(3 of 4)
Connally went on to become far more explicit. At one closed session, he drawled: "O.K., what would you say if we went down by 10%?" For long minutes, the Europeans and Japanese sat in stunned silence. A U.S. devaluation of that size would push up the dollar price of several currencies much more than their governments had contemplated. The Europeans feared that would bring in a flood of imports from the U.S., wiping out jobs in their countries. The U.S. has no chance of getting a 10% devaluation generally accepted, but the offer was an effective bargaining tactic that put the Europeans and Japanese on the defensive. They concluded that they would have to refigure how large a U.S. devaluation they could swallow, and what changes they would make in their own currencies.
Even Unhappiness. The Europeans have been divided. Germany is willing to see the price of the mark rise 12% from its last official level relative to the dollar, but it has two other goals. One is to force the Japanese yen up by a higher percentage in order to reduce the price advantage that Japanese goods hold over German merchandise in export markets. The Germans also want to push the French franc up as much as possible in order to minimize any French advantage over Germany in trade within Europe.
The French are in an embarrassing position. They have loudly insisted on dollar devaluation for two reasons: an increase in the gold price would raise the value of France's $3.5 billion official gold stock, and would please the nation's legion of gold hoarders, who possess many votes. The French, however, do not want too big a U.S. devaluation; they indicate that 7% to 8% is the most they could take. A U.S. devaluation means an equivalent rise in the value of the franc, and the French want to limit that rise. They are reaping trade gains now by maintaining a relatively cheap currency. Besides, the more the dollar is devalued, the less the German mark will have to be revalued upward. And the French want to see the mark go up officially so that they will hold a trading edge over Germany.
Resolving such differences will take some time and a willingness on all sides to make possibly painful compromises. Said one U.S. delegate at Rome: "You have to spread the unhappiness evenly." The specifics of a historic currency realignment remain to be hammered out in another Group of Ten conference in Washington at the end of next week, and probably also in a long series of talks between heads of government. Over the next five weeks, Nixon will be meeting separately with Canada's Trudeau, France's Pompidou, Britain's Heath, Germany's Brandt and Japan's Sato. Last week Pompidou and Brandt met in Paris to work out plans for discussing issues with the President "in a coordinated manner."