740.00119 EW/3–2445

Memorandum by the Adviser on German Economic Affairs ( Despres ) to the Assistant Secretary of State ( Clayton )

The attached memorandum from the White House21 represents the most extreme statement which I have yet seen of the Treasury doctrine with respect to economic treatment of Germany.22 It calls for pulverization of German industry, and it opposes any attempt to assume comprehensive control over the German economy. The resolution of all this with reparation is achieved by emphasizing reparation through transfer of existing wealth rather than current production. It essentially ignores the fact that the Russians are resolutely determined to get large reparation, including, of necessity, substantial reparation from current production. Moreover, the subject memorandum takes no account of the need for keeping our impositions [Page 1182] on Germany within limits which will obviate the necessity for permanent outside relief to Germany.

Mr. Stettinius, in arranging for Mr. Lubin’s appointment, emphatically took the position that he would represent the Department of State in undertaking this assignment. In conformity with this principle, it would seem appropriate that Mr. Lubin’s instructions should come from the Secretary, though with Presidential approval, rather than from the President directly. On the assumption that the letter of instruction would be prepared here, Mr. Luthringer has drafted a short policy statement for inclusion in such a letter. A copy of this draft statement is attached. It seems to me to provide much sounder guidance to Mr. Lubin than the memorandum received from the White House. I suggest that the policy statement to be contained in Mr. Lubin’s letter of instruction should be considered by your new Germany Committee23 and by Mr. Lubin.


Memorandum by the Chief of the Division of Financial Affairs (Luthringer)

It was agreed at the Yalta Conference that Germany must pay in kind for the losses caused by her to the Allied Nations in the course of the war.24 The primary purpose of the Reparation Commission should be the formulation of a general program for the exaction of reparation and the establishment of the policies under which this program is to be implemented.

The principal interest of the United States in reparation is not to obtain as large a share as possible for this country; it is rather to assure that the reparation program will not jeopardize the economic and security objectives of this country with respect to Germany. The position of the United States on the various issues involved may be summarized as follows:

This Government would oppose any reparation program which would entail the continued existence of industrial capacity in Germany considered to be dangerous to the security of the United Nations.
Another important interest of the United States is to prevent a reparation program of such magnitude as to face us with the alternative of permitting mass starvation in Germany or assuming sustained responsibilities for relief of the German people. It should also be made clear to the Reparation Commission that consideration of the [Page 1183] amount of reparation to be fixed should not be based on an assumption that the United States will finance reconstruction in Germany.
Similarly, it is to the interest of the United States to see that payment of the costs of the occupation of Germany and payment for such minimum German imports as may be determined to be essential receive priority over reparation. In seeking to establish this principle, it will be necessary to secure agreement as to what shall be included in occupation costs as distinct from reparations.
Each United Nation should retain and dispose, as it sees fit, of German property within its territory, the proceeds to be applied against its reparation claim. Agreed principles should be formulated to achieve the disposal of German property in neutral countries.
In order to prevent reparation from furnishing a pretext for rehabilitation of the German economy, this Government favors a short reparation period, preferably five years and in any event not over ten.
The United States will not wish to receive labor services as reparation. It is the policy of this Government that labor supplied by Germany for reparation should be recruited primarily from Nazi groups. It is anticipated, however, that you will probably be unable to obtain agreement with this policy. This Government will in any event insist that Nazi labor should be segregated from general reparation labor and that the latter be obliged to serve for only a short time and under safeguards.
It is anticipated that the representatives of the U.S.S.R. will press for the definitive establishment of the total sum of the reparation obligation and for agreement on detailed schedules of reparation deliveries even in the absence of knowledge of the extent to which the German industrial plant will have been destroyed at the conclusion of hostilities. If a definite sum is agreed upon, it is of prime importance that it should be low enough not to interfere with sharp restriction of German production for export of metals, machinery, chemicals and electrical equipment, as part of a program of economic disarmament. The combination of reparation exactions and economic disarmament measures imposed on Germany should be such as to leave Germany with enough means to provide low subsistence standard for her population, without outside relief. Any agreement on detailed schedules should be made conditional on the extent of damage to the German industrial plant, and such schedules should be subject to revision whenever they are found, in actual practice, to be excessive.
It is not the objective of the United States, however, to prevent reparation deliveries until the facts concerning extent of destruction are known or until there is final agreement on apportionment of reparation payments. It is accordingly suggested that one of the first tasks of the Reparation Commission be the formulation of a plan [Page 1184] for the establishment of an interim advisory body to recommend the allocation of such commodities and equipment as the military authorities shall determine to be available for removal from Germany. Records should be kept of all deliveries made on reparation account under the interim arrangement and such deliveries should be made without prejudice to the final allocation of reparation shares.

The reparation program will be intimately related to the question of economic disarmament of Germany and to the restitution of property looted by Germany from Allied Nations. Discussion of these two matters will take place in the European Advisory Commission in London concurrently with the discussion of the reparation question at Moscow. In order to provide for the proper integration of reparation policy with policies in these related fields, it will be necessary that the Department and Ambassador Winant in London be kept fully informed as to the progress of the work of the Reparations Commission.

  1. Supra.
  2. For pertinent documentation on the position of the Treasury Department, see pp. 376377, 388392, 423, and 455473 passim.
  3. Reference is to the Informal Policy Committee on Germany (IPCOG); for the establishment of this committee, see memorandum by the Secretary of State to President Roosevelt, March 8, p. 433.
  4. See Conferences at Malta and Yalta, pp. 978, 982.