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FOREIGN RELATIONS OF THE UNITED STATES
1964-1968 Washington, DC |
170. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, September 19, 1966, 7:15 p.m.
/1/Source: Johnson Library, Bator Papers, Erhard 1966. Secret. Drafted by Rostow.
Mr. President:
Herewith Bob McNamara's memorandum to you on how to handle the offset problem with Erhard.
State has been working all day on a plan to deal with the offset problem without a radical unilateral troop reduction.
Tonight George McGhee has come in with a strong cable, which I am getting typed for you,/2/ underlining the danger of a substantial troop reduction arrived at unilaterally and making certain proposals for alternative offsets.
/2/Document 171.
I suspect this will be the major item for discussion at lunch tomorrow. I will get you George McGhee's cable and, I trust, the State Department paper before then.
The object at lunch should not be to make final decisions but for you to hear from George Ball and Bob McNamara their somewhat different perspective on the problem we face and the options open to us.
We shall be coming back to you for final decisions before McNamara leaves for Europe.
W. W. Rostow/3/
/3/Printed from a copy that bears this typed signature.
Attachment
Memorandum From Secretary of Defense McNamara to President Johnson/4/
Washington, September 19, 1966.
/4/Secret. Copies were sent to Rostow, Rusk, Secretary of the Treasury Dillon, and the Chairman of the Joint Chiefs of Staff.
Chancellor Erhard, in December 1963 and again in December 1965, reaffirmed his intention to fulfill the offset arrangement. In 1963, the Communiqué/5/ stated, "The President expressed appreciation for the cooperative arrangement whereby United States dollar expenditures for American military forces in Germany are offset by German purchases of military equipment in the United States. It was agreed that this arrangement should continue." Last December 21, the joint Communiqué/6/ said that you and he "discussed the arrangements between the two governments whereby United States military expenditures in Germany entering the balance of payments are offset by the Federal Republic through its purchase of United States military equipment and services. It was agreed that these arrangements were of great value to both governments and should be fully executed and continued."
/5/For text, see Documents on Germany, 1944-1985, pp. 860-862.
/6/For text, see ibid., pp. 910-912.
The current German commitment is to place $1,350,000,000 of military orders in the US in calendar years 1965-1966 and to make payments of that amount in US fiscal years 1966-1967. As of September 1, the orders (with three months to go) have reached only $665 million, or less than half of the commitment, and payments (with nine months to go) have reached only $261 million, or about 20% of the commitment. A September 9 cable from Ambassador McGhee/7/ reported that the German Assist-ant Secretary for Economic Affairs in the Chancellor's office said "as matters now stand he sees no real alternative to a large shortfall in the present offset payments target next June 30 and a stretchout of the period in which to meet the target."
/7/Not found.
It is clear that the difficulty arises from the inadequacy of the German military budget. That budget increased annually until 1963. It has leveled off since then. Indeed, in real terms (taking account of inflation), the 1967 German military budget is almost 10% less than in 1963. Germany now devotes 5% of her Gross National Product to defense, compared to 6% in 1963. The UK spends 6.8% and the US 8.8%. While the Gross National Product of Germany is increasing on an average of 5% a year, none of the increase is being devoted to military expenditures. The Chancellor states that the reason for this allocation of resources is domestic political pressures.
It should be remembered and understood that the German shortfall in meeting the offset is not because Germany has no military requirements to make purchases in the United States. US policy has been to ask Germany (1) to do only what she promised to do--namely, to meet the offset, (2) to buy only what she needs to bring her forces up to NATO standards, and (3) to buy from us only those items which it is most economical to purchase in the US. With respect to German requirements to meet NATO standards, the German forces are seriously deficient. The Chairman of the Joint Chiefs of Staff and USCINCEUR have concurred in a report which indicated some $4 billion in German requirements for initial equipping, modernizing and training and for reserve stocks. By way of comparison: The US has a division slice of more than 41,000 men in Europe while the Germans have 27,000; the US has been maintaining 90 days of war reserve stocks in Europe while the Germans barely meet 30 days on some items and considerably less than that in the major equipment area; the US is at 100% of equipment levels in all its divisions while the Germans are not only less fully equipped, but equipped with less modern arms. Another comparison: The United States has 230,000 tons of bombs either in or in transit to Southeast Asia; the German Air Force's total inventory amounts to approximately 4400 tons--an obviously inadequate amount. If Germany were to procure proper conventional ordnance for her aircraft, expenditures on the order of $150 million would be involved for this item alone. German statements to the effect that they do not need the military items involved in the offset are therefore clearly untrue.
Our best estimates are that, unless something is done, there will be a very large gap between the foreign exchange costs of US deployments to Germany (an average of approximately $850 million a year over the next five years) and German foreign-exchange expenditures on the military account in the US (predicted by the Germans to average $350 million a year). Therefore, unless changes are made, a gap of $500 million a year should be expected next year and probably every year thereafter.
It would not be wise for the United States to accept this gap as a continuing situation.
I believe that we should break the problem into two parts. The first part is the current offset referred to above; the second part is the follow-on offset arrangement.
With respect to the current offset, the agreement to place $1,350,000,000 of orders by the end of December 1966 cannot be fulfilled. Payment, however, of the $1,350,000,000 by June 1967, in accordance with that part of the offset arrangement, could be made despite the reduced budget by German borrowing for prepayment against future orders. This approach is not fully satisfactory, but is probably the most we can now ask for. The Chancellor almost certainly will object to such an approach, but in my view we should push hard for this form of fulfillment of the current offset.
With respect to the follow-on offset arrangement, we should:
a. Press the Chancellor for a larger defense budget and consequent offset. In view of the Chancellor's political problems, the pay-off from this pressure may not be great in the next two years, but it may produce returns in the longer run. (In this connection, the Chancellor may propose the inclusion in the offset of purchases of space items, items destined for foreign military assistance, passenger aircraft for the German airline, and so on. We should accept any items which are truly "additional" and not merely a "giving of credit" to Germany for purchases, such as the passenger aircraft, which Germany would make here anyway. The total of such "additional" items will be very small and therefore almost irrelevant to the basic problem.
b. Insist on trilateral (US-UK-Germany) discussions to address the question of how the remaining gap will be closed--including arrangements for US troop reductions.
We must face the fact that the United States can deal with any remaining gap only (1) by cutting US military expenditures in Germany or (2) by absorbing the balance of payments drain caused by the excess of US expenditures over German offset.
I believe we can cut US military expenditures in Europe by about $200 million ($160 million in Germany) without significantly reducing our military effectiveness. (The JCS do not concur.) This $200 million total is reached by reducing each division slice by 10,000 support personnel (a total of 50,000 men, producing a saving of $125 million); by "dual-basing" approximately half of our 700 reconnaissance and fighter aircraft (saving $60 million); and by other economies ($15 million). But a deficit in the vicinity of $300 million is likely to remain. This $300 million cannot be saved without removing major combat units.
Even the $200 million adjustments may have a traumatic psychological impact in Germany, in NATO and in the United States. Adjustments to close all of the remaining $300 million gap, by cutting US combat power, would be even more traumatic and, in my view, dangerous; but I believe some reductions in US combat power will have to be considered if the problem cannot be solved in any other way.
The Secretary of State and the Secretary of the Treasury have received copies of this memorandum. The Secretary of the Treasury concurs in it. I believe the Secretary of State does also; however, he is planning to supplement this memorandum with a paper describing the political pressures which today limit the Chancellor's freedom of action.
Robert S. McNamara/8/
/8/Printed from a copy that bears this typed signature.
171. Text of Telegram From the Embassy in Germany to the Department of State/1/
Washington, September 20, 1966.
/1/Source: Johnson Library, National Security File, Memos to the President, Walt Rostow, vol. 13. According to Rostow's September 19 memorandum (Document 170), the telegram was received that day. In a memorandum to the President, September 20, attached to the source text, Rostow summarized and endorsed McGhee's conclusions.
TEXT OF CABLE FROM AMBASSADOR McGHEE (Bonn, 3361)
SUBJECT
The Offset and American Troop Level in GermanyThe German Position
As indicated previously, all indications are that Chancellor Erhard will, during his meeting with the President on September 26-27, seek a "stretch-out" of the existing offset agreement ending on June 30, 1967, and both a reduction and extension to other types of purchases in any future agreement. In effect, what he is seeking is a 50 percent scaledown from June 30, 1966 on. I previously analyzed Erhard's situation both economically and politically and concluded that he will not be bluffing./2/ He has little choice. Erhard, will, I predict, throw himself on the President's mercy on the basis of his and Germany's past performances as a good ally--ie, for having met the offset up till now, for the large increases in the German military budget from 1961-1964, for the purchase of Roosa bonds and for support of U.S. policy in Vietnam.
/2/Document 163.
U.S. Reaction
The U.S. reaction to Erhard's appeal will, I believe, be one of the most important decisions the U.S. has faced in the post-war period. It can be made only at the highest level in our Government. If we are able to reach agreement with Erhard without significantly reducing U.S. combat forces in Europe, we have an opportunity to stabilize the NATO of the 14 and U.S. relations with Germany at a critical time. If, however, we fail to reach agreement and move to reduce our combat forces in Germany (a division or more) as a direct consequence of German failure to meet the offset, the following adverse consequences can ensue:
A. The Erhard Government will fall, or will in any event be irretrievably weakened. Neither he nor his successor, after such a U.S. turndown, would in the future be willing to base German policy on the U.S. with confidence. Germany and America will tend to drift apart.
B. The U.S. troop commitment is not to Germany but to NATO. It can be changed only after full discussion with NATO. If it is known that we have presented NATO with a fait accompli on U.S. troop levels as a result of German failure to meet the offset, our position in NATO will be greatly weakened as will the whole future of NATO itself.
C. If we reduce our forces under such circumstances the British will, as they even now indicate, certainly do so. There is no reason why others should not follow suit--the unraveling of NATO will begin.
D. It would be necessary to review the concept of flexible response which we have promoted, since the remaining NATO forces might have to resort immediately to the use of tactical nuclear weapons in the event of an all-out Soviet attack. Increased European pressure will result for the early use of our strategic forces--inviting Soviet retaliation on our cities.
E. The U.S. Seventh Army would be broken up as a fighting unit. The divisions sent home would probably be scattered and dissipated. A reduced 7th Army could not only not hope to stop a conventional Soviet attack but would, in all probability, not even be able to defend itself or retire in order.
F. The U.S. would have lost perhaps its only opportunity to bargain for the withdrawal of equivalent Soviet forces.
G. It would be clearly not just to Germans but demonstrated to Europeans that we put a low price tag on our military commitment to Europe. In the future Europeans would have little confidence in our assertions that American and European security are indivisible or that we, as we say, consider the Soviet threat to be undiminished.
H. Germany, which has until now depended almost entirely on the U. S. for its security, would be forced to reorient its basic security policy. This could take the form of increased dependence on Gaullist France, a "go-it-alone" nationalism or efforts to accommodate itself with the Soviets.
I. If Germany increases its forces to make up the gap created by our withdrawal, the status quo with the East would be altered and fears would be engendered in Europe as well as in the East.
J. The Soviets could be expected to assume a much stronger position vis-à-vis Germany and Europe. They would be in an increasingly better position to make exorbitant demands and engage in blackmail, particularly in Berlin where we, as principal recipients of such pressures, would have only a weakened 7th Army as backup.
K. America would no longer be able to play a decisive role in the great decisions affecting the future of Europe which still lie ahead. Western Europeans would increasingly tend to handle their own affairs independently, possibly including a rapprochement with the East.
L. Our ability to influence internal developments in Europe and to obtain support for U.S. efforts in other areas, such as Vietnam, would be greatly decreased.
M. Groups in America who are already clamoring for a reduction of U.S. troops in Germany will be encouraged by the example of their own Government. It would be difficult to arrest an increasingly isolationist trend.
Result: U.S. force reductions under present circumstances would, because of the cumulative effect of the foregoing, be considered generally as a major shift in U.S. policy. History would record it as the ebb point--the beginning of an American withdrawal from Europe.
Proposed Tactics in Dealing with Erhard
In order to avert the foregoing consequences, it is recommended that:
A. If, as I anticipate, Erhard presents a strong case for relief under the present offset, that we accept debt pre-payments of $214 million and the purchase of Roosa bonds for $136 million in substitution for $350 million in the present target (that amount not already budgeted or planned for including $170 million from the 1966 budget, a $250 million pre-payment in 1966 and $350 from the 1967 budget).
B. That for the future, we agree with the Germans:
1. In order to effect a saving to Germany under the offset we will reduce our offset costs, beginning July 1, 1967, to a maximum figure to be subsequently agreed, through attrition of backup and logistical personnel (perhaps to $600 million through loss of between 25 and 35,000); the timing of the announcement of this move would be left open for agreement with the Germans in the light of their domestic situation.
2. German public purchases in the field of space, foreign aid and other areas where additionality can be established will be counted toward the offset where specifically approved (the annual amount in these categories will probably not exceed $25-50 million); and that,
3. The remainder will be met through additional training and arms purchases to the maximum extent possible (even the Germans would agree to $350 million as a level of recurrent purchases), and where this is not possible by suitable financial arrangements (probably by the purchase of Roosa bonds).
C. That a joint U.S.-German Commission will be appointed to give effect to these recommendations which, in cooperation with the U. K. and NATO, would initiate studies as to:
1. German ability to meet the offset; and,
2. The optimum level of U.S. and other NATO forces in Europe. Mr. McCloy would be appointed as our representative to this commission heading a U.S. negotiating team composed of representatives of State, Defense and Treasury. The joint commission would meet as soon as possible and, as appropriate, with their U.K. opposite numbers, looking toward a final report, to be followed by review of their findings in NATO insofar as troop levels are concerned, before the end of the year.
172. Memorandum From the President's Deputy Special Assistant for National Security Affairs (Bator) to President Johnson/1/
Washington, September 21, 1966, 9:30 p.m.
/1/Source: Johnson Library, Bator Papers, Erhard 1966. Secret.
SUBJECT
Your 10:00 AM Meeting on the Erhard VisitAt Tab A is a one-page agenda/2/ suggesting how you might structure the meeting. (I will have a copy on your blotter in the Cabinet Room.) At Tab B is an intensively negotiated position paper on the major issues. It was produced by the Bowie-Leddy/McNaughton/Deming/Bator working group, after a lengthy discussion with Ball, McNamara, and Fowler. I think that the principals will approve the paper as an accurate reflection of their views, but, because it wasn't finished until late this afternoon, they have not had a chance personally to review it. Nor has Walt. At Tab C is George Ball's vivid analysis of the German politics of this group of issues. At Tab D is a copy of Bob McNamara's memorandum of a few days ago./3/
/2/Tabs A-C are not printed.
/3/Attachment to Document 170.
Strictly speaking, there are only two points of disagreement among your advisors. They are marked in the margin of the Tab B paper, which you should read first. Very briefly:
1. On the current offset (the agreement ending last June), your advis-ors agree that we must try to hold the Germans to the original payments schedule, but that we should let them meet that schedule in part through purchases of long-term bonds. McNamara and Fowler believe that we should also offer to stretch out by 6-12 months the present requirement that the Germans place weapons orders in the full amount ($1.4 billion) by the end of this calendar year. However, they would insist that the FRG come through with all of these weapons orders by the end of the stretch-out period. Ball believes that we should agree to reduce the commitment to place weapons orders by the amount of the bond purchases. (My vote is with Ball, for reasons spelled out in his paper at Tab C.)
2. On dealing with the British, it is agreed that we should try to get them to delay announcement of BAOR cuts until the end of the trilateral talks (mid-January). McNamara and Fowler believe that we should try to do this by diplomatic pressure alone, and that, if that fails, we should grin and bear it. Ball believes that, if diplomatic pressure fails, we should offer to divert enough of our own defense orders to Britain to offset the foreign exchange cost of delaying the troop cuts (about $18 million for a three-month delay). (Again, my vote is with Ball. British troop cuts announced in mid-October and justified in balance-of-payments terms could undermine the entire trilateral exercise.)
FB
173. Memorandum From Secretary of the Treasury Fowler to President Johnson/1/
Washington September 25, 1966.
/1/Source: Johnson Library, National Security File, Country File, Germany, vol. 12. Secret. Fowler reiterated these points in a 4:15 p.m., September 26 telephone conversation with the President. (Johnson Library, Recordings and Transcripts, Recording of Telephone Conversation between President Johnson and Secretary of the Treasury Fowler, September 26, 1966, 4:15 p.m., Tape 66.26, PNO 1 and 2)
SUBJECT
Visit of Chancellor Erhard--the Current Military Offset AgreementIt may become necessary to stretch out the military orders requirements of the current offset agreement, but we do not want to stretch out the payments requirements.
To meet the payments requirements, it probably will be necessary to work out arrangements between Finance Minister Dahlgruen and Bundesbank President Blessing and me.
We need to have Erhard on the line that the financial requirement will be met on time--that only the techniques need be worked out.
I do not feel that there would be any reasonable chance of success in making such arrangements unless Dahlgruen and Blessing were given firm instructions by Erhard to do so.
Thus, if we are to employ this technique, it is important that you obtain a firm commitment from Erhard that a financial arrangement which meets our requirements both in amount and time schedule will be concluded.
There are two possibilities:
a. If Erhard is prepared to place orders for military equipment sufficient to fulfill his existing offset commitment but cannot obtain funds from the budget to meet the payments commitment, the shortfall should be made up by purchase of a non-negotiable U.S. Government security which could, in substance, be redeemed only for the purpose of making payments for military equipment.
b. If Erhard is unable to fulfill his commitments on the magnitude of military orders and on payments directly related to them, he should be asked to agree to the purchase of long-term United States securities equivalent to the shortfall in payments. Such securities should be of extended duration (12 to 15 years), since they would be a substitute for the sale of military equipment. Redemption prior to maturity could be permitted after the first few years, in the event that Germany encountered serious balance of payments difficulties. The debt instrument could not, however, be readily negotiable. The criteria of extended duration and limited negotiabilty are essential elements which should be included in any understanding you reach with the Chancellor. The financial transaction would need to be in effect by June 30, 1967.
Henry H. Fowler
174. Memorandum of Conversation/1/
Washington, September 25, 1966, 4:30 p.m.
/1/Source: Department of State, Central Files, POL GER W-US. Secret; Exdis. Drafted by Obst. A note on the source text reads: "Uncleared interpreter's notes." The meeting was held at Blair House.
AMERICAN PARTICIPANTS
Secretary Rusk
Under Secretary Ball
Ambassador McGhee
Harry Obst (Interpreter)GERMAN PARTICIPANTS
Chancellor Erhard
Foreign Minister Schroder
Defense Minister Von Hassel
Minister Westrick
State Secretary Carstens
State Secretary Von Hase
Ambassador Knappstein
Hermann Kusterer (Interpreter)Secretary Rusk opened the conversation by telling the Chancellor about the meeting with Foreign Minister Gromyko the night before in New York./2/ He said the actual conversation had taken place after dinner and Gromyko who had spoken English at a preceding meeting had reverted to the use of an interpreter.
/2/A memorandum of conversation is ibid., Conference Files: Lot 67 D 586, CF 84.
Most of the discussion had centered around bilateral matters, like the release of certain individuals in Soviet custody and proposed changes in the mutual civil air agreement. Another topic had been the Space Treaty, originally proposed in Geneva. Much time was spent talking about Vietnam. The atmosphere was calm, no threats and violent adjectives were used, as opposed to what happened in the UNGA./3/
/3/Although Vietnam was not an item on the General Assembly agenda, the Soviet Union used the time allotted to it in debate to charge that the United States and its South Vietnamese allies were waging a war of "aggression" and to call for U.S. military withdrawal and a negotiated settlement of the conflict. Soviet charges were set out in a letter to the Secretary-General, July 11. (U.N. doc. S/7401)
Hanoi had instructed Moscow they would not begin any negotiations before the U.S. had unilaterally stopped the bombings in North Vietnam. On the other had they had not promised to be ready to talk if the bombings would stop.
Equally on the subject of non-proliferation no new lines had developed. The Soviets continued to resist a treaty proposal that would not bar the NATO countries (non-nuclear) from getting access to nuclear weapons in one form or another. No new conclusions were reached, no progress made on this subject. Mr. Foster and his delegation were present in New York and would try to follow up the subject.
The conversation had ended about 11 p.m.. He was expecting to have another meeting with Mr. Gromyko in the near future.
Chancellor Erhard stated it was very hard to come up with satisfactory answers on some of these questions. As regarded the questions of Offset, a common strategy of defense, cooperation between the European partners, non-proliferation etc.--all these were intertwined and could hardly be discussed as separate entities.
How could one provide for a reasonable policy, make proper provisions for European Defense without knowing the exact concept of contemplated nuclear strategy. Old projects need not necessarily be revived (MLF/ANF) but the question was how to find a common solution for all concerned.
If the two blocs agreed not to give nuclear weapons to their allies (NATO-Warsaw Pact), there was still the question what would the "neutral" countries do. If the book was once closed, how could the cooperation continue, how could one still find a common solution?
The question was how to obtain a total nuclear strategy for the Alliance as a believable deterrent. This was a question that could not be evaded in the talks he (Erhard) had had with his delegation earlier that morning.
If the proposed tripartite talks would concentrate only on Offset, they would not be very useful. There should be talks first between the US and the FRG on the aspects of their mutual security. In this direction German government policy needed some support. There were many influential people, if not in the administration then certainly in Parliament, that are unhappy with the current state of affairs and are looking for more or less strong alternatives or changes in the status quo. Sure, in the same breath they will declare they needed the U.S., would remain loyal to the U.S., etc., but in reality they were also looking in new directions. Some solid arguments were needed before the German people in order to reassure them.
The government was under much pressure. Just to get the 1967 Budget through Congress would be a gigantic task. Some 30 existing laws would have to be changed in order to reduce expenditures. This would have psychological consequences. Add to this the Offset burden and other political problems and you can see how difficult our situation is.
Secretary Rusk assured the Chancellor the U.S. government was aware of these difficulties and shared the concern. The President would meet him with an open mind and sympathetic attitude.
The Chancellor added, he did not want to be misunderstood. There was no question of not keeping existing treaties and fulfilling obligations to the full amount. But under the circumstances an appropriate form would have to be found to allow the FRG to keep its commitments in a way consistent with realistic possibilities. The Central Bank was trying not to jeopardize the dollar, the FRG was buying no gold, the FRG was helping to support the Pound Sterling. Along similar lines, to be discussed in detail later, solutions may be found. This should be possible among close friends and allies. Among business partners too there was such a thing as a "prolongation". A follow-up agreement could be worked out on June 1. An amicable solution of this matter among friends would be to the benefit of the President also, not just for the German government. It was important to successfully resolve this matter.
Secretary Rusk asked Mr. Ball to comment on some of these questions, as he (Ball) had been in touch with the President and Cabinet while he (Rusk) was away in New York.
Under Secretary Ball assured the Chancellor that the President had deep respect for the policy the FRG had followed domestically, with regard to NATO, its European policy, its Atlantic policy, its policy towards the underdeveloped nations and its support of the US position in Vietnam.
The US policy versus NATO had not changed. The US would keep its commitments. The US was paying a toll of a hundred lives a week to support a people of 14 million in SEA.
The major question was how all the NATO nations could find a way to act together. De Gaulle had taken a big step away. Belgium was contemplating reduction of troops. Britain was thinking about reducing their troop strength. This erosion process was a matter of deep concern. If there was going to be a double standard it would be hard for the US Administration to defend itself against domestic pressures for reduction.
The problem should be approached from the angle of not jeopardizing the security of anybody. He (Erhard) was right in saying certain things could not be looked at separately. There should be a way of finding an arrangement without disturbing your (FRG) problems further and without having to go to a postponement (of offset payments).
More flexible long-term agreements on balance of payment could be worked out that would include Britain. Britain had similar problems (Wilson Cabinet plans, reduction of BAOR) and domestic pressures that would have to be considered. Unilateral actions could further unravel the Alliance. One could have tripartite talks on these matters and still carry on bilateral talks. A solution would have to be found in terms of everybody's security. Some aspects would have to be checked with all the NATO countries. This approach would take the focus away from the balance of payments in the direction of common security.
The Chancellor stated he was not in principle against tripartite talks. It seemed more important, however, for the US and the FRG to talk bilaterally about their mutual problems (Offset, nuclear sharing). Some solution should first be found between the two, be it anywhere along the spectrum from a "hardware" solution to "Any kind of a voice" with regard to the nuclear question. Then one could also talk to the British. We are in touch with the British on foreign exchange matters already. A committee of top experts is to present proposals to the two governments by Oct. 13/14. This might provide a basis. Of course, he was attaching the necessary attention and importance to the British position on NATO (transport large units quickly once depots are available) troop strategy. Nor did he want to say that US troops should remain on German soil in all eternity. But at present their presence was very important. He needed to have a clear picture for himself and for the German people of their security within the Alliance. He must have a clear picture on nuclear matters. This was no longer avoidable.
Also the EEC countries may soon grow into a political union which would have to be considered as a factor.
(From this point in this memorandum comments from the American side are not included, as simultaneous interpretation allowed no note-taking. Ambassador McGhee was taking notes that might be available.)/4/
/4/Not found.
Chancellor Erhard said he could not only look at the non-proliferation question from the standpoint of German security, but would also have to consider the problem of reunification. The Germans knew reunification could only be achieved peacefully, but a number of peace-loving Germans that were trusting the US were very much concerned about an agreement that could perpetuate the status quo.
Secretary Rusk asked the Chancellor's opinion on the German public attitude towards tripartite talks.
The Chancellor replied there was no unfavorable public opinion other than the simple fear that the US wanted money of the FRG and Britain wanted money of the FRG, and now they wanted to gang up together to put Germany in a 2:1 minority. (Laughter)
Foreign Minister Schroder commented what was needed was a clarification of the common objectives.
Sitting at the point of confrontation the German public was very sensitive about certain simple aspects of security. People ask what would happen in the first minutes of a confrontation. Would the little region of the FRG really be defended? What would it take to release a nuclear counter attack? Any reduction of troops by allies, any talk in this direction from the Pentagon was making them more insecure and nervous. Some say why should we bother to maintain a high level of conventional troops, if others do not even maintain their low levels?
What was needed were some long-term assurances (like no reductions by 1970 or so) about maintaining levels. Any necessary reduction should be proposed within a general clear security strategy and be counterbalanced somehow, not done unilaterally or out of context.
The US, Germany and Britain should have some long-term consolidation, though not at the expense of other partners. A clear picture on this was necessary for any German government, even an SPD government, if such government was to meet its responsibility to its people.
Chancellor Erhard followed this up by pointing out the relative security felt by the people during the period of "massive retaliation", when nobody ever criticized extra expenses in the defense sector, as opposed to the insecurity felt since the introduction of the "flexible response" strategy with its "thresholds" and "pauses".
Should the Russians for example want to take Hamburg, the FRG might reply with tactical nuclear weapons. The Soviets might answer with tactical nuclear weapons first also and might attack at another point. Would at this point, or a little later, the decision to employ a full response be made any easier for the US President with the fires of war already on the world's horizons?
To us, you and the Russians a big nuclear war is unthinkable as a solution. But then how believable is our strategy of deterrent to the man in the street in Germany. As long as there was the strategy of full response and sure retaliation it sounded believable.
Foreign Minister Schroder suggested a military briefing of 45 minutes or so might be included during this visit (or if not now possibly at a later date). This briefing to be in the presence of the President, maybe by Mr. McNamara, similar to a briefing Chancellor Adenauer received in 1961.
Chancellor Erhard supported this idea. He once again conjured up the image of a small-scale Soviet attack on German territory. Somewhere along the line of escalation, the Soviets would have to be told: one more step will unleash the full nuclear force. With all our trust in the US and our allies will we and the man in the street be sure the rest of the world would be ready to die for the sake of saving Germany?
These are very realistic fears disturbing the German people.
Mr. Schroder added, it was exactly because of this why the presence of US troops was so important as a symbol of US involvment and a token and pledge of commitment. To him, frankly, the thesis of "massive retaliation" never made any military sense but sounded just like a political argument that was convenient.
Chancellor Erhard stated that for the reasons cited by Schroder the US stand in Vietnam was so important and encouraging to the Germans.
Secretary Rusk emphasized that the US had never abandoned any of the territory of its Allies and taken enormous casualties to honor their commitments. They had 7,000 warheads in Europe they would certainly not abandon to the Russians, and the only way the Russians could get them is "to have them stuffed down their throat".
Chancellor Erhard said he fully trusted the US but had to consider the theoretical possibility of an agreement between the US and the Soviets never to attack each other to which the FRG could fall victim not having even a voice in nuclear defense. Such arguments could be heard in the Bundestag.
Secretary Rusk assured the Chancellor he could understand his concern. He hoped the forthcoming talks would clarify many points. He had noted with curiosity that during the talks with East European foreign ministers at the UN in New York the usual invective against the FRG was missing. There was a noticeable response to Mr. Schroder's policy of rapprochement. This was an encouraging sign.
(The meeting broke up about 6:30 p.m.)
175. Memorandum From the President's Special Assistant (Rostow) to President Johnson/1/
Washington, September 26, 1966, 11 a.m.
/1/Source: Johnson Library, Bator Papers, Erhard Visit September 1966. Secret.
Mr. President:
I have been in touch this morning with Secretary Rusk, Secretary McNamara, and George Ball.
On the critical issue of the current offset agreement, they recommend the following for your talk with Erhard at 11:30./2/
/2/See Foreign Relations, 1964-1968, vol. XIII, Document 207.
1. You recognize that his budgetary position does not permit him fully to offset, as promised, in military equipment.
2. It is, of course, impossible for the U.S. to carry the balance of payments effects of this situation.
3. Therefore, you are prepared to have his monetary experts and ours get to work immediately to find other means of offsetting U.S. balance of payments costs for the rest of the fiscal year.
4. The longer term solution must emerge from the tripartite military and financial review which you hope he will join. In this connection you hope he will appoint a man of the stature of John McCloy capable of dealing with both the military and financial aspects of the longer term problem in the spirit of the Alliance.
Walt
P.S. If he agrees, you can then come back to the Cabinet Room and instruct your experts to work hard this afternoon to establish: (a) an agreed formula for the communiqué; (b) an agreed arrangement for working out the details on the short-term agreement in the days ahead, in which Joe Fowler might be our negotiator.
176. Memorandum of Conversation/1/
Washington, September 26, 1966, 12:30 p.m.
/1/Source: Johnson Library, National Security File, Country File, Germany, vol. 11. Confidential. Drafted by Puhan and approved in the White House by Bromley Smith on December 2. The meeting was held at the White House. McGhee discussed Erhard's visit in At the Creation of a New Germany, pp. 190-193, 199-200. President Johnson discussed the visit and its background in The Vantage Point, pp. 306-308.
SUBJECT
OffsetPARTICIPANTS
German
Chancellor Erhard
Foreign Minister Schroeder
Defense Minister von Hassel
Minister Westrick
Ambassador Knappstein
State Secretary Carstens
State Secretary von Hase
Dr. Ruete
InterpreterAmerican
President Johnson
Secretary Rusk
Secretary McNamara
Secretary Fowler
Under Secretary Ball
Ambassador McGhee
Mr. Bowie
Mr. Bator
Mr. Stoessel
Mr. PuhanThe President stated that the Chancellor had explained to him his budgetary difficulties./2/ While intending to fulfill his commitments, the Chancellor had expressed the wish to find some other formula which would make it possible for the Germans to stretch out their payments beyond the due date of July 1, 1967. The President reported that he had told the Chancellor of our difficulties. He said even if the Germans had encountered no problem in meeting their current obligation to us, we still faced great problems. The President said he had suggested that his and the Chancellor's advisers get together to consider solutions to the current problem. The President said he had assured the Chancellor he understood his problems and didn't want to add to them. He remarked that neither of us wants to win an argument and lose a sale. He suggested that we examine the alternatives.
/2/At their 11 a.m. meeting; see Foreign Relations, 1964-1968, vol. XIII, Document 207.
Chancellor Erhard reported he had told the President of the great value he placed on his relationship with the President and the talks they were having. He wanted to assure everyone that the Germans had stood faithfully by the United States, ready to support it, to support the U.S. dollar. Now the Germans found themselves in a situation where they found it difficult to meet their obligations within the time frame set. The Chancellor referred to his efforts to come up with as much of the offset as he could. He spoke of his conversation with the President of the Bundesbank. He asked that there be no misinterpretation placed upon German inability to fulfill its contract in time.
The President asked the Chancellor whom he wished to designate to meet with our experts to discuss the problem of the current offset. He thought that Mr. Ball and Secretaries Fowler and McNamara should form our team. Mr. Ball suggested that the Germans include Dr. Blessing of the Bundesbank since obviously there would have to be financial discussions.
The Chancellor reviewed some figures regarding funds available to the Germans. He said they could get $250 million from the Bundesbank to which they could add prepayment of the post-World War II debt of approximately $214 million. This would bring their total resources to $470 million.
At this point the President urged again that the experts meet to find a solution. Chancellor Erhard said he wished to add that the German Defense Budget would have to be increased to cover the present offset as well as the future one. It was agreed that Mr. Ball, along with Messrs. McNamara and Fowler, would meet with their German counterparts later.
177. Memorandum of Conversation/1/
Washington, September 26, 1966, 1 p.m.
/1/Source: Department of State, Central Files, POL 7 GER W. Secret. Drafted by Obst on September 29. The meeting was held at the Department of State. The source text is marked "Part I of I."
SUBJECT
Secretary's Talks with GromykoPARTICIPANTS
The Secretary
Chancellor Ludwig Erhard--Federal Republic of GermanyThe Chancellor thought it important that the search for solutions to the problems common to the two countries should in no way impair their traditional friendly relations and solidarity.
This solidarity should be emphasized to the public and not just an account given of the matters that were currently pressing. On the other hand one should avoid creating the impression that there were no problems. These should be talked about, but above all it should be made clear that friendship and solidarity remained unshaken.
The Secretary nodded his approval. He said he had been surprised by the atmosphere during his recent conversation with Soviet Foreign Minister Gromyko in New York. He had expected the usual harsh language and threats. However Gromyko had abstained from the usual invective against the FRG and from accusing the US on Vietnam. Not one angry word had fallen. This contrasted sharply with previous occasions when no opportunity had been missed to denounce the FRG. The Secretary did not attach any particular importance to this but it seemed that Gromyko had been under instructions from Moscow to abstain from violent adjectives.
The Chancellor asked the Secretary how he appraised the outlook for a non-proliferation treaty after his talk with Gromyko.
The Secretary answered that matters stood where they had been before. A treaty that would allow the NATO countries access to nuclear weapons was unacceptable to the Soviets. Because of their insistence on this point, there was no narrowing of the gap between the views of the two sides. He did not know if any importance could be attached to Gromyko's remark, when the latter's attention was directed to the Warsaw Pact nations, that we should not try to get involved in political relations between individual countries but rather concentrate on the real issue--the transfer of atomic weapons to non-nuclear nations. In the past, in similar discussions, the Soviets had always brought forward an array of political arguments, especially about individual NATO nations. The Secretary had once told Gromyko the latter sounded as if he was trying to obtain a 16th seat on the NATO Council with veto power.
The Chancellor inquired if the Secretary was worried about any "nuclear power" ever getting involved in the Vietnam conflict. Seen from the perspective of Bonn it seemed that the Soviet Union was paying only lip service to the cause of Hanoi but did not really want to get involved.
The Secretary replied he had had a meeting with Mr. Rapacki just before the talks with Gromyko./2/ The Polish Foreign Minister had threatened that the entire communist bloc might get together to come to the aid of Hanoi if the US would continue the war in Vietnam. He had told Rapacki that the US was prepared to face the consequences of such an action.
/2/See Foreign Relations, 1964-1968, vol. XIII, Document 206.
No such remarks had come from Mr. Gromyko, though the latter and the Polish Foreign Minister, he felt sure, were keeping each other informed.
The Chancellor commented the FRG was always hearing the bitterest language from Poland. They had given the harshest reply to the March Peace Note. This was all the more disappointing as there was much desire for reconciliation in the FRG, and the matter of borders would certainly present no problems in the event of German reunification.
The Secretary remarked it seemed to some people as if there were two blocs in Eastern Europe: a Northern Bloc, with a more frigid attitude, comprising the Soviet Union, Poland and the DDR, and a Southern Bloc, comprising countries like Rumania, Hungary, Czechoslovakia and Bulgaria, with an attitude more relaxed and open to the West.
The Chancellor replied there was some truth in that theory. However, those three in the "Northern Bloc" surely did not look like natural allies. Poland's resentments applied to East Germans just about as much as to the West Germans. The relations between Poland and the Soviet Union had historically always been unfriendly. Maybe it was only the power of the Soviet Union that was keeping the three together.
He asserted that there was hardly a German left to whom the revision of the Oder-Neisse Line was sacred. Reasonable borders could be arranged. Some arguments were only retained as a political bargaining position, not out of conviction.
178. Telephone Conversation Between President Johnson and Secretary of Defense McNamara/1/
Washington, September 26, 1966, 7:40 p.m.
/1/Source: Johnson Library, Recordings and Transcripts, Recording of Telephone Conversation Between President Johnson and McNamara, September 26, 1966, 7:40 p.m., Tape F66.26, Side B, PNO 1. Secret. The transcript was prepared by the Office of the Historian specifically for this volume.
LBJ: Bob?
RSM: Yes, Mr. President.
LBJ: How did things go this afternoon?
RSM: Well, we didn't have any meetings. They kept postponing all afternoon and, obviously, didn't know what they wanted to do. Finally--so we cancelled our meetings with them. And we weren't much better off than they were. Every one of us has got a different idea of what ought to be done. Then about 6 o'clock, von Hassel called and asked if he could come over. I just arrived home from talking to him and he said that the Chancellor hasn't decided yet what to do but von Hassel said he wanted to give me his ideas. Now, I think he was sent in--
LBJ: Sure, sure.
RSM: . . . to float this. But the net of it all is that it's a terribly complicated thing. And the net of it is that they would fulfill the present offset agreement, but it would lag along awhile. They would use various means that I'm sure Joe [Fowler] wouldn't like but which, on balance, I think you could say fulfill the present offset agreement. And I think that one of our objections must be to put ourselves in a position to say to Mansfield they did fulfill it, even though it's by hocus-pocus. But, in any event, that's the first part. Secondly, for the future . . .
LBJ: Didn't say how?
RSM: Pardon me?
LBJ: Didn't say how?
RSM: Yes, they . . .
LBJ: Is he talking about prepaying this loan and stuff?
RSM: Well, that's one of the items. I said, well, we couldn't accept that, and so they've got an alternative. But--
LBJ: What is it, buying?
RSM: Well, they take . . . . they say that our Federal Reserve is holding--let me see now--there are short-term obligations which they would convert to medium term to the extent of 250 million this year and, depending upon that 214, either 178 next year or 250 next year and then an additional about 112 the following year. In addition, they would increase their defense budget, which, for '67, starting January 1, is presently planned at 18-1/2 billion marks. They'd increase it by one billion marks, which is another 250 million. And out of all of this, they'd get enough to pay off. As far as the orders go, they would slip those six months and fulfill the order commitment by June 30 of next year. So, in a sense, I think there is a lot of negotiating on the details, but I think we can work out a satisfactory arrangement on the present offset, at least that would be satisfactory to me and, I think, Joe would probably accept it grudgingly ultimately. On the future--
LBJ: What would it do to our balance of payments this year?
RSM: Well--
LBJ: We're short 650 now on account of them.
RSM: That's right.
LBJ: How much would we be short if their proposal went through, three or four hundred?
RSM: Well, yes, about that. We'd get . . .
LBJ: About half of that?
RSM: There's a hundred-odd million that we seem to be in dispute on figures. I've got to straighten that out tonight. But then there is another 250 that we'd get this year, and the rest would come in next year, unless there was a 120 million or so slop-over into the following year. They say the Bundesbank is limited on the amount of conversions of short into mediums that they can take.
Then they say they don't want any more 2-year agreements. They'd like a 5-year agreement for the future, and they can only, in effect, offset 350 million. They'd purchase 350 million a year from us and pay for it on a specified schedule. The purchases would start next year--if I understood this correctly--and run for the 5 years through 1971, and the payments would start the following year and run through 1972, 350 a year, which is less than half of what we'll spend because, as their price level rises and as our military salaries rise, our foreign exchange costs go up. They have averaged 725 million a year, we believe, in '65 and '66. We think they'll average for the next 5 years, 850 million, and of the 850 million, they would offset only 350.
LBJ: Uh huh.
RSM: Now, I think we can reduce that 850 some.
LBJ: How much, when you pull all your troops out of there? Just suppose that you decided that we couldn't afford it--
RSM: Right.
LBJ:--we had to move them back--
RSM: Right, right.
LBJ:--we could get them back with all your--
RSM: Yeah.
LBJ:--modern transportation and everything pretty quick, couldn't you?
RSM: Well, this is where we get lots of controversy, Mr. President. I believe we could. Of course, if we were going to pull them all out, it would be quite a difficult movement back because we just have--I've forgotten the tonnage--something like a million tons of equipment would be in Germany. We've had 750,000 tons in Germany and 750,000 tons in France, if I recall correctly, and that's a tremendous quantity of stuff to move. But what we'd do, if we pulled them all out--which I think is such an extreme situation, I can hardly visualize it--but if we did, we'd leave practically all the equipment there, and we'd have to hire some Germans to oil it and maintain it, and then we'd have to run exercises periodically, putting the troops back in so we'd get some skill at it. I think it's inconceivable to pull them all out, but if we did, it would take a month to get them back, which is far beyond the limits of what others consider reasonable warning time. It might take a month and a half to get them back. If, on the other hand, we pulled, let's say, 55,000 out, plus half the Air Force, I think we could get those back easily in 2 weeks. And it's inconceivable to me that the Russians would go from a period of calmness to a full invasion of Germany in less than 2 weeks. I just don't think it could be done.
So from a military point of view, Mr. President, I think substantial force adjustments are justified. Unless we handle it right, however, there would be a terrible political cost. And that's our problem.
LBJ: Well, how do we handle that right?
RSM: Well, I don't know. I think tonight and tomorrow we ought to--
LBJ: Looks like to me, we ought to take advantage of this opportunity to make him tell us that he cannot afford to have our troops there.
RSM:--and he wants our troops out. That's what I think we ought to do, Mr. President. That's right. That's exactly right. And I worked on Hassel some in Paris on this exact point./2/ And that's why they've been saying in the press recently that they think, conceivably, we can take some out. But today, they began taking the line that they didn't think we ought to take any out until 1969 or '70. Schroeder asked me if we couldn't get you to make a statement to Erhard to that effect during the meetings, and I said that I was almost certain you wouldn't be willing to make that decision at this time. That you would want the tripartite group to examine that. Then this afternoon--
/2/At the July 26 meeting of the NATO Nuclear Planning Working Group; see Foreign Relations, 1964-1968, vol. XIII, Document189.
LBJ: Are you coming tonight?/3/
/3/President Johnson was hosting a State dinner in honor of Chancellor Erhard.
RSM: Pardon me?
LBJ: Are you coming tonight?
RSM: Yes.
LBJ: Maybe I can sit next to you (?). Mrs. Johnson called to remind you that if they arrive on time, it would be 7:50, and it's now 7:45!
RSM: I know it.
LBJ: Goodnight.
RSM: I haven't even dressed. I just walked in the door--
LBJ: You can be as late as you want to, because we're upstairs, you know, [inaudible]--
RSM: Yeah, oh, that's right.
179. Memorandum of Conversation/1/
Washington, September 27, 1966, 11 a.m.
/1/Source: Johnson Library, National Security File, Country File, Germany, vol. 11. Confidential. Drafted by Obst and approved by Bromley Smith of the White House on December 2. The meeting was held at the White House. The source text is marked "Part 1 of 3." Part 2, dealing with educational exchanges, is not printed. Part 3 is Document 180.
SUBJECT
Discussion of CommuniquéPARTICIPANTS
Chancellor Ludwig Erhard
President Lyndon B. Johnson
Walt W. Rostow (intermittently)
Hermann Kuesterer (German Interpreter)
Harry Obst (American Interpreter)The President presented to the Chancellor a draft proposing the establishment of rapid telecommunications (sort of "hot line") between Washington and Bonn./2/ The Chancellor agreed to the draft and both initialed it.
/2/In a 9:40 a.m., September 27 memorandum to the President, Rostow reported that "Secretary Rusk believes that it would be constructive for you to raise . . . the setting up to Bonn of a direct line for quick communication." (Johnson Library, Bator Papers, Erhard Visit September 1966)
The President then discussed with the Chancellor the communiqué to be issued./3/ On most points there was agreement. The Chancellor first objected to the inclusion of reference to certain initiatives of the Italian government in the field of technical cooperation on space and related matters.
/3/For text, see American Foreign Policy: Current Documents, 1966, pp. 403-406.
The President called in Walt W. Rostow who convinced the Chancellor that inclusion of this reference was no longer avoidable as the Chancellor's Cabinet Ministers had already agreed to it and the Italian government had been informed. The Chancellor then agreed to the inclusion.
Another item the Chancellor objected to was the inclusion of the term "cold war", used with reference to relations with Eastern Europe. The Communist camp was always employing the term "cold war" in their tirades against the FRG and using the two words (cold war-West Germany) in one breath constantly. After consulting with Mr. Rostow, all sides then agreed to a new version of this paragraph.
The Chancellor told the President briefly about the talks held earlier that morning with Secretary Rusk and Governor Herter on the Kennedy Round./4/ He assured the President that his views were similar to those of the US and he would do everything possible to further the success of the Kennedy Round.
/4/Memoranda of conversation of their discussion are in Department of State, Conference Files: Lot 67 D 587, vol. 12.
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