Prime Minister
Ladies and Gentlemen,
This, I think, is the eleventh bilateral meeting that we have had between the Federal Republic and the United Kingdom. This particular one has centred discussion on three things:
First, the prospects for the Economic Summit at Versailles—and you will not be surprised if we spent some considerable time talking about world economic prospects and the many and varied problems that lie ahead of all our countries. There is, of course, a certain similarity in the language and policies between those pursued by the United Kingdom and by the Federal Republic of Germany. That will come as no surprise to you in any way.
We are not able, of course, in our own economies to do anything about interest rates across the Atlantic, but we can do everything possible to keep interest rates as low as we can in our own economies by our attitude towards inflation and by trying to have a balance on current trade.
Secondly, we have also ahead the NATO Summit Meeting in Bonn in June and therefore we naturally reviewed the whole aspect of East-West relations and the strategies that we should deploy in the future. Last time we met, you will [end p1] remember, was the day when President Reagan had just announced his initiative, the zero option initiative. Since then, President Brezhnev has had some things to say about disarmament. Naturally, we prefer the zero option and we hope that the talks which have now started will soon start to bear some fruit.
The third point, as you would expect, would be some considerable discussion of the mandate, including the Common Agricultural Policy. The Helmut SchmidtChancellor and I did not discuss this in great detail; we left that to the agriculture Ministers and to the finance Ministers and also to the industry Ministers, all of whom were here and had their separate bilateral discussions. There is a great deal still to be done, but we shall just have to try to work out our own internal problems in the Community in a way which takes the Community forward, but there was no very great detail and as you know the Foreign Ministers are meeting next week.
In fact, we had a very successful meeting; a very amicable meeting, as you would expect, and one which, from time to time, even was humorous I would say. We greatly enjoyed having the Chancellor and his team with us.
Now, Herr Chancellor, would you like to add something to that? [end p2]
Chancellor Schmidt
Well, Prime Minister, I do not think that this is really necessary. I think you have covered the ground. We should save the time for questions to be asked and answered. [end p3]
Question
After your discussions of the mandate, can I ask both of you, Prime Minister and Chancellor, how confident you feel now that you can solve this problem once and for all at the next Summit in Brussels?
Chancellor Schmidt
The phrase “once and for all” is a surprising phrase, because if I recollect correctly, we have been talking about the related matters many many times in the last twenty years, so I do not really think that we will get rid of the problem. I am not so sure that the preparatory work that is being done by the Foreign Secretaries, by the Commission, by President … ., by Minister Tindemans already has so matured that the European Council will find it easy to come to a decision this time. On the other hand, I do not want to dramatise the whole thing. There is a little too much publicity and too much dramatisation. There are greater things at stake. For instance, the aforementioned Summit Meetings in Versailles, Paris, between the leading seven industrial countries who have to decide whether they can or cannot find a common grand strategy, which only can be done in a joint session, to overcome jointly the world's economic recession as it is called—as it has been called rather nicely—and, as well, the problems which have to be dealt with in the Summit Meeting a couple of days later at Bonn, among the Heads of State and Heads of Government, of the [end p4] member countries of the North Atlantic Alliance. The European Council is just one of three very important meetings coming up in the next couple of weeks. The European Council meets, I think, two or three times a year; the Economic Summit just once a year; NATO Summit Meetings or North Atlantic Summit Meetings once every three or four years or so; so there is a scale of importance, and this also relates to the subjects that are being dealt with in the meetings which are coming up.
I do not want to go into details as regards the so-called mandate question. “Mandate” is, of course, EEC Chinese; no ordinary person would understand that! What does it mean if you talk about the question of the mandate? It means that you talk about the net contributions and the net receipts of the member countries of the EEC and that you talk about the mechanisms by which these net surpluses or net contributions are being brought about. It entails of course, if you talk about the mechanisms, the full range of agricultural policies, but also other policies, so I tried to translate this word “mandate” into normal, understandable I hope at least English, for those who are not too familiar with the EEC specific language.
It would not be appropriate to go into details right now for me, in order not to, in a negative way, influence the talks that are being underway. I only want to say that there are two countries in Europe who are net financiers of the EEC, [end p5] that is Britain and Germany. We are even paying a little bit more than Britain and are doing so since thirty years—no, not exactly thirty, twenty-five years!
Question
Prime Minister and Chancellor, can I just follow that through?
There sometimes seems to be at least a slight difference of strategy on this question of the British contribution between you. You, Prime Minister, I think regard it as very important and very urgent. You, Chancellor, I think regard it as very important, but we sometimes get the impression that you do not see it as quite so urgent.
Prime Minister
Well, I think the answer is fairly straightforward. Unless we get a new agreement obtaining to this year, 1982, the old agreement will continue forward for this year, but you will remember that the actual mandate, which Chancellor Schmidt has defined, really wanted us to get a new agreement this year on the restructuring of the Budget and related matters such as the proportion spent on the Common Agricultural Policy, which will be part of a continuing agreement. From the viewpoint of the United Kingdom, the solution should last as long as the problem lasts. Once [end p6] the problem diminishes—namely, the problem of inadequate receipts—then of course we would not need to have the solution of special receipts. But, naturally, one would like to have it in time to operate on this year's refunds. If it does not, then we have to make specific the general formula which was agreed in the last Budget settlement.
Chancellor Schmidt
Margaret, might I add a footnote? It is just about urgency. Let me assure you that Deutschmarks are as dear to our balance of payments, to our budget, to our taxpayers and to our hearts, as Sterling is to the Prime Minister's heart and the Prime Minister's budget and the Prime Minister's balance of payments.
Question
At that point, may I ask both of you what is the difference between your approach to the solution of the problems of the mandate, how great is the difference of your approach, and can the British Government expect West German full support for its position for seeing through progress on the mandate?
Prime Minister
I think one requires more than the support of one country. Chancellor Schmidt pointed out we happen to be the two financiers of Europe. Chancellor Schmidt 's country [end p7] contributes an enormous amount; we, this year, a comparatively small amount, but in previous years we have contributed a larger amount and possibly would next year … this year … under the existing formula. But it is not a question of getting the support of one country. We have to agree between all ten, the three things concerned in the mandate, and it was made perfectly clear that there has to be a solution on all three simultaneously. The one was the industrial policies; the second the agricultural policies; and the third, the budget policies, and we agreed we have to get a solution on them all three together. So it is not a question of just the Federal Republic of Germany and ourselves agreeing, although perhaps our views tend to be nearer together because we are the two main financiers, the others are beneficiaries.
Question
How near are they? Is there virtually full support because both countries are the net contributors?
Prime Minister
Is there virtually full support? I happen to think that Germany has to contribute too much under the present arrangement, and I do not think it healthy and right that one country should be so far in the lead on the others in the amount which it contributes when a number of the other countries are comparatively wealthy per head and yet they are in beneficiary positions. They would not necessarily take that view—they like being beneficiaries and it suits them, and so indeed, it is a difficult question. A lot of it will [end p8] turn upon the future of the Common Agricultural Policy and the proportion which that takes up of the total budget. We are not, I would say, on the verge of a solution at the moment.
Question
I believe Lord Carrington, in January, said he might block agreement on this year's farm prices until you have a settlement of the Budget. Could you answer if that is still your position and, secondly, could I ask Herr Schmidt—I'm sorry, the Chancellor—if he is prepared to support Britain on its position that there should not be a digressive solution, in other words a reducing solution, but one which will continue over time?
Prime Minister
We agreed, as I have said, that progress on all three chapters must be made simultaneously and therefore the answer to your question is yes, it would follow from that. If we do not get a satisfactory solution on the Budget, then we could not possibly agree to a settlement on the CAP.
Question
The level of prices?
Prime Minister
Indeed, yes. What else is the CAP? It is a policy, but it is a policy which has its effect in prices. [end p9]
Chancellor Schmidt
If I understand you correctly, the mandate question and the mandate itself stems from the historic provision—rather old in the meantime but still a valid provision—that if an unbearable situation arises, then one should have to look into the matter and probably find solutions in order to make the situation bearable. The unbearable situation that has arisen for Britain, I understand, and I understand that this has also been understood by the governments of other European countries and I think there is a general will to alleviate that situation. The dispute, as I understand it, goes over the question of how much alleviation is necessary and who will be affected by the alleviation. Again, I personally do not wish to dramatise that question too much. I have lived through such situations many times in twenty-five years. I have been a member of my government more than twelve years now and I am looking forward to such situations to arise also in the future. Therefore, I already earlier on answered a similar question by saying that there is no great probability in settling such a question once and for ever. It may very well happen that either Britain or Germany or some other country might some time in the future get into unbearable situations. We cannot foresee the economic future, because it depends too much on the political behaviour of states—especially of states outside the European Community—and therefore I would not make a prognosis for the time between now and the end of the century.
I would like to stree the points which the Prime Minister [end p10] has touched upon in her opening remarks. Other great economic problems in the world which affect both of us likewise and other European countries as well. Interest rates, for instance; unemployment, for instance; protectionism in the world, for instance; prices for oil and their volatile movements—a couple of years upwards, nowadays downwards, and what does it mean to the balances of payments of countries? What will this mean to the freedom to act economically? What will it mean to the supply in your capital markets? What will it mean to international trade? It is obvious that in all these fields the world is in the deepest disarray, the deepest economic disarray since either the early years after the War or since the Thirties, and one should not hide the truth from one's own eyes, that the order of magnitude of that quarrel about the so-called mandate is not just the same order as the questions I just tried to hint to and therefore one should set one's own priorities right.
Question
Perhaps to get away from the Budget then, do you envisage that this question of Western credits and help for the Soviet Union building its pipeline from Siberia into Western Europe will become a much more serious row—and I use the word between Europe and the United States—in the next decade and do you think that there is a possibility that the Americans will still try and either stop somehow [end p11] the pipeline being built or will certainly go out of their way to delay it as long as they can?
Chancellor Schmidt
My answer to the latter question is no and also no to the first one.
Prime Minister
I agree wholly with both replies.
Question
The result will not become a serious dispute between Europe and the United States?
Prime Minister
No! We strain not to have these serious disputes and we find that they are built up to a much bigger factor than they really are on the ground.
Question (Edwin Roth, “Tagespiegel” West Berlin)
As it is quite obvious that President Reagan and President Mitterrand—perhaps especially President Mitterrand, have been present very much in spirit at this particular meeting, do you not think that this Press Conference would be perhaps more productive if President Mitterrand and President Reagan were sitting here too and we could discuss the whole matter which concerns them, which you seem to have been discussing all day? [end p12]
Prime Minister
They are not, so that is that!
Question
But they were … . present at your meeting, weren't they?
Prime Minister
I don't know.
Chancellor Schmidt
I guess their ears have been ringing.
Question (Associated Press)
Could you give us a joint assessment of Mr. Brezhnev 's missile freeze and the accompanying threat if the talks in Geneva do not succeed?
Prime Minister
Well I did mention that in my opening remarks, that last time we met that President Reagan had just made his famous very considerable speech which included the zero option. It seems a very inadequate reply on the part of President Brezhnev to suggest freezing the SS 20s and removing some of them behind the Urals. Obviously, we prefer the zero option and we hope that the talks in Geneva will bear fruit. Herr Chancellor? [end p13]
Chancellor Schmidt
I do agree with what you say, Prime Minister.
As regards the so-called threat implied in the speech of General Secretary Brezhnev before his Trade Union Congress, it is a very unclear threat and I think the wording very carefully has been chosen in an unclear way. It is not very exact. It does not talk of missiles on land or missiles on sea. It does not clearly say that the Soviet Union would undertake to violate SALT 1 or SALT 2, so I think right now it is something which the Soviet leader says on the very day on which the Geneva negotiations are being postponed for a break of eight weeks—a break for thinking and rethinking—not being tabled in Geneva, but a public speech. I would regard this as an attempt to influence Western public opinion rather. I would not take it too serious. As regards the rest of the speech of Secretary Brezhnev, I would like to stress three points:
Number one, the offer to bring to a halt the deployment of SS 20s in the European part of the Soviet Union has to be measured against two factors: number one, that already hitherto they have reached an enormous superiority in that field within Europe. They had been talking of equilibrium being reached in May 1978 when they had only fifty missiles, SS 20, deployed in Europe. Now they have almost three-hundred, two-hundred-and-fifty of them within the European part of the Soviet Union, so it is not really an alleviation of the unequal situation, if they really do halt further deployment. Secondly, you have to evaluate this [end p14] against the fact that also from beyond the Urals you can hit this very place here or other places in England, many places in Germany and France and so on.
Secondly, my government has publicly said that the question whether this does indicate or does not indicate a step in the right direction depends on the question whether the Soviet Union will afterwards really decrease by dismantling—decrease the number of operative missiles SS 20—so that they not only stop further production and deployment, but really decrease their numbers down to, as the Prime Minister said, to zero. The so-called zero option means that there are zero land-based missiles on either side, not only as is the case in Western Europe—there are no land-based missiles, except sixteen French ones and there are about two-hundred-and-fifty missiles with three warheads each in the European part of the Soviet Union; another fifty missiles, three warheads each, on the other side of the Urals. If they want to reduce it to zero, whether they are going to do this one can only find out in the further course of these Geneva inter-range missile limitation talks which so far have not made bad progress. They were started in November last year and until March this year have at least led to both sides tabling their drafts, but the point in time is much too early to evaluate the probable or possible outcomes.
Thirdly, I would like to stress—and I take this opportunity to say this publicly on British soil—that my government will stick to our joint decision that if the Geneva negotiations do not lead to any concrete result agreed upon by both sides until the end of 1983, the deployment of Western medium-range nuclear weapons in Western Europe has to [end p15] start, including German soil, including other countries' soil, and it is that clarity, that unchangeable certainty, which is necessary for the Soviet leadership in order to keep them to a steady and intensive and serious negotiation in Geneva.
Prime Minister
Thank you very much.
Question
Have you discussed credit policy towards the Soviet Union following the Butler Mission with the Chancellor, and could you tell us your feelings and conclusions of today, your general feelings about how one should raise interest rates on trade to the Soviet Union?
Prime Minister
We have discussed credit, but I think we are already agreed within the Community that the Soviet Union should have the higher of the consensus rates of credit. At the moment, I think she has the one which really applies to underdeveloped countries and it is thought, and it is agreed I believe within the Community, that she should have the higher; but that we should not compete with credit rates to the Soviet Union, but should stick to our international agreement. [end p16]
Question
… . summit last Summer, strong views were expressed to President Reagan about the repercussions on European economies of the high American interest rates. Time seems to have only served to prove how right you were and yet both of you seem to be prepared to grin and bear it and think it is ungentlemanly or unwomanly to raise this publicly with the American President. Do you not think the time has come to make some more representations to the American President?
Chancellor Schmidt
Do you think it is ladylike, Margaret?
Prime Minister
The United States has to run her own economy. No country can [be?]isolated and knows full well that the way it runs its own economy will have an effect on others and, of course, the way in which the United States runs her economy has a very marked effect on the future prosperity of Europe. We do make this point from time to time and in Ottawa President Reagan took the point and said that he was the first to want American interest rates down. Having made the point and we continue to make the point that what happens to their economy will affect ours, then we have to do the maximum amount we can to keep our own interest rates down. That means not running too high a deficit. After all, the criticism of the United States [end p17] is that its deficit is high in proportion to its savings ratio, so we both try to keep our deficits down and we both try to run our trading policies in such a way that we have a reasonable balance upon them. We also try to run our economies in a way which has lower inflation, because the countries that have lower internal inflation rates tend also to have lower interest rates. Germany has just put down her interest rate by ½ per cent; ours, as you know, has gone down by several half-per-cents, but none of that could happen unless the German economy and this economy were run on very prudent sound grounds. Herr Chancellor.
Chancellor Schmidt
I would totally agree with what the Prime Minister has said. I would like to give those who are not too familiar with the German economy the actual figure. The long-term rate of interest in Germany right now is 9.3%;. If you ask for a ten-year loan you have to pay 9.3%;. Short-term money is in that neighbourhood. Both rates have a downward trend and the inflation rate in my country last month was consumer prices 5.8%; higher than twelve months ago with a downward trend as well.
What really matters is the fact that central banks find it very difficult, for more than just one reason, so far to disentangle themselves and their monetary policies from the high interest rates that are being paid in dollars. On the [end p18] other hand, the more one can—by balancing one's own budget and by balancing one's own balance of payments and one's own current account—the more can one liberate one's own central bank and its monetary policies from too strong binding towards the dollar interest rates. Right now, I think we are some five or six points below the dollar interest rate in Germany and we are much lower five or six points in real terms than in nominal terms, but still, we feel that our interest rates—both nominal rise and real rise—are still too high and would like them to be brought downward still.
I would also like to put a footnote to the former answer of the Prime Minister to the question about credits towards the Soviet Union, just in order to serve you with a fact about my country. I have been Finance Minister since July 1972 and Federal Chancellor since eight years now, and in these ten years we have never subsidised any private credit given by a bank or an entrepreneur, enterprise, to any Soviet authority. We have never subsidised any credit by a single penny. They have always had to pay the market rates, so there is nothing new to us. We have always asked the same question of our partners and friends in the Western World that is now being asked by Mr. Buckley or others, the credits towards the Soviet Union not be subsidised.
Question
During the discussions on the preparation for the Versailles Summit and EEC Summit, did you discuss the relations between Japan and the EEC and if so, what sort of decisions did you make? I want to know stance on Japan. [end p19]
Prime Minister
We certainly discussed the tendency towards protectionism which I have previously discussed with your ministers. There is a strong tendency towards protectionism at the moment. We both wish to see an open trading system, but it has to be genuinely open and genuinely competitive both ways. There will be problems. Europe will, of course, be considering those problems and it is better that they be solved on a European basis. In the meantime, there are in fact certain voluntary agreements between the industries in each country and the industries in Japan, but we do not underestimate this very considerable tendency towards protectionism at the moment and, of course, to some extent that is aggravated by the very low value of the yen and therefore the very high value of Japanese exports to some countries which are not used to having Japanese exports in that volume.
Chancellor Schmidt
Somebody in discussions made a very intelligent remark about the Japanese economy, if compared with the American or European economies, by saying that the Japanese economy right now is characterized by a rather lax monetary policy and a rather tight budgetary policy, whereas the American economic policies is characterised by a rather lax budgetary policy and a rather tight monetary policy, and this has some consequences, of course. The European economies more or less are in the middle—not so tight monetary policy [end p20] as in the United States, but rather tight, in order to fight inflation; and not so lax budgetary policies like in the United States but perhaps still some room for pulling on the reins. This was not meant as a joke, Sir!
Prime Minister
If, really, one suggests that monetarism has a place in budgetary policies, it is received this way in Britain, but I just look forward to the day when I can sit here and say that having pursued those policies which Germany has pursued for as long as she has, that we too can have an interest rate as low as 9.3%; and an inflation rate as low as 5.8%;, because that is what a combination of those policies can lead to.
Ladies and Gentlemen, thank you very much.