The pleasure of the occasion is enhanced by the remarkable ambiance of Bavaria and this city. I know few other places which can rival the combination of natural beauty, Gemuetlichkeit, and cultural attainments, which is to be found in this area of Germany. Bavaria and Munich have produced some exceptional personalities. My country has benefited directly through the migration of some of these people. Among our contemporaries, Henry Kissinger, who was born at Fürth, and Albert Einstein, who grew up in Munich, are perhaps best known. Although he did not become a U.S. citizen, Thomas Mann, who lived in and wrote about Munich, was a U.S. resident for several years and has been and continues to be almost as widely read in the U.S. as in his native land.

Less well known is an American who was a leading public figure in Bavaria almost two hundred years ago. He was Benjamin Thompson, who though American born, was exiled to England during our Revolutionary War in 1784, he entered the Bavarian Civil Service and became War and Police Minister and grand chamberlain to the Elector of Bavaria. Not only was Thompson a distinguished public servant, he was also scientist, engineer and inventor after the style of Thomas Jefferson and Benjamin Franklin - a true renaissance man. According to the Brockhaus Encyclopedia, he introduced the potato to Bavaria, established workhouses, reorganized the army and laid the English Garden in Munich. In 1791, he was elevated to the nobility of the Holy Roman Empire, receiving the title of Count Rumford. I understand that Rumfordsuppe, a recipe he originated as a wholesome dish for the poor, is still eaten in Germany.

I have talked at some length about Count Rumford to show that U.S. links to Bavaria, however tentative they may have been at earlier times, go back much further than is generally realized. The most visible evidence of U.S. ties to Bavaria today is of course the U.S. troop presence - greater than in any other land of the Federal Republic of Germany. The cordial reception which the Bavarian people have given our military forces evidences the powerful underlying interests and the shared cultural and political values which link our two peoples. For the past 30 years the only real threat to those values came from beyond free world borders. In recent months world attention, and especially that of the German public, has been riveted on an internal challenge to these values, a challenge all the more odious because it seeks to destroy a system of government whose principles of tolerance are based on freedom and the existence of political differences.

I am of course talking about the terrorists. The successful rescue of the Lufthansa crew and passengers at Mogadiscio electrified the world, and the determination of the Federal Government to defeat the terrorist threat without sacrificing the liberal principles which the terrorists seek to overturn must have the support of all democratic countries. Chancellor Schmidt stressed at your party congress that tolerance and democratic fair play must not become victims of the efforts to combat terrorism. We can only applaud this approach and pledge our own efforts in support of such a policy.

Terrorists are deeply troublesome, but I believe, nonetheless a passing threat to our values and traditions. Armed encroachment across international frontiers has been and remains a much greater challenge to international peace and national sovereignty. For a quarter of a century our two countries have cooperated to defend Western Europe's freedom. Although tensions in Europe have lessened in recent years, the importance of the North Atlantic Treaty Organization is in no way diminished. At the London Summit, President Carter emphasized that NATO remains the heart of U.S. foreign policy. He called on the allies to strengthen the alliance politically, economically and militarily, thus making clear our continuing interest in a strong NATO. President Carter has also reaffirmed our commitment to a policy of forward defense and flexible response. This strategy, kept credible through timely force improvements, will preserve the territorial integrity of all alliance members, the common will to maintain a strong alliance is the only basis on which detente can be developed. It has made possible recent agreements for easing East/West tensions and current negotiations for force reductions and disarmament. We are hopeful of success in our SALT negotiations with the Soviet Union to limit strategic arms, and we are determined to push forward with the Federal Republic and other allies in the negotiations in Vienna - the MBFR talks - aimed at securing a balance of conventional forces in Central Europe, however, we will take care to insure that the fundamental security interests of the West are not endangered in these negotiations, and that our ability to backup our commitment to the freedom of Western Europe is not impaired.

Nowhere has this commitment been more important than in Berlin, and nowhere is it more important to demonstrate that commitment. President Carter has maintained that commitment, and it has been expressed eloquently and firmly by the President himself, and by Vice President Mondale and Secretary Blumenthal during their visits to Berlin this year. At the same time as we maintain our strength and our commitment, we seek improved relations with the countries of the communist world. The difficulties are many, not least because of the fundamental differences in our societies and the way in which we look at the role of the individual and his relationship to the state.

As one who has lived many years in the Soviet Union and Eastern Europe, I am very much aware of the heavy toll that oppressive government takes on the creative energies of a people. An American newsman recently wrote that for a long time Russia has produced nothing creative in any fields of endeavor - neither in the arts, nor in science, nor in economic and social policy. But is that not to be expected in a system which prizes conformity above all values? The great English libertarian John Stuart Mill wrote: "A state which dwarfs its men, in order that they may be more docile instruments in its hands even for beneficial purposes - will find that with small men no great thing can really be accomplished." Indifference and resignation are the products of a system which seeks to control all aspects of the life of the individual. And although these countries give the appearance of domestic order and tranquility, we know from periodic eruptions of violence over the past 25 years that appearance is deceptive. The great Spanish philosopher Jose Ortega y Gasset wrote that "Order is not a pressure which is imposed on society from without but an equilibrium which is set up from within." That equilibrium, to be sure, has not been fully achieved in our societies, I would argue, nonetheless, that the order which Ortega y Gasset was writing about is much closer to realization in the democratic countries than eastwards of these borders.

This is clearly true when we consider the degree to which our societies are able to satisfy the material needs as well as the spiritual demands of our peoples. It is also the case when we look at the North-South dialogue. Think for a moment of the principal economic issues between the developed and the developing countries: stabilization of commodity prices, better balance in the international payments system, a world food reserve, more equitable treatment of developing country exports. Solutions to these issues will either make claims on the resources of our countries or will require politically sensitive adjustments in our economies. It surely reflects something about our attitudes, and the relative strengths of our economic structure and of our system of government that only the democracies have been willing to address these issues seriously. The so-called socialist countries - as you know, they are far from socialist in reality - are still unable to assist significantly in helping resolve the problems of the developing world, instead, they concentrate on supplying large quantities of arms, while holding themselves aloof - perhaps because of the inadequacies of their own economies and their inability to contemplate a flexible system of economic exchange - from the effort to improve economic and material circumstances in the developing countries. We should persevere in efforts to engage the communist countries in meaningful programs to assist the developing nations - but without illusions as to the prospects for rapid success.

While we can take pride in the economic progress achieved in the West, and particularly in the Federal Republic and the United States, it is clear that we have serious problems. These problems are common to most industrialized countries in the West today. Secretary Blumenthal recently listed them as: - inadequate employment, especially among youth, - stubborn inflation, - weak rate of capital formation, due to lack of confidence, - excessive dependence on imported energy. These are the same problems which I read and hear about in your media. The last summit meeting in London concentrated on these problems and all of us are doing our utmost to cope with them successfully. The results so far are mixed. In the United States, we have been able to reduce our unemployment rate, although it still remains too high. You in the Federal Republic have done better than we in controlling inflation. So far as dependence on imported energy sources is concerned, the United States is in a particularly difficult position.

Here I have in mind the recent large trade deficit in our balance of payments, due in considerable measure to our growing dependence on foreign oil and to higher prices for that oil. Recognizing the dangers of this situation, and looking ahead to the time a decade from now when world oil resources will be insufficient to meet demand, President Carter proposed a sweeping program to reduce excessive oil consumption in the U.S. A first success in this regard was the establishment a few months ago of the Department of Energy, headed by James Schlesinger. It is this department which will pull together and coordinate our efforts to promote energy conservation and the development of alternative sources of energy.

As you well know, the President's energy program has been the object of intense debate in our Congress. In our large country, many diverse economic interests are affected by the program, and there have been different opinions about the best means to attain our objectives. There is no question, however, about our objectives: a reduced dependence on imported oil and better energy conservation. And while the President's energy program probably will not be enacted as originally proposed in all respects, I can assure you that there will be a program and that it will be a serious one. It will mark the beginning of our effort - which will be pursued rigorously in future years - to lessen our dependence on foreign oil.

I spoke earlier of our balance of payments deficit, and I would like to comment in more detail about it. I believe it is important to see this question in perspective. The U.S. balance of payments deficit, although large relative to the size of the deficits which other countries can finance, constitutes only 1 1/2 percent of our GNP. A large and flexible capital market offers the U.S. relatively greater scope for financing deficits than elsewhere. Moreover, the U.S. earns large surpluses on foreign investments - this year amounting to about 14 billion dollars - which can be applied against our trade deficit.

Another point to note about our deficit is that it is entirely due to oil imports. It has grown in part because of the slower rate of recovery in the economies of our major trading partners compared to our own. This has meant that our exports were growing slowly while our imports, reflecting vigorous growth in the U.S., were rising. This year our economy will have grown at a rate of 5-6 percent while the economy of our largest customer, Canada, will show little or no growth and other major trading countries will have grown by less than projected rates.

We expect that this situation will change as growth rates in Europe, Canada, Japan, and in developing countries move up to more normal levels. It is for this reason that the Carter Administration emphasizes the desirability of higher growth rates in the stronger economies. However, our economies can flourish only when trade flourishes, and we must all be concerned at the growing pressures for protectionism which are being felt on both sides of the Atlantic. Protectionism saps that dynamism in the economic growth process which is generated by larger markets. Historically, economic expansion has been proceeded by an expansion of markets. The formation of the European Community and the Kennedy Round trade concessions a decade ago stand as testimony to this observation. Therefore, I believe - and I know this view is shared by the Federal Republic - that it is tremendously important to make rapid progress in the current multilateral trade negotiations - the so-called Tokyo Round - aimed at reducing tariffs as well as non-tariff barriers. A successful outcome to these negotiations would give an impulse to economic expansion which would deprive the current arguments about dumping and unfair competition of their meaning. Moreover, if we can see that one of the main problems today of the developed countries is that of unused resources, then expanded trade offers the most promising opportunities for employing these resources. Finally, - on a subject of considerable interest here in Germany - let me add that my government does not believe that an artificially depressed exchange rate for the dollar is a solution to U.S. employment and trade problems. We believe in a strong dollar, we want a strong dollar, and we feel that the performance of the U.S. economy and its good prospects for the future will ensure that the dollar remains strong. Ladies and gentlemen, I have discussed some economic problems this evening, knowing the particular interest of your group in these questions. I should like to emphasize that these are not problems which divide our two countries. On the contrary, we are in fundamental agreement in our approaches to their resolution. They will require our continuing efforts and a great amount of persistence, but not rashness. Goethe's motto, I believe, is especially appropriate to the spirit in which we must tackle these problems: Ohne Hast, aber ohne Rast.