740.00119 Control (Germany)/4–2747: Telegram

The Political Adviser for Germany (Murphy) to the Director of the Office of European Affairs (Matthews)

top secret
urgent

1006. For Matthews. For delivery first thing Monday9 morning. There is repeated below for your info tel CC–8933 from Clay to General Noce regarding current negotiations with British on subject of economic controls under bi-zonal agreement.

As you know Mr. Bevin is due in Berlin Monday and I believe Robertson will report to him on arrival present lack of success in agreeing on economic controls. You will note Clay’s stated opinion that question should be considered on Govt level.

I have discussed at length with General Clay and he has agreed to the repetition of message below because Dept may shortly be informed of British reaction directly. Bevin will undoubtedly discuss matters with Clay Monday and Clay will restate his position and inform Bevin that he has requested instructions from his govt.10

You are aware of the importance of this question. It involves (1) the issue whether US is prepared contrary to existing policy to approve in western Germany a system of rigid central economic controls and planning with a similar system of central control of food distribution, (2) whether we are also prepared to go along with British in support of German Social Democrats’ design for socialization of German enterprise which apparently has support of British Labor Party and Cabinet and (3) whether British plans do not contemplate a far greater expenditure of US appropriated funds than we shall be able even if willing to contribute.

I hope that you, Hilldring, Thorp, Chip11 and Ben12 can give urgent thought to this question before briefing the Secretary who has stated his active interest in the success of the bi-zonal operation. I [Page 910]would like him to know that I am assured that Clay is every bit as eager to achieve that success. At the same time fundamental issues are involved which do require as basic policy matter top level study and decision.

Text of Clay’s message to Noce follows:12a

CinCEur Personal from Clay

AgWar for WDSCA Personal for Noce

top secret

This should be read in connection with my CC–8871.13 The British while in Moscow, raised the question of economic controls under the bi-zonal agreement. The operations at Minden14 have, on the whole, been a failure as the main effort has been directed to planning the overall economy of the two zones rather than concentrated on the export program. (From CinCEur signed Clay) The German Chairman has also conducted an aggressive campaign to obtain a high degree of central authority and control. As a result, contracts let to date have resulted from initiative in the several Länder and not from initiative at Minden. The British answer to the Minden problem is to develop a fully planned economy for both zones, under the rigid control of the bi-zonal German agency. Our sincere belief is that economic responsibilities (particularly for export programs) must be decentralized with the present responsibilities of the Minden agency largely concentrated on the allocation of scarce materials. It has neither the personnel nor the competence for the exercise of detailed central control.

The British program calls for a detailed regimentation of the German economy, which in my opinion would prove to be completely unacceptable to the American public. Moreover, it would require months if not years to develop the organization adequate to exercise such controls. Our own concept calls for the minimum control of selected scarce materials which would give private enterprise and initiative an opportunity to participate in rehabilitation.

It is interesting to note that shortly after the bi-zonal economic agency was formed, the SPD Party, through very astute political maneuvering, succeeded in ousting Doctor Muller (a non-political figure) and replacing him with Doctor Agartz who has announced frequently that his principal mission is socialization. Our intelligence reports have indicated that Schumacher and Agartz received British support in making their political maneuver successful, and that Schumacher head of SPD in British zone was promised that Agartz would receive a much greater authority than he has actually been given.

Robertson visited me today, insisting that he must have an agreement before Mister Bevin reached Berlin from Moscow on Monday. This was in spite of a previous agreement which established working parties to study the several related problems. These working parties [Page 911]have not yet had time to report. Draper and I went as far as possible to meet Robertson’s views; however, we could not agree to accept in principle the establishment of a rigid centrally controlled German economy in the absence of German political responsibility. Such control is inconsistent with our desires for decentralization and if established would destroy the political gains which have been made in our own zone. It looks like a direct effort to introduce Socialistic controls which would pave the way to the complete socialization of the bizonal area. Robertson stated that in the absence of such an agreement he could proceed no further in discussion without governmental authority. I assume that this means that the entire question must be placed on a governmental level, although I suppose this may depend somewhat on Gen. Robertson’s report to Mister Bevin on Monday.

This is a regrettable and unexpected development, as prior to his trip to Moscow Robertson and I had always been able to work out agreements here. He is obviously, however, under strict instructions and great pressure from his govt to obtain agreement for a centrally controlled economy before proceeding into the ways and means of immediately improving the export program.

The Secretary of State had advised me on his trip through Berlin15 of his own desire for the bi-zonal arrangement to be successful and expressed the hope that Robertson and I would be able to reach agreement. Please advise him that in full sincerity, I have tried hard to do so but have found thus far that the agreement could be effected here only by complete acceptance of the British terms. I am sure that these terms are not consistent with our political objectives in Germany and even more sure that they would not be acceptable to the American business men and bankers on whom we must depend in the final analysis for the success, not only of our export program, but for subsequent financing to enlarge the export program. I regret that the problem has to pass to governmental level but see no other recourse.

A copy of this radio is being sent direct to State Dept.”

Murphy
  1. April 28.
  2. Foreign Secretary Bevin passed through Berlin on his way to London following the conclusion of the Fourth Session of the Council of Foreign Ministers in Moscow, March 10–April 24. There is no indication in American records that Bevin met with Clay at that time.
  3. Charles E. Bohlen.
  4. Benjamin V. Cohen.
  5. Message sent as CC–8933.
  6. Not printed.
  7. Many of the bi-partite boards established under the December 1946 American-British agreement for bizonal economic fusion were located in Minden in the British Zone of Occupation.
  8. Secretary of State Marshall conferred with Gen. Clay in Berlin on April 25. No official record of that meeting has been found, but for a brief description, see Clay, Decision in Germany, p. 174.