In February 1961, Kennedy's new secretary of the treasury, Douglas Dillon, tried to calm the fears of the European Economic Community (EEC) over the American balance of payments, by suggesting that Europe and the United States represented ‘two souls, one thought’. The significance of this encounter lies less in the nature of the reassurance than in the fact that the exchange had taken place at all. Three or four years previously it would have been unthinkable that the fledgling Community, so carefully nurtured by US policy, would have lectured its patron in this way. The facade of American pre-eminence in trade, payments and military security would have precluded such presumption. Even though, with hindsight, the weakness in the dollar's position should have been apparent, its slide took most observers by surprise. Having laboured for a decade and a half under the cloud of a ‘dollar shortage’, the European economies were confronted, within a surprisingly short period after the restoration of convertibility in December 1958, with the phenomenon of a ‘dollar glut’.

The haemorrhaging of dollars from the United States had started in 1958 with a sharp deterioration in the current account surplus, which had worsened the following year and which had not been offset by any corresponding contraction on the capital account. However, the last year of the Eisenhower administration had witnessed a considerable improvement and the Kennedy administration had inherited a current account balance as healthy as that in any of the post-Korean War years (with the exception of the peak of 1957). The problem now lay in a renewed surge in capital outlays. Although government expenditures had continued to expand (a reduction in net military expenditures being more than offset by increased outlays in civilian programs), the cause of the problem became private capital expenditures, both short-and long-term. These had already reached $3.5 billion in 1960. They rose further to $3.8 billion in 1961, and fell back to $3.2 billion the following year before surging to $4.2 billion in 1963. The deficit on regular transactions, the key variable in all subsequent discussions in the three years of the Kennedy administration, was $3.4 billion, $3.6 billion and $3.4 billion, respectively.3