The Transatlantic Tussle — A Historical Case Study on How to Handle NATO

March 18, 2019

In a meeting at his Florida retreat, the president was clearly annoyed at what he saw as the U.S. allies’ failure to pay their fair share of the defense burden. He told his senior military and defense advisors that it almost seemed that Europe was getting a “free-ride,” and that on both the political and defense side this situation with the NATO allies had to be changed this year.

This anecdote is not an unused excerpt from an early draft of Bob Woodward’s latest expose, the frustrated chief executive was not President Donald Trump, and the location was not Mar-a-Lago. Instead, the date was Dec. 27, 1962, the cross commander-in-chief was President John F. Kennedy, and the location was his family estate in Palm Beach, Florida, the “Winter White House.” But the story still has a lot to tell us about today’s struggle within the transatlantic alliance.

This article will revisit a less-studied foreign and defense crisis over NATO expenditures in the early 1960s, one in which the stakes were arguably much higher than today. It will contrast the methods used by Kennedy and his successor, Lyndon Johnson, for resolving that crisis with those of Trump in the current transatlantic tussle. It shows that struggles within the alliance are not entirely new and that Trump has much to learn from the techniques of his predecessors.

Trump’s Transatlantic Struggle

Trump has been particularly outspoken about his distaste for multilateral institutions, and his preference for unilateral and bilateral arrangements. On NATO, he has threatened to withdraw the United States from the alliance altogether or markedly reduce U.S. defense expenditures in Europe, and he has also raised the prospect of substituting bilateral trade and defense treaties with the United Kingdom and France. These pronouncements have been heavily laced with falsehoods (such as Trump’s claim that the United States pays most of NATO’s budget) and invectives about the allies. To date, he has refrained from acting on these threats but has taken some significant unilateral measures that have indirectly affected the NATO allies. These have included announcing troop withdrawals from Syria and Afghanistan, where NATO nations have been actively involved in coalitions with the United States, and withdrawing from two key international accords — the Joint Comprehensive Plan of Action, under which Iran pledged not to develop nuclear weapons in exchange for relief from Western sanctions, and the Paris Agreement on climate change. He has taken these actions on his own, eschewing any consultation with America’s partners.

Trump’s approach has begun to fray at the bonds binding the alliance together. Rather than working on Trump’s terms, the Europeans have been seeking their own arrangements with Iran and separate trading agreements with some of the countries that were part of the Trans-Pacific Partnership deal, which the United States left in January 2017. In contrast to Trump’s penchant for personal diplomacy, public histrionics, and mixed signaling towards NATO, Kennedy and Johnson mounted calmer, better coordinated campaigns to get America’s allies to increase their defense spending. They used defter mixtures of unilateralism, bilateralism, and public and private diplomacy. Furthermore, both presidents took this course during one of the more perilous periods of the Cold War, when the threat of nuclear Armageddon seemed very near, and they did so while maintaining the alliance’s cohesion.

Fool’s Gold

The issue that had raised Kennedy’s hackles at the December 1962 meeting was the balance of payments or “gold-flow crisis”. Beginning in 1958, the United States began hemorrhaging gold reserves, and one of the key causes was its large defense expenditures abroad, particularly in Europe. In a more recent treatment of the gold-flow crisis, Francis Gavin masterfully wove together the diplomatic and defense elements with the economic causes of the crisis. He also adeptly detailed many of Kennedy and Johnson’s efforts to address the crisis, including U.S. defense expenditures abroad. However, lacking some important U.S. military and intelligence sources, Gavin underestimated the full impact of these efforts on U.S. forces in Europe. He also missed the lengths they went to square these efforts with their policy of “flexible response,” which sought to build up U.S. and NATO defense capabilities and create a broader range of military options short of full-scale nuclear war.

The gold-flow crisis had its roots in the 1944 Bretton Woods Agreements, the World War II-era effort to create mechanisms to stabilize the international economy and avoid another Great Depression. The Soviets participated in the meeting and signed the agreements, but never ratified them, relegating the arrangements to the non-Communist world. One of the Bretton Woods system’s key components was the gold standard, which the signatories believed would create secure and liquid international currency exchanges. The standard established a set price for gold ($35 per ounce), pegged all the other currencies to the dollar, and allowed foreign nations to exchange the dollars they held over the value of their trade with the United States for gold.

It was not until 1958, when eight major Western European nations felt their currencies had stabilized enough to join, that Bretton Woods truly became operational. Japan joined in 1961. By the that time, however, the U.S. government and its citizens had been spending significantly more in these countries than those countries were spending in the States, so America’s allies had accumulated large reserves of dollars. Many foreign holders of dollars, under the agreements’ terms, began remitting these greenbacks for gold from Fort Knox. Experts at the time believed that if the value of U.S. gold stocks fell below $12 billion, people would lose faith in the value of the dollar and the entire international economic order would collapse. In 1960 alone, the U.S. government and private sector spent approximately $3.9 billion more overseas than the United States was taking in. At the December 1962 meeting, Kennedy warned that U.S. gold reserves were only valued at $15.75 billion and dropping at a rate of $2.5 billion annually.

U.S. defense expenditures overseas were particularly significant in the loss of U.S. gold. As a 1974 study showed, defense spending averaged $3 billion annually between 1960 and 1963, $1.6 billion of which went to Europe. Most of these funds were used to house, feed, supply, and support U.S. personnel. The outlay became particularly acute in late 1962, when force levels in Europe reached a high of almost 400,000, due mostly to a buildup of over 45,000 soldiers in response to the Berlin Wall Crisis in 1961.

The U.S. government had limited sway over private spending abroad, but had more control over defense and foreign assistance expenditures, which became a major focus of U.S. efforts to reduce the outflow of gold. The irony of this predicament was not lost on Kennedy, who griped to his key cabinet members in April 1963, “We seem to be faced with a screwy system, in which we had to squeeze important public activities in the spheres of defense and aid in order to let the private activities of tourism and foreign investment go forward untouched.”

Kennedy’s predecessor, President Dwight Eisenhower, had also been greatly concerned about the balance of payments. To reduce spending overseas, he had directed the U.S. military to conduct a phased withdrawal of nearly 60 percent of the 487,000 dependents living abroad, over 265,000 of whom resided in Europe, according to Emily L. Swafford’s, University of Chicago PhD dissertation. The withdrawals were to begin in January 1961, shortly before Kennedy was to take office. In a briefing for Kennedy the day before his inauguration, Eisenhower explained his action as a “quick move to do something concrete to stop the flow of gold and to show our Allies that we meant business.” He also advised Kennedy to redeploy an entire combat division (14,000-16,000 men) from Germany, where the United States was stationing five divisions plus the equivalent of a sixth in smaller units.

Eisenhower’s parting gift to Kennedy quickly became an albatross. The military’s response to the directive was loud and angry, prompting Kennedy to cancel it in one of his first presidential acts. He also demurred on removing a combat division. At the time, the Soviets had significant conventional forces on NATO’s doorstep, and they were rapidly improving their short and midrange nuclear weaponry. Any talk of removing a combat division, therefore, would have prompted outcries on both sides of the Atlantic.

Deprived of this bigger prey, Kennedy and Johnson, with Secretary of Defense Robert McNamara as their guide, decided to hunt for a lot of smaller game — i.e., a number of less-conspicuous, but still significant measures that they hoped to implement with less public disquiet. Among these measures were a push to have U.S. personnel overseas limit their spending, to “Buy American” at exchanges and commissaries, and to use some of their disposable income on savings bonds. The U.S. military also began shipping a percentage of its supplies to Europe instead of purchasing them there, in spite of the added costs; it established a complicated barter system that used foreign currency instead of U.S. dollars to purchase part of its services and supplies abroad; and it tried a short-lived experiment rotating in units from the States without dependents that, counterintuitively, wound up increasing the deficit.

Personnel cuts came as well. McNamara firmly believed that U.S. Army Europe (USAREUR) had significant non-combat bloat, and that it could be downsized without jeopardizing security. He was convinced that U.S. assessments of Warsaw Pact military capabilities had been greatly exaggerated, and that NATO, therefore, required less of a force buildup than he had originally calculated. To test this theory, in 1963 he had U.S. intelligence agencies conduct a major reevaluation of the Warsaw Pact. Their conclusion — McNamara was right.

Based on these premises, and with little public notice, the Kennedy administration directed the U.S. military to redeploy forces slowly between 1963 and 1965, including troops that had been sent after the Berlin Wall crisis, Air Force units, headquarters personnel, and significant logistical support forces. Altogether, based on a February 1965 memo by McNamara accessed in the National Archives, 55,000 men were cut. Additionally, McNamara instructed the U.S. military to slash 41,000 (15 percent) of the foreigners it employed in Europe to save on dollar outlays for their salaries. These employees had performed myriad critical duties, from grounds maintenance and cleaning on U.S. installations, to gate security and operation of military river bridges, which would be important in a defense against the Warsaw Pact. With their dismissal, U.S. military personnel wound up shouldering many of these tasks, giving them less time for training, according to an official United States Army Europe (USAREUR) study in 1968 by Bruce Siemon and Roland E. Wagberg.

Lacking some of the data and sources detailed above, Gavin characterized McNamara’s measures as “trimming the fat” (from USAREUR, but they took some bone and muscle as well. Moreover, as part of the Kennedy administration’s move to flexible response, the U.S. government had imposed additional requirements on servicemen in Europe, such as training on new tactics and weaponry, major force restructuring, maintaining and securing nuclear warheads, and assisting allied militaries in improving their capabilities. As a result, as the military’s support capacity waned, its burdens were increasing. Many senior U.S. officials, therefore, were not sanguine about McNamara’s approach. Supreme Allied Commander Europe Gen. Lyman Lemnitzer reluctantly endorsed it. As quoted in USAREUR’s 1964 Annual Historical Summary, Lemnitzer warned that it was “militarily unsound and substantially increased the degree of risk” to the West. He compared the situation to the one “which confronted [the] Eighth Army in Japan at the outbreak of the Korean War, after rigid economies had been imposed . . . with greatly weakened logistical support.” He added, “The tragic result of these reductions . . . are well remembered by those who lived through the early months of combat.” Despite these misgivings, the members of the Kennedy and Johnson administrations generally spoke with one voice over the reductions.

Along with cuts, Kennedy’s team began to work quietly on an even more ambitious plan — re-stationing a combat division from Germany to the United States and regularly rotating parts of it back to Germany for extended stays. Key to the effort would be to stage regular training exercises, during which U.S. forces would practice rapidly airlifting all or part of the stateside units to Europe to train with heavy equipment, such as tanks, armored personnel carriers, and artillery pieces that had been stored there in strategic locations. McNamara proposed the concept in October 1961. The depots, known as pre-positioned sites, would later be given the ungainly designation, Pre-positioned Overseas Materiel Configured to Unit Sets However, before the services could implement the airlift component, coined “Strategic Mobility,” the United States needed to update its aging fleet of propeller-driven transport planes. In February 1961, after overcoming opposition from some in the Air Force and Congress, the administration pushed through a major modernization program.

In a Sept. 19, 1963 memo to Kennedy, McNamara explained that he believed the Army and Air Force modernization efforts had progressed sufficiently to hold a first major test. In October, in an exercise dubbed BIG LIFT, the Air Force transported the 2nd Armored Division, support troops, and a composite air strike force (16,000 men and 500 tons of personal gear and weapons) to Germany in 64 hours. The incoming forces married up with the pre-positioned equipment and held war games with local U.S. and German units. Gavin described BIG LIFT merely as an administration tool to pry more compliance from Europe on balance of payments measures, but McNamara considered it a viable long-term plan to reduce U.S. forces on the continent while maintaining security.

The administration declared BIG LIFT a big success, but many senior political and military leaders questioned the model’s feasibility as an emergency response, noting that USAREUR had devoted significant time, supplies, and manpower towards creating the depots and shepherding the incoming troops. The USAREUR commander in 1963 later described BIG LIFT as a “big hoax.” Eventually, though, equipment was improved, plans were refined, and BIG LIFT became the model for two sets of major exercises, called RETURN OF FORCES TO GERMANY (REFORGER, 1969-1990), and ATLANTIC RESOLVE (2014-present).

BIG LIFT had its share of big blunders. The administration did not notify its allies until Sept. 23, the same day it was announced publicly. The administration hoped the short-notice would help dampen concerns in Europe that the exercise might be a ruse for force cuts, and that it would create some semblance of a real emergency for training purposes. Unilateralism, though, had its costs. The short notice created significant military planning problems for commanders in Europe, who had only a couple of weeks to coordinate with the allies; and, ironically, it further stoked public concerns over force cuts. These concerns were aggravated by discordant messaging when the deputy defense secretary claimed in an Oct. 19 speech that force reductions were, indeed, a goal of BIG LIFT. Kennedy responded quickly to manage the mishandled messaging. He directed all officials to stick to one set of talking points — the United States would maintain six divisions in NATO, and BIG LIFT would actually provide a potential seventh. This, of course, was not the long-term plan, but U.S. officials dutifully spread the word in a coordinated campaign of speeches and confidential meetings that the Washington Post dubbed operation “big patchup” in an Oct. 23, 1963 article. Kennedy did his part as well, emphasizing the points in an Oct. 31 press conference.

Besides unilateral actions to address the balance of payments problem, Kennedy and Johnson were not averse to bilateralism. One of the most significant of these actions was the U.S.-German Offset Agreement. Of the $1.6 billion annual defense outlay in Europe, $700 million went to Germany. In October 1961, after intensive negotiations, the two nations concluded an arrangement — Germany would increase its defense spending and purchase $1.3 billion in U.S. equipment, supplies, and services over two years, thereby improving NATO’s conventional capabilities, and ‘offsetting’ the dollars spent there for U.S. forces. The agreement was extended several times, and while Germany occasionally fell behind on its purchases, often due to domestic issues, and both nations haggled heatedly over amounts, the Germans generally lived up to their commitments. During these negotiations, U.S. officials occasionally applied pressure in private, including threats of significant force reductions, but the talks generally remained cordial, especially in public. Most of the detailed work was done by mid-level diplomatic and defense officials, with Kennedy and Johnson only getting involved when their advisors deemed it necessary. In combination with economic diplomacy, as detailed in Gavin’s book, and McNamara’s other measures, the agreements became an important part of the U.S. effort to stem the outflow of gold. As a result, Johnson was able to report in November 1964 that the balance of payments deficit had dropped nearly $2 billion since 1960.

The United States arranged smaller offsets with other allies, but France, where the U.S. military stationed significant logistical forces at a cost of $268 million annually, was an exception. French President Charles De Gaulle believed that the United States was a competitor (or “foe” in current presidential parlance) for leadership in Europe, and he refused to cooperate on a number of fronts, including offset. Perhaps it was no coincidence, then, that McNamara’s force cuts were focused in France, and that, in 1966, De Gaulle pulled France out of NATO’s military command and evicted the alliance’s personnel.

Then and Now

As noted earlier, Trump has taken a much different tack towards NATO than Kennedy and Johnson. Direct historical comparisons are usually problematic. The geopolitical situation today is vastly different than in the early 1960s, but one can compare some tools and tactics. For instance, Trump has favored personal diplomacy (building his own direct personal relationships with world leaders), as opposed to working through intermediaries. From his statements, he seems to believe that he can bend these leaders’ wills with the force of his personality and the power, prestige, and pageantry of his office. He has also been dismissive of the work and opinions of experts within his own government, relying instead on his “gut” to inform his policy decisions. Kennedy and Johnson were not averse to using personal diplomacy, but they also made use of lower-level experts and diplomats to formulate the policies and negotiate the agreements to deal with the balance of payment deficits. Both presidents only became directly involved by holding private meetings with allied leaders or making public pronouncements when their advisors deemed it necessary.

One can also compare style and temperament. Trump has used his bully pulpit to publicly and privately berate allied leaders, often using false information and issuing threats. Kennedy and Johnson, while not shy about using subtle pressure in private, such as alluding to the possible need for the United States to withdraw a combat division to coax the Europeans into cooperating on the balance of payments problem, refrained from assailing their allies in public, in spite of their personal pique. They maintained their composures, emphasized the continued U.S. commitment to NATO, and praised them as partners. Closely tied to Trump’s style has been the mixed messaging that has plagued his administration. Trump has often publicly attacked NATO members while praising the Russians. But his advisors often do the opposite, reaffirming the U.S. commitment to the alliance and criticizing Moscow. Kennedy and Johnson worked hard to ensure that their teams maintained a consistent policy line. When the comments of one senior administration official nearly upended the BIG LIFT rollout, Kennedy made sure that all his representatives used the same talking points and he did as well.

Two other areas of comparison are unilateralism and bilateralism. Trump has made numerous threats to act unilaterally against the NATO allies, including funding and troop cuts. Additionally, without prior consultation, he withdrew the United States from several coalitions and agreements involving NATO nations. Both Kennedy and Johnson also took unilateral actions, but their focus was internal — they took measures to streamline and reorganize U.S. defense operations in Europe, and to develop the capability to airlift forces quickly overseas in an emergency. Bilaterally, Trump has pushed measures that would divide NATO and the European Union by trying to induce individual nations to break with those multilateral groups in return for direct trade and defense links. He has also raised tariffs on many European exports. To help resolve the balance of payments problems, Kennedy and Johnson struck bilateral offset agreements, but instead of dividing NATO, these agreements wound up improving the military capabilities of its members and, thereby, reinforcing the alliance.

While the cuts and offsets that Kennedy and Johnson implemented in the early 1960s helped to mitigate the worst of the balance of payments deficits and to maintain the cohesion of the alliance at a precarious point in the Cold War, the outflow of gold persisted until 1971, when President Richard Nixon ended the dollar’s convertibility into gold. Thereafter, the transatlantic tussle continued, but over issues of defense expenditures and force commitments, especially with pressures from the Vietnam War and monetary inflation. One can describe Kennedy and Johnson’s policies, therefore, as a limited success. It is still too early to make a determination of how successful Trump’s approach has been towards NATO. While he claimed a victory in July 2018 when the Europeans reaffirmed the commitments they had made in 2014 to increase their defense spending, both sides of the Atlantic have continued to increase their outlays apace over the past few years, and will likely continue to do so into the near future. Meanwhile, Trump’s policies have sown dissension within the alliance, leading the Europeans to buck the United States on Iran, and to reach some independent trade deals with Russia and some Pacific states that feel abandoned by the United States. One thing, perhaps, is more certain — the transatlantic tussle will be with us for the foreseeable future.

 

David I. Goldman is a retired U.S. federal historian who spent much of his career at the U.S. Department of State’s Office of the Historian, and Army ‘s Center of Military History. He coedited a number of Foreign Relations of the United States volumes on the subjects of Arms Control, Science, and Vietnam; and he authored parts of a U.S. study on Holocaust assets, an official annual history of Army Headquarters in 2008, and a journal article on the Army and chemical and biological warfare, among other pieces. He is currently researching and writing on historical topics, and is working on other federal contracts.

Image: John F. Kennedy Presidential Library