At lunch with Callaghan and Carter in the Cabinet Room, they agreed that the summit would have to produce a set of interlocking commitments, with the economically weaker countries—Britain, France, and Italy—recommitting themselves to meet their London summit growth targets; Germany stimulating its economy; the United States raising its oil prices to world levels; and concessions for a successful conclusion of the Tokyo Round of trade negotiations, now in their fifth year. But Schmidt remained a major obstacle, and he was getting farther out on a limb by resisting more economic expansion while German opinion was already beginning to change as economic conditions worsened. When Lambsdorff visited Washington, Owen told him, “This whole thing won’t work unless Schmidt is willing to play, and I don’t want—and I am sure the president doesn’t want—to have a summit which is a failure.” Lambsdorff assured him that he favored stimulus and promised: “I’m going to go around the country making speeches about this and rousing the business community to demand tax cuts, and that will put the heat on Schmidt”—a remarkable role for Schmidt’s own coalition-government partner.8
Now it was time for Owen to see Schmidt. So early in April he traveled to the chancellor’s office in Bonn and conveyed a clear message from Carter: “Frankly, we don’t want to have a summit unless it is a success, and it can’t be a success unless you’re prepared to follow an expansionist policy.” He then handed Schmidt Carter’s personal letter making the point more tactfully. But he also knew Schmidt well enough to say that “you don’t want to be too tactful with Schmidt.” In any event the point was not lost on Schmidt that as the G7 host, he would suffer a grievous political blow if the summit he was to chair on home ground turned out to be a failure. He promptly volleyed the ball back into our court, telling Owen: “I am prepared to follow an expansionist policy, but there is a price for it, and the price has to be oil decontrol on your part.”9
When Owen returned to Washington, he went directly to a meeting in the windowless, supersecure White House Situation Room in the basement of the West Wing. Everyone was nervous about whether he had made a deal over their heads, and while he assured us he had made no deal, we would nevertheless have to confront a demand by the allies to decontrol oil prices, because without our commitment Schmidt would not commit to stimulating the German economy.
A serious split developed in the administration over how we would fulfill our part of the bargain. In retrospect, I was on the wrong side of the argument, but it was a close call. The internationalist part of our team, led by Blumenthal, Owen, and Cooper, argued for using the Bonn summit as the global stage to meet the demands of our foreign partners. I was part of a domestic group including Mondale and Ham that feared such a commitment in an international forum would undermine whatever faint chance remained of passing the wellhead oil tax, which was the administration’s preferred way of raising our oil prices to world levels. A more direct but politically risky way would have been to take advantage of legislation passed during the Ford administration giving the president authority to raise oil prices without congressional consent as early as June 1979. And even if he did nothing at all, price controls on crude oil would automatically expire by October 1981. So we argued, with legislation already on the books: Why take on the political risk of acting earlier at Bonn, particularly when we had an alternative way to achieve the same goal?
The president summoned key members of Congress for a briefing by Owen, which I joined. Owen remembers Metzenbaum, a fierce opponent of decontrol, “behaving like a real horse’s ass.” The senator snapped at Owen: “Everything you say is wrong.” Frustrated, the president snapped back at the liberal Ohio Democrat, “I’m sure glad of one thing: that the power to do this [decontrol oil prices] lies in my hands because if it lay in your hands, it would never get done.”
Frequent but inconclusive internal meetings followed to develop our summit position, with sharp divisions over whether the president should commit himself thousands of miles away to a policy that would enrage the liberal wing of his party and complicate congressional passage of his COET legislation. Nothing had been decided before the president left for Bonn, except in his own mind. Owen soon realized why: “Mainly, the president figured he knew what he was going to do, but he didn’t want to talk about it; he didn’t want to have a big brouhaha.”10
This was Carter’s typically individualistic decision-making process, backing into one of the most far-reaching decisions of his presidency thousands of miles from Washington, where an intense debate on his signature energy plan was under way in Congress, yet making history in a positive way. Just as he abandoned his campaign pledge to decontrol newly discovered natural-gas prices, but finally embraced it to save our beleaguered energy package, now he was going to abandon his campaign pledge to keep controls on crude oil in exchange for a successful promise of economic stimulus by the Germans and the Japanese, and conclusion of the Tokyo Round. He did not tell any of the staff in advance, not even Owen or the cabinet members traveling with him.
The Bonn summit did not start well. The president proposed something general on oil, referring to the COET wellhead tax, which was still alive if on life support. Schmidt was equally general about economic expansion. Each declared the other’s proposal to be inadequate, but no good negotiator opens by playing his highest card. So the first day ended in stalemate, and at about six that evening Schmidt left to meet with his inner cabinet and decide how to break the deadlock. He knew he could not push a tax cut through the Bundestag without the excuse of foreign pressure, and had confided to his entourage that he wanted the Americans “to force me to do it—so that I can.”11
Carter then made his move. He instructed Owen to call Schlesinger in Washington to determine if he objected to Carter pledging an end to price controls on oil as part of a deal with Schmidt. Owen woke Schlesinger in the early hours of the morning, briefed him as instructed, and found him curiously disengaged and nonplussed: “Jim didn’t seem to give a damn. You know, his attitude toward the handling of energy summits was really quite detached.” Owen also phoned Kitty Schirmer, my energy aide, who was appalled that Carter would make such a sweeping decision without getting more from our partners in exchange.12 I repeated the same political objections about preparing Congress for our commitment, but it was too late. Carter had already made up his mind.
The president told Owen, “We are going to go the whole way.” Owen negotiated with the German Sherpa, Horst Schulmann, until 1:00 a.m. Each had already received instructions from his boss, and together they hammered out language committing the U.S. government to lift controls on oil prices by the end of 1980, and the Germans to expand their economy. Owen gave the proposed communiqué to Carter as soon as he woke up—“which is very early.” Carter approved it, so did Schmidt, and the deal was just about done.13
Owen then took the communiqué text to Japanese prime minister Fukuda, who “didn’t seem terribly interested in energy,” but promised that if Schmidt would adopt policies for the German economy to grow an additional 1 percent, Japan would, too. With these pledges on paper, the third leg of the summit was trade, an anticlimax that became the most amusing part of the summit. The United States felt that the Europeans and the Japanese were not opening markets sufficiently in the multilateral trade negotiations, even though the three key trade ministers representing the United States, Japan, and the European Community reported that they had made considerable progress among themselves at Bonn. Giscard, a classic French protectionist, was unhappy with the concessions made in the name of France by Wilhelm Haverkamp, an equally classic German free trader who negotiated on behalf of all members of Europe’s trading bloc as the European Community’s trade commissioner.
As Owen colorfully described it, “Giscard, who had himself thoroughly confused with Louis XIV, looked down his nose at them and said, ‘I think trade negotiators talk too much about their own accomplishments.’ There was a deafening pause in the room, and then Carter’s trade chief Bob Strauss spoke up in his deep Texas
accent—which I am convinced he rehearses in the evening—and said, ‘Well, as Dizzy Dean used to say, “If you done it, it ain’t bragging.”’” The translators did not have an easy time with this, but neither did Giscard. Who was this peasant addressing him, and who or what was this Dizzy Dean? Owen continued: “Giscard was the only head of government who had a military assistant in the summit room, and he beckoned toward this colonel, a cavalry officer, who clanked across the hall with his boots and spurs. Giscard whispered, ‘Qui est-ce Dizzy Dean, hein?’ (‘Who is this Dizzy Dean, huh?’). The colonel clanked around the room and came over to me: ‘Monsieur, Dizzy Dean, alors; qui est Dizzy Dean?’ I happened to know because my mother’s family comes from St. Louis, the city for whose St. Louis Cardinals Dean had been a star. But before I could tell him, Callaghan turned to his foreign secretary, David Owen, and said, ‘David, do you know who Dizzy Dean was?’ He thought the prime minister didn’t know, and he blushed and said, ‘No, Prime Minister, I don’t.’ Callaghan said, ‘Well, he was a pitcher for the St. Louis Cardinals, and in 1934 he won the World Series against the Detroit Tigers.’”14
Giscard was so mortified that he refused to see Strauss later in Paris during trade negotiations. When the negotiators ran into trouble, and the French wanted to talk to us on the side, Owen had to be sent in place of Strauss. Strauss had a brazen capacity to get away with things no other mortal could have begun to do. After one trade-negotiating round in Paris, Strauss returned home on the Concorde, thereby violating two of the president’s edicts: one, by flying first class (the only class); and, two, by flying on a non-American carrier. When he landed at Dulles Airport the press was ready: How could he fly first class against President Carter’s economy-class edict? Because, he shot back, “there’s nothing better than first class, and if there was, I would have flown that!” End of story.
As for Schmidt, he also never forgot. When I asked him years later for his views on Bonn, Schmidt replied as condescendingly as his haughty French partner: “Jimmy Carter at that time did not have his own judgment on economic questions; he had to listen to advisers who concentrated on naive Keynesian deficit spending. As far as this advice was accepted worldwide, it worked as a continuous invitation to OPEC to further increase oil prices.”15
* * *
It had taken the better part of a year, with numerous bilateral and multilateral meetings, to sort out a framework for action, an unprecedented tripartite bargain at Bonn that was never duplicated. As Putnam and Henning, the leading academic experts on summit history, concluded, “The Bonn deal successfully meshed domestic and international pressures.” No one would have predicted this success when the summit process began.”16 Commitments made at Bonn imparted an international blessing that would help each leader implement domestic policies that might not have been successful otherwise. Indeed, what is striking is that at the very same time Jimmy Carter was struggling to bring members of his own congressional Democratic Party in line behind his energy package, even as a virtual novice in foreign policy, he was able to carry the day several thousand miles away against far more experienced leaders.
The Bonn Accord was not filled with empty pledges. Remarkably, virtually all the crucial pledges of the Bonn summit were redeemed. The German government’s package of tax cuts was passed overwhelmingly by the Bundestag in the autumn. The Japanese did likewise. The impasse at the Tokyo Round was broken, giving Strauss and the president ammunition to achieve the most sweeping reduction of trade barriers to date. It passed unanimously in the Senate and with only two dissenting votes in the House, leading Strauss to call and ask in his inimitable way, “Eizenstat, who are the two sons of bitches who voted against our deal?” It was another unrecognized legacy of the Carter administration. And although Jimmy Carter did not invent the G7 process, he perfected it and was indispensable to its success; for the first and only time domestic economic policies were coordinated at the international level. Carter set the agenda, drove the discussion, negotiated the agreements, and was better briefed and at least as knowledgeable as the seasoned Schmidt.
Anyone who doubted Carter’s ability to play a leading diplomatic role on behalf of the United States of America never saw him perform at the G7 summits. Moreover, Carter liked it. The ground had been more carefully prepared, and among Carter’s fellow leaders he found “a camaraderie among us when we were not in front of the cameras that was reassuring, that I enjoyed.”17
As domestic-policy adviser, it was fascinating to me that Jimmy Carter, who had such an aversion to hand-to-hand combat with the U.S. Congress, could perform such magic abroad but not at home. He did it at Camp David, and here at the Bonn summit. No one could deny his strength of purpose and negotiating prowess. I believe the president excelled when he had a clear goal and when representing the United States; he was considered a first among equals within a circle of key national leaders. But he found it more difficult when confronted with the rough tactics, competing egos, and overlapping jurisdictions in Congress, where a president’s influence cannot be as strongly focused as it is with foreign peers. At Bonn he could have hedged on decontrolling crude oil or conditioned his commitment on congressional approval. But he had learned his lesson. He began an irreversible process of raising American oil prices to world levels, in which Ronald Reagan simply completed the last step, and forced Congress to pass a tax on the oil industry’s windfall profits the next year. That was politically risky, but it was the way he operated most effectively as a leader.
10
INTO THE PORK BARREL, RELUCTANTLY
Once the Bonn summit was over, President Carter had to deliver on his pledge to end price controls and raise energy prices to world levels by the end of 1980, however reluctantly it had been made and inadequate the decision-making process behind it. Pledges by the other participants were made mainly by political leaders of parliamentary parties who could better implement their pledges; the American presidency is one of three separate branches of government, albeit the one with the most power concentrated in one person. But the president’s promise had been made in the name of the United States, and even though it was not legally binding, it was made for the whole world to see as part of a deal with our partners, who largely honored their part of the bargain to stimulate growth. So on July 19, only two days after the summit ended, we started to do our part, and it was left to me to coordinate the effort.1
Just after the president briefed congressional leaders, I met with Senator Long, which was always an experience. He talked in free flow, moving from one topic to another, but all had a home-state connection: sugar subsidies, welfare payments (more of the former, less of the latter), and finally the wellhead equalization tax (COET) for oil and a recent proposal by Senator Bob Dole, the powerful Kansas Republican, to curb the president’s authority to impose oil import fees or quotas. Long was a master of the legislative headcount and informed us that we did not have the necessary 51 votes in the Senate to pass the tax, but we did have 34 votes to uphold a veto of Dole’s proposal. Imposing a fee would be “gutsy, but not popular,” he said, and immediately shifted ground to his pet project of deregulating natural gas. “Let’s get the natural-gas bill behind us before the president acts on oil,” he said, quickly adding that he was not committed to the compromise phasing in market prices over a few years. Then, to excuse bailing out even on natural gas, he said in all earnestness, “It helps with liberals if some conservatives are not happy with the gas bill.”2 This was Russell Long at his irrepressible best—or worst. This was one time the master vote counter was wrong. Carter’s veto was overwhelmingly overturned in both houses on June 6, 1978, one of the worst legislative setbacks of his presidency, and the first time a Democratic president’s veto had been overridden by Congress since Harry Truman in 1952.3
The public began to do what we had feared and write off the energy bill as dead. It was mentioned less and less frequently. Other problems captured national attention: inflation accelerated; the Senate fought over ratifying the
Panama Canal Treaties; the president attempted to devise a tax reform to close loopholes for the wealthy and tie it to a broad-based tax reduction for the middle class; and a fistful of other controversial initiatives both foreign and domestic. If Carter’s pledge was going to be carved up in renewed political infighting at home, no presidential pledge in any area would have had any meaning, especially any American security guarantee to our allies.
And it was also clear that unless we demonstrated to financial markets our genuine commitment to reduce oil imports, upward pressure on inflation would result in renewed downward pressure on the dollar. We held numerous, interminable daily afternoon meetings in the Domestic Policy Staff’s conference room between November 1978 and April 1979, facing up to a set of bad options. The president could accelerate the pace of ending price controls, which under a 1975 law would automatically expire by October 1981. But the choice to act quickly entailed an inevitable spike in inflation. How fast should crude oil prices increase, and should they be tied to a tax on the windfall profits from oil in their old wells? Or would the companies avoid the tax by shutting down some wells until prices rose to world levels? These were not easy questions to answer. Since we do not live in a perfect world, all policies involve trade-offs. Good policies by definition make life better for most citizens, but some will lose a privilege or profit that has often been gained at the expense of the majority, and they do not easily surrender it.
In committing himself to carry out his Bonn pledge, Carter had to do so by playing politics and putting his hands into the place he most disliked, the congressional pork barrel. There was so much riding on getting the package approved by the Conference Committee and then through the whole Congress that they knew they could demand a high price. It was time for the full force of the White House to intervene to save the compromise on natural gas, protect his promise on oil, and enact our many conservation measures. We learned that Senator Johnston would sign the Conference Report if his fellow Louisiana Democrat, Representative Joe Waggoner, also did so. The White House also targeted two Republican Senators, Pete Domenici of New Mexico and James McClure of Idaho.
President Carter Page 27
