862.6511/1–2846: Telegram

The Secretary of State to the United States Deputy Military Governor for Germany (Clay)

secret

253. For Clay from Secretary Byrnes. Bevin’s22 statement is that he does not object to the 5.8 production for steel but he objects to making this production level the level for industry and production of all kinds. Is he correct in believing that is the agreement?

He wires me as follows and I wish you would advise me if you are in agreement with his statement:

“Since we spoke on the telephone on January 24th about reparations and the level of German industry, I have been discussing this question with the Ministers immediately concerned, though I have not yet had a chance to put it to the Cabinet. As I understood it, you were in full agreement with me that it was not the intention at Potsdam that we should determine before February 2nd the level of German industry for all time. What we are concerned to settle now is a plan for reparations which will be based on examination of the relevant economic factors so far as they can be assessed now. This seems in accord with your own statement of policy of December 12th which accompanied the State Department’s statement on the reparation settlement and the peacetime economy of Germany.23

“It seems to me, therefore, that what we should aim at is to establish an upper retention limit for other industries just as has been done in the case of steel. By so doing we may hope to find a solution of the reparation problem without determining the final level of German industry. Just as in the case of steel we have agreed on a 7.5 million retention level though actual production would only be permitted for the time being up to 5.8 million, so we should now work out retention levels for other industries. Their permitted production would also be limited if necessary to some lower figure corresponding to the figure we have agreed for steel. Capacity above the retention levels in all cases would be available for reparations. The levels of permitted production would be subject to annual review and, should [Page 493]it be established that the retention level of certain industries was higher than seemed likely to be required after the initial control period for Germany’s peacetime economy, then such surplus capacity would be available for reparation deliveries.

“The term ‘initial control period’ I have quoted from the heading of Section 11 of the Berlin protocol.24 I take it to correspond to the 2-year period of reparation removals described as ‘the second stage’ in your statement of December 12th.

“The foregoing would seem to me to follow logically from our conversation and I should be grateful if you would be good enough to let me know whether you are in agreement.

“I suggest that what we must try and achieve is the retention in Germany of enough capacity to provide after the initial control period a balance of payments sufficient to ensure for her a reasonable standard of living. This point is clearly brought out in your statement of December 12th about the ‘third stage’. If our plan is not based on this premise, Germany will be left with neither the capacity to achieve this standard nor the resources to create the necessary additional capacity.”

Byrnes
  1. Ernest Bevin, British Secretary of State for Foreign Affairs.
  2. Department of State Bulletin, December 16, 1945, pp. 964 and 960, respectively.
  3. Reference is to section II A, paragraph 11, Foreign Relations, The Conference of Berlin (The Potsdam Conference), 1945, vol. ii, pp. 1478, 1483.