A BIT OF COLD WAR HISTORY

While rummaging through my archives I came across these souvenir photos that I had forgotten about. The U.S.-German negotiations that began in Nov 1960 with the photos shown here continued in one form or another for around 8 years. I was thrust into these talks as a 25 year old Treasury staffer assigned to the U.S. Embassy in Bonn only a couple of months earlier. As I think back on those days, I can’t help but wonder how we lived through them. We were dealing with very serious issues in those days. Issues that make the scuffle in Ukraine, the U.S. national debt, the Euro crisis and monetary issues of the day seem trivial by comparison.

Our leaders back then, starting with Eisenhower, coming to a head under Kennedy and continuing under Johnson, were grappling with issues that involved the potential for nuclear war and monetary collapse. The monetary aspect is largely ignored by historians who have written about the time, but in the minds of all three Presidents and the policymakers who advised them defense and monetary issues were inextricably interlinked.

Kennedy confidant and historian Arthur Schlesinger says the President often told his advisers that “the two things which scared him most were nuclear weapons and the payments deficit.” And Kennedy’s Under Secretary of State, George Ball, claimed that the President was “absolutely obsessed with the balance of payments.”

The cost of keeping six divisions in Europe was draining away our gold reserves, threatening monetary collapse, leading to serious consideration of reducing our force levels in Germany, which would have been at odds with the military doctrine of a "flexible response", trying to hold back a Soviet attack with conventional forces as long as possible before resort to nuclear weapons. The Germans, scared to death of possible troop withdrawals, feared that we might be intending to use West Germany as a buffer zone, allowing the Red Army to race to the Rhine before unleashing nuclear weapons. Adenauer was strongly opposed to the doctrine of a "flexible response" which he believed was no deterrent at all, and was consequently drawing closer to French President Charles DeGaulle who was critical of the U.S. for "living beyond its means" by running a balance of payments deficit, and who was prepared to wield his nuclear "force de frappe" more aggressively. Then too, the possibility of a nuclear armed Bundeswehr confronting the Soviets was America's worse nightmare. Tensions with the Soviet Union came to a head in October 1961 at Berlin's Checkpoint Charlie where U.S. and Soviet tanks faced each other 75 meters apart, the U.S. commander getting his orders directly from the White House and the Soviet commander in direct communication with the Kremlin. Other than the Cuban missile crisis one year later, it is as close as the world has ever come to nuclear war.

I will come back in a day or two with an explanation of why the defense of the Free World and the international monetary system were so inter-connected in the minds of these Presidents, and describe a little of what I remember of the 4 years during which I spent about 80% of my time discussing these issues with counterparts in the West German Government and the Bundesbank, but first I would like to share these historic photos.

This photo was taken as the principles left the first meeting at the Palais Schaumburg, official residence of the Federal Chancellor, Dr. Konrad Adenauer, on November 21, 1960.

Front row, from left to right:

Prof. Ludwig Erhard, Economics Minister and famously known as “the father of the West German economic miracle”.

Douglas Dillon, Assistant Secretary of State in the Eisenhower Administration, two months later to become Kennedy’s Secretary of the Treasury.

Robert B. Anderson, Secretary of the Treasury in the Eisenhower Administration.

Dr. Konrad Adenauer, Chancellor of the Federal Republic of Germany

Walter C. Dowling, U.S. Ambassador to Germany

After the initial talks at the Palais Schaumburg, the conference continued in the afternoon at the West German Foreign Office, the German side led by Economics Minister Ludwig Erhard, and the American side (obviously outnumbered) led by Treasury Secretary Anderson. That’s my Embassy boss Bob Bee at the extreme top right. Opposite Bob and second from the top on the German side is my favorite German economist, Otmar Emminger, then a Director and later to become President of the Bundesbank (German central bank). I am seated in the second row on the right safely out of sight.

This is a closeup of the German delegation. Prof. Ludwig Erhard who became Chancellor in 1963 is fourth from the right. Fifth from the right leaning over to speak to Erhard is Franz Josef Strauss, Minister of Defense and leader of the Bavarian CSU Party. Strauss was Erhard’s strong rival to succeed Adenauer as Chancellor, and later hotly contested Helmut Kohl for the job, spending the rest of his life after failing to become Chancellor as Minister-President of Bavaria. At the far left looking back over his shoulder is Finance Minister Franz Etzel.
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In a sad footnote, Treasury Secretary Anderson who led the U.S. delegation had a tragic ending to his career. He was a Texas lawyer, a favorite of Eisenhower who once said he thought Anderson was better qualified than he to be President. Eisenhower tried to get Richard Nixon to resign as Vice President and become Secretary of Defense so that he could appoint Anderson to the Vice Presidency setting him up as a candidate to run for President, but Nixon refused. In later years Anderson set up a shady banking operation in the Caribbean that became involved in laundering drug money. He also became an alcoholic, being admitted to a hospital on several different occasions for his drinking problem, and ultimately just two years before his death at age 89 was convicted of bank fraud and tax evasion, receiving a prison sentence that I am not sure he ever served.

From the few occasions that I sat in on meetings in Anderson’s Treasury office, I recall him as a man of very few words, blunt and direct. On this trip to Germany I remember being summoned to his bedroom and found him sitting there upright in a chair, dressed in a silk robe, facing away from me in a darkened room.  He asked me something, I have forgotten what, never once looking me in the face.