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

740.00119 Control (Germany)/11–1446

Memorandum by the Assistant Secretary of State (Hilldring) to the Secretary of State⁹³

secret

[Washington,] November 14, 1946.

Mr. Secretary: The first meeting of the Conference on Economic Unification of the British and American Zones was held at 2 p.m. November 13, 1946.⁹⁴

Acting Secretary of State Acheson opened the conference with a greeting to the British Delegation. He also reiterated the purpose of the Conference, emphasizing that its purpose was to settle those questions relating to the fusion of the United States and the United Kingdom Zones that could not be settled in Berlin. Mr. Acheson then turned the chair over to Assistant Secretary Hilldring.

The agenda for the conference informally agreed upon last week was officially approved by the conference without debate. The Chairman then invited the British to make the opening statement on the first item of the agenda, namely the “Division of Financial and Procurement Responsibility for Civilian Supply”. Mr. Hall-Patch,⁹⁵ the Senior Member of the British Delegation, read a brief prepared statement, substantially as follows:

“It was necessary in the British view to achieve the speediest restoration of Germany to a position which, by her own efforts, she could pay her own way. It is, therefore, in this general context that the problem of fusion of the two Zones in Germany must be placed, and it is in that context that we shall continue these discussions. We are partners in a joint enterprise for a common purpose and will work with you in good faith to bring this enterprise to a successful conclusion as soon as possible. We are prepared to make our contribution, but the division of financial responsibility must necessarily in our view be in relation to the respective resources of the two partners in the enterprise”

Mr. Hall-Patch then turned the further discussion over to Sir David Waley, the British Treasury representative. Sir David stated that the suggestion made at Berlin for a 50–50 split or something in that neighborhood was a very fair and equitable suggestion, looked at in the light of the problem in general and having regard to the population and resources of the two Zones and other factors which were relevant to the scope of the conversation which took place in Germany. Sir David commented, however, that there were, in the judgment of his Government, factors outside the frontiers of Germany, that weighed heavily in a proper determination of the division of financial responsibility between the two countries in their German joint enterprise. It was quite apparent from Sir David Waley’s remarks that the purpose in bringing the discussions to Washington was to get consideration by the United States Government of a division of financial responsibility more favorable to the British than the one discussed and agreed upon in Berlin.

The Chairman, speaking for the United States Delegation, informed the conference that the negotiations carried out by General Clay in Berlin were based upon an exhaustive consideration in Washington of all factors involved in the distribution of financial cost, and it was the feeling of the United States Government that all factors, including those Sir David Waley raised, had been thoroughly and sympathetically considered by this Government in arriving at the formula presented by General Clay in his Berlin discussions.

It then became apparent that no further discussion in the Plenary Session of the Conference would be availing in the solution of this problem. After a brief recess, it was agreed by the heads of the two delegations to adjourn the session and to convene a small group of the Delegation leaders for further discussion of the question raised by the British.

Present at the Committee meeting which convened immediately were:

General Hilldring,
Mr. Petersen,
General Clay,
Mr. Murphy,	for the United States,
and
Mr. Hall-Patch,
Mr. Makins,96
Sir David Waley,
Sir William Strang,
General Robertson,	for Great Britain.

The discussions of this committee covered roughly the following points:

a. General Hilldring opened the discussion by stating that a new day had dawned in the United States regarding the ability of this Government to contribute to any international enterprise more than a share which could be justified by the hard facts and merits of the particular case. He pointed out that the division proposed by the United States assumed a larger share of the deficit than it is now bearing, but that it was the feeling of the United States Government that it could justify an even or nearly even distribution of the costs in such a partnership as was being considered by the two Governments. It was obvious that through the fusion of the two Zones both Governments would be spending less appropriated funds annually after a year and that all deficits of both countries would be liquidated much more rapidly through fusion than would be the case without it. There, therefore, seemed to be, in logic, no justification for the United States to assume any proportion of the reduced expense of occupation which would devolve upon the United Kingdom as a result of fusion.

Sir David Waley reiterated the sentiments he had expressed at the opening meeting. He stated that this was more than a question of good business or pure logic. The United Kingdom could not commit itself to a responsibility in Germany, which had as its objective the economic recovery of Germany, which would in turn bring about a collapse in the economic life of the United Kingdom.

General Hilldring responded to that comment by stating that if the issue raised by Sir David Waley involved the probability or possibility that the financial strain of the British occupation might involve the withdrawal of the United Kingdom from Germany, the question obviously could not be discussed in this conference. This most profound and important question was one which obviously could only be discussed by Mr. Bevin and Mr. Byrnes. Regretfully, General Hilldring stated he could not consider that eventuality or possibility as a factor in determining the division of financial responsibility for the fusion of the two Zones under the terms of reference of this conference. The American and most of the British conferees agreed.

Discussion then developed the fact that the British were adding to the funds that had already been used in the prevention of disease and unrest the other appropriated funds that must henceforth be utilized by the United Kingdom in revitalizing German economy. While it was admitted on both sides that these additional costs were valid and must be forthcoming on both sides in the future, if the purpose of our unification is to be achieved, it was pointed out by the United States that these additional costs cannot properly be charged to fusion.

General Clay explained how the funds of the RFC would be used to meet the needs in the US Zone. He pointed out that this is a problem separate from that of the prevention of disease and unrest, is a self-liquidating and revolving fund, and that while it is an additional expense to the United States, it has not been brought about by the fusion of the two Zones. It was thereupon agreed to divide the cost in Germany into two parts, first, the funds necessary for the prevention of disease and unrest, and second, the additional funds necessary for the importation of raw materials necessary to reactivate and achieve a minimum economy in Germany.

General Clay then raised the issue as to whether or not the British would be willing to contribute to the common fund the receipts from exports from their Zone that have already been amassed. He stated that he had heard informal reports that these funds were now in such a category that they could not be unfrozen and returned to the common export fund in Germany. Mr. Hall-Patch stated emphatically that the United Kingdom Government had agreed to the pooling of export funds and that the United Kingdom would live up to its agreement. There apparently was some basis for the report that General Clay referred to because Mr. Hall-Patch stated that there might be some difficulty and delay in unfreezing these funds. He reiterated, however, that with patience on our part, the funds would in due course be made available.

Mr. Hall-Patch then suggested that a group of experts prepare a budget of the two categories of funds that would be needed in the years until Germany became self-sufficient, and that further discussion of division of responsibility be postponed until these agreed Anglo-American budgets had been prepared. General Robertson and General Clay agreed that they would be able to prepare such budgets by 10 o’clock the following morning. It was thereupon agreed to reconvene at 11 a.m. November 14th.

J. H. Hilldring

93. Secretary of State Byrnes was in New York as head of the United States delegation, Third Session of the Council of Foreign Ministers, November 4–December 11, 1946.
94. The Conference had been called to establish financial responsibilities for implementation of the economic agreements arranged between the United States and British zones in September; see despatch 7343, October 11, from Berlin, p. 613.
95. Edmund Leo Hall-Patch, Deputy Under-Secretary of State, British Foreign Office.
96. Roger Makins, British Minister in Washington.