effects on other countries and the feedback on you. It happened the last time you had a near recession -- it was a full recession in Europe. What you do will have a severe impact in the world and especially in Europe.
President: In my opening statement I said we wouldn't take unilateral action but would consult with our friends. We have no intention of taking actions which would have serious impact on you.
Callaghan: If Burns keeps money too tight and interest too high, that would hurt.
President: There was a lot of criticism of Burns at the first meetings, and he has eased things a bit.
Callaghan: There is such a convergence of political and economic questions. The Soviets are backward on this. That is why I am pleased about the Camp David meeting this weekend.
President: If they can't get progress in that environment, it can't be done.
Callaghan: I think the emergency oil program is imaginative. I think it is good. We don't want to confront them now, but this mechanism is a good idea. The central bank mechanisms are not sufficient any more.
President: We don't want another embargo. Maybe after the North Sea and Alaska come into production, we can risk it, but not now.
Callaghan: I think they are surprised at their strength and will use it more sparingly.
I would like to have explored with the Arabs the recycling issue. We need an intermediary body which can guarantee their money, then we can lend it out where it is needed.
President: Are they getting more sophisticated in handling finances?
Callaghan: Yes, they have set up a 5-bank consortium in London. But that is too small to handle the sums. We have to devise a way to sop up the funds before they use them in ways we wouldn't like. There ought to be a mechanism to get the money to Africa, and so on, where it is needed, but to assure the Arabs the security of the money and the interest.
SECRET/NODIS/XGDS
