740.00119 Control (Germany)/11–2946
Memorandum of Conversation, by the Chief of the Division of Central European Affairs (Riddleberger)
Subject: Financial Aspects of Fusion of UK–US Zones in Germany.
Participants:
| For the U.K. | For the U.S. |
| Mr. Hall-Patch, Foreign Office | Mr. Clayton, State |
| Sir David Waley, Treasury | Mr. Petersen, War |
| Mr. Roger Makins, British Embassy | Mr. Riddleberger, State |
| Sir Mark Turner, Control Office5 | Mr. deWilde, State |
| Mr. Playfair, Control Office6 | Mr. Heneman, State7 |
| Mr. McGhee, State8 |
Mr. Hall-Patch opened the discussion in stating that the U.K. does not wish to enter into an agreement which it cannot fulfill or one that will threaten other agreements of greater importance. The U.K. Cabinet sees in the present fusion plan a further drain on British dollar resources and has requested the U.K. Delegation to see if some way out of the difficulty can be found. He would leave it to Sir David Waley, who has just returned from London, to explain the broader financial considerations which are of concern to the British Cabinet. Sir David Waley explained that while in London he had consulted both with the Chancellor of the Exchequer9 and the Cabinet. In the next three years the Cabinet was convinced that there will be a “financial battle of Britain” in which dollars will be as important as Spitfires were in 1940 and that it is essential to limit the dollar and hard currency commitments of the U.K. which should not exceed $300,000,000 during the next three years. Sir David Waley then presented an amendment to the pending agreement, a copy of which is attached hereto.
After reading the U.K. proposal, Mr. Clayton stated that he did not see how the U.S. could accept this proposal without going to Congress and remarked that it would change the 50–50 ratio now tentatively agreed to. Waley then pointed out that the U.S. could provide less money if the U.K. was compelled to stay under the $300,000,000 and that the 50–50 ratio would not necessarily be altered. Mr. Clayton responded that the U.S. and the U.K. would be partners in an enormous enterprise and we would certainly try to direct exports from Germany [Page 645] so as to assist the U.K. and to make a minimum drain on its dollar resources. We furthermore had a time element which was of the greatest importance if German economy was to be placed on a self-sustaining basis and the U.S. could not accept a proposal which would change the 50–50 ratio. Mr. Petersen said that he fully agreed with all of Mr. Clayton’s remarks and that while the U.S. was desirous in directing imports and exports to areas beneficial to the U.K., there were limits to this that would be determined by supply considerations. However, by suggesting a top limit for U.K. expenditures, the British Delegation is effectively changing the 50–50 ratio, and if the U.S. should make a corresponding reduction this would merely drag out the economic rehabilitation of Germany and in effect would materially change the three-year plan.
Mr. Clayton thereupon reviewed the world dollar position and emphasized that since the end of the war vast amounts of dollars have been made available, largely through loans, to a number of countries; furthermore more dollars will become available as the U.S. imports increase and as tourist traffic is resumed. For ten years the U.S. has not increased its productive facilities for consumer goods (with the exception of food), although it has made large increases in production of capital goods. The U.S. will therefore have vast demands for imports of consumer goods when other countries can furnish these goods. This will make dollars all the more available in the capital markets.
Sir David Waley replied that this may be true but that most countries expect a U.S. comeback faster than the rest of the world. Also, he was doubtful if German coal exports could be increased as rapidly as planned. To this Mr. Petersen replied that the U.K. Cabinet should certainly realize that the proposed fusion agreement will cut down the amount of U.K. dollar requirements. Sir David replied that this was true but the Cabinet was doubtful about meeting the complete British commitment under the plan.
Mr. Clayton and Mr. Petersen thereupon stated once again that the proposed British amendment would not, in their judgment, be acceptable to Congress. Mr. Petersen also observed that in the minds of many Republican Representatives the British loan had settled the U.K. dollar position and that the present proposal would certainly cast doubt upon the wisdom of the British loan.10 Equal partnership in Germany is the only way the present agreement can be sold to Congress, particularly as the U.S. must get present cash against future promises.
Sir David Waley replied that all that was no doubt true but that the U.K. likewise has political difficulties, arising primarily from its food position, and that his amendment to the agreement is the only [Page 646] way the U.K. Cabinet thinks it can put the agreement through the British Parliament. Therefore, he was under instructions to press for this amendment and Mr. Bevin likewise had the same instructions to take up the matter with Mr. Byrnes. Mr. Clayton replied that we are still attempting to assist the U.K. and there will be some new developments to report very shortly on the Plan A11 settlement. However, he believed that the two Governments must stick to the 50–50 ratio and that both Governments will have to take some risks. He was personally convinced that the fusion agreement as drafted by the negotiators will not turn out to be a great burden on the U.K.
Sir David Waley then inquired if there was any objection to Mr. Bevin discussing his instructions with Mr. Byrnes, to which Mr. Clayton replied there was not. Sir David then inquired if the U.S. could accept paragraph 2 of the attached amendment. Mr. Petersen answered that this would change the language of the agreement with reference to utilizing the most economical sources of supply and that we should not annul language already agreed upon. However, in his opinion, paragraph 2 does represent the spirit of our ideas to assist the U.K. and satisfactory language could be worked out. Messrs. Clayton, Petersen and Riddleberger pointed out that the last sentence should be eliminated, particularly as the U.S. could not afford to give the Congress the impression that it was presenting a three-year plan when the agreement contained language that would make it effectively a one-year plan. The question of review was already provided for in the agreement as drafted and, in addition, the U.K. would have a constant review in the Joint Import-Export Agency.
Mr. Hall-Patch then stated that the British negotiators would go to New York this afternoon to talk to Mr. Bevin. If he and Mr. Byrnes could agree upon a settlement of the major problem, the U.K. Delegation hoped that agreement could be reached over the weekend. They would present to Mr. Bevin the various U.S. considerations that had been developed in this discussion. The U.K. members hoped that this agreement could be initialed before the CFM discussions on Germany commenced. All present agreed that this aim was a desirable one.
- Under Secretary, British Control Office for Germany and Austria.↩
- E. W. Playfair, British Control Office for Germany and Austria.↩
- Harlow J. Heneman, Special Assistant to the Assistant Secretary of State (Hilldring).↩
- George C. McGhee, Special Assistant to the Under Secretary of State (Clayton).↩
- Hugh Dalton.↩
- For documentation relating to the extension of credit to the United Kingdom, see Foreign Relations, 1945, vol. vi, pp. 1 ff., passim.↩
- A joint project by the United States, the United Kingdom, and Canada to provide supplies for liberated areas.↩