mr. Pompidou: I understand this very well. President Nixon would
be agreeable to the decisions resulting from the commercial
negotiations being implemented only upon a decision concerning the
price of gold. The negotiations would not have to wait until an
agreement or a reasonable compromise had been reached on this
subject.
Dr. Kissinger: It's like the case on Berlin. In a practical sense do
you believe that the general framework envisaged by the President is
reasonable?
Mr. Pompidou: It is a reasonable framework.
Dr. Kissinger: The Ministers of Finance might meet this morning and
you would take up the monetary questions only during the afternoon
meeting.
The President also asked me to enquire whether you would object to
his calling me in from time to time to explain certain details.
Mr. Pompidou: I see no objection to that.
Dr. Kissinger: I would also like to tell you that in regard to the Indian-
Pakistan conflict we are hoping for a settlement within the next 72 hours.
We have begun a move to get a possible resolution without any veto from
anyone. We are not against India but the existence of Western Pakistan
seems very important.
5
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MEMORANDUM OF CONVERSATION
Subject: Meeting at Junta Geral, Angra do Heroismo, Terceira, Azores
Date and Time: 13 December 1971; 0900
Present: The President
President Pompidou
Dr. Kissinger
Mr. Andronikof
Maj Gen Walters
President Nixon opened the discussions by saying that he felt that they
had had a good talk that morning and that President Pompidou had
expressed a most perceptive view of the Soviet leaders. What was
important was not SO much their views as what they were like. The
President then said that if President Pompidou found it useful, Dr.
Kissinger could give him on a confidential basis his appraisal of
where the China iniative stands. The President and President Pompidou
had talked together concerning Sino-Soviet relations. They had skirted
the Chinese Soviet confrontation in South Asia that was going on. The
President said that if President Pompidou had different views, he would
appreciate hearing them.
Dr. Kissinger then said that the President had given the background.
His trip had been a chance to explore with the Chinese. It was rather
complicated but we had put a series of propositions up to the Chinese.
They did not have to accept or refuse. We had used intermediaries
trusted by them. After contact was established, the original initiative
for the invitation came more from the Chinese side than from ours.
Vietnam was almost not discussed. Our analysis was that they were
concerned principally by four main countries of which three were their
immediate neighbors. With a common frontier or close by. Before
he had gone, the President had given him detailed instructions to
explore their views of the world situation to see whether there was a
basis for a discussion. He had spent 20 hours with Chou En-lai the
first time and had had 35 hours with him on the second visit.
Dr. Kissinger said that as an illustrative anecdote, on the second visit
there had been a sign at the airport which said, "Defeat the American
Imperialists". He had mentioned it to the Foreign Minister and that
afternoon the sign had been replaced by one greeting the Afro-Asian
Tennis Team.
Reproduced at the Richard Nixon Presidential Library
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Mostly the Chinese feared the Soviet Union, and to a lesser degree
Japan. There were underground shelters in Peking and other cities.
They were not against us. They had showed some of these tunnels
and they were 35 kilometers long. The Chinese were far more
exercised by the million Soviet troops along their borders than they
were by our forces in Japan.
With regard to Vietnam it was our basic impression that the Chinese
would like this to be settled, but they do not know how to go about it
out
with/moving Hanoi closer to Moscow and increasing their feeling of
being encircled.
The President said that in our discussions with the Chinese there
seemed to be two separate problems. We had a whole series of matters
to discuss. They do not and this may complicate the problem. At the
beginning of the evolution of the Chinese situation they had to set the
direction and their difficulty in doing this was understandable. Chinese
policy was affected by three conflicting motives: ideology which was
hostile to us, their requirements for survival and their desire to lead
the third world would often lead them into opposition to both the USSR
and to U.S. and would lead them to zigzags.
The President then asked Dr. Kissinger to explain what was planned
in the way of meetings there.
Dr. Kissinger said the President would have extensive talks with Prime
Minister Chou En-lai and would also see Chairman Mao. It is expected
that he will see Mao twice. It was impossible that he should not see him.
There will be simultaneous meetings at different levels with the experts.
Prime Minister Chou En-lai expects to accompany the President. This
has not been announced. Discussions will be far reaching. There is no
agenda and each side can submit for discussion anything they want. The
talks will be bilateral.
The President then said that he gathered from Dr. Kissinger's talks
with the Chinese that they take the long view. They do not view the
talks as producing immediate results in Taiwan or elsewhere and tend
to regard these talks as the beginning of a long process. In the case
of the Russians they will probably insist upon shorter range discussions
when he goes to Moscow and wilh want decisions.
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Dr. Kissinger said that there was a different style between the
Soviets and the Chinese. The Russians like general statements
that can be interpreted in many different ways. The Chinese prefer
declarations which can be carried out and like to state differences
as well as agreements.
The President then said that the attitude of the Chinese towards their
neighbors can be summed up in this way. The Russians they hate
and fear now. The Japanese they fear later but do not hate. For
the Indians they feel contempt but they are there and backed by the
USSR. The Indo-Pakistan situation fits into their analysis of
developments.
Dr. Kissinger said that on the subject of the Indo-Pak war we had
hopes of substantial progress in the next 24 hours. The issue was
not simply one of East Pakistan. It has appeared to us for months
that India was pressing a settlement of the problem of East Pakistan
in such a way as to make the rest of Pakistan non-viable. For many
months the President has attempted to settle this conflict. Every time
a demand was met it was escalated to create an unmanageable situation.
Our concern in this matter was two fold. If a major country with a
population of 130 million, which has treaty relations with all nations,
can be attacked and defeated by a country which is protected by Soviet
diplomacy, threats and dispositions, this can produce several series
of consequences. In our view such a development could produce a
situation in the Middle East, Iran and Indonesia and the outcome would
be that East Pakistan would have a relationship with India like Bhutan's
and West Pakistan like Nepal's. Our policy was aimed at protesting the
situation in East Pakistan but to prevent the destruction of West Pakistan.
When people accused the President of leaning towards Pakistan while
there were 500 million Indians and 100 million Pakistanis, the reason
is not because of numbers or because we cannot count. If we leaned
towards India, Pakistan would be destroyed and our basic strategy was
to create a legal basis for resisting this when resistance takes place. -
It is diplomatic not military. Then there was the factor of China. China
has to look at the threat of Soviet encirclement through the same methods
used in East Pakistan. Tibet and Sinkiang are vulnerable.
The President then said that in the greatest confidence he would tell
President Pompidou that if in the last 72 hours we had pursued a
policy of abstention, the objective consequence would have been a total
Indian victory. Our strategy was to create enough pressure on India
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and the USSR so that they would not pursue the war to its ultimate
consequences. That was why we had contacted the Security Council
in the hope of saving West Pakistan and we have used our influence
to this end lest the Chinese regard our abstention as collusion and
betrayal. The President went on to say that as we saw it, it was a
struggle between two impoverished countries which would have
repercussions on both the USSR and China. On one hand, if India
and the Soviet Union succeed in destroying Pakistan as a military
and political entity, this can only have a devastating effect in encour-
aging the USSR to use the same tactics elsewhere and if not resisted
here we feared strongly that other nations might become the object of
such tactics. This would very definitely change the balance of power
in Asia if events were allowed to run their course. The Soviet Union
would have dominance over India and Pakistan. This would mean that
the Chinese could only conclude that they might have to pursue a
different policy to avoid similar things happening in their border
areas. A victory of India over Pakistan was the same as a victory
of the Soviet Union over China. The U.S. has treaty obligations to
Pakistan as the Soviet Union had to India.
Dr. Kissinger said that he did not want to mislead President Pompidou.
We did not have a final agreement.
The President said that to sum up, it was a very difficult situation for
us. The long term consequences worried us. If an agreement can be
worked out in which neither the USSR nor China are in a position of
having won or lost, this would be the best solution.
President Pompidou said that as far as the two countries were concerned
India has always wanted to smash Pakistan. Mrs. Gandhi had told him
that if President Shastri had not died at Tashkent, he would have been
assassinated on his return to India. In his view the President of Pakistan
was wrong in not trying to achieve a political settlement in East
Pakistan. West Pakistan would have lost a part of its authority in the
East. Now it had none. Technically, the U.S. had asked for a meeting
of the Security Council in the belief that a resolution could be adopted
by the Security Council and imposed on India and Pakistan. If there
was no veto, he thought the Security Council would follow the major
powers and that would mean a solution adopted by the USSR and China.
In this affair France had only a moral capability. They had exercised
great pressure on Yahya Khan to settle with Mujibur Rahman. He had
felt that he would rather have East Pakistan torn away than give it up of
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DECLASSIFIED
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his own free will for political reasons. He had said that Mrs.
Gandhi had refused to make a gesture and that she was hard like
Mrs. Meir. President Pompidou had told Mrs. Gandhi that there
would be several influences in Bangla Desh and that the Indian
influence would probably not be predominant. She had not believed
him. He wondered whether Communist China was really hostile to
the Independence of Bangla Desh. She perhaps felt she could
develop her influence there better than the Soviets. In any case, if
a solution like the one we had mentioned was possible, he was sure
that there would be no French objection at the Security Council. The
French believed that the Independence of East Pakistan was inevitable.
To conclude he felt that this was another aspect in the struggle between
China and the USSR for power in Asia. There was a Soviet thrust to
the Indian Ocean and this was why he felt that India would have concern
for her own independence and if she is handled gently in the final
settlement, she will ask the U.S., U. K., and France to help her so
that she is not entirely in the hands of the Soviets. The French had
had similar experience elsewhere.
The President said that India may have a pyrrhic victory. One sups
with the devil with a long spoon. The U.S. in the past 15 years had
given India ten billion dollars and for India to take a pro-Soviet stand
was not in India's own interest. There were two important things.
The India-Pakistan adventure shows the importance of not letting the
balance of power get out of hand. A weak Pakistan invites an Indian
attack. We in the U.S. had restrictions on what we could do and the
sale of arms was forbidden. There was interest in maintening the
balance of power in the area. It was important that Pakistan be able
to purchase arms, but not to the point where she could threaten India
or initiate an attack. If France and other countries could help
maintain the balance it would contribute to peace.
With regard to the two ladies, there was one difference. Both were
tough and ruthless. Mrs. Meir acknowledges that she was helped.
Mrs. Gandhi reproaches others.
President Pompidou said that it was necessary to have peace. In the
matter of arms sales he hoped that the President would also say this
to the British who manufactured Pakistan and India. President
Pompidou said that he had not stopped what had been contracted for
and was in the pipeline. He had stopped all new contracts and would
5
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only begin to sell arms again after peace. French opinion had been
very moved by the plight of Bangla Desh. It was not just commercial.
Their chances of being paid were slight.
The President said he understood and had only suggested that it would
be easier to preserve the peace if some way could be found to maintain
the balance and to assist Pakistan on a different basis.
President Pompidou said that he agreed.
The President said that on the economic side, we had more freedom
of action. We would be generous to Pakistan and helpful to India.
The President then said that they might discuss the complicated
economic matters before them. They both knew that the world was
watching them. Without an agreement between them there could be no
real settlement. If the U.S. could not make a deal with Europe then
it would have to continue to float and try to make separate arrange-
ments with other countries. This did not seem to us to be the
preferable solution. He felt that President Pompidou would agree after
the political discussion which they had had that a confrontation between
Europe and the U.S. might be good as a short-term solution but it was
not the best as a long-term solution. There were honest differences
of opinion between the two governments. If they could explore areas
where they could agree and it would be helpful to long-range goals if
they could make progress in economic matters as well. The President
said he would like to begin by pointing out that there was no use in
trying to play games. It was a difficult political problem. He knew
of the French interest in the price of gold. However, if they could
make an arrangement on other matters, he would have greater political
strength and commitments and we could move in that direction. If we
do make major concessions the cries in the U.S. that France had won
would not bother him. In a package agreement France would get some-
thing and we would get something. The French position was that we
must return to convertibility. This was out of the question at this
time even with the expectation of a change of exchange rates. We
could not redress our balance of payments. On the rates of exchange
and revaluation he would like to hear President Pompidou's views.
Dr. Kissinger said that one answer to the question asked this morning
was this. When the basic proposition is approved will we be prepared
to defend the dollar ? His impression was yes and that this was the
purpose of the new exchange parities.
6
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DECLASSIFIED
This document has been reviewed pursuant to Executive Order 13526 and has been determined to be declassified
President Pompidou said he knew that the President expected him
to speak frankly and he would do so. It was not SO much for the
French at the present time a question of the price of gold. There
had been much talk about this. There was the Rueff theory that
the price of gold should be doubled. This was not the question at
present. For the present we should consider the general interest
as between proponents of a liberal economy, that is, the Western
World plus Japan. We should seek to reestablish truly firm parities.
They believed that to return to truly firm parities was really
necessary. There must be a U.S. contribution and the U.S. must
accept a certain devaluation of the dollar in relation to the price of
gold. In the eyes of the French this was in particular because if
the dollar does not move first the problem of revaluation in Europe
is very difficult. This was so because of the problem of the
settlement of agricultural problems and the realignment of European
currencies raises an almost insoluble problem. The Europeans
acted by the wish that the U.S. would decide a certain devaluation of
the dollar less as a concession than as an affirmation that it is on a
new course and will support the new rate. If there was no agreement the
dollar could float forever. There would be no system of fixed parities
for all. He did not know whether the U.S. press would say that it was
a French victory or could prove it. The French interest was in a
small devaluation of the dollar. They had as French a position vis-a-
vis the European currencies. Two thirds of their trade was with Europe.
They felt that first the franc, the pound and the lira should remain in
the same relationship with one another. In the second place there was
the problem of the relationship between the franc and the mark.
President Pompidou said he had talked to Brandt about this and as he
had told Dr. Kissinger, Brandt had said that he was prepared to accept a
5 percent revaluation. This was not Schiller's opinion but Brandt had
said it. For the French this was a minimum. They wanted 7 percent.
Brandt, after hearing this, had said that a discussion was possible.
The conclusion he drew was that the Germans, thatis, the Chancellor,
was ready to accept a 6 percent revaluation between the franc and the
mark. The French felt on the basis of their figures that this was really
a minimum. The President said that the rate was now higher. President
Pompidou replied that it was 12 or 13 percent. President Nixon said,
"The hurts. " President Pompidou said that the 6 percent figure was
really a minimum. The French_did not want to have to consider periodic
revaluations of the mark all of the time. There might be some advantages
but it would really mean a continued rise of prices and salaries by
contagion. That was why when he spoke of the parity between the pound,
lira and franc, they should try and find figures for a permenent settle-
ment. This was why he proposed it and believed we should arrive at
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such a settlement. If the crisis is solved the community countries
would have a common management of their currencies and could
give the central banks a policy of defending the rates and there
would be no distortion between the community currencies. Naturally,
they could only defend them in respect to other currencies if their
parities were also fixed. The dollar and the others. He believed
that insofar as Japan was concerned that it was normal that the yen
be revalued in relation to the dollar as well as in relation to the Deutsch
Mark. He did not believe that it was reasonable for the Japanese to think
that they could always expand their economy at the rate of 10 percent
a year and ask others to continue to buy from them. This was true for
the U.S. and for the rest. Japan must also buy other goods vis-a-vis
the U.S. If they placed themselves on commercial terms Europe had a
deficit. In the case of France this was 50 percent. In consequence
it was theoretically unreasonable for the French to accept a revaluation
in relation to the dollar. Nevertheless they were ready to do so to
arrive at a general solution, but on condition that this meant a real
system of fixed parities within reasonable limits. President Pompidou
felt that the President would find Mr. Heath at least as desirous as the
French that the devaluation of the dollar be moderate and this was even
more the case with the Italians, but they felt that with increased margins
there could be an even smaller devaluation of the dollar. If the dollar
were devalued by 6 percent in its relationship with the pound and lira,
they could bring it back to 3 percent through the margins. Even in this
area, however, the interests of the European States were not the same.
The 10 percent surcharge was much more of a hindrance to Germany than
it was to France. They had, however, established a common line. First,
there should be a return to fixed parities. Second, along with the fixed
parities there should be a certain devaluation of the dollar. Third, all
States must commit themselves to the defense of the new parities and as
he had said, the Europe of the 6 (or 7) would defend theirs jointly.
Finally, there was the problem of convertibility.
Before speaking of it there was the problem of margins. If they are
fluctuating, he believed that one could not avoid a certain broadening of
the margins, but this must remain moderate. Why? There were
general reasons. If the margins were too broad there was the perspective
that there would be a devaluation and revaluation of fact and this would have
to be implemented every 2 or 3 years. For European reasons they wanted
to defend their parities jointly.- They could not leave wide margins between
currencies. There really would be no economic commitment if the margins
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were too wide. In such a situation there would be a drain of all
currencies towards the strongest. This is now the Deutsche Mark.
Just as a dollar standard did not suit him, neither did a Mark
standard.
As to convertibility to gold, this did not exist now as the U.S. had
decided by themselved in 1945. The French understood this. With
regard to the special drawing rights, this was really "monkey
money". It was supposed to be equivalent to gold, but no one would
give you gold for special drawing rights. Perhaps someday they would.
The French were speaking only of convertibility of currency to
currency. He also understood that the U.S. cannot say it is today
returning to that sort of convertibility. There were two reasons.
The first was the balance of payments and this could not be restored
right away. If a solution were found there would be a flow towards the
dollar. The second reason was more durable and this was the existence
of a mass of dollars outside the U.S. in central banks, Eurodollars
which could not be converted into anything from one day to the other.
But the French believed that a joint decision concerning currencies
would have no credibility if it were not accompanied by an affirmation
regarding the goal of convertibility and the undertaking of commitments
showing that convertibility was a real goal and not the moon. Or rather,
he should say Jupiter or Saturn (since the U.S. had reached the moon
and Mars).
Convertibility must be seen as a probable conclusion in a reasonable
time. This would, of course, presuppose a certain consolidation of
dollar balances. In their theoretical concept some assistance to the
U.S. in this affair seems normal and legitimate. He did not forget
that the U.S. had helped Europe and France. Secondly the U.S. by
an appointed day could then supplement its balance of payments by using
drawing rights on the I.M.F. to defend the new parities and absorb the
deficit that may last for some time and progressively reduce the masses
of dollars abroad and gradually consolidate its balances. Two things
would depend on the new parities to absorb excess dollars during a
year or 18 months and thus defend the U.S. balance of payments. With
convertibility it is possible that this would be definitive and would
consolidate the U.S. balance of payments and make it possible for it
to become positive. Outside of the balance of payments the drawing
rights make possible the acquisition of European and Japanese currencies
for the first stage, that is, the defense of the newly established parities.
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To reestablish the excess of the U.S. balance of payments means
clearly to improve the commercial balance. This is one of the
immediate aims of the monetary realignment. It would also lessen
burdens, which as the President had said meant that the U.S. must
lessen its burden or ask for a greater effort from the others. Finally,
there was the question of limiting the movement of capital, because
if this was not done, then there could not be a solid monetary system
even temporarily. If capital moves, even short term, Europe would
have to take measures to protect itself from wandering capital. It
would be best if this were accompanied by U.S. measures to limit the
export of such capital. To conclude, he would like to make a profession
of faith. The U. S. and the French to a lesser extent had the greatest
ability to simply wait. But the real danger was that others might not
be able to wait and we would then be faced with a bad situation in
Germany where Germany could not accept the revaluation of which
they were speaking. Because France is a Western Nation, and he
tells this to all, including the Russians who tend to forget it, that for
the West there is no greater danger than an economic crisis and they
must therefore try and get out of such a situation. This we know for
reasons of German policy rather than for strictly economic reasons.
He knew that this created a problem for the U.S. The French could
not accept that following a devaluation and consolidation of balances
there be ever broadening margins. She could accept that there would
not be immediate convertibility. France is allergic to unemployment.
It would be a major problem for them if unemployment were to increase.
There would be agitation and he had a tough election coming in a year.
It would be worse if he had a poor employment situation and it would
create great electoral difficulties for him. He felt it was in the
general interest of the West to find a solution under which they might
have to accept risks and burdens. From the U.S. point of view the affair
had to be settled either before or after the President went to Peking, or
after the U.S. election. This would be too late. Even if the President
did not agree, President Pompidou felt that he was making many
concessions.
The President said that President Pompidou's analysis was very candid
as he had said it would be. We could and should look at all levels of the
problem. We too were allergic to unemployment. The French rate was
2 1/2 percent. Ours was 6 percent. President Pompidou had put his
finger on the economic story. We could go it alone and make separate
deals, but a general economic crisis with its effects on the U.S. and on
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France, and certainly others, was not in the general interest. It was
not altruistic but in our own self interest to try and make progress at
this meeting towards breaking the stalemate on a provisional basis so that
the group of 10 could discuss these matters and make further progress
later that week.
With regard to President Pompidou's discussion of convertibility they
were the remarks of an expert. It could not be expected that we
could decide such intricate matters for all time at this point. The
question of developing a new monetary system is one which will take
not a few days or hours. It will take a few months or a few years.
When implemented in full, it may take years. President Pompidou
agreed. The President went on to say that we should consider what could
be done now, what problems could be discussed in the future with an
open mind. On the U.S.'s part it was, as the President had been
informed, prepared to give on two major issues. The price of gold
and surcharges. On the other side for this there would have to be a
realignment and that is something that is subject to negotiations. It is
like giving up the surcharge. Many Americans would like to make
progress in the trade negotiations first. He understood that there had
been a discussion of this earlier in the morning at other levels. Secretary
Connolly had said that we would defend the dollar. As to convertibility,
as he had indicated, this is not something that we could even conceive of
now. On the other hand this question as he understood it was along with
others a long-term one and subject to further negotiation. Now the
question before them was whether they might in principle decide that
they can and would move along the pattern outlined. We would agree
to raise the price of gold and give up the surcharge. On the other side
there would be a realignment at a level to be negotiated and some progress
on the trade front and the matter of investments and tax credits.
President Pompidou said that we must not fear words. There was no
question of the dollar becoming convertible into gold but if there is a
consolidation of U.S. balances and the U.S. defends the dollar, then
the dollar is convertible from currency to currency. He understood the
President's reservation on an immediate statement but that is what it
means or then there would be no real defense of the dollar.
Dr. Kissinger said that we would have to buy dollars with other
currencies in order to defend it. President Pompidou replied that this
was correct. There was no other defense. Dr. Kissinger said that
gold was out and President Pompidou said he understood this.
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President Pompidou then said that with regard to realignment as he
understood it there was an area of difficulty. On one hand Dr. Kissinger
said 5 percent and on the other side 10 percent (creeping gesture with
fingers). It seemed to him that this was a matter that should be
negotiated. They could only negotiate on the basis of realities.
Certainly if it was too low it is not realistic and if too high it would not
be realistic for the U.S. For the French this problem was more
important in relation to other European currencies. At the present time
as far as he knew the U.K. always liked to please the U.S. but they
could not go to 10. The Italians would seek to get wide margins. The
tough point in this respect is with the Germans. German businessmen
would like 3 or 4. Schiller too would like 3 or 4. The Chancellor would
go to 5. He himself had spoken of 7. Frankly, he felt somewhere around
6 was possible for the French, the U.K. and the Italians. He was telling
the President this to present his point of view. He could not decide for
the Germans.
Dr. Kissinger said that this would be a 6 percent differential between
the Deutsche Mark and the Franc.
President Pompidou said that to this should be added the devaluation of
the dollar.
The President said that the hour was late and that they should decide
now how they would like to proceed. If they felt that they could reach
agreement that they should come back the following day with a direct
discussion of what is negotiable. He asked if Dr. Kissinger had any
suggestions.
Dr. Kissinger said that as President Pompidou had pointed out we were
not able to decide what the differential would be between the Deutsche
Mark and the Franc. We could perhaps agree tentatively on a rate of
devaluation of the dollar with which other adjustments would take place.
This would set the framework. Perhaps we could discuss the principles
of the trade questions and the international operation of the systems.
The questions of margins and what reserves would be needed for the
operation of the International Monetary Fund, if they could maintain
an open mind as to the ultimate operation of the system. If these
issues were approximately settled in principle, the subsequent
negotiations the following week would put the stamp of approval on
the agreement between the President and President Pompidou.
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President Pompidou said that he would agree although he was not
sure it would facilitate things for all concerned. It was easier for
the U.S. than for him. He felt that the other Europeans and Japan did
not expecially want the two of them to settle the problem but he was
ready to talk and pursue the negotiations to the degree of precision
stated earlier. He would be ready to start earlier in the morning,
say 9:00 a.m.
The President said that we could get some preliminary thinking done.
He suggested that Dr. Kissinger might see President Pompidou at
breakfast and discuss the agenda at about 8:00 a.m.
Dr. Kissinger said he would have to find out if Secretary Connolly was
agreeable on the defense of the dollar and the matter of consolidation.
The President said he did not want to haggle; 12 percent or 5 percent
would be a bad bargain. In any case he would have Dr. Kissinger call
on President Pompidou early the following morning.
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MEMORANDUM OF CONVERSATION
Subject: Meeting between Mr. Pompidou and Dr. Kissinger, Azores
Date and Time: 14 December 1971; 0830
Present: President Pompidou
Dr. Kissinger
Mr. Andronikof
Major General Walters
Dr. Kissinger opened the conversation by thanking President Pompidou
for the arrangements for him to have breakfast with him.
President Pompidou said he had spoken to Secretary of the Treasury
Connolly and after that he believed Mr. Connolly had spoken to Dr.
Kissinger. He had found someone who had firm ideas. He had said
that the U.S. would defend the dollar after devaluation. As one knew
this was like going to confession. The U.S. had the firm purpose of
defending the dollar after a deal had been made but not the means and
did not seem disposed such means as it had.
Dr. Kissinger said he understood what President Pompidou was saying.
After talking to him he had spoken to the President and the President's
view is that when we speak of defending the dollar, as he understood it,
we are talking about what happens in the new monetary system. The
President believes that as long as there is the expression on our part
that is what President Pompidou described as defending the dollar, but
President Pompidou seemed to feel that there were others. Leaving
aside the present balances, the way to defend is to buy when it falls.
President Pompidou said that this was so. He drew on his experience
with the French Franc. When the franc lost value, no one in the world,
no central bank kept francs and the French had to give hard currency
to bolster it (dollars). When the French found that they had exhausted
their special drawing rights at the International Monetary Fund, their
reserves and loans, all of which were insufficient, then they devalued.
Afterwards, with the French franc at a correct level Central Banks
still did not keep French Francs and if there were too many and we
had a negative balance of payments the French had to give foreign
currencies. This applied to the U.K. as well as to France. This is
the process which he thought would be applied to the devaluation of the
dollar. He understood that present dollar balances would not be
included as they were too big The President apparently felt we were
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Dr. Kissinger said that his impression after talking to Secretary
Connolly is that the Secretary feels if the exchange alignment is
correct then we will be prepared to operate the system, if what we
had already talked about was not enough. Secretary Connolly preferred
to delay the final commitment until the final settlement of the new
international system. Dr. Kissinger said he would read what we were
prepared to do as part of a general package on margins and rates. This
was the formulation:
"Discussions will promptly be undertaken in the appropriate forums to
resolve the longer term issues of the International Monetary Reform.
Attention should be directed to appropriate means and division of
responsibilities for defending established exchange rates; the proper
role of gold, reserve currencies and special drawing rights in the
operation of the system; the volume of liquidity and reexamination of
permissible margins in established exchange rates and other means
of establishing suitable flexibility in exchange rates. It is recognized
that the decision in each of these areas will be interdependent." That
was Secretary Connolly's formulation.
President Pompidou said he understood it but it was difficult for him.
Dr. Kissinger said that the President's view was that one way of
proceeding would be the following: If President Pompidou thought it
was reasonable, he and President Nixon could agree today on the
approach to both the interim and long-term solution. They both, France
and the U.S., could support that position in the negotiations in the
following week. President Nixon and President Pompidou could agree
to a certain devaluation of the dollar. If President Pompidou desired
margins and a restart of the Trade Negotiations as well as the clause
which we had given him, we could then support the definition of the
exact rates between the French Franc and the German Mark which
President Pompidou had indicated he desired on the previous day.
Alternatively, the Presidents could turn the matter over to the Finance
Ministers for discussion the following week. The President believed
that he and President Pompidou approached the discussion in a broader
spirit.
President Pompidou said it was difficult for him to react immediately
on the first point, that is, the clause Dr. Kissinger had read. The rest
he understood. If he had correctly understood what Dr. Kissinger said,
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there would first be a realignment of currencies, a certain devaluation
of the dollar to be discussed and a reevaluation in fact of all of the other
currencies in relation to the dollar. In that phase which was interim we
should set certain margins.
Dr. Kissinger said that we were ready to do so.
President Pompidou said that if the U.S. maintained its formula, it
would undertake to defend the rate without defining the defense
Dr. Kissinger said that since he was honest he could not say that he
was sure that Secretary Connolly's definition was the same as
President Pompidou's. There was a difference in the way Texans
bargained.
President Pompidou said he was not a Texan. President Nixon had
told him on the previous day that he could not go further. Having had
the Congress already vote a certain devaluation, he could not say that
he would hold it or he would be in a difficult political position. As he
was not a Texan, he would say that having had Congress vote a rate of
gold and the dollar and whatever was said, he did not see how the
President of the U.S. could come back to get another vote because he
could not defend the dollar.
Dr. Kissinger said that he was not a good negotiator because he would
tell President Pompidou what he really thought. Three months ago
Secretary Train argued with equal vehemence for convertibility. Dr.
Kissinger believed, as did the President, that the realities of the new
situation will bring what President Pompidou had described. In fact,
one argument advanced by Secretary Connolly as to why he is so tough
is that it is so much harder for the U.S. to change the rate than it is
for others.
President Pompidou said that in regard to the statement Dr. Kissinger
had read he could not give agreement. He would have Giscard d'Estaing
speak to Secretary Connolly. He did want to make two or three observa-
tions. In the statement he could not accept the absence of any mention
of fixed parities and perhaps the problem of the substance of the role
of reserve currencies. He had thought that in the last few months that
the U.S. Government had admitted that in the new monetary system,
at least in the final settlement, in reality that no currency should have
this theoretical privilege. The reserve role of the dollar is actually a
burden. Rather in parts of special drawing rights there is something
similar for the reserves of Central Banks, including gold. The Central
Banks agree to keep a certain percentage of currencies. This is not
a privilege. They would be considered reserve instruments. President
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Pompidou said he wished to stress the matter of flexibility of currency
rates. This was a very serious matter involving the whole concept of the
role of margins. If it means that in the light of the evolving situation
with its ups and downs that margins make living possible, he would
agree. If it means that margins are a means of perpetuating revaluations
and devaluations, with no fixed parities and flexible rates, then he could
not agree.
Dr. Kissinger said the whole idea was based on fixed parities, otherwise
it would make no sense.
President Pompidou said that referring to what Dr. Kissinger had
said about the new parities, he wished to emphasize the French point
of view. No European currency would follow the dollar. He would pass
over the Benelux. He was concerned that the DM should be 6 percent
over the franc. Seven percent was too much. Five percent not enough.
The French had made precise calculations just as we had done with
Canada, with whom we did half our trade.
Dr. Kissinger said that Secretary Connolly had told him that according
to his information, Schiller said 3 or 4 percent and Brandt said 5 percent
would be negotiable.
President Pompidou said 5 percent would be the absolute minimum.
Schiller was a Texan. He was more stubborn than Brandt. To move to
the question of the dollar rate and margins, the French position was for the
narrowest margins possible. The trend was towards wide margins. We
could not return to 1 and the trend was towards 3.
Dr. Kissinger said that Secretary Connolly asked him to say that this
was not unsurmountable.
President Pompidou said that 2 would be acceptable. He knew that the
Germans were for 3. Brandt said that was too much. The Gilstra
report explains how with 3 two currencies could not be reserve. It
would be an encouragement to speculation. Suppose movement capital
believed that the dollar would move down 3 points and the DM up 3 points.
Dr. Kissinger said that he had talked to Secretary Connolly about
margins. He would prefer to wait on this until the end of the meeting.
He would be prepared to handle this if we settled the other matters.
The President was prepared to split the difference between 2 and 2 1/2.
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President Pompidou asked what we should say if the Ministers agree.
Dr. Kissinger said that we had not settled the matter of devaluation.
President Pompidou said he would prefer to speak in terms of the price
of gold, 5 percent to 7 percent, even if this is what the public is told.
For the Congress it appeared it would be $37 per ounce. The French
preferred 37.50. He believed that we could go to $38 an ounce. It
would not be hard.
Dr. Kissinger said that what was really meant was a percentage.
President Pompidou said he felt it should be $38.00 an ounce.
Dr. Kissinger said that we would not raiseour voices on that.
President Pompidou said to the U.K. and Italy it would be 8 percent.
Dr. Kissinger, to speak with the same frankness, it was Secretary
Connolly's view that he must never accept less than 10 or 9 percent
devaluation in fact. But what President Pompidou and President Nixon
decided would go. What did President Pompidou have to say.
President Pompidou said that above all they must not unleash
speculation. How far could they go in the statement.
Dr. Kissinger said that it should be a general statement, that they had
requested the Finance Ministers to look into the matter. If questions were
asked about their meeting (President Pompidou and Dr. Kissinger), they
should say that they had been discussing the Agenda.
President Pompidou agreed and said that they should leave for the
meetings at the Junta Geral.
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MEMORANDUM OF CONVERSATION
Subject: Meeting at Azores at Mr. Pompidou's Residence
Date and Time: 13 December 1971; 0845
Present: President Pompidou
Dr. Kissinger
Mr. Andronikof
Major General Walters
Dr. Kissinger: President Nixon has asked me on one hand to discuss
the general approach to the negotiations and on the other hand to make
some concrete suggestions concerning the international monetary.
situation. In fact, he would not want you to feel that these were
unreasonable from the outset, because if there is one European nation
with whom we have special relations, it is France. And if there is
one Chief of State with whom the President feels he has a special
relationship, it is with the President of the French Republic. Your
previous meetings have shown that you have the same general view of
things, even though you may not be entirely in agreement on the details.
Your overall view is similar.
The President feels that we must have a special relationship with France
because the general stability of Europe depends in great measure upon
the general understanding between France and the United States. This
is why the President felt that the first meetings which he will have with
world leaders should be with you. We also believe that divergences or
a confrontation between France and the United States would leave Germany
free to pursue a nationalist policy and other countries might try and play
upon such a rivalry. I tell you this to describe clearly the way President
Nixon approaches the talks he will have with you.
I am not an economist myself. This lack of knowledge is for me an
argument against universal suffrage. The President felt that there would
be some advantage in my explaining to you some of his considerations on
monetary problems that he would like to examine with you more in a
historical than in a strictly commercial context. This discussion may
be somewhat complicated, as I tell you frankly that some of the somewhat
spectacular tactics which may have been used are more related to the
personality of those who favored them. This is the general framework
of the President's thinking on these matters. During your talks he is
ready to tell you that the U.S. will remove the 10 percent surcharge as
well as the measures relating to job credit, and he is ready to do this at
once. Additionally, despite the difficulties that this represents for him,
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he will propose to Congress a change in the price of Gold which you
yourself have recommended a long time ago. He is willing to consider
a realignment of the dollar in relation to the franc of 9 or 10 percent.
Nevertheless, I tell you frankly, and this shows that I am a poor
negotiator, that this is not his last word and he will not stick on this
issue. Apart from this the DM should be located some 4 to 5 percent
above the franc, the yen 5 percent in relation to the DM and the pound
and the lira would maintain their present relationship to the franc.
The exact relationship between the franc and the dollar remains open
to discussion. Either you may prefer to revaluate and we would
devaluate to a certain relationship, or there might merely be a
devaluation on our part to establish an equitable relationship between
our currencies. For our part we would prefer a devaluation of the
dollar of about 6 percent and a revaluation of the franc of 3 percent.
This is not a hard attitude on our part and if you insist, we are prepared
to act alone.
For political considerations it would be desirable for us to reach
agreement on commercial matters. We are certainly not trying to
make difficulties for you. I don't understand these matters well, but
I believe an agreement on farm products and tobacco would be desirable
so we could show that we have obtained something. Mr. Connally has
other ideas on agricultural matters but this is the basis of our position.
Mr. Pompidou: To be frank, lemons and oranges are California and
tobacco is Virginia.
Dr. Kissinger: There is no question for the time being of returning
to convertibility, but we are ready to discuss a long-term system and
in the meanwhile to furnish the IMF with all the means it requires for
it operations.
This is the general attitude of the President. He has asked me to
describe it to you so that you will know in what state of mind he approaches
his discussions with you. We believe, in fact, that if the two Presidents
can agree on such a basis that their meeting will mark the point of
departure of a new international system. Èven more important, it would
be the symbol of the kind of relations which should be established in the
world between allied nations and more particularly between our two
countries.
Mr. Pompidou: If the world were not very complicated, I would ask
President Nixon what assistance he could give France to correct our
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balance of payments with the U.S. It is only balanced at 50 percent
and the European Community is very much in imbalance insofar as
industry and agriculture are concerned especially France which alone
bears the burden of half the deficit.
Overall it is clear that we cannot move in our parities with Great
Britain and Italy. You understand this. This means that neither
Great Britain nor especially Italy, nor France could consider a
differential of 9 or 10 percent in relation to the dollar. Nevertheless,
we can discuss this problem. Questions will arise within the
community. Germany would like a differential of 4 to 5 percent in
relation to the franc. Brandt spoke of 5 percent. I told him that
7 percent seemed necessary to us. He replied that this could be
discussed. It should be easy to find a meeting point, between 5 and
7 percent. Only, that is Brandt's opinion, not Schiller's and I don't
know who has the final word in this matter. I believe that Germany
would nevertheless be prepared to accept a substantial differential
between the pound, the lira and the franc, all the more so if the yen
were even higher. There will therefore be a discussion on figures
and one can with certain reservations look forward to the possibility
of an agreement. A movement of 9 to 10 percent in the dollar is too
much. It is not simply a matter of the reevaluation of the price of
gold but of a devaluation of the dollar in relation to gold. A reevaluation
of gold conceived of as a rise of 20 to 50 percent is out of the question
at this time. Anyway there are different ways to arrive at the figures
if you base yourself on gold or on the dollar which result in a difference
of about 1/2 percent. If you increase the price of the ounce of gold by
2 1/2 dollars you can figure it in relation to 35 (dollars an ounce) that
is 37.5. There is a difference in the way of presenting the matter.
You have the problem of Congress. We know it is not easy. Therefore
the European Community led by France has accepted the possibility of
negotiating commercial measures on condition that Congress approves
devaluation. These negotiations could begin now and decisions could
even be taken now, but they would enter into effect only after the vote
of Congress. This is what Brandt calls the "Junktim". We must,
however, know whether the new parities will be defended. At the
present time no one defends the dollar except others; Germany, France
and the United Kingdom buy it when it is below par. We feel everyone
should defend his currency.
Dr. Kissinger: That is our intention.
Mr. Pompidou: That is very important.
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Dr. Kissinger: Some people believe that it will be easier for others
to devaluate their currencies after the new parities are fixed. We
will be compelled to defend our currencies they say but others may
change theirs.
Mr. Pompidou: The European countries can commit themselves to
defend together their parities for all of the European currencies
collectively and not just individually. As far as convertibility is
concerned it is true that dollars are wandering about almost everywhere.
For a year or perhaps two, certain measures to defend the American
balance will have to be taken. I note however that you would be willing
to discuss convertibility within the framework of a general conference.
Nevertheless measures must be taken to consolidate present dollar
balances on condition that this not become a perpetual consolidation.
It will be necessary to look at the calendar to discuss in a general way
monetary as well as commercial problems. It has been said at the
European community that there would be a "Nixon Round" after the
reelection and I for my part very much hope that this will be the case.
As for the dollar balances remaining, at least over the next 18 months,
the U.S. will be able to deal with them by drawing upon the IMF. After
all, your availabilities are greater than the resources of the IMF.
From a purely French point of view we have made very careful
calculations. A devaluation, even slight, say about 5 percent such as
was discussed at the Community, would create a number of difficulties
in France and would in particular aggravate unemployment. This is
important. The 10 percent surcharge is not too bothersome, for us in
any case. But a generalized deflation would lead to a more difficult
economic situation. I too have an internal situation, and even elections.
We do understand, however, the general interest as well as yours.
There might be some advantage in talking to our finance ministers
before we talk about it ourselves. The monetary questions might, for
example, only be brought up during the afternoon meeting.
Dr. Kissinger: This is also the President's feeling. I would recall
the relationship which we would like to see between the price of gold
and commercial matters. I know that some would object to such a
connection.
Mr. Pompidou: We too.
Dr. Kissinger: Personally, I would have preferred not to see the
two questions connected.
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Mr. Pompidou: I understand this very well. President Nixon would
be agreeable to the decisions resulting from the commercial
negotiations being implemented only upon a decision concerning the
price of gold. The negotiations would not have to wait until an
agreement or a reasonable compromise had been reached on this
subject.
Dr. Kissinger: It's like the case on Berlin. In a practical sense do
you believe that the general framework envisaged by the President is
reasonable?
Mr. Pompidou: It is a reasonable framework.
Dr. Kissinger: The Ministers of Finance might meet this morning and
you would take up the monetary questions only during the afternoon
meeting.
The President also asked me to enquire whether you would object to
his calling me in from time to time to explain certain details.
Mr. Pompidou: I see no objection to that.
Dr. Kissinger: I would also like to tell you that in regard to the Indian-
Pakistan conflict we are hoping for a settlement within the next 72 hours.
We have begun a move to get a possible resolution without any veto from
anyone. We are not against India but the existence of Western Pakistan
seems very important.
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MEMORANDUM OF CONVERSATION
Subject: Meeting at Junta Geral, Angra do Heroismo, Terceira, Azores
Date and Time: 13 December 1971; 1600
Present: The President
President Pompidou
Mr. Andronikof
Major General Walters
The President opened the conversation by saying he appreciated this
opportunity of having this first of his meetings with Heads of Major
Governments with the President of France. Their meeting, quite
apart from the usual matters they would discuss, had attracted world
attention. Obviously what France and the U.S. could agree upon was
of great importance to Europe and to the world. Some of these matters
were highly technical in which President Pompidou was more learned
than he himself was in such fields as the monetary and trade questions.
These were matters they might well discuss at the afternoon meeting
after a chance to see what their positions were in other areas. He
was prepared to handle it any way President Pompidou preferred and
as far as he was concerned the agenda was open. He would like to
discuss Europe with its problems, the South Asian situation (India-
Pakistan) and, of course, bilateral problems and finally the tough
problem of the monetary situation which, if President Pompidou agreed,
they could discuss that afternoon.
President Pompidou said he was agreeable to this.
President Nixon then said he was prepared to discuss any other matters
that might be of interest to President Pompidou. Did he have any
suggestions.
President Pompidou said that if they spoke of Europe, America, the
Soviet Union, China, Asia and even Australia, the most interesting in
his view, outside of the monetary problem, but part of it was the
relations between Western Europe on one hand and East-West relations
on the other, that is relations between Western Europe and the U.S. and
the Soviet Union and its allies.
President Nixon then said it seemed to him that in looking at his
problem, it was not just a monetary problem but an area involving
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political relations as well. In this, cooperation between France and
the U.S. was the keystone. For that reason if he and President Pompidou
arrived at some understanding, it would aid progress in the political
field as well and have a great effect on the rest of Europe and the
eventual outcome.
There was a curious situation in regard to the monetary situation.
Some writers said that France was the key, others the U.K., Germany,
Italy or the Japanese. In any event all have different problems in that
area. But the relationship between France and the U.S. is central to a
solution. This is also true in the political area. One of the major
contributions that has been made in the past three years has been the
closer relationship that has developed between France and the U.S.
Fortunately, we also had good relations with General De Gaulle as
President Pompidou knew. President Pompidou and he had carried on
in the same spirit that De Gaulle and President Nixon had established in
1969.
One thing that might be useful would be for him to get President
Pompidou's appraisal of the Soviets. He himself had not met either
Brezhnev or Kosygin. President Pompidou had been to Moscow and
had seen them in France. The President would like this only for
guidance and was not seeking confidential disclosures but he would be
interested to get President Pompidou's views of the Soviets, their
intentions and his analysis of them.
President Pompidou said that first of all, in reply to what President
Nixon had so kindly said about French and U.S. relations, he would
sum up in three or four sentences his political philosophy. France is
a Western country. This was true historically and in sentiment. She
was determined to remain a friend and ally of the U.S. France had close
to her the Soviet Armies and the mass of the Soviet Union. In such
circumstances only two policies were possible. Either she hid behind a
wall or tried to understand one another. In a third area he believed that
it was necessary to give Western Europe as much economic unity as
possible and later political unity and, if all went well, equally so in the
Defense area because this is the only possible counterweight to the USSR.
All the more so because he was sure that the U.S. progressively would
not want to bear all of the burden of their presence in Europe. As he had
told the President, he hoped it would not happen soon but it (a U.S.
withdrawal) would take place and they needed a United Europe to face
the East. This was in part necessary because Germany is at present
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very strongly anchored to the West but one could never know for
sure what form their evolution could take as only the Soviets could
give them what they wanted: unification. Perhaps someday the
Germans might decide to give priority to this. One could wonder.
He also believed that the development of this policy of European Unity
and detente with the East is favored by the existence of China and the
fact that the Soviets are not looking for crises in Europe and are very
concerned with Asia. This results as he told Chancellor Brandt in the
greatest difficulty in the construction of Europe, that is, the definition
of its relationship with the U.S. Fundamentally vis-a-vis the Soviets
the Europeans have a common position of detente and vigilance. On
Asian problems the Europeans can get together because they are not
directly concerned. With regard to Africa they would like to tie Africa
as close to Europe as possible. France and the K., despite difficulties,
did have some influence in this area.
The difficulty lay in the equitable distribution of the financial and
economic burden and establishing the political relationship as one of
alliance but not simple subordination. Herein lay the difficulty. By
that he meant, not that it was impossible but delicate to define. Here
lay the reason for the fact that France had a role to play that was
greater than her intrinsic power. Fundarnentally, Chancellor Brandt
and Germany needed a France not too concerned by their Ostpolitik.
They needed her blessing. Everyone in Europe was counting on France
to defend certain commercial and financial interests with the United
States. It is a comfortable situation for them. In case of any difficulty
they can say, "Well, it's the French. " In reality there remain in the
USSR great apprehensions regarding Germany. These memories mean
that the present Soviet leaders prefer France to have an important role
in Europe rather than see the leadership go to Germany by default.
This is not awkward for the United States. There is in France a
Government determined not to let the Communists come to power. He
would now return to what the President had said about the Soviet leaders.
He had seen Kosygin three times and Brezhnev three times. He had
been to the USSR as Prime Minister and had seen both Brezhnev and
Kosygin. He had seen Kosygin as Prime Minister. He had returned
to the USSR as President and, as President Nixon knew, Brezhnev had
recently been in France. They were very different men. Kosygin's
temperament is not very gay. He was very studious on economic and
technical problems. He was fascinated by industrial progress. He
was from Leningrad and in this respect he was perhaps more reserved
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towards Germany than others. He was afraid of the Germans and if
pushed might react violently. Brezhnev was a Ukrainian and a
Southerner. He was jovial and cordial and liked to eat and drink.
He was folksy, liked good cars. He owned a Rolls Royce, a Mercedes,
a Citroën and a Maserati. He did not yet have a Mustang. President
Nixon commented that Brezhnev had all kinds of cars but not an
American one. President Pompidou said that a 21L looked like an
American car. Brezhnev liked good living. He was easy in conversation
but in depth he was very tough. He was permanently conscious of the
importance of military power but was also aware that he had to raise the
living standards of his fellow citizens. We were close to a period of
anniversaries. The U.S. would soon celebrate its 200th Anniversary,
the French were celebrating the 100th Anniversary of the Republic.
Brezhnev wanted to celebrate the 50th Anniversary of the Soviet
Constitution and to them commemorate means to distribute more
consumer goods to the people. Brezhnev counted on France and Germany
and the West in general to furnish the means of rapidly producing more
consumer goods. He is determined to import consumer goods if
necessary. Despite all of this he never forgets the importance of power
and at the bottom of things Soviet Policy presents two characteristics:
1. It is like a river -- if it finds a hollow, it flows
in until stopped by rock.
2. It is obsessed by China constantly.
For now the Soviets are desirous of accentuating detente in Europe
and would like to conclude their agreements with the Germans and
obtain the ratification of the treaties. They are in a hurry. They
watch without pleasure the formation of the Common Market. Above
all they are concerned with everything that happens in Asia and try to
cut the ground from under Chinese ambitions. They are presently
more concerned with Chinese potential than ambitions.
President Pompidou said that he had mentioned that the Soviet leaders
were obsessed with China. The dream of Yalta may not be over for
Soviets who may still dream of sharing the world with the U.S. This is
a deeply rooted idea. China disturbs this idea.and they don't like it.
President Pompidou said that leaving aside current events (Indo-Pakistan
War) he believed the Soviets would seek to reach agreement with the U.S.
But one must understand, and this President Nixon knew as well as he
did, that to them an arrangement means retreat nowhere and advance
whenever possible. This is true of all powerful people!
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President Nixon said that this analysis by President Pompidou was very
perceptive and very candid. It was extremely helpful and he could assure
the French President that his candor would be respected and his confidence
would not be betrayed. He would like to ask a question: Which did the
Soviets fear most - China or the U.S. ? President Pompidou replied that
they feared China most, not immediately but they felt they could do nothing
against China which was indestructible by its mass and in 20 to 50 years
it will be so enormous that they will not be able to cope with it. Next they
fear Germany. They feel Germany is capable of fomenting something.
With the U.S. they feel complicity.
President Nixon said that there was one difference. They feared China
certainly and Germany possibly because they are neighbors and might be
a threat from a territorial standpoint. While they fear American power,
they do not fear any U.S. territorial ambitions against them. He believed
that in the broad landscape President Pompidou had painted we should now
look at the pieces and see how those pieces could be moved to our advantage
rather than theirs. To begin with, in respect to the relationship between
Western Europe and the U.S., it was no secret that the Germans felt that
the U.S. could not be depended on. The reasons were they felt that it was
inevitable that the U.S. would withdraw from Europe except perhaps for a
small force but the U.S. could not be counted upon to risk its survival to
defend Europe in a nuclear war. The actions of the U.S. Senate, the
Mansfield Amendment reinforces that point of view. It was all well and
good for us to make the usual protests that the U.S. would stand by the
European countries and that we could be counted on. In the final analysis
what determines U.S. and French policy is self interest. This was the
basis for his contention that the U.S. and Western Europe, despite some
differences of which they were aware, were inextricably tied together.
In the long term it would be disastrous for the U.S. to leave Europe as a
hostage to the USSR. That is why it was necessary for the U.S. and
Europe to have close economic relations. Militarily it was vital to the
U.S. to preserve Europe and to remain and not to reduce its forces
-
unless on a very clear multilateral basis such as a reduction vis-a-vis
the Communist bloc would be disastrous. MBFR had begun in 1968
before he was elected. U.S. policy was that it must be pursued on a
multilateral, basis. We had yet to find any formula by which such a
reduction would not downgrade our interests in relation to the Soviet
bloc. We could continue the Brosio discussions and consult to the
extent that President Pompidou desired. Personally the President was
very skeptical. His concern was that MBFR be used simply to obtain a
U.S. withdrawal. Only with a visible U.S. presence could we maintain
our interest. The Soviets know this and that is why they want us out as
soon as possible.
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In the matter of our talks with the Soviets either at SALT or in May
when the President would meet with Brezhnev and Kosygin he wished
to assure President Pompidou that there would be absolutely no U.S.
Soviet talks apart from or at the expense of the European Alliance.
President Pompidou had spoken of the Soviet interest in a Yalta type
agreement with the U. S. Many in the U.S. felt that Yalta was very
detrimental for Europe politically and economically and basically
beneficial to the USSR and detrimental to the U.S. Therefore the
President looked on the forthcoming talks as very tough and hard.
The Soviets want progress on trade. This is possible but will not be
nearly as great as many think. Some progress on arms limitation
may be possible if there is an equal deal on other subjects. However,
there must be a clear understanding that during this period when the
Soviets have nuclear parity with the U.S. this does not mean that the
Soviets can get away with a policy to humiliate the U.S. or weaken the
U.S. in defense of the position of its allies in Europe.
It seemed to the President that in this framework the maintenance of
strength and cohesion was more important then ever. The U.S. in the
long run cannot have a viable world without Europe. Europe cannot survive
without the U.S. contribution to nuclear strength at this time. The Soviets
know this and would like to divide the U.S. and Europe. The Soviets also
know that at the heart of the European problem are the Germans.
President Pompidou could not be more correct when he pointed out that
Germany, which is the heart of Europe, is always potentially, despite its
cultural and economic ties to the West, drawn towards the East. The
East holds millions of Germans as hostages. This is why we must keep
Germany economically, politically and militarily tightly within the
European Community. Ostpolitik is a nice concept and can win a Nobel
Prize. President Pompidou or himself in Brandt's place might do the
same. But politically it was dangerous to risk old friends for those who
would never be friends. We should be very tough with the Soviets on the
matter of European security. The agreements with Brandt should be
signed sealed and delivered. Into this picture now come France, Britain
and Germany. If President Pompidou and he, in the course of their
meetings, could, without being belligerent (which neither he nor
President Pompidou wanted), reach a strong understanding on principles,
it would be helpful and not just for both countries. It would help his
meetings with the Germans and with the U.K. to make progress on
Europe. We must realize that many cynics and some honest people
felt that when France left NATO that this meant the end of the European
Alliance. The President was aware that France remains in the Alliance
but is outside the Integrated Military Structure. He felt we would play
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into the hands of our potential opponents if it appeared that France,
except for some economic ties, was determined to go her own way
in a race to Moscow. The President was not suggesting that France
and others should not have independent policies towards the East.
This was why he was having meetings with our Western European
Allies so as to make crystal clear in our initiatives with the Soviets
and the Chinese that our primary allegiance is to the West, not in any
sense of belligerance but that is where our interests lie. This will
help in making a better deal with the Soviets.
One of the reasons, as he had mentioned earlier, why he sought improved
relations with the French by meeting with General De Gaulle. Some
people who were whistling in the dark believed we could build a
European relationship without France. The President said that it was
his belief that there could be no viable Europe without France. Just as
France is not viable without Europe and to square the circle he did not
believe that even the U.S. could in the long run pursue a policy of isolation.
Our fate was tied up with that of Europe.
President Pompidou then said that the President had brought up a
number of attitudes by Democrats, Mansfield and others, in the Senate
which was really more significant than Pearl Harbor. In other words,
in the hypothesis of a major conflict it is not just part of the U.S. Fleet
that might be destroyed but Western Europe which would be lost to the
Soviets. The U.S. would, of course, revenge them, but this would be
small consolation to the Europeans in the cemetery. The President
agreed.
President Pompidou then said that he had three remarks to make about
what the President had said. Brezhnev had spoken a great deal about
MBFR. He drew an idyllic picture of almost no soldiers in Europe in
10 years. In any case, France will not diminish her military effort.
She will pursue it whatever happens. The President commented that
this was "good".
President Pompidou said that he had told Chancellor Brandt about what
the President had said of the danger that negotiations might be a pretext
for U.S. opinion to demand the departure from Europe of the U.S. Forces.
The Chancellor had replied that the U.S. Forces should not leave unless
the Russians went too. President Pompidou said he must admit that he
did not understand the German attitude on this point. They should be
the most hostile to the reductions envisaged in MBFR. After all, they
would be the first to be endangered. He must say that Brandt had told him
that he was hostile to the neutralization or "Finlandization" of Germany.
But the day the U.S. leaves Germany, the U.K. and France will not be
far behind and then Germany would not be far from neutralization.
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President Nixon said that the problem in the U.S. as in Europe was
largely psychological. Many Americans were naive and softhearted.
Many intellectuals, the media and professors don't believe there is
any threat from the Russians. Some of the young also. President
Pompidou interrupted to say, "Bishops too. = President Nixon said
that some of the Protestant and Catholic clergy feel this way too and
the inherent difficulties are increased when political leaders who
know the Soviets add fuel to the fire. What used to be called the
cold war rhetoric is no longer saleable. What was needed was the
type of spirit with which President Pompidou had met the Soviets and
in which he himself planned to meet them. A totally pragmatic meeting
of Eastern and Western leaders. He had no illusions regarding the
difficulties of his forthcoming meetings. There would be no "spirit of
Moscow or Peking" arising out of his trips. He remembered Khruschev.
He had a sense of humor. He was tough and impressive. He would not
allow the almost passionate desire of so many of our people to believe
the best about the Soviet leaders' desire to seek peace to blind them to
reality. Not because the Russians were Communists but because they
were a powerful country who saw their goals as antagonistic to ours.
The French had lived too long to be SO naive. His attitude towards
both the Communist Superpowers was that we cannot live with them but
then we cannot live without them. Live and let live based on fantasies
of our own. Our society and civilization need to recognize that their
attitudes, desires and foreign policies are different from our own
basically because they are Communists. From time to time they may
recede from their policies of expansion but Communist theology requires
a dedication to expansion taking advantage of every temporary circum-
stance. By that he did not mean that non-communist nations did not try
and take advantages but not in areas of fundamental policy of conquest.
The nations of Europe and the U.S. do not have this as part of their
national policies.
The President did not know why the Soviet leaders and the Chinese leaders
had arrived at the decision to meet with U.S. leaders. Not primarily
because they wanted better relations or liked us. If there was not a
strong Europe and if the Soviets did not have a threat in the East they
would not be interested in talking to the U.S. By the same token he
would like to have Dr. Kissinger tell President Pompidou what the
Chinese think. He did not believe that Mao would be talking to the
leader of the capitalists and courting the U.S. ùnless he was concerned
by the Soviets and to a lesser extent by the Japanese. If one said this
publicly they would deny it. Some in our country said when the President
announced his trip to Peking that the Soviets would refuse to talk with us.
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Actually the Soviets were more willing to talk SALT, Europe and
Berlin after Peking announced the visit than they had been before.
After the announcement of his visit to Moscow the Chinese had
showed a greater interest in talking to us than before.
President Nixon recalled that he had told President Pompidou before
that when he had seen General De Gaulle while he (President Nixon)
was out of office and has asked him whether he had any advice for the
U.S., President De Gaulle had replied that rather than put all of its
eggs in the Soviet basket the U.S. should have a more open policy
towards the Chinese like France. His responsibility was like
President Pompidou's. They must go into these things with their
eyes open and try to defend our point of view.
President Pompidou saidthat the U.S. view of things was more
world wide than that of France because of our means. This was why
he considered the time favorable to commit Europe in a procedure of
detente which could backfire but that Soviets could reverse only by a
theatrical of forceful move. They are very concerned by Asia, China
and their discussions with the U.S. on nuclear matters. They want
peace in Europe. He believed that the Soviets harbored the illusion
that the French, Germans, Italians and other countries could give them
considerable economic aid. These are illusions and he had said so
publicly. One could only sell to the Russians in exchange for what one
buys and this was not much. No one could give unlimited credit. The
European picture was very favorable except on MBFR on which he had
already given the President his views. The French were not disposed
to reduce their arms effort. One word about the problem of a
European Security Conference. This point is evident. A security
conference is beginning to be discussed seriously. He believed that
all European countries were agreed on holding such a conference but
felt that if the U.S. preferred a later date they would be agreeable to
keeping the U.S. happy. Until, however, the U.S. agreed, there could
be no real serious preparation of such a conference. Why did the
French believe that such a conference could be of interest? They felt
that communism as such represented by cómmunist regimes was false
from the economic and social point of view in many so called Socialist
nations. Poles, Romanians and especially the Czechs and Hungarians
wanted to shake off the tutelage. They believe that with the Western
bloc divided and the Eastern bloc united that they lost. He felt that on
one side there were the free countries who were independent and France
felt that she was. On the other side there were countries who wanted to
take steps towards freedom and independence. If the superpowers or
the West (that is, the U.S.) feel that this liberty and independence is
bad, then harm is done. The Russians feel it is bad but cannot stop it.
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President Pompidou had been struck in his last talks with the
Romanian President and Foreign Minister by their anguish at the
idea that multilateral preparations and meetings on this conference
might be delayed. They believe that when all are seated around a
table they will be protected and not until then. The U.S. and France
did not have exactly the same view. The problem is one of interpretation
of the situation rather than that of a disagreement on goals.
President Nixon replied that, first of all, as to the matter of whether
there would be a European Security Conference the question as President
Pompidou had implied was one of timing and tactics. As President
Pompidou had indicated, we believed that until the German treaties
are finished plans for a European Security Conference cannot be
implemented. We also believed that it was vitally important that
extensive discussions among ourselved be held with regard to the
agenda. He agreed with the French President that there was some
possibility that this conference might not be an unmixed blessing for
the Soviets although they very much wanted it. The extent to which it
opens up to the West the Eastern countries to whom President Pompidou
referred can be a leavening factor in the attitude of those countries. We
have in each case to distinguish between the leadership and the countries.
The people of Czechoslovakia, Hungary and Poland had demonstrated on
several occasions that there was nothing that they would like better than
to get rid of Soviet influence and leadership. Certainly a country like
Romania where Ceaucescu is a devoted Stalinist is also devotedly a
Romanian and to the extent that he can safely do so he takes an
independent line from time to time. The President's views long term
were the same as President Pompidou's. There are risks for the Soviets
in such a conference just as they think it contains risks for us. They feel
it will have the effect all over Western Europe of creating a false
atmosphere of security and will lead to the letting down of our guard
and the belief that real peace is just around the corner and that the cold
war is finished. His own view in summary was that in a deliberate way
we should move towards such a conference but have in mind the fact that
we should harbor no illusions as to the Soviet aims in holding it. Our
planning should be such as to serve our purposes while they will attempt
to serve theirs.
Overhanging the whole area of Soviet-U.S. relations is the sober, sombre
fact that if the Soviet leader deeided to risk nuclear war and the U.S. was
involved, he knew that he had the power to kill 70 million Americans and
we had the power to kill 70 million Russians. The U.S. President knows
this too. There are limitations on power and a restraining influence
not because of love but because of fear. It was essential that the two
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nations pursue the negotiating track rather than the confrontation
track. We have impressed this on the Soviets with regard to
Southern Asia in the last 24 hours. The President wished to add
in regard to the desire for detente that he totally agreed with
President Pompidou. The people of the U.S. and Europe wanted it,
at least a majority of them did. In Europe perhaps for different reasons.
The Germans want it because the Soviets can give them East Germany,
U.K., France and Italy because they are convinced that we live in a
dangerous world. The danger presently represented by nuclear war,
not the loss of 3, 000 men as at Pearl Harbor. The whole place would
be turned into a graveyard. No one wanted that. It was very important
to look at the two attitudes on detente. Some sought a European
Conference on the naive assumption that the Soviet aims have changed
and that their designs in Europe and in the rest of the world are basically
peaceful. On the other hand, some who seek detente on our side have no
illusions and recognize that a different relationship and good relations
between Europe and the USSR and the U.S. and the USSR are a practical
necessity, that there are dangers in a policy of confrontation. But we
must have no illusions about the basic aims of the Communist States.
They are quite different from one another. Even if they wanted it would
be impossible for European or U.S. leaders to take an intransigent
stand and refuse to talk. Ten years ago this was possible in the U.S.
It is no longer. On the other hand, it is important that the leaders
recognize that naive public opinion often demands talks that will make the
whole world peaceful. We should seek such negotiations but for the right
reason. By the facts of Soviet power, the risks of confrontation in the
Middle East or elsewhere are unacceptable. Therefore, we should seek
to lessen the risk of war and seek, as President Pompidou had indicated,
to make Europe a more viable area and to open Eastern Europe whose
peoples' hearts are with the West.
The President wished to add in a different sense. He would like to
discuss the motives for his trip to Peking in the afternoon. China today
was a major power with the largest population in the world. She was a
mini economic power with a production less than half of Japan's although
she had 800 million people to Japan's 100 million. China was a mini
nuclear power in relation to the USSR but we take the long view as do the
Soviets and President Pompidou. Twenty years from now China will be
a major nuclear power if they so wish. Do we allow that to come about
with China isolated. We should make an effort for a new start. The
President had made this choice himself with his eyes open to seek by
necessity a peaceful relationship with them.
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DECLASSIFIED
This document has been reviewed pursuant to Executive Order 13526 and has been determined to be declassified
President Pompidou said he believed that the two Presidents were
being told to go.
President Nixon said that he understood they would break now. What
subjects should be discussed in the afternoon -- economic subjects?
President Pompidou said that he had seen Dr. Kissinger earlier that
morning concerning monetary and economic problems. He would also
like to talk about China since the President had also expressed this
desire. He could tell the President what he thought and then Dr.
Kissinger could tell them about his impressions in China.
President Nixon said he felt that this would be important. If
President Pompidou had no objection he would like to have Dr.
Kissinger sit in on the afternoon session. We had had some very
interesting contacts in the last few days and he would like to have
President Pompidou brought up to date.
President Pompidou then expressed the belief that the Chinese were
much more complicated than the Soviets. The President said that they
were perhaps more sophisticated and more subtle.
President Pompidou said that Soviet policy was realistic. Their
problem was to follow their calendar but one could understand the
substance of what they were trying to do. The Chinese were more
complicated. The situation in Pakistan interested him very much.
He understood their clash with the Soviets but he was not sure that the
Soviet policy towards Pakistan was simple.
The two Presidents then agreed that the press and others would want
to know what they had talked about and discussed what should be said.
The President said that they could have their Press Secretaries say
that they had had a far ranging discussion of bilateral problems,
European problems and global problems but that this would still not
be much.
President Pompidou said he felt that they should be told that the two
Presidents had not discussed monetary problems, otherwise they would
be agitated. President Nixon suggested that they might be told that
these problems would be discussed that afternoon. "And tomorrow",
suggested President Pompidou. The President said that if President
Pompidou agreed, they could say that they had discussed the
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DECLASSIFIED
This document has been reviewed pursuant to Executive Order 13526 and has been determined to be declassified
President's forthcoming trips to Peking and Moscow to which the
President was going only to represent the U.S. and not on behalf
of Europe.
President Pompidou said that he understood that the Press had
already picked up the fact that Dr. Kissinger had been to see him
earlier that morning and the two Presidents agreed that they would
say he had called on President Pompidou to set up the agenda for the
meetings.
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Reproduced at the Richard Nixon Presidential Library
DECLASSIFIED
This document has been reviewed pursuant to Executive Order 13526 and has been determined to be declassified