862.50/10–1146
The United States Political Adviser for Germany (Murphy) to the Secretary of State
No. 7343
[Received October 25.]
Sir: I have the honor to refer to the Office of Political Affairs’ telegram No. 2219 dated September 21, 1946, relating to the establishment of bi-zonal agencies to integrate economic acivities in the U.S. and British Zones of Germany, and to forward herewith copies of the texts of agreements74 for the establishment of a German Economics Administration, a Joint German Committee for Finance, a German Administration for Food and Agriculture, a German Transport Administration and a German Post and Telecommunications Administration. A proposal for a German Executive Committee on Manpower Subjects is under consideration.
Agreements
The texts of the five agreements are similar in all respects. Five joint committees are being established, each one consisting of Ministers [Page 614] from the three Laender in the U.S. Zone and three representatives from the British Zone nominated by British Military Government. The agencies are being located in different places in the two zones to avoid the appearance of establishing a western capital. Each agreement specifies in detail the scope and functions of the joint committee. A non-voting chairman will preside over each committee, whose decisions will be made on the basis of a simple majority of votes. In the event that fifty per cent or less of the participants dissent from a proposal, the matter must be referred to the U.S. and British Military Governments before action can be taken. Committees are given fairly wide power in dealing directly with top authorities in the Laender and in checking upon the execution of committee decisions. Each committee will establish its own by-laws, and rules of procedures in the conduct of business, and will select German staff officials and other employees required for its work. The Laenderrat in the U.S. Zone and the Central German Offices in the British Zone will continue in operation until the various bi-zonal agencies are able to take over their activities. Provisionally, costs of administering the bi-zonal agencies will be borne equally by the two zones. Although not provided for in the various agreements, a small American-British Liaison staff will be attached to each agency to supervise its activities and coordinate contacts between the agency and the Military Governments.
The agreements were approved by the Military Government in the U. S. and British Zones and were signed by authorized German representatives from the two zones. Each agreement specifically provided that other zones were free to join in the bi-zonal arrangements at any time. (See Enclosures 1–5)
Economics
The German Economic Administration is being located at Münden [Minden] (British Zone), and will consist of eight departments: (1) basic section, including coordination, reparations, economic organization and administration, and expellees; (2) planning and statistics; (3) basic industries; (4) production goods; (5) consumer goods; (6) foreign and interzonal trade; (7) price-fixing and control; and (8) public utilities. Dr. Rudolph Mueller, formerly Minister of Economics for Greater Hesse, is chairman of the committee. Members are Dr. Victor Agartz, Central Office for Economics, Hamburg; Dr. Ludwig Erhardt, Minister of Economics, Bavaria; Dr. Werner Hilpert, Minister of Economics, Greater Hesse; Dr. Heinrich Koehler, Minister of Economics, Wuerttemberg, Baden; Dr. Hans Kuhnert, Head of Economic Administration, Schleswig, Holstein; and Professor Erick Noelting, Minister of Economics, North Rhine, Westphalia.
[Page 615]The Office of Military Government for Germany (U.S.) is sending a liaison staff of nine men to Minden. In the latter part of September when U.S. officials were making plans to send the liaison staff to Minden, British officials indicated arrangements had not yet been made and that October 1 was considered somewhat premature for beginning operations. One short preliminary meeting was held in Minden on October 1, but the administration is not expected to begin operations until about October 11, at which time plans for exports and allocations, particularly for coal, will be discussed. General organization plans will also be discussed with the object of setting target dates for assumption of operational responsibility by various units of the committee staff.
Progress in working out details of the joint Economic Administration has been complicated by the fact that goods have been purchased from the Germans by U.S. authorities for export, sale and use in industry, whereas a system of requisitions has been used in the British Zone. Furthermore, control of economic activities in the British Zone has been concentrated in London whereas in the U.S. Zone operations have been managed from Berlin. Many differences in policy and practice remain to be ironed out between the two zonal authorities before the German economic administration can hope to suggest an organization to accomplish joint U.S.-British aims without too many complications arising out of uncoordinated U.S. and British approach.
Finance
The Joint German Committee for Finance is being located at or near Frankfurt (U.S. Zone). The present organizational structure provides for departments dealing with taxes and custom duties, budget questions, money and credit, and insurance. Dr. Hulse, presently with the Central Office for Finance, Hamburg, has been selected to be Chairman of the Committee, although British authorities have not as yet formally approved his release from his present duties. Members are those Finance Ministers from the U.S. Zone, Dr. Terhalle, Bavaria, Dr. Cahn-Garnier, Wuerttemberg, Baden, and Dr. Mattes, Greater Hesse; and three British Military Government appointees, Dr. Hulze, Dr. Krust and Dr. Hopker-Aschoff. One U.S. and one British officer are to serve as the Allied liaison staff. Operations began on September 25, 1946.
Insofar as finance problems are concerned, the area that is not covered by necessity for quadripartite action is somewhat limited. Proposals now before the Allied Control Authority would provide for decentralization of the banking structure and the establishment of an Allied Finance Board in Berlin, and OMGUS Finance tends to favor [Page 616] moving slowly with bi-zonal arrangements in hope of achieving quadripartite agreement. Activities performed by the Laenderrat and the Central Office for Finance will be taken over gradually.
Initially, the committee is expected to consider problems connected with the internal financing of the export-import fund; the elimination of double taxation, and the unification of the civil service organization. Common tax collection policies and practices will be among the last questions to be discussed in the Committee because of the obvious desirability of four-zonal over bi-zonal agreement.
It will be noted that the administrative budgets of bi-zonal agencies are to be submitted to the Finance Committee, a power to which the Economics Committee has objected if it is interpreted to include the authority to approve or disapprove budgets of other committees. Similarly with respect to the function of the Finance Committee in considering financial aspects of proposals affecting interzonal institutions, the Economics Committee has stated its position that the mechanics of operating the Export-Import Fund may properly be the concern of the Finance Committee but the determination of policy related thereto remains a function of the Economics Committee.
Food and Agriculture
The German Administration for food and agriculture is located provisionally at Bad Kissingen (U.S. Zone). Initially, the organizational structure provides for a staff department on food production; other staff departments will be formed as progress is made and as circumstances may require, the general nature of which is indicated in the text agreement. Dr. Hermann Dietrich, formerly Food Commissioner for the U.S. Zone, is Chairman of the Executive Committee for food and agricultuure. Members are Dr. Josef Baumgartner, Minister of Food and Agriculture, Bavaria; Dr. Helmut Eisenmann, Deputy for the State Director, Wuerttemberg, Baden, and George Haering, Minister of Food and Agriculture, Greater Hesse; and Dr. August Bloch, Minister of Food and Agriculture, Hannover; Dr. Herman Heukamp, Minister of Food and Agriculture, Dusseldorf; and Dr. Carl Wilhelm Passarge, State Secretary, Central Office for Food and Agriculture, Hamburg. The Allied Liaison Staff includes an American and a British group each consisting of an officer in charge assisted by one officer responsible for food programs and one for agricultural programs. Preliminary operations began on September 24 but it is expected to be three to six months before bi-zonal food and agriculture arrangements are completed and a German Staff is assembled.
In accordance with one of the basic principles underlying the bizonal economic integration plan, it has been announced that similar [Page 617] levels of food rations will come into effect with the 94th rationing period beginning October 14, under which the normal consumer will receive rations equivalent to 1550 calories daily.
Transportation
The German Transport Administrations are being located at Bielefeld (British Zone) except for the General Administration for Maritime Ports and Coastal Shipping which is in Hamburg. The organizational structure provides for Administrations for Railroads, Highways and Highway Transport, Inland Waterways and Inland Water Transport, and Maritime Ports and Coastal Shipping, each headed by a Director-General. Mr. Ludwig Homberger, a U.S. citizen, was named Chairman of the Executive Committee for Transport, but this selection was later deemed inappropriate. A new chairman had not been named as of October 5, 1946. Members are Michael Helmerick, Transport Minister, Bavaria; Otto Steinmayer, Transport Minister, Wuerttemberg, Baden; and Dr. Walter Strauss, State Minister, Greater Hesse; and three British Military Government appointees, Dr. Fritz Busch, Dr. Otto C. Offen, and Dr. Von Freedom
It should be noted that all three members of the committee from the British Zone have been nominated for senior positions in the General Administration, a situation not paralleled in any of the other bi-zonal economic agencies. While inclusion of technical officers on the Executive Committee would insure that technical considerations were kept fully before the committee, it might however result in technical aspects overbalancing geographic political and other considerations. The question of dual responsibilities was referred to higher authority for decision and at the third meeting of the Bipartite Board on October 4, the British representative stated they had arranged that members of the Executive Committee should not also occupy executive operating positions.
The Bi-partite Control Group consists of two representatives from each of the U. S. and the British Transport Divisions. Operations began on October 1.
Activities to date have been confined to arranging details of housing and office space, appointment of personnel, organizing the secretariat, etc A preliminary outline of the administration of railroads has been prepared, and will be considered as the first and most important order of business for the committee.
Post and Telecommunications
The German Post and Telecommunications Administration is being located at or near Frankfurt, (U.S. Zone). The Executive will assume responsibility for all civil communication and postal services in [Page 618] the two zones, with reservation of certain actions subject to prior approval of military government. The committee will cooperate with the Executive Committee for Finance on specific matters set forth in the text agreement. Names of committee representatives are not presently available.
The first meeting of the Executive Committee is scheduled for October 10, 1946, and November 1, has been set as a target date for establishment of Post and Telecommunications Administration.
Manpower
Formation of a German Central Executive Committee on Manpower Subjects is under consideration. At the third Bi-partite Board meeting on October 4, the British view favored setting up an agency to handle manpower problems, but the U.S. opinion was that establishment of central machinery for handling manpower problems was limited by terms of the Potsdam agreement and that such actions would lead to amalgamation of trade unions and might infringe on quadripartite action. A final decision was deferred pending reference by the U. S. representative to his government.
Discussion and Negotiation of Agreements
The agreements are the result of considerable discussion and negotiation between the U.S. and British and German authorities representing the two zones.
Preliminary Discussions
In a letter to General Lucius D. Clay on July 26, General Sir Brian H. Robertson indicated that official British approval of previous informal discussions on economic integration of the two zones would be forthcoming shortly, and suggested that policy should be handled at the highest U.S.-British level and that operations should be in the hands of joint German administrations. On the British side, this meant that executive power would have to be given to certain purely administrative bodies in the British Zone, and steps were immediately taken to transfer executive powers and responsibilities in the economic field. By way of example, Military Government in the U.S. Zone consists of approximately 6,300 persons at the present time, whereas it numbers about 26,000 in the British Zone. In the U.S. Zone a great deal of the actual administration of military government has been in the hands of the Germans for a long time, and policy decisions have been received from U.S. Military Government personnel. In the British Zone, however, very little use has been made of German personnel other than on an advisory basis; practically all of the detailed administration and execution of policy has been carried on by British personnel.
[Page 619]General Robertson also suggested that the joint machinery might take the form of a bi-partite counterpart to the Coordinating Committee and the Directorates of the Allied Control Authority, though smaller in size. The resulting organization essentially follows this pattern.
Informal Meeting August 9, 1946
An informal meeting of U.S. and British Military Government authorities representing the several fields of activity to be integrated met on August 9.75 The decision was made to concentrate on working out bi-zonal arrangements covering food and agriculture, trade and commerce and industry (separately or together whichever seemed more satisfactory) and transport.
The question of sharing deficits on the export-import budget was first raised at the August 9 meeting. The British proposed sharing on a 50–50 basis on the grounds that both occupying powers would presumably benefit under the unification plan; whereas, the U.S. proposed that the deficit be prorated between the two zones on the basis of populations—57 percent for the British and 43 percent for the U.S. Zone. The British regarded the 57–43 proposal did not take into account the fact that the British Zone will produce exports accruing to the advantage of both zones, but the production of which will entail extra outlays of food and money by the British Zone, and suggested an alternative 52–48 arrangement. On the other hand, U.S. representatives felt that the 50–50 proposal was too loose an approximation for sharing the deficit, and that without unification the deficit would have to be borne essentially on the basis of population. Moreover, the partnership principle would hardly be applicable if the French or Soviet authorities later decided to join the unification program. Adoption of the population principle would be particularly inviting to the French who have such a small population in their Zone, whereas the partnership principle would not. After consideration, the Bi-partite Board agreed on September 14 to accept the revised U.S. proposal for 53–47 as a basis for sharing deficits, subject to approval by the British Government. Approval had not been received up to October 4, according to a statement made at the third meeting of the Bi-partite Board.
On the question of the status of existing agencies in the zones, the U.S. position was that German representatives from the U.S. Zone would have to be responsible to the Laenderrat, a situation which seemed to cause some concern among the British group on the grounds that other German organizations would be interposed between Berlin [Page 620] and the Germans. Agreements on the position of the Laender and existing zonal economic agencies are summarized in the second paragraph of this despatch.
In the discussion of membership in the German Joint Committees, the U.S. representative urged equal representation by geographical groupings to insure full protection of minority views, citing the case of Bavaria, as an example, having less in common with Wuerttemberg-Baden and Greater Hesse who would be inclined to side with the Ruhr and Rhineland areas on many questions. According to the terms of the various agreements, U.S. Zone membership on each Joint Committee consists of one representative of each Laender, and the principle of geographic representation has been observed by and large in the selection of committee members from the British Zone.
The relative advantages of a completely integrated staff versus a joint staff for the small Allied liaison staff attached to each bi-zonal agency was discussed at length, with the British favoring full integration and the U.S. representatives feeling that completely integrated staff would not be operationally possible because of the present form of organization in Berlin. For the time being at least, the Allied representatives will work as a joint staff with rotating chairmanship.
From the outset emphasis has been laid on the fact that the bi-zonal unification arrangements were only economic and in no way political in their objectives. The various agencies were purposely scattered throughout the two zones, sometimes not without disadvantages from an operating point of view, to avoid the appearance of setting up a Western capital. (The location of the German Economics Administration was chosen by flip of a coin). General Robertson touched on another aspect of this point when, speaking on the question of consultation with U.S. authorities prior to taking over industries in the British Zone, he affirmed willingness to talk over technical ramifications but asked not to be pressed for political coordination—although he regarded consultation from time to time as necessary and cited land reform as a specific example of a question more political than economic about which he felt it was proper for U.S.-British consultation.
Meetings of Bi-partite Board
The Bi-partite Board made up of 10–12 representatives each of the U.S. and British Military Governments has met three times. The principal order of business has been the consideration of agreements for the five bi-zonal agencies. Progress reports have also been received from the various bi-zonal agencies.
In addition the Board has discussed related questions presented to it covering prices and subsidies, the Soviet refusal to treat Germany as an economic unit, plans for fuel for German families, and fusion [Page 621] of the U.S. and British Sectors, but no decisions were taken on these matters.
The Board has also outlined the bi-partite organization and has made available copies of the text agreements on the five bi-zonal agencies to the D.C.A. [A.C.A.] Coordinating Committee for information of French and Soviet authorities.
Copies of minutes of meetings and documents issued by the Bipartite Board are enclosed herewith for record. (Enclosures 6–23).76
Respectfully yours,