29

---

THE ECONOMIC SUMMIT MEETING IN TOKYO, 28/29 JUNE 1979

Delegations

Canada

The R t . Hon. J o e C l a r k , P.C., M.P.,

Prime M i n i s t e r .

The Hon. F l o r a M a c D o n a l d , P.C., M.P.,

Secretary of State for External A f f a i r s .

The Hon. J o h n C r o s b i e , P.C., M.P.,

M i n i s t e r o f Finance.

France

H.E. Mr. V a l e r y G i s c a r d President o f the French

d'Estaing,

Republic.

H.E. Mr. J e a n F r a n c o i s - P o n c e t , Minister of Foreign A f f a i r s .



H.E. Mr. Rene Monory,

M i n i s t e r o f Economy.

H.E. Mr. A n d r e G i r a u d ,

Minister of Industry.

Germany

H.E. H e r r Helmut S c h m i d t ,

Federal Chancellor.

H.E. H e r r H a n s - D i e t r i c h G e n s c h e r ,

Federal Minister for Foreign A f f a i r s .



H.E. H e r r Hans M a t t h o f e r ,

Federal M i n i s t e r o f Finance.

H.E. D r . O t t o G r a f L a m b s d o r f f ,

F e d e r a l M i n i s t e r o f Economics.

Italy

H.E. Hon. G i u l i o A n d r e o t t i ,

President of the Council of Ministers.

H.E. Hon. A r n a l d o Forlani,

Minister of Foreign A f f a i r s .

H.E. Hon. F i l i p p o M a r i a P a n d o l f i ,

M i n i s t e r o f the Treasury.

/Japan

J a p an

H.E. Mr. M a s a y o s h i Prime M i n i s t e r .

Ohira,

H.E. Mr. Sunao Sonoda,

M i n i s t e r f o r Foreign A f f a i r s . H.E. Mr. I p p e i Kaneko, M i n i s t e r of Finance.

H.E.





Mr. Masunii E s a k i ,

M i n i s t e r o f I n t e r n a t i o n a l T r a d e and U n i t e d Kingdom

The R t . Hon. M a r g a r e t T h a t c h e r , Prime M i n i s t e r .

Industry.





M.P.,

The R t . Hon. The L o r d C a r r i n g t o n , P.C., K.C.M.G., M.C.,

S e c r e t a r y o f S t a t e f o r F o r e i g n and Commonwealth A f f a i r s .

The R t . Hon. S i r G e o f f r e y Howe, Q.C., C h a n c e l l o r o f the Exchequer.

United

States

M.P.,





H.E. Mr. Jimmy C a r t e r ,

President.

The H o n o u r a b l e C y r u s V a n c e , Secretary of State.



The H o n o u r a b l e W. M i c h a e l Blumenthal, S e c r e t a r y of the Treasury.

The H o n o u r a b l e James R. S e c r e t a r y of Energy.



Schlesinger,

EC

Mr. Roy J e n k i n s , President.

(Note:



I n D e l e g a t i o n s c o m p r i s i n g more t h a n t h r e e M i n i s t e r s ,

two members o f t h e D e l e g a t i o n a l t e r n a t e d a c c o r d i n g t o

the s u b j e c t under d i s c u s s i o n . )

CONFIDENTIAL RECORD OF

THE ECONOMIC SUMMIT MEETING HELD IN TOKYO 28/29 JUNE 1979 IN THE AKASAKA PALACE



ON

FIRST SESSION : 0930-1230

Opening Statements

Mr.

O h i r a welcomed t h e Heads o f S t a t e and

E c o n o m i c Summit and Mrs.

T h a t c h e r and

their be

first

said

Mr.

t h a t he was

C l a r k who,

Summit m e e t i n g .

m e e t i n g i n Bonn C h a n c e l l o r as m o u n t a i n e e r s . by

those

and

had

a c t e d as h o s t

t o d a y we

had

use

f i r m and

long-term

Against discuss,

attending

described

taking part

those

the c o u n t r i e s

of d i f f i c u l t

w h i c h had

economic

p o s i t i v e and

j u s t caught s i g h t of

They had

were, i f a n y t h i n g ,

e v e n more

we

Giscard

and

predicament.

should

be

Our

adoption he



to

a t t i t u d e must

resolute in deciding

our



i n then c a r r y i n g i t out.

should

energy

(on



r e p r e s e n t a t i v e s o f t h e Heads o f S t a t e

and



the macro-economic s i t u a t i o n ;

t h e p o s i t i o n o f the d e v e l o p i n g

trade p o s i t i o n :



we

t o c o - o p e r a t e w i t h each o t h e r

Government were a l r e a d y m e e t i n g t o p r e p a r e a p a s s a g e f o r communique);



But

t h a t b a c k g r o u n d he s u g g e s t e d t h a t t h e m e e t i n g

which the p e r s o n a l



troughs

E c o n o m i c Summit m e e t i n g .

out of the p r e s e n t

i n order,



represented

p r e v a i l e d when P r e s i d e n t

at the f i r s t

and

Summit

At t h e l a s t

t h e wisdom w h i c h d e r i v e d f r o m e x p e r i e n c e ,

policy



see

encountered the l a n d s l i d e of another o i l

t h a t wisdom i n o r d e r

work our way be

had

Today's c i r c u m s t a n c e s

s e r i o u s than those

should

out

crossed broken t e r r a i n .

t h e peak when t h e y

had

frank approach.

S c h m i d t had

got

happy t o

hoped t h a t t h e d i s c u s s i o n s w o u l d

Since that occasion

t a k i n g p a r t had

crisis.

particularly

l i k e h i m s e l f , were

He

c h a r a c t e r i s e d by an open and

the

Government t o

the monetary s i t u a t i o n ;

o f t h e communique.

But

before

nations;

and,

finally,

beginning

on

the

the



the this



world

agenda

i n v i t e d each Head o f S t a t e o r Government t o make a s h o r t

opening statement which would serve

to provide

the o v e r a l l

g u i d e ­

lines for their discussion.

President focussed

on

C a r t e r s a i d t h a t the eyes of the w o r l d

t h e Summit m e e t i n g .

were

T h e r e were many m a t t e r s t o

be

/discussed,

CONFIDENTIAL



CONFIDENTIAL

d i s c u s s e d , and

the foremost

o f t h e s e was

t h e m e e t i n g w o u l d be b o l d , s p e c i f i c its and

u n i t e d i n what i t s a i d i n

and

c o u n t r i e s adopt i n d i v i d u a l t a r g e t s b a s e d on s p e c i f i c

commit t h e m s e l v e s

f i r m l y to meeting those

b e l i e v e d t h a t t h e r e s h o u l d be in

hoped t h a t

He

F o r t h e s h o r t - t e r m , he w o u l d p r e f e r

communique about e n e r g y .

t o see

energy.

the l o n g e r - t e r m ,

f u t u r e was import

an u n d e r t a k i n g Any

to achieve

should take account

i n t e r n a l problems of i n d i v i d u a l c o u n t r i e s .

The

t h e s t o c k p i l i n g o f o i l a t a t i m e o f t i g h t s u p p l y , and and

s o l a r energy.

of energy such

I t w o u l d be

as c o a l ,

important

should

market,

development

the

shale,

t a r s a n d s and

t h a t immediate r e d u c t i o n s

i n o i l i m p o r t s s h o u l d be f o l l o w e d up w i t h s t r i c t measures, which s h o u l d ,

conservation

i n t u r n , be s u p p l e m e n t e d s u b s e q u e n t l y

the i n t r o d u c t i o n of a l t e r n a t i v e sources



and

the

of

meeting

s u c h p r o b l e m s as t h e o p e r a t i o n o f t h e s p o t

of a l t e r n a t i v e sources

targets

p l a n to reduce the consumption

o f o i l s h o u l d be e q u i t a b l e and

a l s o address

also

He

t h a t t h e more d i s t a n t

t h o u g h he a c c e p t e d

more u n c e r t a i n .

targets.



figures

of energy.

He



by

a l s o hoped

t h a t t h e m e e t i n g w o u l d a g r e e upon t h e means o f c o n s u l t a t i o n w i t h

members of OPEC.

The

present

l a c k o f c o n s u l t a t i o n had

g r i e v o u s consequences f o r the c o u n t r i e s r e p r e s e n t e d

He

b e l i e v e d t h a t t h e IMF

at the

d e v e l o p i n g c o u n t r i e s s h o u l d be e n c o u r a g e d , t h r o u g h o t h e r means, t o do more t o meet t h e i r own

materials,

including o i l ,

satisfactory necessary He

and

other supplies.

c o n c l u s i o n o f t h e MTNs and



t h e W o r l d Bank

needs f o r

raw

the

He welcomed

he hoped t h a t



the

a p p r o v a l w o u l d be o b t a i n e d f r o m C o n g r e s s i n A u g u s t .

be c o n s i d e r e d by F o r e i g n M i n i s t e r s and

o f t h e i r a d v i c e , t h e Heads o f S t a t e and d e c i d e what s h o u l d be s a i d on t h i s w o u l d be a m i s t a k e on



and

The

proposed t h a t the problem of South East A s i a n r e f u g e e s

first



meeting.

should r e t a i n i t s b a s i c purpose

he hoped t h a t t h e m o n e t a r y s y s t e m c o u l d be s t a b i l i s e d . and



had

d i d not make p l a i n

d i d not

issue a



light



then

It



statement i f they

f o r the d e v e l o p i n g c o u n t r i e s .

that although

p r i m a r i l y w i t h e n e r g y , i t was

Government s h o u l d

as i t w o u l d be u n f o r t u n a t e

t h e i r support

Signor Andreotti s a i d

t h a t , i n the

i s s u e i n t h e communique.

i f t h e Summit M e e t i n g

the refugee problem, j u s t

should

important

t h e i r m e e t i n g was

dealing

t h a t t h e p u b l i c image w h i c h

CONFIDENTIAL

/they

presented



CONFIDENTIAL - 3 ­

they p r e s e n t e d

t h a t of a meeting of a p o l i t i c a l ,

was

technical, character. between now

internal but

and

then.

clearly

t h e changed

c i r c u m ­

at the



be

meeting,

t h e y s h o u l d r a t h e r assume a g e n e r a l g u i d i n g r o l e and s t r e s s

of a l l c o u n t r i e s i n f a c i n g today's

the inter-dependence

At t h e same t i m e i t was self-sufficient



problems.

t o b e a r i n mind t h e deep d i f f e r e n c e s

important

between t h e s i t u a t i o n s o f i n d i v i d u a l c o u n t r i e s : was

decided

T h e i r d i s c u s s i o n s h o u l d not

to the seven c o u n t r i e s r e p r e s e n t e d



not

They s h o u l d c o n f i r m what had been

at Bonn but s h o u l d a l s o b r i n g out stances

and

i n energy, w h i l e I t a l y

h e a v i l y d e p e n d e n t on e x t e r n a l s o u r c e s

and

Canada, f o r e x a m p l e ,

J a p a n were v e r y

of f u e l .

approach

In t h e i r



t o OPEC t h e s e v e n w o u l d be a l l t h e s t r o n g e r i f t h e y t o o k

account

not o n l y o f t h e i r own

developing

requirements

but

a l s o those of the

c o u n t r i e s , whose p r o s p e c t s were harmed most by c o n s t a n t l y r i s i n g

oil

prices.

All

sources

c o u n t r i e s were hampered i n t h e s e a r c h f o r a l t e r n a t i v e

o f e n e r g y and

e s p e c i a l l y t h e d e v e l o p m e n t o f n u c l e a r power

by s e r i o u s o b s t a c l e s o f a p s y c h o l o g i c a l c h a r a c t e r w h i c h were b e i n g

e x p l o i t e d by a demagogic o p p o s i t i o n . to carry forward

I t would help

Governments

t h e i r n a t i o n a l n u c l e a r power programmes i f t h e

m e e t i n g i s s u e d an a g r e e d n u c l e a r energy.

statement

of

a d v o c a t i n g t h e g r e a t e r use

I t m i g h t be p a r t i c u l a r l y

a p p r o p r i a t e i f word

nuclear

were t o come f r o m J a p a n on t h e need f o r t h e p e a c e f u l use o f energy.

Mr.

O h i r a s a i d t h a t he b e l i e v e d t h a t n u c l e a r e n e r g y was

most r e l i a b l e a l t e r n a t i v e t o o i l .

J a p a n was

p o l i c y o f d e v e l o p i n g n u c l e a r power and

was

now

pursuing

other countries.

E n s u r i n g s a f e t y was

i n t h e use o f n u c l e a r e n e r g y , and absolutely

thorough

programme was

about t h i s .

of c a r d i n a l

The

up.



France



importance

h i s Government i n t e n d e d t o

be



J a p a n e s e n u c l e a r power

not as f a r a d v a n c e d as he w o u l d w i s h , and

were t r y i n g t o c a t c h

a

engaged i n a r r a n g e m e n t s

f o r t e c h n i c a l c o - o p e r a t i o n w i t h t h e U n i t e d S t a t e s , Canada, and



the

they





P r e s i d e n t G i s c a r d s a i d t h a t t h e Summit m e e t i n g s h o u l d b e a r i n

mind i t s e c o n o m i c p u r p o s e .

They were m e e t i n g b e c a u s e t h e y had /role in

CONFIDENTIAL

a



CONFIDENTIAL

role

i n t h e s o l u t i o n of t h e w o r l d ' s economic

The p r e s s

and m o n e t a r y

problems.



had s p e c u l a t e d a b o u t t h e v a l u e o f s u c h m e e t i n g s and t h e r e

had been o c c a s i o n a l c r i t i c i s m o f them.

h i s v i e w , been u s e f u l , and t h e d e v e l o p m e n t s demonstrated i t s p o s i t i v e nature.

in

The Bonn Summit had, t h a t had f l o w e d

He hoped

f r o m i t

Summit

that t h i s

w o u l d be e q u a l l y v a l u a b l e .

The main e c o n o m i c crisis

p r o b l e m f a c i n g t h e m e e t i n g was t h e e n e r g y

T h i s was

and i n p a r t i c u l a r t h e p r o b l e m o f o i l s u p p l i e s .

an i s s u e w h i c h a f f e c t e d t h e s h o r t , medium and l o n g t e r m s , and t h e

m e e t i n g had t o be a b l e t o show t h a t t h e y relevant to a l lthe timescales. had p r e p a r e d

w h i c h were

had p r o p o s a l s

The E u r o p e a n E c o n o m i c

Community



f o r t h e Summit m e e t i n g a t t h e m e e t i n g o f t h e E u r o p e a n

C o u n c i l t h e p r e v i o u s week.

B u t t h e d e c i s i o n s w h i c h had been

taken

t h e n w o u l d o n l y make s e n s e and have an i m p a c t on t h e p r o b l e m i f

i n hand w i t h s i m i l a r d e c i s i o n s by t h e Community's

t h e y went hand

partners represented

a t Tokyo.

They w o u l d be s u c c e s s f u l i n

t a c k l i n g t h e p r o b l e m o f o i l demand and s u p p l i e s o n l y i f t h e y

c o u l d a g r e e upon q u a n t i f i e d t a r g e t s f o r o i l i m p o r t s w h i c h were

as s p e c i f i c as p o s s i b l e . determination

I n t h i s way t h e y w o u l d show t h e i r

t o make a l a s t i n g r e d u c t i o n i n t h e i r

OPEC c o u n t r i e s .

I f , on t h e o t h e r hand,

imports

t h e r e were no t a r g e t s ,

The m e e t i n g

t h e m e e t i n g w o u l d be s e e n a s vague and d i s a p p o i n t i n g . should

a l s o a g r e e on c o n c r e t e

a c t i o n on p r i c e s and i n p a r t i c u l a r

on t h e e x c e s s i v e p r i c e s on t h e s p o t

market.



In t h e s h o r t t e r m t h e o n l y a l t e r n a t i v e s o u r c e s c o a l and n u c l e a r power, and on t h e s e i t s determination

o f e n e r g y were

the meeting should

to increase production.



express

E v e r y b o d y was c o n c e r n e d

about t h e s a f e t y o f n u c l e a r power, b u t t h i s s h o u l d a b s o l u t e p r e - c o n d i t i o n o f n u c l e a r development, t h e r e w o u l d be l o n g d e l a y s



from

n o t be an

f o r otherwise

i n m a k i n g g r e a t e r u s e o f n u c l e a r power.

The m e e t i n g ' s s t a t e m e n t on t h e d e v e l o p i n g be a s f a c t u a l and c r e d i b l e as p o s s i b l e . v e r y h a r d on t h e n o n - o i l p r o d u c i n g

countries

should

The e n e r g y p r o b l e m b o r e

developing

c o u n t r i e s , b u t t h e

s e v e n were n o t r e s p o n s i b l e f o r t h e i n c r e a s e s i n o i l p r i c e s :

/

CONFIDENTIAL

indeed,



CONFIDENTIAL

i n d e e d , b e c a u s e o f them, i t was up

their

a i d programmes.

f o r t h e Seven t o s t e p

more d i f f i c u l t

They s h o u l d not make s t a t e m e n t s



suggesting

t h a t t h e e f f e c t s o f i n c r e a s e s i n o i l p r i c e s on t h e e c o n o m i e s o f

d e v e l o p i n g c o u n t r i e s c o u l d be o f f s e t . c o u l d to h e l p the poorer

n a t i o n s , t h e r e was

s h o u l d do what

no way

i n w h i c h we

important

f o r the s t a b i l i t y

of the f i n a n c i a l markets t h a t

country

Each

w o u l d need t o d e f e n d

important

i t s n a t i o n a l i n t e r e s t s , but

i t was

t o t a k e an o v e r a l l v i e w o f t h e p r o b l e m i f t h e w o r s t

France



the

e f f e c t s of

c r i s i s on n a t i o n a l e c o n o m i e s were t o be a v o i d e d .

play a f u l l



could

the meeting a r r i v e d at s o l u t i o n s t o the energy problem.

oil



we

entirely.

s o l v e t h i s problem

I t was

W h i l e we



would

process.

part in t h i s

C h a n c e l l o r S c h m i d t s a i d t h a t he b e l i e v e d t h a t t h e s e q u e n c e o f

E c o n o m i c Summits had of the world's

had

a benevolent

e c o n o m i c s t r u c t u r e and p r o c e s s e s .

not a c c o m p l i s h e d

great reforms

and

development

i n f l u e n c e on t h e The

meetings

i m p r o v e m e n t s b u t had

to

helped

a v o i d m a j o r c a t a s t r o p h e s w h i c h o t h e r w i s e m i g h t have happened. had

prevented

1930s.

I t was

l a p s e s i n t o t h e b e g g a r my not n e c e s s a r y

schemes e v e r y y e a r , adopting misguided

and

neighbour

of



national Parliaments.

spending,

and

t o promote q u i c k e r

h i s Government had

taken

m e a s u r e s w i t h i n 8 weeks o f t h e Summit m e e t i n g .

he e x p e c t e d



new

to e x t e r n a l pressures,

At t h e Bonn Summit Germany had been a s k e d necessary

the

p o l i c i e s of

t h e m e e t i n g s s h o u l d a v o i d t h e temptations

i n c l u d i n g t h o s e e x e r t e d by

g r o w t h by d e f i c i t



They

f o r e a c h Summit t o p r o d u c e g r e a t

p o l i c i e s i n response



had

t h e German economy t o grow by

about 4% d u r i n g



the

As a

result



1979.

T h i s meant, however, t h a t t h e money s u p p l y had

i n c r e a s e d , and p u b l i c

borrowing

o f GNP,

i n t h e F e d e r a l R e p u b l i c was

t h a n t h a t f o r t h e U n i t e d S t a t e s and consequence of the i m p l e m e n t a t i o n had

entered

1979

not

France.

Another

of the u n d e r t a k i n g s

i n t o a t t h e Bonn Summit was

were h i g h e r t h a n

3.7%

t h o s e f o r 1978,

up by had

i n t h e c a p i t a l and 124%

now

i n the l a s t

and

stopped,

w h i c h Germany

the r e p e r c u s s i o n s of

c r e d i t markets: i n t e r e s t

12 months, and

inevitable

that price increases i n

w o u l d be s e e n i n t h e n e x t wage r o u n d i n Germany. arisen

level

a higher

P r o b l e m s had r a t e s had

CONFIDENTIAL

also

gone

t h o u g h he hoped t h a t t h i s

he c o u l d not be c e r t a i n t h a t i t had.

this



rise

CONFIDENTIAL

He u r g e d t h e m e e t i n g not w h i c h c o u l d not be these

fulfilled.

w o u l d soon be

leaders. i n the

On

to enter

implementation

of r e a l i s t i c

t h a t t h e OPEC m e e t i n g had

co-operate

ready t o

decisions.

He



energy

t h e OPEC

p u b l i c o p i n i o n o r by

hand, Germany w o u l d be

on

i n gimmicks,

I f the meeting i n d u l g e d

d e m o l i s h e d by

the o t h e r

into undertakings

thought i t l i k e l y

been a d j o u r n e d t h e p r e v i o u s

day



because

t h e y w a n t e d t o see w h e t h e r t h e Seven were s e r i o u s i n t h e i r

determination

t o t a c k l e the energy c r i s i s

no more t h a n p r o d u c e new

rhetoric.

f i n d i n g i t more d i f f i c u l t

On

the world

economy and

t h e y were r i g h t those

and

The

the s u b s t i t u t i o n of a l t e r n a t i v e f u e l s .

t h e need t o

however, o i l i m p o r t s

1973

Federal Republic

imported

d e s p i t e the growth of her

had

been a l i t t l e

higher

on

at a high

level,

of c o a l , w h i c h was

expensive

t o mine i n Germany, was

and

t h e use

result

i n d i c a t i o n of the success t h a t o n l y 9%

economy.

In

for

difficult



running

A good

of the measures which h i s c o u n t r y p r o d u c t i o n was



1973.

and

heavily subsidised.

o f Germany's e l e c t r i c i t y



1979,

i n c e n t i v e s t o c o n s e r v e o i l was very



had

l e s s o i l than

than those

H i s Government's e x p e n d i t u r e



conservation

t h e p r i c e mechanism t o work t o a l a r g e e x t e n t , w i t h t h e

t h a t d u r i n g t h e p e r i o d 1973-78 Germany had

was

that

confident

a t t e n d i n g t h e Summit m e e t i n g w o u l d a g r e e on

the years b e f o r e



wanted

of s e l f i s h n e s s ,

He was b o t h by

in



and

i n t h e i r view t h a t o n l y such i n c r e a s e s would

r e d u c e t h e a g g r e g a t e demand f o r o i l i m p o r t s allowed

in particular

who

a c t i n g e n t i r e l y out

make t h e i n d u s t r a l i s e d n a t i o n s c o n s e r v e o i l . all

their

in o i l prices

t h e o t h e r hand, t h o s e

q u i c k e r p r i c e i n c r e a s e s were not



do

a l s o c l e a r t h a t OPEC were

I t was

c o u n t r i e s of f u r t h e r e x p l o s i o n s

t h e y w a n t e d t o be m o d e r a t e . for

could

t o a g r e e amongst t h e m s e l v e s : some o f

members u n d e r s t o o d t h e e f f e c t s on on t h e d e v e l o p i n g

or whether they

had

now



taken

based

on



oil.

T h e r e was,

s w i t c h i n g from o i l t o o t h e r to

prevent

of

however, c o n s i d e r a b l e o p p o s i t i o n t o the p o l i c y

t h e g r e a t e r use

fuels.

The

environmentalists

of c o a l ,

and

t h e y were a l s o

sought

fighting,

w i t h t h e h e l p o f some c o u r t d e c i s i o n s , h i s G o v e r n m e n t ' s p l a n s

to

i n c r e a s e the p r o d u c t i o n



of n u c l e a r energy.

He

hoped t h a t

m e e t i n g ' s communique w o u l d c a r r y a c l e a r message a d v o c a t i n g use

o f b o t h c o a l and

the

greater

n u c l e a r power, f o r t h i s w o u l d h e l p h i s and

Governments i n t h e i r e f f o r t s i n t h i s f i e l d .

CONFIDENTIAL

I f the



other

industralised



- 7 -

CONFIDENTIAL

n a t i o n s were s e e n t o be t a k i n g c r e d i b l e m e a s u r e s t o r e d u c e o i l

demand n o t o n l y i n t h e i m m e d i a t e f u t u r e b u t a l s o i n t h e medium

t h i s w o u l d s t r e n g t h e n t h e hand o f t h e OPEC m o d e r a t e s .

l o n g terms,

Even s o , he had

no doubt t h a t f o r t h e r e s t o f t h e c e n t u r y o i l p r i c e s

Governments w o u l d have

w o u l d have t o go up a t r e g u l a r i n t e r v a l s . t o spend f a r more t h a n h i t h e r t o on p u r e and a l t e r n a t i v e energy thermal energy.

a p p l i e d r e s e a r c h on

s o u r c e s so t h a t by t h e t u r n o f t h e c e n t u r y we

u s i n g not o n l y n u c l e a r energy next

but s o l a r energy

He p e r s o n a l l y f o r e s a w

and,

possibly,

t o be e x p e c t e d

turned t o energy,

I t was

important

their

approach

w o u l d not

behind

t h a n b e f o r e , h i g h e r l e v e l s o f unemployment

c o u n t r i e s t h a n t h e y had

experienced



and

developing

hitherto.

P r i m e M i n i s t e r s a i d t h a t t h e p r o s p e c t s f o r t h e w o r l d economy

the energy

problem

were i n t e r - r e l a t e d and t h a t one

d i s c u s s e d without c o n s i d e r i n g the other. through



be

f i n e words.

a g r e a t e r l a c k o f f o o d and o t h e r b a s i c n e c e s s i t i e s i n t h e

The

express

w o u l d be p o i n t i n g t h e w o r l d t o w a r d s d e e p e r

the meeting

monetary i n s t a b i l i t y

i t was

t o a v o i d v e r b a l compromises

the p u r s u i t of n a t i o n a l i n t e r e s t s hidden

Otherwise,

more

atmosphere.

t h a t t h e Heads o f S t a t e and Government w o u l d

a n a t i o n a l i s t i c one.

the

any

he hoped t h a t a l t h o u g h

t h e i r n a t i o n a l i n t e r e s t s i n c l e a r terms,

and

geo­

c e n t u r y t h e r e w o u l d be p r e s s u r e n o t t o use h y d r o - c a r b o n s

When t h e m e e t i n g



were

t h a t i n the e a r l y p a r t of

because of the dangers of o v e r - h e a t i n g the o u t e r

and



and

1979

b u t we

We

were now

be



way



c o u l d not only half

a l r e a d y s e e n p r o s p e c t s f o r t h e w o r l d economy

had

d e t e r i o r a t e month by month.

We

had s t a r t e d t h e y e a r w i t h a good

c h a n c e o f a b e t t e r b a l a n c e o f g r o w t h between t h e m a j o r c o u n t r i e s and

a l e s s exaggerated

b a l a n c e o f payments s u r p l u s e s and d e f i c i t s .

c u r r e n c y s i t u a t i o n was

a l s o more s t a b l e , b u t b e c a u s e o f what

especially

T h i s was

the second

t o r e a l i s e how

a problem

tackled

in relation we

time

inflation.

had

t h a t was

had

been made

oil.

t o d e v e l o p m e n t s on

not g o i n g t o go away, and

i t had

t o b o t h t h e s h o r t and medium t e r m s . f o r m e r l y taken

f o r g r a n t e d was

CONFIDENTIAL



had



i n f i v e y e a r s t h a t we

v u l n e r a b l e t h e w o r l d was

T h i s was

growth which

t r u e as r e g a r d s



much w o r s e :

happened on o i l t h e p r o s p e c t s i n a l l t h e s e a r e a s were now t h i s was

The

now

The

to

be

economic

a fragile

/We

had



thing.



CONFIDENTIAL

- 8 -

We

had

t o r e v i s e a l l our p r e v i o u s i d e a s about g r o w t h .

f o r the i n d u s t r i a l i s e d countries.

w o r l d economic a c t i v i t y

and

l e s s a b l e t o h e l p them. e c o n o m i c and

both

t h e Summit m e e t i n g was meeting f o r guidance

leadership.

w o r l d was

She

b e l i e v e d that the c o u n t r i e s

We

looking to

difficulties,

c o u l d and or took

c o u l d n o t be done.

refuge

Summit had meeting. The

and

T h i s was

had

o n l y was

t o be s u s t a i n e d y e a r

other sources t h e end

were needed. in f u l l ,

as t h e sun

of the c e n t u r y . I t was

f o r t h i s was



the

Our

and and

So b o t h

i n the

nowhere g r e a t e r t h a n

there a severe

immediate problem,

but



e f f o r t s t o r e d u c e o i l demand

a f t e r year.

to develop,

such

the

t h e w o r l d w o u l d say t h a t

c a n d o u r was

to face a long haul too.

took a long time

facts

responsibility.

a heavy

Not

about what

t h e p o s i t i o n w o u l d be w o r s e t h a n b e f o r e

need f o r r e a l i s m and

of energy.

were r e a l i s t i c

If the meeting f a i l e d t o face

i n pious p l a t i t u d e s ,

failed

either

s h o u l d n o t , however, h e l p

o u r s e l v e s o r o t h e r c o u n t r i e s u n l e s s we

had

the

The

t h e r e s i l i e n c e t o surmount t h e s e

p o l i c y had been r e d u c e d .

we

world,

i n the

s h o u l d r e c o g n i s e t h a t t h e room f o r manoeuvre i n e c o n o m i c

b u t we

field



be

the background a g a i n s t which

T h i s was

taking place.



reduced

n a t i o n s would

A l l t h i s meant more i n s t a b i l i t y

and

of t h e f r e e w o r l d had

increased o i l prices,

because the developed

political.



bad

developing

n a t i o n s but worse f o r the

They w o u l d s u f f e r t h r o u g h

I t was

The

supply of n u c l e a r energy

from

l a r g e - s c a l e s u p p l i e s of energy t i d e s c o u l d not be e x p e c t e d s h o r t term

e s s e n t i a l t h a t we

and

l o n g term



before

measures

l e t t h e p r i c e mechanism work

t h e most t e l l i n g way

o f r e d u c i n g demand.



But

t h e r e were a l s o o t h e r s t e p s t h a t s h o u l d be t a k e n : we must r e d u c e

c o n s u m p t i o n i n t h e p u b l i c s e c t o r and c o n s e r v a t i o n measures such

improve t a x i n c e n t i v e s f o r

as i m p r o v e d i n s u l a t i o n .

We

should

r e d u c e o i l demand by s w i t c h i n g t o o t h e r s o u r c e s o f e n e r g y . cent of Great 15 p e r c e n t

B r i t a i n ' s e l e c t r i c i t y was

from o i l .

also

70



per

only

p r o d u c e d f r o m c o a l and

In t h e l o n g e r term we must make much more

use

of n u c l e a r energy.

The

meeting should

inflation.

The

a l s o be r e a l i s t i c

about how

l e s s o n o f t h e y e a r s s i n c e 197^

was

to

tackle

t h a t we

should



not s e e k t o accommodate t h e i n f l a t i o n p r o d u c e d by o i l p r i c e

i n c r e a s e s by d e f i c i t fight

i t . We

f i n a n c i n g a n d p r i n t i n g money b u t we

should instead

s h o u l d make i t p l a i n t h a t t h i s c o u r s e meant a l o s s

CONFIDENTIAL

/real

of

income



CONFIDENTIAL

real not

income t h a t was mean g i v i n g up

t h a t the But

we

f o r g r o w t h had

we

commerce and

and

i n s p i r e confidence I f we

i t s c o n s e q u e n c e s we t h a t our

We

had

t o show OPEC t h a t

serious

i d e n t i f i e d with problem i n the adapting

we

saw

need t o r e b u i l d t h e What she

purpose of the

should

much g r e a t e r Roy

not

cloak

confidence Jenkins

W h i l e we

and



for

applied

had

o f our

throughout the

full

in A p r i l ,

should

not

a particular

i n d u s t r i e s and



to



the

to give a lead.

To

the world

realistic,

t h i s would i n s p i r e

though i t remained c r u c i a l

e x a g g e r a t e what had

The





a

that

agreement on

largely

been

there

growth





fulfilled.

happened i n t h e m o n e t a r y

CONFIDENTIAL



our

If

been b r o u g h t t o

been v e r y



that

economy

amount o f p r o g r e s s had

i m p l e m e n t a t i o n of them.

do



world.

MTNs had

been r e a c h e d a t Bonn had

making



e n e r g y and

c l e a r and

The



were

s a i d about f i g h t i n g i n f l a t i o n

countries.

a fair

We

were t h e r e f o r e

our meaning w i t h s o f t p h r a s e s .

said that

successful conclusion be

strength

a p p r o a c h on

made s i n c e t h e Bonn Summit. now

We

M o r e o v e r , we

Summit m e e t i n g was

a p p r o a c h t o t h e s e p r o b l e m s was

w h i c h had



the

countries.

t o change a p p l i e d even more s t r o n g l y t o

must adopt a r e a l i s t i c

should

too q u i c k l y ,

countries.

i n t e r e s t s as c l o s e l y

our

had

Kingdom t h a n t o some o t h e r

Mr.

demand i n o i l ,

o i l producing

t h o s e o f consumer c o u n t r i e s .

make them c o m p e t i t i v e .

we

and



to

lines.

f o r the Western n a t i o n s

determined e f f o r t s t o save energy.

and

the r i g h t

Kingdom t h a n t o some o t h e r

a m a j o r e n e r g y p r o d u c e r but

we



If

fight against o i l

Prime M i n i s t e r s a i d that perhaps these precepts

more t o t h e U n i t e d

The

the

i f p r i c e s went up

w o u l d be v e r y

their

economy as a w h o l e .

the w o r l d

United

increases.

w o u l d be b e t t e r a b l e

p o l i c i e s were on

must r e a c h some u n d e r s t a n d i n g w i t h

and



true

o i l price

approach to the

we

The

I t was

of renewed g r o w t h .

were t o a c h i e v e a b a l a n c e of s u p p l y

repercussions

did

this

t o improvements i n

t o a d a p t t o change - f o r p r o s p e c t s

inflation

But

future.

been damaged by

a d o p t e d t h i s k i n d of r e a l i s t i c

price

term.

e l s e w h e r e - f o r example, t o g r e a t e r e f f i c i e n c y

look

i n i n d u s t r y , a g r i c u l t u r e and ability

short

a l l hope of g r o w t h i n t h e

prospects

should

unavoidable i n the

field,

CONFIDENTIAL

we h a d s e e n t h e A m e r i c a n s t a b i l i s a t i o n measures

but

into

I t was p e r h a p s i n t h e

p o s i t i o n o f t h e E u r o p e a n M o n e t a r y System. field

and t h e p u t t i n g

o f N o r t h / S o u t h r e l a t i o n s t h a t t h e r e had been

least

progress,

even h e r e n e g o t i a t i o n s on t h e r e n e w a l o f t h e Lome C o n v e n t i o n h a d

j u s t been c o n c l u d e d . overshadowed

B u t a l l t h e s e modest a c h i e v e m e n t s were

by what had happened

T h i s was t h e

i n t h e energy f i e l d .

p r o b l e m w h i c h d o m i n a t e d t h e Summit.

could

T h e r e was n o t h i n g w h i c h

p r e v e n t s u b s t a n t i a l e c o n o m i c damage b e i n g s u f f e r e d as a r e s u l t o f

the

events of t h e l a s t

s i x months.

g r o w t h w o u l d be r e d u c e d .

I n f l a t i o n was bound

The b a l a n c e o f payments c o s t f o r t h e OECD

c o u n t r i e s as a w h o l e w o u l d be $20 b i l l i o n

a year.

t h e i n e s c a p a b l e i n j u r i e s which r e s u l t e d from t h e o i l

The o i l m a r k e t w o u l d p r e s u m a b l y b a l a n c e i t s e l f so.

The c e n t r a l

and a v o i d a b l e wounds

q u e s t i o n was how f a r we added s e l f - i n f l i c t e d to

t o go up, and

situation.

i n t h e next year o r

He a g r e e d t h a t o i l p r i c e s w o u l d go up, b u t we must n o t

e n c o u r a g e u n n e c e s s a r y p r i c e i n c r e a s e s and we must do a l l we c o u l d

to

s e e t h a t p r i c e r i s e s were g r a d u a l and n o t sudden.

no v o l u n t a r y agreement

I f t h e r e was

t o r e s t r a i n o i l i m p o r t s a n d no d r i v e

towards

s u b s t i t u t i o n , we s h o u l d f i n d t h a t we were s a v i n g e n e r g y i n t h e most

e x p e n s i v e way - by r e c e s s i o n .

I f t h a t happened

o i l prices

would

s t a b i l i s e a t a v e r y h i g h l e v e l and w o u l d t h e n r e m a i n t h e r e . w o u l d be l i k e l y

c o n s e r v a t i o n measures. it the



t o produce a g l u t of o i l , and i t would then i n t u r n

become more d i f f i c u l t the

This

t o b r i n g home t o p e o p l e t h e need f o r

I n t h i s way an even worse e n e r g y c r i s i s

p r e s e n t one w o u l d b u i l d up i n t h e 1980s. n e c e s s a r y t o a g r e e upon m e a s u r e s

than



T h i s p r o s p e c t made

t o deal with the problem i n both

s h o r t and l o n g e r t e r m s .

Mr. C l a r k s a i d t h a t he a g r e e d t h a t t h e Summit's u n d e r t a k i n g s on

e n e r g y must be s e e n t o be s e r i o u s ones and t h e m e e t i n g s h o u l d itself

t o a d o p t i n g g o a l s w h i c h were a c h i e v a b l e .

u n a t t a i n a b l e o b j e c t i v e s , t h i s would r e s u l t

restrict

I f t h e y went f o r

i n s c e p t i c i s m and f a i l u r e .

The e f f e c t o f t h e Summit's c o n c l u s i o n s on p u b l i c o p i n i o n w o u l d be

very important.

An e x p r e s s i o n o f s e r i o u s c o n c e r n about t h e e n e r g y

s i t u a t i o n w o u l d h e l p Governments u n p o p u l a r c o n s e r v a t i o n measures. r a i s e d environmental problems.

like

h i s own who h a d t o i n t r o d u c e

A l t e r n a t i v e sources of energy T h e r e was, f o r e x a m p l e ,

e v i d e n c e i n

/ Canada

CONFIDENTIAL

often

- 11 -

CONFIDENTIAL

oT^acidic rain resulting

f r o m t h e use o f c o a l .

I t would

be



i m p o r t a n t f o r t h e Summit t o t a k e a c c o u n t i n s e t t i n g g o a l s o f t h e

different

circumstances of i n d i v i d u a l c o u n t r i e s .

r e g i o n a l d i f f e r e n c e s o f w e a l t h i n Canada. o f t e n t h o s e where t h e r e was

T h e r e were m a j o r

Some a r e a s , w h i c h were

e n e r g y , were v e r y w e a l t h y , b u t

abundant

t h e r e were a l s o r e g i o n s w i t h l i t t l e o r no l o c a l e n e r g y s o u r c e s

w h i c h were much p o o r e r .

These

be

were l i m i t s on t h e s p e e d w i t h w h i c h t h e p r i c e mechanism c o u l d applied

in full

i n Canada.

The C a n a d i a n Government was

d e v e l o p i n g an e n e r g y p o l i c y

there

i n t e r n a l d i f f e r e n c e s meant t h a t



actively

f o r t h e 1990s e m b r a c i n g s u b s t i t u t i o n



and

conservat ion.

Mr. O h i r a s a i d t h a t e v e n t s had shown t h a t t h e v i e w t a k e n o f t h e

Middle East s i t u a t i o n

a t t h e Bonn Summit had been n a i v e and

that

t h a t m e e t i n g s ' s a p p r o a c h t o f u n d a m e n t a l and l o n g t e r m m e a s u r e s t o

d e a l w i t h t h e o i l p r o b l e m had n o t been a d e q u a t e . in

We must now

c o p i n g w i t h f u t u r e o i l p r i c e i n c r e a s e s and we must show t h a t

were s e r i o u s about l o n g t e r m c o n s e r v a t i o n m e a s u r e s . oil in

crisis

t h e r e had been some improvement

inflation

Since the

we



first



i n g r o w t h , some r e d u c t i o n

i n some c o u n t r i e s and a b e t t e r b a l a n c e o f payments

s u r p l u s and d e f i c i t s .

But i n o t h e r a r e a s , p a r t i c u l a r l y

employment, s e r i o u s p r o b l e m s r e m a i n e d s o t h e r e was scope f o r improved economic

performance.

c o n s i d e r a b l e demand f o r an improvement his

firm

be

still

t h a t of

substantial

In J a p a n t h e r e was

a

i n the q u a l i t y of l i f e ,

Government were t r y i n g t o g i v e r u r a l c o m m u n i t i e s the c i t i e s .

J a p a n was

of

the o i l c r i s i s

and

g i v i n g s e r i o u s thought t o the

life

implications

f o r t h e c o m i n g w i n t e r as w e l l as t o t h e means o f

s o l v i n g the longer term problems a r i s i n g

/

from the s h o r t a g e o f o i l .

Macro-Economic

CONFIDENTIAL



urban

a m e n i t i e s and a t t h e same t i m e t o r e d u c e t h e w o r s t f e a t u r e s o f in



Situation



CONFIDENTIAL

Macro-Economic S i t u a t i o n

Prime M i n i s t e r O h i r a , resuming a f t e r the

adjournment,

t o u c h e d on t h e r e l a t i o n s h i p

r e c a l l e d t h a t Heads o f Government had

Session.

o f energy p o l i c y t o macro-economic p o l i c i e s i n the Opening He

invited The

f u r t h e r c o n t r i b u t i o n s on t h e w o r l d

should

P r i m e M i n i s t e r s u g g e s t e d t h a t Heads o f Government

g i v e more a t t e n t i o n t o t h e need t o f i g h t

inflation.

t h e o i l p r i c e i n c r e a s e t h e r a t e o f i n f l a t i o n had many c o u n t r i e s . urgent.

The

o i l p r i c e i n c r e a s e had

P e o p l e had

purchasing

power.

been r i s i n g i n

come t o e x p e c t l i v i n g s t a n d a r d s Difficulties

not

enough.

Inflation

of t h e i r s a v i n g s .

to r i s e ,

on

stemmed f r o m t h e e m p h a s i s

financing.

c o n t r o l o f t h e money s u p p l y ;

c h e a t e d e l d e r l y p e o p l e out

It represented

Inflation

unattended simply because the world

had

Control that



value



but

of the

a t r a n s f e r of resources

r e t i r e d to the working p o p u l a t i o n .



without

increases in real

K e y n e s i a n p o l i c i e s w i t h t h e i r e m p h a s i s on d e f i c i t of i n f l a t i o n r e q u i r e d s t r i c t

before

Even

made t h e p r o b l e m more

d i f f e r e n t i a t i n g between r i s i n g money i n c o m e s and

was

situation.

economic

the

from

c o u l d n o t be



left

become so p r e o c c u p i e d



with

the problem of energy.

Mr.

O h i r a a g r e e d w i t h t h e P r i m e M i n i s t e r on

s u s t a i n i n g t h e a t t a c k on t h e Summit had and

growth.

t o be

inflation.

importance of

countries represented

s i d e s o f t h e same c o i n .

t h a t t h e p r o b l e m o f i n f l a t i o n was

S c h m i d t s a i d he

M i n i s t e r ' s point of view. t h e same p h i l o s o p h y .

He

He

more a c c u t e

a l s o concurred

m i g h t use

than

He

Prime

i n the

d i f f e r e n t words t o

f e a r e d most t h e t e m p t a t i o n s

shown t h e f u t i l i t y

of t h i s .

sentence under item 3 ) .

the thought c o n t a i n e d

there.

He

The

F o r t h a t r e a s o n he

to

t h a t i t was

unjust

last

wished s t r o n g l y to



5

liked

incomes

the

underline



P r e s i d e n t G i s c a r d mounted a s p i r i t e d d e f e n c e o f L o r d arguing



express

increase

to

s e n t e n c e i n the d r a f t communique w h i c h d e a l t w i t h r e a l (the f i r s t



agreed

ever,

n o m i n a l incomes t o compensate f o r h i g h e r o i l p r i c e s . y e a r s had



at

inflation

c o n c e r n e d a b o u t t h e c h o i c e between

These were two

Chancellor

The

the

Keynes,



to c r i t i c i s e p r e s c r i p t i o n s which r e l a t e d

t h e e a r l y 1930s t o w h i c h Keynes had

rightly

CONFIDENTIAL

addressed /

himself.

if







- 13 -

CONFIDENTIAL I f Keynes had his

been a l i v e now

s u r e he w o u l d have u p d a t e d

he was

p r e s c r i p t i o n s t o meet c o n t e m p o r a r y p r o b l e m s .

Picking

he

C h a n c e l l o r S c h m i d t ' s r e m a r k s a b o u t t h e d r a f t communique, thought agreed

t h a t p a r a g r a p h s 3 and

5 c o u l d u s e f u l l y be c o m b i n e d .

But

t h a t d i d not n e c e s s a r i l y i m p l y

deflationary policies.

In F r a n c e

investment

had

making f o r economic growth i n the l a s t 5 y e a r s . depended more on

c o n s u m p t i o n and on o v e r s e a s

t h a t w i s e l y chosen investment g r o w t h and

real



adopting not been a

factor

Growth



had

He b e l i e v e d

trade.

c o u l d b o t h be h e l p f u l i n

to develop

new

He

had

sources

5 of

i n mind measures t o c o n s e r v e

o f power.

b e n e f i c i a l t o many c o u n t r i e s .

He

He was

r i g h t simply to s e t t l e f o r running

thought

felt



be

t h a t i t was

lower

t h e w o r l d economy a t a He



energy

these could

not s a t i s f i e d

l e v e l s i m p l y because of the o i l c r i s i s .



promoting

i n c o n s e r v i n g energy - i n the terms of paragraph

t h e d r a f t communique.



He

t h e need f o r a l l c o u n t r i e s t o a d j u s t t o t h e h i g h e r

on

p r i c e of o i l .

and



up

communique

t h a t the

s h o u l d i n d i c a t e t h a t g r o w t h r a t e s s h o u l d n o t be t i e d t o t h e r a t e

o f c o n s u m p t i o n o f o i l and o i l p r o d u c t s . broken.

He

agreed

That l i n k needed t o

t h a t g r o w t h n e e d e d t o be

sources of energy supply.

In t h i s way,

c o u l d r e i n f o r c e commitments t o d o m e s t i c

those

s e n s i b l e energy measures



growth.

r e s u l t e d i n a message o f hope and

economic

because

solidarity,

c o u n t r i e s b e s t a b l e t o i n c r e a s e t h e i r economic growth

committed themselves well placed. Italy

alternative

f u e l l e d by

S i g n o r A n d r e o t t i r e c a l l e d t h a t t h e two p r e v i o u s Summits had

i t s g r o w t h t a r g e t a t a r o u n d 4%.

r e a c t i o n s t o the twin problems of i n f l a t i o n

He

less

strictly

difficult acceptable

feared that

and e n e r g y

f o r c o u n t r i e s l i k e h i s own He d i d n o t w i s h

i n f l a t i o n but agreed not j u s t s e t t l e

t o m a i n t a i n growth at

to minimise

than

The



should

Summit l e a d e r s s h o u l d aim

t o r e d u c e unemployment and

other j o i n t objectives.

an

the problem of

w i t h P r e s i d e n t G i s c a r d t h a t the w o r l d

for deflation.

a coordinated policy



shortage

I f t h a t h a p p e n e d , i t w o u l d make i t e x t r e m e l y

necessary.

level.





helped

w o u l d l e a d some c o u n t r i e s t o o v e r r e a c t i n r e d u c i n g g r o w t h more was



had

t o f a s t e r growth i n o r d e r t o h e l p those

As a c o n s e q u e n c e t h e a c t i o n s o f o t h e r s had

to maintain



be

achieve

Without i n f l a t i n g popular

at

their



expectations

t h e y s h o u l d aim a g a i n a t a message o f hope i n t h e communique.

/ Mr.

CONFIDENTIAL

Jenkins



CONFIDENTIAL - 14 Mr.

Jenkins

of the o i l p r i c e

noted that the d i f f i c u l t y

i n c r e a s e l a y i n the

contradictory effects:

f a c t t h a t i t p r o d u c e d two

a c o s t - p u l l e f f e c t on deficiency

-

inflation

i n demand.

In an

together

i d e a l world

similtaneous

with a

Governments w o u l d be

able



t o p r o d u c e a demand c o m p e n s a t i o n p o l i c y w h i c h c o u l d be p r o g r e s s i v e l y

r e d u c e d as t h e h i g h e r p u r c h a s i n g

power o f t h e o i l p r o d u c i n g

t o o k up

extremely

the s l a c k .

conditions.

But

t h i s was

difficult

countries

present

in

a case

He wondered, however, w h e t h e r t h e r e m i g h t not be

for developing

separate

p r i c e i n d i c e s which would d i s t i n g u i s h p r i c e

rest.

i n c r e a s e s a s s o c i a t e d w i t h r i s i n g energy p r i c e s from the T h i s would e n a b l e Governments t o emphasise the n e c e s s a r y of energy s h o r t a g e s .

consequences in dealing

Separate i n d i c e s could also help

w i t h f o r m a l i s e d systems o f wage i n d e x a t i o n .

President Carter reviewed

t h e measures taken

by

A d m i n i s t r a t i o n t o respond t o the energy shortage. Bonn Summit, he had

put

i n hand d e - c o n t r o l o f US

the

US

Following

the

domestic o i l p r i c e s .

C o n s e q u e n t l y o v e r t h e n e x t 18 months o i l p r i c e s w o u l d r i s e f a s t e r i n the U n i t e d

States than i n the other

Summit c o u n t r i e s s i n c e

v/ould r e f l e c t

the r e s u l t s of d e - c o n t r o l

i n a d d i t i o n t o t h e OPEC

price increases. separate he was

d i d not

had

energy p r i c e r i s e s p a s s i n g

Throughout h i s P r e s i d e n c y l a s t 2\

T h a t l i n k had

years.

Before

effectively

c o n s u m p t i o n f a c t o r had i n c r e a s e i n GNP.

1973

now

cent

f a l l e n t o 0.37

States.

combine c o - o p e r a t i o n He

had

successful.

Since

per cent

O t h e r s u p p o r t i n g m e a s u r e s had

c o n t i n u i n g concern at the

fall

had

(e.g.

priority

increase in 1973

GNP

consumption.

the

energy

f o r each 1 per

cent

been p u r s u e d ,

i n a v i a t i o n ) and

improved

P r e s i d e n t C a r t e r a l s o mentioned h i s i n the r a t e of p r o d u c t i v i t y i n c r e a s e

In a m i x t u r e

o f p o l i c i e s he

had

tried

to

i n t h e MTNs w i t h r e d u c e d p r o t e c t i o n at

p e r s i s t e d w i t h t h i s mix

although

i t had

not

P r e s i d e n t C a r t e r a l s o r e f e r r e d to the high

D expenditure

which

been made

i n c r e a s e i n energy

been b r o k e n .

tax i n c e n t i v e s for investment. i n the U n i t e d

d e a l of progress

But

wage

been o f f i r s t

each 1 per cent

including progressive de-regulation

and

accept

labour

s t r a i g h t i n t o US

e n e r g y had

A great

been a s s o c i a t e d w i t h a 1$ p e r

home.

p u b l i c o p i n i o n would

hoping to e s t a b l i s h a contract with organised

i n h i s d o m e s t i c programme. in the

t h i n k US

they

p r i c e i n d i c e s d i s t i n g u i s h i n g energy p r i c e i n c r e a s e s .

would prevent rates.

He



i n the Federal

a l w a y s been

l e v e l of R

Budget.

CONFIDENTIAL

/The

Administration





CONFIDENTIAL

The

A d m i n i s t r a t i o n was a l s o e n c o u r a g i n g

private

industry.

competition.

s i m i l a r e x p e n d i t u r e by

t o continue t o encourage

I t was i m p o r t a n t

But t h e c e n t r a l q u e s t i o n f o r t h e i n t e r n a t i o n a l

how t o d e a l w i t h t h e p r o b l e m o f e n e r g y .

community was u n d o u b t e d l y

He f e a r e d t h a t p r e s s r e p o r t s o f s p e c i f i c a t t i t u d e s w o u l d

reduce

o f Heads o f S t a t e and Government t o r e s p o n d t o

the f l e x i b i l i t y

e a c h o t h e r ' s p r o b l e m s i n a way t h a t w o u l d p r o d u c e a c o n s t r u c t i v e

response.

t h e y w o u l d c o n c e n t r a t e on

Above a l l , he hoped t h a t

r e a c h i n g agreement on p o s i t i v e commitments t o s p e c i f i c m e a s u r e s t o

meet t h e e n e r g y p r o b l e m . should t r y t o support

I t was i m p o r t a n t

that c o l l e c t i v e l y



they

and a p p r o v e t h e p r o p o s a l s o f e a c h o t h e r .

Whatever e l s e m i g h t a p p e a r i n t h e communique c o u l d n o t s u b s t i t u t e

P r e s i d e n t C a r t e r went on t o

for

constructive action of this kind.

say

t h a t t h e U n i t e d S t a t e s and Canada were l e s s w e l l p l a c e d

some o t h e r c o u n t r i e s t o r e d u c e t h e i r demands on t h e w o r l d market.

Partly

t h i s was b e c a u s e , f o r t h e l a s t

15 y e a r s ,



than

energy

domestic



p r o d u c t i o n h a d been f a l l i n g b e c a u s e o f r e l i a n c e on o l d e r o i l w e l l s .

Partly

i t was b e c a u s e , a s an o i l p r o d u c e r

as w e l l as an o i l

the i n t e r e s t s of

consumer, t h e U n i t e d S t a t e s h a d t o b a l a n c e d i f f e r e n t groups i n a d a p t i n g t o a s i t u a t i o n had

i n which p u b l i c o p i n i o n

L i k e t h e Canadian

got used t o a cheap source o f energy s u p p l y .

P r i m e M i n i s t e r he had t o have r e g a r d t o t h e f a c t t h a t

important



i n t e r e s t s i n h i s c o u n t r y were d e p e n d e n t on o i l p r o d u c t i o n and

exports.

He f e l t

domestic

i t was e a s i e r f o r t h o s e

source o f supply.

accommodate h i s own p o l i c y

countries without a

He was p r e p a r e d

t o go a l o n g way t o

t o t h e needs o f o t h e r c o u n t r i e s , b u t i f

he was t o c a r r y US o p i n i o n w i t h h i m he h a d t o be a s s u r e d t h a t would j o i n

i n a common commitment t o s o l v e t h e e n e r g y p r o b l e m .

Above a l l , he d i d n o t w i s h

t o s e e t h e Summit f a i l .

happen u n l e s s t h e r e was s u f f i c i e n t divergent

Mr.

views.

t o accommodate

He a g r e e d

w i t h o t h e r s on t h e

o f energy t o w o r l d economic development.

T h e r e was

s l o w g r o w t h and h i g h e r unemployment.

p r o b l e m was t o know how b e s t been l e a r n e d .

T h i s would



a n x i e t y about i n f l a t i o n , had

flexibility

O h i r a then spoke f o r Japan.

importance

others

to tackle this anxiety.

OECD had a g r e e d

upon d i f f e r e n t i a l



Many l e s s o n s demand management /

CONFIDENTIAL

The

policies.

- 16 -

CONFIDENTIAL

policies.

The J a p a n e s e Government had c o n t r i b u t e d t o t h i s

He r e c o g n i s e d but

P r e s i d e n t C a r t e r ' s need t o c u r e U n i t e d

t h e p r o b l e m o f i n f l a t i o n was common t o o t h e r

I t was n e c e s s a r y

d u r i n g t h e 1978 f i s c a l y e a r .

a c c o u n t h a d been r u n n i n g

at a d e f i c i t

o f $700 m.

J a p a n now e x p e c t e d

Whilst

l e v e l o f 20 p e r c e n t

domestic economic p o l i c y

I t was i m p o r t a n t

T h e r e was a need now t o renew

had

should

t h e C h a i r a t t h e Bonn Summit.



discussion

Schmidt suggested

r e p o r t on t h e i r p r o c e e d i n g s

T h i s had p r o v e d a s a t i s f a c t o r y

taken

technology.

f o r lunch, there followed a b r i e f

on c o n t a c t s w i t h t h e p r e s s ^ w R i c h C h a n c e l l o r press.

t o improve t h e

J a p a n was c o m i n g t o t h e end o f t h e p e r i o d

i n v e s t m e n t and t o s t i m u l a t e a programme o f i m p r o v e d

Prime M i n i s t e r O h i r a alone

prices

I n f l a t i o n remained t h e c e n t r a l i s s u e i n

of post-war t e c h n o l o g i c a l development.

adjourning

h a d been made

i n A p r i l and May, t h o u g h r e t a i l

i n Japan.

s i d e o f t h e economy.

Before

therefore,

W h o l e s a l e p r i c e s h a d moved up s h a r p l y t o an

towards i t .

moved up l e s s s h a r p l y .

supply

account

S i n c e March t h e c u r r e n t

had n o t a t t a i n e d t h e t a r g e t s e t a Bonn, p r o g r e s s

annualised had

c o u n t r i e s as w e l l .

But t h e c u r r e n t

a very s m a l l c u r r e n t account s u r p l u s t h i s year. in reaching

inflation,

J a p a n e s e d o m e s t i c damand had grown by

s u r p l u s h a d been r e d u c e d f r o m $14 b. t o $12 b.

they

States

f o r them a l l t o m i n i m i s e t h e e f f e c t o f i n f l a t i o n i n

r e s t r a i n i n g economic growth. 8 per cent

agreement.

that

to the

a r r a n g e m e n t when he h i m s e l f

Mr.

C l a r k seconded

a p p r o a c h a n d o t h e r Heads o f Government a g r e e d . f o r l u n c h a t 1215.

28 J u n e 1979

CONFIDENTIAL

this

The m e e t i n g a d j o u r n e d