CAB148-30-Defence and Oversea Policy Committee Meetings Relating to 1967 Disturbances-1967 — Page 237

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have as

one of its purposes the mitigation of the balance of payments

burden falling on us as a result of stationing our forces in Germany.

The earlier such arrangements could be made, the sooner we could hope to

see results, but transitional arrangements would also be necessary for

some years. Long-term arrangements were likely to be more advantageous

to us in view of the German need to re-equip their forces over the next

five years.

This would give us an opportunity to take the place of the Americans as the main suppliers to the German forces. In the present

German budgetary and political situation a short-term offset agreement

would almost certainly, result in a less satisfactory deal than we had negotiated for the current year. Our Ambassador in Bom (Sir Frank Roberts)

should be instructed to approach the Germans in the near future, although

it appeared that it would not be possible to start substantive

negotiations until October or November, Sir Frank Roberts would have an

opportunity of a preliminary discussion with the Federal German Foreign

Minister, Herr Brandt, in the second week of August.

In discussion the view was expressed that the prospect of securing

adequate cover for the foreign exchange cost of our forces in Germany

next year was not hopeful, while it remained essential to reduce the

drain on the balance of payments, especially since the closure of the

Suez Canal was placing serious foreign exchange burdens upon the economy.

Nevertheless the gross foreign exchange saving of £5 million a year from

the redeployment of a second brigade must be set against the additional

budgetary expenditure of about £20 million required to accommodate it in

the United Kingdom and provide it with the necessary training facilities

including a new tracked training area in the north of England. Further consideration might be given to achieving savings in foreign exchange

by reducing the level of war reserves held in Germany. The current German difficulties on defence expenditure ruled out any prospect of

obtaining from them firm commitments on offset by October, but it was

important that we should now stake our claim in order that the Federal

German Government could take account of our requirements before deciding on their budget. It was suggested that action on our part such as

preparations to accommodate further troops from Germany might be

necessary to convince the Germans of the seriousness with which we

regarded the offset problem; but it was the general view that in present circumstances any suggestion that we were contemplating further redeployments could well have the effect of encouraging the Germans to reduce their own force commitments and put the position of NATO at risk.

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