Foreign Relations of the United States, 1947, Council of Foreign Ministers; Germany and Austria, Volume II

840.50 Recovery/6–3047: Telegram

The Political Adviser for Germany (Murphy) to the Secretary of State

secret
urgent

Berlin, June 30, 1947—11 a.m.

1569. Your 1292, June 19.⁶

(1) In estimating the role which western zones Germany, or all of Germany, could play in the next year or two in a program of European rehabilitation, it is timely to inventory briefly the effect which Allied policy as expressed in the Potsdam protocol and elsewhere has exercised. In harmony with Allied desire to eliminate Germany, heretofore the largest element in European production, as a factor in future aggression, blows were struck at the German economy in addition to the physical damage effected by recent hostilities which conflict with the present constructive urge to rehabilitate the European economy.

(2) German territory was reduced at least temporarily to the extent of eliminating an area which produced approximately 23% of the German food supply. This area is being resettled by Poles and Soviet nationals and while it is producing some food for the European economy, undoubtedly it will take years for it to produce the quantities extracted by the efficient German farm population which formerly occupied the area. From that area and from Czechoslovakia and Hungary some nine to ten millions of German nationals and Volksdeutsche have been expelled to be absorbed in the shattered German economy which was divided into four zones. The vast majority of these expellees are women, children, and the aged, in other words, those of low employable-value. Germany is stripped of its external assets including its patents, copyrights, foreign exchange, and foreign trade organization. Germany is also deprived of its merchant marine and the revenue it produced. It is not permitted to operate airlines. Millions of German POW’s who comprise many skilled workmen and technicians are still detained abroad, principally in the USSR.

(3) Germany is subjected to a low level-of-industry plan agreed on in March 1946,⁷ the general effect of which is a reduction in the level of industry as a whole which would figure 50 or 55% of the prewar level in 1938 excluding building and building materials industries. That plan includes an important list of industries which are entirely prohibited and a few which will be permitted only until sufficient imports will be possible and can be paid for. Industrial equipment not required to maintain production over this level is subject to reparations. Some of this equipment has been removed from the western zones and a large part of it, of course, has been removed from the eastern zone of occupation. The uncertainty regarding the future of the remaining industrial equipment in the western zones exercises a depressing effect on German initiative and enterprise.

(4) In a loyal US effort to carry out the provisions of the sixth political principle of the Potsdam protocol members of the former Nazi Party were removed on a comprehensive scale from positions of responsibility in important private undertakings and public administration. The application of this policy resulted in the exclusion of millions of persons including those awaiting trial from active participation in the development of the German economy except as ordinary day labor. Germany, of course, has been deprived since the armistice of the energies of a German Government or of German central administration. A large amount of Germany, former Nazi property, has been sequestered and permitted to make little or no contribution to reconstruction. Germany is bankrupt, with no gold reserve, is urgently in need of financial and monetary reform, readjustment of internal prices and a practical foreign exchange rate for the mark.

(5) The foregoing are some of the aspects of the Germany which now wishes to contribute not only to its own rehabilitation, but to that of Europe. As black as the picture may be, Germany, with a population of 66 millions, still can make a contribution. It may do so if it receives the encouragement of constructive Allied policy.

(6) We recommend that (1) immediate approval be given to the level-of-industry plan recommended for the US/UK zones of occupation.⁸ This would be supplemented by whatever contribution in this direction the French zone of occupation could make and eventually if the Soviet attitude changes regarding the treatment of Germany as an economic unity by the application of an approved level of industry to the eastern zone of Germany. It is not our opinion that the establishment of such a new level will eliminate the possibility of Allied nations obtaining compensation as contemplated by Article Four of the Potsdam protocol for the loss and suffering which Germany caused the United Nations. Removals of strictly essential war industries and other equipment not necessary for the peace time needs of Germany will be possible, and should constitute a substantial German contribution to European rehabilitation.

(7) Distribution among European nations of food and other commodities in scarce supply raises the question of the appropriate level of German industry as it relates to surrounding countries. German feeding is considerably below the level of surrounding countries and German level of industry is probably 50% below. With foreign assistance now visible, that ratio will probably be constant for years to come.

(8) Germany’s principal national asset is the hard coal deposits in the Ruhr-Aachen area. We believe the Department considers as we do that the British approach to the Ruhr-Aachen coal problem has been unsatisfactory. That area, for example, has been producing recently at the rate of approximately 215,000 tons per day as against a hoped-for 275,000 to 300,000 tons. Faulty management and operation, together with other unfavorable features have deprived not only Germany but western European economy of the most important contribution [that?] could be had to rehabilitation. Added to the faults of management and operation, production has been depressed further by the cloud of uncertainty hanging over the future ownership and management of the mines, resulting from a desire to experiment with socialization or nationalization. This uncertainty has deprived the management of the driving incentive to produce, without which it is doubted satisfactory results will be obtained particularly when these are added to all the other unfavorable features affecting labor.

(9) Germany naturally is making a substantial contribution to its own feeding and with additional coal and fertilizer will make a still greater contribution. It requires imports of nitrogen and superphosphates, a heavy tonnage of seed imports and of agricultural machinery and food processing equipment. In our opinion no fertilizer plant should be removed from Germany as reparations, and the remaining plants should be re-activated and their coal requirements supplied.

(10) The German transport system is an essential link in the chain of European recovery. It is deteriorating dangerously due to lack of steel and inability under present food and other unfavorable conditions to maintain repairs to say nothing of the production of urgently needed new equipment, particularly freight cars. Here again are involved the questions of food and coal. When these are more abundantly available, Germany’s contribution to the European transport system will be an important factor in rehabilitation.

(11) A review of our denazification program may well result in a return to the German economy of many high grade skills and technicians. Likewise, an earlier return of German POW’s now held abroad would also enable Germany to make a greater contribution to European rehabilitation.

(12) If German businessmen were allowed freer contact with businessmen in other European countries, as well as the US, private initiative could make a more effective contribution to European reconstruction. This, of course, should be accompanied by financial reform and more normal access to foreign exchange by German businessmen.

(13) At the present time there is a dollar fence across Europe which in many cases prevents the exchange of the minor quantities of goods and services which are available in Europe. This results from limited funds available to feed Germany and to provide necessary raw material imports. Dollar requirements for trade with Germany when there is a serious shortage of dollars in Europe means the UK is promoting trade in sterling and trying to finance German products with sterling that trade and recovery is stifled. The only way Italy, for example, can benefit from German recovery is through the exchange of Italian products for German products. But Italy has high priced and low calory foods to offer which cannot be purchased because of budget limitations and restriction of purchases to essential items. Holland needs machinery and spare parts and can offer vegetables; the Scandinavian countries want to exchange fish for German products. The situation relating to our dollar demands for transit charges requires study. Normal trade of this kind should be permitted and encouraged.

(14) Either through appropriated funds or credit arrangements with private banks, governments or government agencies, ways should be found to finance German exports and imports over and above those necessary to meet minimum requirements of disease and unrest. Plans for the economic rehabilitation of Europe should consider this requirement. This may initially cost the occupying powers, and particularly the US, more money, but it should result in savings in the long run. The US is financing many European countries, and it is possible that by incurring increased expenses in Germany it might actually save money in Italy or Austria, for example, so that the total outlay for Europe would be substantially the same.

(15) To make maximum contribution to European recovery attempts would be made to direct Germany’s trade into normal channels. Because of our dollar requirements there has been a tendency to shift Germany’s trade to dollar areas. With increased appropriated funds or proper credit arrangements Germany can, once again, trade principally with Europe and the Scandinavian countries where it can render most effective aid.

(16) In some cases it will be necessary to sell German products on credit. This [is] particularly true of a few special types of industrial equipment. The most striking example of this is the case of specifically designed electrical generating equipment which was ordered from Germany prior or during the war, but was not delivered. The ordering countries are in need of this equipment. Industrial recovery is being retarded because this equipment is not delivered and put in operation. Because of the dollar requirement, some of the equipment stands idle in Germany.

(17) Of course we believe in the reduction of European trade barriers and feel that Germany should be incorporated in a European liberalized trade area, and if that is not possible at least in a similar European area. German efforts in the past to make Germany the country economically autonomous resulted in industries being encouraged by means of high tariff protection. As a result, Germany’s tariffs are out of line with her own requirements and those of her European neighbors. Tariffs were used as a weapon of economic warfare. If Germany is to be fitted again into the economy of European countries, tariff reductions are called for. At present, such reductions would, of course, be little more than a gesture of cooperation, since most imports and exports are priced in terms of dollars and the reichsmark conversion factor is adjusted accordingly. This subject would be for study in the examinations of the degree of cooperation of Germany, or at least its western zone to be permitted with other countries in international agencies such as ECE, ECO, IARA, ECITO, etc.

(18) Closely related to the problem of the tariff is the problem of deciding which industries in Germany should be encouraged. Care must be exercised so that our export drive does not result in the encouragement of those industries which later on will not be able to exist without subsidies and tariffs.

(19) We should like to hope that as the Soviet Union has assented to participate in European talks regarding the Secretary’s suggestions on the subject of European reconstruction, the possibility should not be excluded that the Soviet Union might be willing to make acceptable political and economic concessions in Germany in return for substantial economic aid of which we believe USSR is desperately in need. If the Soviet Union should pursue even a policy of seeking to obtain selfish advantage, opportunity might be afforded to progress toward German economic and political unity and to exact conditions which would lead to the establishment of our form of democracy in Germany and the weakening of the Soviet economic strangle hold it now exercises on the eastern zone of Germany. The unhappy experience of the past ten years in Germany and the present Soviet attitude in Paris⁹ does not fortify that hope. That experience leads to a suspicion that Soviet participation in European reconstruction plans might well be inspired by a desire to sabotage western rehabilitation and to restrain Western European recovery until Soviet economic backwardness is overcome.

(20) I would like add a word regarding a psychological aspect. Germans are like others capable of moments of resentments. Those who have survived the war have experienced two years of vicissitude and hardship part of which was offset by the satisfaction of having survived the war perils. They have been absorbed in the daily struggle to feed, house and clothe themselves. During that period there has been no organized major sabotage of US policy. Continued hopelessness and absence of incentive may at a future point develop passive resistance similar to that of the 1923 period. That would militate against European recovery but if taken in hand in time, fashioned, given encouragement and hope of rehabilitation, the German people are capable of a major contribution to European recovery.

Sent Department as 1569 (please repeat to Moscow as 384), repeated Paris as 264 (please repeat to Brussels as 82 and The Hague as 39), Rome as 3 and London as 236.

Murphy

6. Not printed; it summarized telegram 2143, June 12, to Paris, not printed, repeated to Brussels, Rome, and the Hague, asking for comments on certain general and specific matters relating to the formulation of a program of European economic rehabilitation (840.00/6–1947).
7. For the level of industry plan for Germany as approved by the Allied Control Council for Germany in March 1946, see Department of State Bulletin, April 14, 1946, pp. 636–641, or Ruhm von Oppen, Documents on Germany, pp. 113–118.
8. On April 18, 1947, during the Fourth Session of the Council of Foreign Ministers in Moscow, Secretary of State Marshall and British Foreign Secretary Bevin agreed that American and British officials in Germany should work out a new level-of-industry plan for Germany which would fix the amount of capital equipment to be retained in Germany and that to be made available as reparation; see telegrams 1469, Delsec 1445 and 1470, Delsec 1446, April 19, from Moscow, pp. 356 and 357. The American-British negotiations on the new plan were carried on in Germany during May and June and were completed at the beginning of July 1947. For the text of the revised level-of-industry plan, subsequently slightly revised and made public on August 29, 1947, see Germany 1947–1949, pp. 358–362, Department of State Bulletin, September 7, 1947, pp. 468–472, Documents on International Affairs 1947–1948, pp. 626–632, or Ruhm von Oppen, Documents on Germany, pp. 239–245.
9. The reference here is to the British-French-Soviet conversations in Paris, June 27–July 2, 1947, on the question of European recovery; for documentation see volume iii .