862.6359/1–1346: Telegram

The United States Political Adviser for Germany (Murphy) to the Secretary of State

restricted

112. 1. See my 272 [89], January 11, 6 p.m. Control Council’s important agreement on the level of the German steel industry suffered a set-back from a dispute about the figure for inclusion in the over-all economic plan which gave rise to a long and diffuse discussion in yesterday’s meeting of the Coordinating Committee under British chairmanship.

Disagreement came to light Friday in the drafting of the Control Council minutes when the British insisted that 7,500,000 tons steel capacity be transmitted to the Economic Directorate as the critical figure upon which over-all planning for German industry would be based.

U.S., French and Soviet interpretation was that permitted steel production of 5,800,000 was intended to be the critical figure. Sokolovsky in Coordinating Committee explained that 7,500,000 tons was envisaged as a productive capacity necessary to insure the production of 5,800,000 tons and was intended to include a certain reserve capacity which would obviate the need of building new plants. British member stated his delegation had accepted the capacity figured on the understanding that it would be the norm for further economic planning. In the light of the current discussion he suggested that the Economic Directorate be instructed to produce two plans for German industry based respectively upon the figures of 5,800,000 and 7,500,000 and he supported his argument by reference to the different answers given by Sokolovsky and Clay to the question whether increased German steel production would result in excessively high or low levels for the [Page 485]other industries as to be permitted in Germany. General Clay referred to the 600,000 tons of steel for export included in the permitted production but Robertson claimed that this agreement was not in the record. Sokolovsky insisted that adoption of the 7,500,000 figure as a basis for planning would leave Germany with a machinery production constituting war potential and he said the Soviet Delegation could never agree to a proposal such as that envisaged by the British.

Koeltz11 proposed that without disturbing the agreement reached on the German steel industry the figure of 5,800,000 be referred as the planning norm to the Economics Directorate which would be invited to submit comments on such obstacles and difficulties as it might decide were involved in adoption of the lower figure. This proposal was accepted by the U.S. and Soviet members but Robertson stated he would have to obtain his Government’s views which he hoped to present at the next Coordinating Committee meeting.

After the meeting, I inquired of General Robertson and Sir William Strang12 why they had injected the confusing issue into the steel tonnage question after having painfully arrived over a period of weeks at the clear cut agreement which was reported to the Department. They indicated that London is worried over the notion that the agreement will result in impoverishment of Germany to a point where German economy and population will become a burden to England. I asked Strang whether this thinking was in terms of trade between the UK and Germany and he replied that it was not only the question of future trade relations but possible expenditures by the UK for the support of the German population, which bothered London. He said “You people don’t seem to mind this. You are going more and more in Morgenthau’s direction.”13 I mentioned to Strang that thus far the US is the only power which has made a direct expenditure for the support of the German population (food) and we did mind it, but were determined also to destroy German war potential. I suggested that the steel tonnage figures are subject to annual review and that for the present it is of the utmost importance to have Allied unity on this subject. In any event, Germany will be physically incapable of producing even 5,800,000 tons until 1948 or 1949. The British have asked London for further instructions [Page 486]in the light of Saturday’s14 discussion and I anticipate that a formula similar to that suggested by the French (above) will be arrived at.

I also discussed the steel issue with Sobolev and Sokolovsky individually. Both expressed great indignation over what they termed a transparent British effort to evade the recent agreement.

2. In the absence of instructions concerning the Soviet compromise proposal of the definition of restitution, Koeltz requested discussion be deferred until next meeting, set for January 16 (see above reference).

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Murphy
  1. Lt. Gen. Louis Koeltz, Deputy Military Governor, French Zone of Occupation in Germany; French member, Coordinating Committee, Allied Control Council for Germany.
  2. Sir William Strang, Political Adviser to the Commander-in-Chief, British Forces of Occupation in Germany (Montgomery).
  3. In 1944 Henry Morgenthau, Jr., Secretary of the Treasury, had proposed the imposition of harsh peace terms on Germany. Documentation relating to the Morgenthau Plan is scheduled for publication in a subsequent volume of Foreign Relations dealing with the Allied Conference at Quebec, September 1944.
  4. January 12.