Versailles Economic Summit Conference
Q. Mr. President, Mr. Mitterrand is the first French President who is a Socialist President in France, and he invites his fellow heads of states and governments to a king's palace. How do you feel about all that?
The President. Having been a visitor at Versailles myself once before, some years ago, I am looking forward to it, seeing all that beauty again. Wasn't Louis XIV known as the Sun King? Maybe we'll all go there for enlightenment.
Q. How close are you with Mr. Mitterrand and what kind of relationship do you have? How often do you communicate with him on what you feel?
The President. I don't know what the schedule has been for previous Presidents, but in this year and a half or so that I've been here, I have met several times with all the leaders that I will be meeting at Versailles. And we're all on a first-name basis, no titles. We have had, I think, a very friendly relationship, a very open relationship in the meetings that we've had in Ottawa and Cancun, here in Washington.
I think it's been most helpful. I think we have a closer relationship, perhaps, than has existed before, and I mean all the leaders of the North Atlantic Alliance and all who will be at Versailles.
Q. But, in between the meetings, do you communicate, and how, with the language barrier and all?
The President. We have to resort to interpreters, and I've learned to get along with that. Some of the others speak some English. I had a couple of years of schoolboy French many, many years ago, because it was compulsory in the school that I attended. But I couldn't rely on it myself now. I shouldn't be taking up all this time, but I told the President about an experience that I had with having to use French the first time that I ever went to France. I went with a couple from England, had been in London for the winter, and we went across the Channel in the spring to go down to the south of France. I didn't know that they had never crossed the Channel before, and they knew not one word of French, and we were going to drive in their car. I realized that if there was any communication it was going to be up to me. And we were coming to a town where we were going to have lunch. I was thinking and trying to dredge up all the words that I could remember on how to find the best cafe.
As words began to come back to me I sort of padded my part, and we did arrive in a little town. There was a gendarme in the street. We pulled up beside him and by this time I was ready. I said, ``Pardon, monsieur, j'ai grand faim. Ou est le meilleur cafe?'' -- ``I'm very hungry and where is the best cafe?'' And he told me, and my friend who was driving says, ``What did he say?'' I said, ``I haven't the slightest idea.'' [Laughter] I could rehearse the question. I couldn't rehearse the answer.
Q. Mr. President, if I can pick up again on your personal contact, you met 11 months ago in Ottawa with six Western European heads of state and governments, and you will all be meeting again together soon. What have you accomplished since then, not only on a personal level but also in terms of politics? What have you accomplished collectively, for instance, that you could not accomplish separately?
The President. I've always believed that a lot of problems are resolved if you are talking to each other, instead of about each other. And I think that there have been tensions in the past that have affected us as allies and friends. We all share a great many mutual problems. We're all having economic problems. Unemployment is a problem for us. And I think that the personal bond that we've established has created a relationship that is very close and that makes us able to discuss openly and freely those things that are of mutual interest to us, those problems where maybe we can solve them better together than we can by going our own ways.
Q. Last year you heard some complaints from the Europeans on the high rates of interest in the United States, and you told them that the United States was suffering from those high rates as well. Certainly your recession looks a little bit more credible now. Now the Europeans are complaining about unemployment, which does great damage to the socio-economic fabric of Western Europe. What will you tell them now, given the fact that unemployment is also a problem in this country, the slow recovery -- what will you be discussing with them in concrete ways to face this problem?
The President. I think that the answer has to be a correction. You can't correct unemployment unless you correct the problems that have caused a virtually worldwide recession. These have to do with trade, imports and exports. All the things that we can put on the table that may be restricting the free flow of trade, that could stimulate markets, are essential to that.
When I hear the feeling about the high interest rates, I believe there was an honest misunderstanding that they thought these were somehow a part of our economic policy; that we were using high interest rates because of our double-digit inflation. They weren't part of our policy, and I think the other leaders realize that we have here in the Federal Reserve System an autonomous body that is not subject to pressure of any kind from those of us who hold office. In addition, the interest rates are set by the marketplace itself, the money market. We believe that in our case the high interest rates were the result of inflation.
Now we have brought inflation down. The doomcriers were saying a year ago that it would take 10 years to get a handle on the inflation problem. Well, month before last inflation actually disappeared for a month in America, and we had deflation. This past month it came up just a fraction of a percentage point. For the last 6 months inflation has been around 3 percent. I think we're going to see even more improvement compared to 1980 - 1981 as we go on through the year.
We think this is a big factor in getting interest rates down, and if we and Congress can get the savings that we're asking for in the budget for 1983, we think it will send a signal to the money markets that will bring interest rates down further.
We don't believe that we were the causes of Europe's problems. We could point to Italy's own interest rates, which are twice and three times the interest rates of Germany and Japan, and I don't think they have had any effect on those countries. But I think that the leaders of Europe and Japan now understand that this was not a deliberate part of an economic policy. This was a problem that we're trying to lick.
Q. If I could follow up on that point, Mr. President, while inflation has come down, most of the other economic indicators are still fairly grim. They talk about the rate of corporation failures, savings that haven't really picked up, and unemployment, of course, is at more-or-less record levels. And then there is the record budget deficit as well.
Now, at Ottawa last year, you linked the question of interest rates to a revitalization of the U.S. economy, but this revitalization doesn't seem to have started yet. Can you say what has gone wrong from this end, and when will you be able to assure the European leaders that ``happy days are here again''?
The President. I don't believe that anything has gone wrong. I think that many people confuse the adoption by Congress of the first phase of our plan with the plan being in operation. We believe very much in the incentive tax package that we passed with its reducing of taxes. But that's to be spread over a 3-year period.
We had asked for, originally, three yearly 10-percent cuts. We got one 5-percent cut, and the other two were 10-percent, but they have not yet gone into effect. We had also asked those tax cuts be retroactive to January 1st, 1981. In the compromise that goes on in a parliament or a congress, we had to take the best that we could get.
The 5-percent cut, not 10, did not go into effect until last October. We did see an immediate increase in personal savings rates after that had happened because of some features of the tax program. But if there is an incentive to those tax cuts, as we believe there is, we have to wait until the people are actually getting those cuts and having that extra money in their pockets.
The next cut -- the 10-percent cut -- will go into effect July 1st and then the next one in July of 1983. I think we have to wait and see when the program is actually in operation, when the effects are felt, not just the fact that you could point to a piece of legislation and say it's been passed into law. Wait until it takes effect.
In the last 6 months of 1980, during the campaign, the increase in our money supply, the flooding of paper money, was the highest it has ever been in our history -- a 13-percent rate. With it came the interest rates that skyrocketed to 21\1/2\ percent, and we had 2 years back to back of double-digit inflation. When I took office, inflation was 12.4 percent.
Now, they pulled the string on the money market at about that same time, way below the normal needs. So, we have had a problem with high interest rates; they have hung on for too long.
From the very first, getting our cuts in government spending, the billions of dollars in reductions, was a top priority. The annual rate of increase in government spending was 17 percent in 1980. We cut that in half in the first year that we were here.
With that action, the interest rates did come down about 20 percent -- not enough, but they did come down. But the unemployment had begun in 1979. We had a recession in 1980. And it continued along with this market dislocation and inflation. Unemployment and recession increase government costs quite considerably.
On the evidence of history, unemployment is the last thing that recovers when you're coming out of a recession. We think the indices are all there, that we are in the trough and have bottomed out in the recession. From the very first, we said that we could not hope for recovery until the last half of this year and we think in the last half we are going to see that recovery.
Q. How far is that recovery dependent on you breaking the budget stalemate? Do you think you'll have that stalemate ended by the time you go to Europe?
The President. I think it is very important. I think the money market is waiting to see if the Congress will -- since we don't dominate or have the majority of both Houses -- stay with its old-fashioned policies of artificial stimulation and quick fixes to cure things. All they ever did was temporarily reduce the fever, and then a couple of years later we had an even worse recession each time. But if the money markets see that Congress will do what it did last year and stay with us on our plan, making the further reductions that we're asking for in spending and stay with our tax program, I think that this will be the signal that will bring interest rates down.
There have been scattered signs in the money market that they want them down also. Those signs are in various areas -- our automobile industry, which is hard hit, and mainly because of the interest rates. Our people buy cars, as I'm sure they do elsewhere, on the installment plan. They have to pay interest such as the mortgage on a house. This has hurt the automobile market. Here and there in the country, groups of local bankers have come together and put up sums of money specified for automobile loans at a rate of interest about 4 points below the market. As long as that money lasted, they would lend it at that lower interest rate for those who want to buy automobiles.
The upsurge in automobile buying was instant. We have also seen some construction companies that evidently were able to liquidate their inventory of newly built houses by pulling down the interest rates themselves.
We think that this indicates that the money market is ready and wants lower rates. But they have to be sure that we have inflation down for good -- that it is not going to go zooming back up.
North Atlantic Alliance
Q. Mr. President, there is another summit looming, the NATO summit at Bonn. It is almost like an Alpine assault. You scale one summit after another. As one talks about NATO nowadays, immediately you are into this crisis talk. We have had a year behind us where things did not all go smoothly. Relations between America and the European allies were somewhat strained. Indeed, there are cries right now in Congress for a withdrawal of American troops to show the Europeans how upset you are and how unsatisfied with their performance. How much do you think is true about this crisis talk? Do you view the alliance in a similar way? And if so, where would you say one can improve the performance?
The President. I think it has improved. The recent meeting of ministers in Luxembourg indicates this. When we came into office, there were some strains in the alliance. And there was some ill-feeling on both sides. We set out to resolve that. I think we have done it. I believe in the North Atlantic Treaty Alliance. The fact that we have had 37 years of peace in Europe is the greatest proof of NATO's effectiveness.
We have no intention of withdrawing troops. We recognize our responsibility there. We recognize that those troops are not there, as some have said in congressional debate, because we are generously doing something for someone else. Our own security is involved. We are there because that NATO line is our first line of defense as well.
I do not think that there is any crisis at all. I think that NATO is on a better footing than it has been for several years. Where there could be and have been some problems at the southern flank of NATO, we are working on them and have come to some better agreements there.
Q. You mean Greece and Turkey?
The President. Yes.
Q. Can you envisage a likely scenario or a constellation of political crises where America would have to look beyond NATO, because it had global commitments, and where the importance for you of NATO would be diminished and you would have to go back to your NATO allies and say they will have to pick up more for their own defenses, because you have global commitments which require a greater deployment of American forces?
The President. So far, in spite of the economic problems that beset Europe as well as the United States, I think that their defense spending level has been consistent. And I have no quarrel with it at all.
As evidence of the improved situation, could I point out that we have had cooperation from our NATO allies with regard to the multinational force in the Sinai. Yet when we came in a year ago, we had not been able to find a single country that wanted to participate in that. Now they have.
I think that a subject for discussion with NATO would be that we all, together, look at the Persian Gulf and the Middle East as an area of concern because of our energy dependence on this particular area.
But I think the allies are holding up their end very well. There is a better, sounder relationship than we have had in the past.
Q. Part of the question of how well NATO is doing seems to be tied into the question of East-West relations in general. And we have heard that you now favor a summit with your Soviet counterpart. You used to tie this to the condition that some summit meetings should have a tangible outcome or result. Do you feel the time has come where such a meeting could accomplish something concrete?
The President. I would hope so, because I think that the Soviet Union also has some very real problems. Maybe it's time for someone to point out to them that their attitude of hostility, their worldwide aggression, their denial of human rights, whatever it's based on -- whether it is a concern that they are threatened by the Western world or whether it is just determination to pursue the Marxist-Leninist theory of world domination -- point out to them that the road to peace and giving up that aggressive attempt might be helpful to them with their own economic problems.
If there is any truth to the belief of some that the Soviet Union is motivated by fear of the West, that they think the West is going to threaten them -- I don't think there's anyone in the West who believes that for one minute. They could have a guarantee of peace tomorrow if they themselves would follow the words of Demosthenes 2,000 years ago in the Athenian marketplace when he said, ``What sane man would let another man's words rather than his deeds tell him who is at peace and who is at war with him.'' So far, it is the West that has to feel that the Soviet Union is at war with us on the basis of their great military buildup. I don't think they can point to anything from our side that indicates that.
What if back some years ago after World War II when our country was the only one with the nuclear weapon and really the only one left undamaged by war, in a position to do as we did, to go to the aid of our allies and even our former enemies; what if the situation had been reversed and the Soviet Union had had that bomb and not anyone in the West? If we had an aggressive intent wouldn't we have acted then when we could have done so easily? I think that's the greatest guarantee that it isn't the West that threatens the world with war.
Views on the Presidency
Q. Mr. President, may I ask you a question about the essence of the Presidency, because on paper you are the most powerful man on Earth.
The President. I keep telling my wife that. [Laughter]
Q. In practice you have, at least, some difficulties with heavy interest rates, even avoiding a war in the Falklands. What in your view are the limits of the Presidency? What can you really achieve?
The President. Sometimes I ask myself that question. There are limits, of course, great limits on the Presidency because the very nature of our government, and our Constitution has prescribed them to an extent beyond anything, I think, known in any other country.
Many countries have constitutions but most of them say in their constitution, ``We, the government, grant you, the people, these things.'' Our Constitution says, ``We, the people will allow government to do only these things that we permit in the Constitution.'' That's reflected in this supposed power of the Presidency.
The President can't dismiss a Congress, and, unlike the parliamentary system, you do not automatically have a majority in what constitutes our parliament, our Congress. In one of the two houses I have a majority of the opposition party. In the other house, the Senate, I have a bare majority of our party, and that's the first time that's been true for a Republican President in 25 years.
European Basing of Missiles
Q. Mr. President, in a few days you will be visiting the four major European partners of the United States in the Atlantic Alliance. Three of these, West Germany, Britain, and Italy, pledged to go ahead and modernize the nuclear weapons of NATO, a decision that was taken in December 1979. In fact, my country has already started work on our cruise missile bases. How do you assess the contribution of Italy and generally what's the prospect for productive negotiations in the area of intermediate nuclear forces?
The President. I must tell you we're very grateful to Italy for its forthrightness with which it stepped forward with regard to preparations for basing of those intermediate missiles.
We know why the missiles have been requested of us by NATO. There are 900 warheads on 300 SS - 20 missiles the Soviets have targeted on all of Europe and nothing comparable to counter them. The NATO decision came for Pershing missiles and cruise missiles as a deterrent to prevent the Soviets continuing that monopoly. I know that politically in Europe this was a great problem in a number of countries because of the peace movement. Some people can't quite see that unilateral disarmament is not the road to peace. But Italy was very forthright in coming forth on the preparations. We appreciate it very much. I must also salute the West German, the British, and the Belgian Governments for their leadership on this critical issue. President Mitterrand also shares our deep concern over the Soviet buildup.
The very fact that countries of Western Europe have said they were willing to base these missiles and we were willing to provide them is why the Soviets agreed to go to Geneva to meet when I proposed -- why don't we negotiate a total elimination of such weapons in Europe? We won't put in the Pershings and cruise missiles if they'll do away with the SS - 20's. I don't think they would have ever come to negotiate had it not been for the imminence of that proposal -- the fact that we are all going forward.
I would hope that before all those missiles are in place on our side, we would have negotiated an agreement in which they'll be unnecessary and the Soviets will remove theirs.
Strategic Arms Reduction
Q. Are you sanguine about the prospects of these negotiations? Can they be achieved apart and before, perhaps, a larger START agreement?
The President. We've completed our arrangements and proposals here to go forward with the START which has to do with the intercontinental missiles. Again, I believe that we're getting the evidence of willingness from the Soviet Union to at least negotiate, to talk, because we are going forward with the rebuilding of our own military and because our allies have shown their own determination on the intermediate weapons.
In recent years when we were letting our defenses crumble and were virtually unilaterally disarming, there was no incentive for the Soviet Union to meet us in any kind of arms reduction talks because they were engaged in the most massive buildup the world has ever seen at the same time we were apparently not willing to even try and keep pace. I think it was explained in a cartoon in one of our papers recently. It was Brezhnev speaking to a Russian general and he said, ``I liked the arms race better when we were the only ones in it.''
Q. Mr. President, your speech at Eureka on strategic arms, your administration's previous commitment to the concept of linkage, the concept whereby you link arms control negotiations, East-West trade, summitry with the Soviet Union with political progress by the Soviet Union on things like Poland and Afghanistan -- this was conspicuous by its absence. Does this mean that you've abandoned the principle of linkage?
The President. No, not at all. And let me point out that in the many times that I've spoken of that concept, I have never particularly linked it to something as specific as arms reductions talks. But it was done in the context of the summit meetings that have taken place with regard to trade and to features of detente. I view it in that context but that doesn't rule it out even for arms reduction talks. I could answer it very briefly. Much of what is concerned in that linkage, some of the very subjects you talked about, are not things that you headline in the paper. The fact that you do not proclaim such subjects or put them up there in the newspaper does not mean that they can't be brought up when you're sitting at a table. I think sometimes that politically to publicly discuss things of that kind makes it politically impossible to get them, where maybe in what I've called quiet diplomacy you secure them.
Q. I would like to ask you to expand a little bit on what you've said the Luxembourg meeting of NATO foreign ministers accomplished. There was a communique last week that says ``a more constructive East-West relationship aiming at genuine detente through dialog and negotiations and mutually advantageous exchanges should be aimed at.'' Now, that's a very positive, sort of upbeat approach. Yet we know we're going to discuss the pipeline, we're going to discuss credits' curtailment and so forth. Where are the limits of cooperation with the East? Where do you think we've gone beyond them?
The President. If I understand the question correctly, I think it gets back to something I was saying earlier. We've tried ever since World War II to simply persuade the Soviets. There have been our own efforts at arms reduction -- I think there have been 19 such efforts since World War II -- but in other things we've simply tried to persuade. It seems to me that now, with the Soviets having the economic problems I mentioned, that this is an opportunity for us to suggest to them that there might be a better path than they've been taking. And if so, we'd like to explore that better path.
Q. Don't you think the pipeline deal is a good idea to suggest to them, that this could be done, as a deal?
The President. Our thought about the pipeline was that it was being given without the quid pro quo of some change in attitude and that there was a danger to Europe in making itself too dependent on the Soviet Union as an energy source. I think that is still something that Europe should look at and see if they want to be that dependent on someone who has 900 nuclear warheads aimed at them.
Q. Thank you, Mr. President.
Views on the Presidency
(The President then volunteered further comment on the question of the power of the Presidency).\1\ (FOOTNOTE)
(FOOTNOTE) \1\Printed in the transcript.
The President. A man who once sat at that desk, Theodore Roosevelt, said that the Presidency is a bully pulpit -- the pulpit where the clergyman preaches sermons. It is that. I think this office does offer an opportunity for mobilizing public sentiment behind worthwhile causes. To that extent, there is a power that should be used properly and for the right causes that goes with this office.
Q. Will you tell that to the Pope, who you'll be seeing in Rome?
The President. I'm looking forward to meeting him. He is an example of what so many people have always said about Christian and Judaic tradition, and that is that when really needed, God provides a man. And I think in Pope John Paul he did just that. I'm looking forward to the meeting. We can even both talk about our operations. [Laughter]
Spirit in America
Q. Do you think since you have been in office that the public spirit in this country has been enhanced? What do you think about the American public spirit?
The President. This goes to some of the questions that you were asking about whether we've done anything in the last year and a half. Before I took office in 1980, in polls and surveys that were being taken all the time, there was one question that was frequently asked. Many answered that they saw no hope in the future. Not only were things bad, but they did not see any signs they were going to get better.
Now we're in this deep recession and the same question is being asked. Many American people are saying, yes, things are bad, but we expect them to get better; we know they're going to get better, and they talk about next year and the year beyond, that they will be better. It's a turnaround of what the public attitude was, just a year and a half ago.
Note: Interviewing the President in the Oval Office were Marc Ullman of Paris Match, Nicholas Ashford of the Times of London, Thomas Kielinger of Die Welt, and Marino de Medici of Il Tempo.
The transcript of the interview was released by the Office of the Press Secretary on May 27. As printed above, the item follows that transcript.