Foreign Relations of the United States, 1946, The British Commonwealth, Western and Central Europe, Volume V

740.00119 Council/5–946: Telegram

The Acting Secretary of State to the Secretary of State, at Paris

secret
u.s. urgent

Washington, May 9, 1946—7 p.m.

2222. Secdel 219. Following is background and more detailed exposition of proposals in immediately preceding tel to Sec State from Acheson and Hilldring.

1. We fully endorse Clay’s stand on essential interrelationship of reparation plan and treatment of Germany as economic unit. Unless Russians give convincing demonstration they are prepared to adopt and implement common economic policies now, there is no assurance that Germany will be treated as economic unit after 2-year period of reparation removals and that accordingly amount of capital equipment left to Germany will suffice to enable Germany or separate parts of Germany to live on average continental European standard of living without outside assistance, as Potsdam requires. Similarly, early decision on Ruhr–Rhineland issue appears necessary not only to remove French opposition to German central agencies, but above all to enable General Clay to take initiative for drastic revision, if not total abandonment of present reparation plan, in event resources of Ruhr–Rhineland unavailable to German economy. Therefore desirable in our opinion to induce Russians to discuss both Ruhr–Rhineland and program for real implementation of Potsdam provision for treatment of Germany as unit.

2. Current Soviet policy believed to be motivated by one or more of following considerations:

a) Conviction that split of Europe into Eastern and Western oriented blocs is inevitable or desirable and that accordingly it must keep Eastern Germany as well as all of Eastern and Southeastern Europe firmly under Soviet unilateral control;

b) Necessity of retaining or consolidating firm Soviet economic and political control of Soviet zone until time when unification of Germany can take place under conditions most advantageous to Soviets;

c) Fear that application of common economic policies to Germany as a whole would interfere with present Soviet practices of obtaining reparation from own zone, including reparation from current output, without reference to economic plan for all of Germany, and would impose on Soviets, who now have most self-sufficient zone, burden of meeting part of deficits of other less self-sufficient zones.

3. In this connection it is our understanding that US insistence on treatment of Germany as economic unit has been motivated primarily by US interest in preventing permanent division of Germany into two antagonistic halves corresponding to our interest in preventing split of Europe as whole into irreconcilable blocs and definitive failure of four-power collaboration. This objective fits in with your proposal for four-power 25-year treaty of guaranty and proposal, discussed with you prior to your departure, to establish organized framework for economic collaboration of all continental European countries on basis of equality.

4. Desire to reduce cost of occupation by reducing over-all German trade deficit through pooling of German economic resources and by providing for equitable sharing among all occupying powers of burden of financing this deficit until Germany can be made self-sustaining also motivates US insistence on treatment of Germany as economic unit, but is of secondary importance. We fully agree that cost of occupation of all four powers together would be reduced by adoption of common policies and export-import program for Germany as a whole. However, if Soviet reluctant to share in any substantial measure deficit of other zones, it might be worthwhile in order to achieve treatment of Germany as economic unit for US to suggest that the cost of financing any net import deficit under agreed export-import program might be shared proportionately by occupying powers in such manner as not to impose any substantial increase in relative burden of Soviets.

5. Basic problem is for US Govt to devise a practicable plan which would provide strong support for Clay’s stand on integral execution of Potsdam. In our opinion such plan should be designed to force Soviet Union to show its real attitude toward unification of Germany within European framework and to avoid any danger that Soviets might put on us of breaking with Potsdam on US. In this connection it must be borne in mind that while Soviets first insisted in Economic Directorate meeting of April 5 on continued handling of German foreign trade on zonal basis until reparation plan was carried out in full and/or it became possible to achieve a trade balance for Germany as whole, all of which was complete negation of Potsdam, they later retreated from this extreme position and sought to reconcile their position at least with letter of Potsdam. In Economic Directorate meeting April 18, for example, Soviets agreed that Germany should be treated as economic unit and that steps should be taken to devise export-import program for Germany as whole, with proviso that in such program “account shall be taken, where appropriate, of local conditions” according to phraseology of para 14, Section III [II] of Potsdam Protocol and that therefore in immediate future trade should be conducted on zonal basis within net balance of each zone. This stand reiterated by Soviets in Coordinating Committee meeting of April 26. In Coordinating Committee meeting May 3, Russians went on record as endorsing common import-export program but sought delay in discussions until process of selecting all plants surplus to capacity left to Germany under Level of Industry Agreement and therefore available for reparation was completed and decision was reached on plants to be destroyed as war potential. While these shifting Russian tactics cast serious doubt on Russian willingness to put into effect Potsdam provisions on treatment Germany as economic unit, it is clear that Russians are cleverly seeking to reconcile their position with letter of Potsdam in order to put onus for breaking with Potsdam on other powers. For this reason, we consider it important to confront Russians with a plan which will really put their protestations of loyalty to Potsdam to a test and place onus for failure of Potsdam on them in event they do not meet the test.

6. Essence of such a plan in our opinion would be simultaneous implementation of reparation plan and development and application of program for common policies. In view of failure of Potsdam to stipulate schedule for implementation its provisions, it is difficult to argue that common policies should precede reparation or vice versa. In essence they should march hand in hand. Neither can be accomplished overnight. Indefinite suspension of reparation program may well involve break up of ACC, although it might be possible for brief period to avoid definitive break by continuing, as Clay proposes, paper allocation of plants for reparation and holding up actual deliveries. It may also be mentioned that suspension of reparation would adversely affect reparation claimants other than Soviets and that provisional continuation of reparation deliveries in immediate future would not unduly prejudice our position in view of fact that reparation removals would in any event owing to their volume be spaced over two full years. Suspension of reparation deliveries might also force British into unilateral removals from their zone—action which they have already threatened to take once before in view of delay in carrying out reparation program.

7. In light of above, we present for your consideration and consultation with Clay and Murphy, a plan which, while based on full endorsement of Clay’s position on interrelationship of reparation plan and treatment of Germany as economic unit, would provide for continued or resumed implementation of reparation program during a period of 60–90 days on condition that Soviets agree to join with other occupying powers in instructions to ACC to proceed during this period with negotiations on a phased plan for the adoption and implementation of common economic policies focussed on adoption of export-import program which shall be based on:—

a) pooling of German economic resources through free interzonal trade, thereby reducing import needs for Germany as whole;

b) allocation of imported and indigenous materials in such a manner as to attain uniform rate of economic recovery in all zones and allocation of German production as between domestic consumption and exports in such a way as to maintain some fixed differential in rate of German economic recovery and that of rest of continental Europe;

c) explicit understanding that exports from current output and stocks will be used only to pay imports into Germany until all past imports are paid for and Germany can be made self-sustaining. (It must be recognized that Potsdam Protocol does not explicitly rule out reparation from current output as far as Soviet zone is concerned and that this ambiguity should be cleared up.)

d) understanding, if required to obtain Soviet support, that the burden of financing any temporary surplus of imports over exports will be shared by the occupying powers in manner indicated in para 4 above.

Negotiations on common policies should in our opinion also be based on understanding that implementation of such policies should, pending establishment of central German administrative departments, be entrusted to quadripartite allied agencies such as proposed Export-Import Bureau which would be assisted by staff of German technical experts. It is our understanding French would agree to such a proposal. In this connection it might be pointed out that France as non-signatory of Potsdam Protocol, is under no obligation to assent to central German agencies and that central German agencies would in any event be unable to operate successfully without agreed quadripartite control and direction.

Scope of negotiations on common policies might also include efforts to obtain common policies in certain fields in which Soviets profess to have an interest similar to US such as effective action against German combines and trusts called for in para 12, Section III [II] of Potsdam Protocol and efforts to secure agreement on division of large estates and on nationalization of properties of combines, convicted Nazis and war criminals, etc., in order to eliminate classes which supported Nazism and extreme German nationalism in past. By taking initiative in these questions we would avoid the charge that we were seeking to impose a “Western capitalist” orientation on Germany and we would, through vigorous championing of economic and social reforms which would [sic] lay basis for economic as well as political democracy. We can certainly also afford to meet the Russian challenge regarding complete disarmament of Germany, particularly total prohibition of manufacture of all armament. While there is evidence that all occupying powers still tolerate manufacture of armament in their zones to varying degrees, the Soviets have apparently been the principal offenders by re-equipping aviation squadrons with jet aircraft and fleet with “schnorkel” submarines produced in Soviet zone; French are also producing some armament; and even US is engaged in some manufacture for experimental purposes in its zone. These facts particularly relevant to reported Molotov reaction to your proposal for 25-year treaty of guaranty⁶ and you may accordingly find it advisable to propose inspection of disarmament progress all zones.

Continuation of reparation program during this test period would be subject to explicit understanding that (1) additional removals from Soviet zone shall take into account necessity of capital equipment for Germany as a whole within agreed Level of Industry Plan (In this connection it should be pointed out Soviets are removing sugar beet processing factories from Tangermuende area on Elbe even though plants are not surplus to German requirements as whole and Level of Industry Agreement makes no provision for removal of such plants from Germany), and (2) immediate steps will be taken to activate mixed commissions for task of assessing present industrial capacity in all zones and to apportion among four zones capacity left to Germany under Level of Industry Agreement. Essential part of plan would be immediate suspension further implementation of reparation plan at end of test period if no substantial progress made in negotiations on treatment of Germany as economic unit.

8. Above plan in our judgment has merit of being based squarely on Potsdam, of avoiding any imputation that US is abandoning Potsdam, and of forcing Soviets to reveal whether in fact they will live up to substance as well as letter of Potsdam. Consensus here that if you judge plan feasible, it might be advisable for the sake of bargaining, to broach it to Soviets in way which would indicate to them clearly that, while US is firmly convinced of desirability of treating Germany as an economic unit within framework of European economic system, it would have to consider, in event of failure of other powers to agree on effective implementation of this policy, disagreeable but inevitable alternative of treating Western Germany as economic unit and integrating this unit closely with Western European economy. You may wish to emphasize that US would greatly prefer to maintain Germany as unit under effective quadripartite control and to fit Germany as unit into a framework of organized continental European economic collaboration as proposed in the plan submitted to you prior to your departure, but that unwillingness of Soviets to cooperate would leave US with no choice other than alternative plan.

9. It is suggested that it might also be desirable to link negotiations on common policies under plan outlined above with simultaneous negotiations on Ruhr–Rhineland. Since, as we understand, Soviets have so far refused to have Ruhr–Rhineland placed on conference agenda, it might be pointed out to them that we cannot indefinitely continue implementation of reparation plan without an early decision on fate of Ruhr–Rhineland. You will recall that both War Dept and Gen Clay have strongly urged necessity of prompt resolution of this issue. Another objective of negotiations would be to remove French opposition to establishment central Germany agencies. Negotiations on Ruhr–Rhineland might be broadened to include whole security issue, including your proposal for 25-year treaty of guaranty and, if you deem wise, plan for European economic collaboration. While it may be impossible to obtain immediate consideration Ruhr–Rhineland issue, we feel that indefinite postponement would be incompatible in the end with continued execution of reparation plan.

Sent to Paris, repeated to USPolAd Berlin as Dept’s 1075.

Acheson

6. For Molotov’s reaction at the Council of Foreign Ministers meeting in Paris, see memorandum of conversation, April 28, 1946, by Mr. Charles E. Bohlen, and record of meeting of April 29, volume ii.