No. 341
The Assistant Secretary of State ( Clayton ) to the Assistant Secretary of War ( McCloy )

My Dear Mr. McCloy : I have studied your preliminary reply of June 211 to my letter of June 182 regarding German financing. As you may be aware, the whole subject was extensively discussed in a meeting in Mr. Mason’s office on June 25 which was attended by Colonel Davis and Lt. Colonel Foehl. At that meeting tentative agreement was reached on a proposal to be made to the British and Canadians later this week with respect to interim financing as related to the zonal issues.3

[Page 478]

With respect to the type of imports to be financed, the Department believes that it is essential that a policy decision be reached at the highest level that the War Department should, for the reasons outlined in my previous letter, be responsible for all imports which serve the purpose of the United States Government in Germany.

There is attached a draft of memorandum covering both of these points.

Sincerely yours,

W. L. Clayton
German Finance
It is the expectation of the United States Government that the Control Council for Germany will begin to function quickly in accordance with existing Allied agreements4 and that redeployment of Allied Forces in conformity to agreed zonal boundaries can be carried through without delay. The present combined command (SHAEF) will be discontinued on July 1, 1945 or shortly thereafter.
Formulation of the principles governing the procurement and financing of essential German imports should be an immediate task of the Control Council. If possible, an agreed supply program for Germany as a whole should be put into effect as soon as redeployment into zones has been completed. Such a program should include provision for equitable inter-zonal distribution of supplies available within Germany so as to minimize the net deficit for, and imports into, Germany as a whole. The sum necessary to pay for imports into Germany should be a first charge on all German exports from current production or stocks on hand. In the event, and to the extent, that the proceeds of exports are insufficient to pay for approved minimum imports, the necessary arrangements for interim financing should be made by the Allied countries concerned on a basis to be negotiated. Reimbursement for any net outlays made in connection with the provision of supplies for Germany should be sought from subsequent German exports. Claims for reimbursement of this type should rank above reparation.
The United States Government is not prepared to continue the present combined procurement and supply program and machinery beyond October 31, 1945.
Arrangements should be made effective August 1, 1945 for making records of all distribution of supplies into the three western zones. [Page 479] The three occupying powers, the United States, U. K. and France, would be billed for supplies distributed to their respective zones after August 1. The amounts for which the three governments would thus become individually responsible as well as the amount arising out of deliveries to Germany prior to August 1, 1945 would of course be a first charge on German exports.
If the Control Council has not reached agreement on a supply program along the lines of paragraph 2 by October 31, 1945, each occupying power should, in the view of the United States Government, assume procurement and financing responsibility for the supplies required in its zone.
Since the Commander-in-Chief of the United States Army Forces in Germany in his dual capacity as United States member of the Control Council and Commander of the zone of occupation is entrusted with full responsibility for carrying out all objectives of United States policy in Germany, it is the Department’s view that the War Department should assume procurement and initial financing responsibilities with respect to imports not only for the consumption of occupying forces, displaced persons, and such minimum consumption by German civilians as is necessary to prevent disease and unrest, but also all imports into Germany for which the United States Government assumes responsibility. In the view of this Department, moreover, the War Department’s responsibility should extend to the United States’ share of any combined financing which may be undertaken in concert with the occupying powers.
  1. Document No. 337.
  2. Document No. 336.
  3. No evidence has been found in Department of State files to indicate that the anticipated conversations took place at this time.
  4. i. e., the agreement signed at London, November 14, 1944, as amended by a further agreement signed at London, May 1, 1945. For texts, see Treaties and Other International Acts Series No. 3070; United States Treaties and Other International Agreements, vol. 5, pt. 2, p. 2062. Text of the agreement of November 14, 1944, also in Foreign Relations, The Conferences at Malta and Yalta, 1945, p. 124.