The Chairman

by Kai Bird

  With the president almost completely absorbed by the Vietnam mess, McCloy was also worried that the administration was ignoring a far more dangerous crisis. On February 21, 1966, de Gaulle had once again surprised Washington by announcing that France was withdrawing from the military provisions of the NATO alliance. Starting in July 1966, he said, French troops stationed in Germany or elsewhere would no longer be under the command of NATO’s supreme commander, always an American general. Furthermore, de Gaulle stated that his troops would respond only to “unprovoked aggression,” not the mere outbreak of hostilities between the NATO and Warsaw pacts.69 To McCloy, all of this was practically heresy. To make matters worse, there were indications that, with the weakening of the British pound, London might soon withdraw its own troops from Germany unless someone paid for them. But the U.S. Congress was unlikely to approve such expenditures. The rising costs of the Vietnam War, combined with a worsening U.S. trade balance, had led to pressure on Capitol Hill to bring some of the troops home from Europe. McCloy thought the very existence of NATO, and therefore the entire structure of the postwar peace, threatened to disintegrate.

  Having just relinquished his job as chairman of the Ford Foundation, he decided to focus his energies on NATO’s problems. Just a few days after de Gaulle’s announcement, McCloy accepted an appointment as chairman of the board of governors of the Atlantic Institute, a Paris-based nonprofit group dedicated to promoting unity inside the Atlantic alliance. In addition to Harriman, he made the rounds among his old colleagues, seeing Dean Acheson, George Ball, Robert Lovett, and others. Something had to be done, he told them, to save NATO. In early March, he went to see Dean Rusk, and a month later the president designated him a “special consultant” on the NATO crisis.70

  McCloy immediately left for Bonn, where he encouraged the Germans to be tough in their dealings with de Gaulle. German Chancellor Ludwig Erhard, however, feared a confrontation. Was it, he asked, really “worthwhile to bring about a deterioration in Franco-German relations and a weakening of NATO simply because of questions of form and legality?” Weren’t there many Americans, let alone Europeans, who rather agreed with de Gaulle and believed it was time for the Europeans to stand alone?

  McCloy was shocked and disheartened by Erhard’s question, but he tried to reply as best he could. Yes, there were Americans who thought the issue was not worth the risk of a break with France. “Walter Lippman, for one,” McCloy said, “could be expected to follow this line, but Lippman . . . had been notoriously wrong on almost every important issue, beginning back in the days of Hitler.” Some intellectuals and scientists would take the same view. In a way, he said, their attitude was a little like that of Khrushchev, who had once told him, “We don’t want a strong united Western Europe. Why do you?” But most Americans, McCloy assured Erhard, had long ago rejected this view of the world. True, there was still some antagonism remaining from the war, but the general view among his countrymen today was that “de Gaulle is trying to set the clock back.”71

  McCloy was certainly underestimating both the appeal and the legitimacy of de Gaulle’s brand of European nationalism. Most Europeans interpreted détente differently from the policy-makers in Washington and Moscow: for men like McCloy and Rusk, détente meant only a further consolidation within secure borders of each power’s sphere of influence. But for the Europeans, détente held the promise of a gradual, mutual withdrawal of the two superpowers from Europe.72 The policy changes of “Ostpolitik” were still four years distant, but the political rumblings in this direction could already be heard in the German Social Democratic Party. After his conversation with McCloy, however, Erhard ignored these signs of change and proceeded to take an extremely pro-American stance. In a very few months, this would cost him the chancellorship.

  Back in Washington, McCloy was disturbed to find that the Johnson administration didn’t seem so concerned about the NATO crisis as he thought they should be. The president himself had told Bob McNamara, “When a man asks you to leave his house, you don’t argue; you get your hat and go.” Johnson thought the “only way to deal with de Gaulle’s fervent nationalism was with restraint and patience.73

  McCloy, however, was not one to give up, and certainly not on an issue so close to his heart as the German alliance. That spring, he testified before a Senate subcommittee and complained of the “reinfection of Europe with nationalism” and “discriminatory” attitudes toward Germany: “Kept from any form of sharing nuclear potentials and denied an equal place at the table because of the claim that Germany is still not a sovereignty in the same sense as France, we have the seeds of ill will, reminiscent to me of the discriminatory provisions of Versailles. This attitude to me is like a fire bell in the night.”74

  “Difficult adjustments” would have to be made in order to preserve NATO; American troops had to remain in Europe, if not in France, and “a new expenditure of energy and thought” was required in order to refashion the alliance.75 Many in Congress were not so sure. Later that summer, the House majority leader, Mike Mansfield, introduced a resolution stating that “a substantial reduction of U.S. forces permanently stationed in Europe can be made without adversely affecting either our resolve or ability to meet our commitment under the North Atlantic Treaty. . . . 76

  Critics charged that behind the Mansfield Amendment lay deeprooted isolationist sentiments. McCloy certainly regarded it thus. The American troops in Europe, he believed; represented the “lynchpin of our Alliance.”77 But he was also aware that NATO’s critics could marshal sound fiscal reasons for bringing home some of the 225,000 American soldiers stationed in Europe.78 America’s postwar dominance of world trade was coming to an end; the United States’ share of trade was declining, partly in relation to the recovery of the Japanese and German economies. The country’s trade surplus in 1966 was half what it had been in 1964. Simultaneously, because of America’s many expenditures abroad, the world was being flooded with American dollars. As the U.S. balance of trade declined, many foreigners began to doubt the value of those dollars. Not surprisingly, the dollar soon came under attack. In 1965, there was a run on gold, and de Gaulle accused the United States of exporting its inflation to Europe.79

  McCloy was aware that something had to be done to rectify this imbalance: Washington obviously could no longer afford to carry alone the costs of defending Europe. De Gaulle’s solution—that the United States should retire from Europe—was not even to be considered, in McCloy’s view. He believed NATO had to be saved, and this meant the allies had to recognize that the military and fiscal aspects of the alliance were intertwined. Ideally, the solution lay in persuading the Europeans to share the fiscal burden. For years, the United States’ overall current account had been consistently thrown into deficit by overseas military expenditures, foreign aid, tourist expenditures, and direct capital investments abroad by U.S. corporations. The latter was the most significant factor, but the costs of maintaining America’s military commitments overseas was not insignificant. U.S. troops in West Germany alone spent some $800 million a year on German goods and services. This foreignexchange drain meant, of course, that the Germans were accumulating that many more U.S. dollars each year—dollars that contributed to the U.S. current-account deficit and weakened the value of the American currency. Beginning in the early 1960s, U.S. authorities persuaded the Germans to “off-set” this foreign-exchange drain by making large purchases of U.S. military arms.80 This was to prove a temporary solution.

  By 1966, many Germans tended to view these payments to offset the cost of U.S. troops stationed on their soil as a form of tribute to an occupation force.81 Political pressures mounted on the Erhard government to renege on the payments. In the summer of 1966, his government had increased expenditures on social welfare. Then he informed the Americans there was no money to purchase further U.S. arms. The offset arrangement seemed dead.82

  So, by the summer of 1966, as McCloy immersed himself in these problems, NATO seemed to be falling apart from within:
de Gaulle had withdrawn his troops from NATO command, the British were threatening to bring their fifty-one thousand troops home from Germany, and now the Germans themselves were refusing to pay their share of the defense burden.

  Robert McNamara reported to the president that the Germans owed the United States $1.35 billion in offset payments, and only $261 million of this had been paid. McNamara ridiculed the German claim that they had neither the budget nor the need to buy additional American military equipment. Among other comparisons, he pointed out that, whereas the United States currently had 230,000 tons of bombs either in or in transit to Vietnam, the West German Air Force’s entire inventory of bombs ran to no more than forty-four hundred tons—“an obviously inadequate amount.”

  “Unless something is done,” McNamara warned, “there will be a very large gap between the foreign exchange costs of US deployments to Germany . . . and German foreign exchange expenditures on the military account in the US. . . .” He estimated this gap would run to $500 million per year over the next five years. McNamara believed the Germans had to be squeezed.83

  McCloy could not dispute McNamara’s numbers, but he thought the United States had to be more flexible in dealing with the Germans.84 It was tactically wrong, he thought, to link the number of American troops stationed in Germany with German payments. He agreed with his old friend Jean Monnet, who blamed “the association of cash with troops” for the current deterioration in German-U.S. relations.85 Such a linkage only fueled German insecurities and doubts about the ultimate nature of the American commitment. And this in turn made them less willing to pay for the American nuclear umbrella. Erhard himself, in a recent conversation with Dean Rusk and George Ball, had conjured up the image of a small-scale Soviet attack on Germany. “Somewhere along the line of escalation,” Erhard said, “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?” The answer was obvious, at least to Erhard’s “man in the street.” The rest of the world was not inclined to sacrifice itself for Germany. That was why, chimed in Erhard’s foreign secretary, Gerhard Schröder, “the presence of U.S. troops was so important as a symbol of U.S. involvement. . . . Frankly, the thesis of ‘massive retaliation’ never made any military sense. . . .”86 Now, if the Americans were prepared to withdraw some of their troops merely for fiscal reasons, perhaps the U.S. deterrent was no longer credible. To combat this trend in German thinking, McCloy felt Washington should isolate the issue of troop levels from the crass question of money. Only by re-creating the original spirit of mutual defense could the Americans persuade the Germans to do what was required.

  The problem was that, as secretary of defense, McNamara had naturally taken the lead on this defense issue. To alter the cash-for-troops policy, McCloy would have to go up against the most powerful of Cabinet secretaries. A short time later, on October 7, 1966, McCloy saw Johnson alone in New York City for twenty minutes, just before the president gave a major address on the state of the Atlantic alliance.87 In their talk, Johnson asked McCloy to go back to Europe as the U.S. representative in a series of “trilateral negotiations” with Germany and Britain. Assured that he had the authority to negotiate a deal, McCloy quickly agreed, and two weeks later flew to Bonn. This was one occasion when the Germans were not happy to see him. They felt on the defensive, put upon by their Anglo-Saxon allies. Scarcely had they begun the talks when Erhard’s government of Christian Democrats collapsed. A major factor in the government’s fall was the opposition of the German business community to any further offset payments. McCloy was particularly sensitive to the views of such Germans. Shortly before Erhard’s fall, his friend of nearly forty years, Jean Monnet, reported through State Department channels that “. . . German big business interests have decided to withdraw their support from Erhard. . . . This could explain the generally noncooperative attitude of the Bundesbank on the offset problem. Industrial circles with an influence on the Bank may be urging a hard line in the expectation that this would bring about Erhard’s fall.”88 The chancellor’s government had fallen in large part because he seemed incapable of standing up to the Americans.89

  Certainly the “Great Coalition” government of Chancellor Kurt Kiesinger, which for the first time shared power with Germany’s Social Democrats, was less willing to follow Washington’s lead than Adenauer’s or Erhard’s had been. The new government took until the end of January 1967 before reluctantly agreeing to continue the trilateral negotiations. In the interim, McCloy began to have second thoughts. He had been shocked by the “German feeling of concern bordering on distrust that followed the collapse of the Erhard government.”90 He was even more unsettled by the willingness of all the major players to stand by and watch while NATO unraveled. The British were setting deadlines for the removal of all their troops. Powerful congressional leaders such as Majority Leader Mike Mansfield and Senator Stuart Symington were calling for a substantial reduction of U.S. troops. McCloy feared a “stampede” was about to occur in which British troop withdrawals would be quickly followed by the complete disintegration of NATO as a military force.91 In his view, the administration had to step down from McNamara’s demand that the Germans fully offset the foreign-exchange costs of maintaining U.S. troops in Germany. So, on January 11, 1967, he came down to Washington to sound out various officials; in one day, he had private meetings with Dean Rusk, a half-dozen other State Department officials, Bob McNamara, and Treasury Secretary Henry H. Fowler.92 Referring to his role as a “Wise Man,” he confessed to Fowler that he found his status as a private citizen difficult; he did not wish to “pursue his own views, or try to defend them in the future, if the decisions are being made elsewhere—or are already made.”93 The implication was clear that, if the various wings of the bureaucracy did not take their lead from him, he would end his participation in the talks.

  The message got through, and by the time the talks resumed, McCloy had persuaded the principal players within the administration—McNamara, Rusk, and Fowler—that the whole idea of offsetting the full foreign-exchange costs of the U.S. troops with German procurement of American military hardware had “become a serious political liability” in West Germany.94 A new formula had to be designed, with respect to both military requirements and monetary cooperation. To begin with, a way had to be found to reduce the offset payments owed by Germany. To this end, the United States would play a game of musical chairs with its troops stationed in Germany. Instead of sending any complete divisions home, Washington would station two of the three brigades in a division back in the United States. The third brigade would remain in its German base and periodically rotate with one of its sister brigades Stateside. By this sleight of hand, the United States could save an estimated $100 million in foreign exchange that otherwise would have been spent by these soldiers in Germany. Of course, what was saved abroad would have to be spent at home, and more.95 But the “dual-basing” and rotation scheme would allow the Johnson administration to claim that roughly the same number of U.S. troops were “based” in Germany, familiar with its potential battlefields, and equipped at a moment’s notice to be shipped to the front.96

  McCloy endorsed the rotation scheme, and quickly set about negotiating the details with the Germans and British. He drove a hard bargain. The Germans, after all, wanted to remain under the protective American military umbrella; they just wanted to pay as little for it as possible. With McCloy cajoling them along, they finally agreed, in late April, to a package deal whereby the Americans would rotate one army division and no more than ninety-six aircraft. In return, Bonn agreed to buy $500 million worth of medium-term U.S. government bonds. The British were given similar financial assistance and with great reluctance agreed to withdraw only sixty-five hundred of their fifty-one thousand troops from Germany. But, most significant of all, the Germans pledged never to knock on the U.S. Treasury’s door an
d request the conversion of their enormous dollar holdings into gold. In effect, McCloy had negotiated an important step toward taking the U.S. currency off the gold standard.97 A complete break with the gold standard would not come until 1971, but in the meantime he had successfully neutralized the massive German holdings of U.S. dollar reserves.98

  That the Johnson administration could get away with writing such special currency exemptions for itself was a sign of both Washington’s weakness and its strength. In 1966, there was no alternative to the dollar as the currency of the international marketplace. But the fact that the United States could not afford to convert the dollar reserves of one of its major allies into gold was a sign that Pax Americana was in decline. Even so, a superpower in decline is still a superpower. As the London Times ‘ Washington correspondent observed, “Mr. McCloy’s duty as the representative of a super-power was to remind them [the Germans and British] of their duty to the super-power as well as the alliance, and to persuade them that they can afford to go on doing what the super-power wants them to do. There can be no doubt of Mr. McCloy’s success.”99

  Just a week before McCloy finally clinched the deal, Konrad Adenauer died. President Johnson decided to attend the funeral and took with him as part of his official delegation McCloy, Dean Rusk, Lucius Clay, Allen Dulles, and Eleanor Dulles.100 A major chapter in German-American relations was closing. And, ironically, for the first time since the start of the Cold War, American troops were about to be withdrawn from continental Europe. McCloy was not happy to see this happen, but he could console himself that, thanks to the rotation scheme, he had managed to keep the withdrawals down to only thirty thousand.101 Johnson, in any case, was pleased that “NATO was still in business,” and congratulated McCloy for a “very important job well done.”102 In Germany, the press generally concluded that the trilateral talks had demonstrated that “despite its global problems the U.S. remains ready to pay heed to Germany’s concerns.”103