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

CFM Files: Lot M–88: Box 57

Policy Papers Prepared by the Department of State

undated

secret

[Editorial Note: The entire collection of policy papers and recommendations, including all appendices and supplements, is included in a volume entitled “State Department Briefs for Moscow—1947”. A second partial set of the same papers is entitled “Working File of Documents Used at CFM (Moscow) 47”. With one exception these papers were presumably prepared in the Department during February 1947. The letter identifications and titles appearing here are those of the source texts. For the comments on these papers by the Office of Military Government for Germany, March 5, 1947, see pages 223 and 229.]

A. Plan for Establishment of Provisional German Government

The Allied Control Council is instructed to take the following action for the formulation of a provisional German Goverment:

1. Establish a German national council as a provisional government to be composed of those heads of governments of the Länder who are democratically responsible to their respective State assemblies. Members of the council may be represented by deputies who shall be under the instructions of the members. Decisions of the council shall be taken by majority vote.

2. The powers and functions of such provisional government shall be:

(a) The council shall be given control over German central administrative agencies to be established in the fields of finance, transport, communications, foreign trade and industry. In these fields, the council shall exercise legislative power. The chiefs of executive agencies established in these fields shall be instructed to act only in conformity with laws, decrees and other regulations or directives given them by the provisional government.

(b) The council shall appoint and dismiss the chiefs of the German central administrative agencies subject to the approval of the Allied Control Authority.

(c) The laws and regulations enacted by the council shall become valid unless disapproved by the Allied Control Council. The German central administrative agencies will be appendages of the National Council and the Allied Control Authority will refrain from direct interference in their activities.

(d) Whenever Länder agencies continue to operate in matters under the jurisdiction of a central administrative agency, they shall be brought under the executive authority of the administrative agency and the legislative authority of the German National Council. However, delegated administration shall be resorted to as far as possible. In cases where a State authority contests such jurisdiction the Allied Control Council will decide the issue.

(e) The council shall be given such other functions as may be conferred upon it by the Allied Control Council.

Recommendation

It is recommended that this proposal be submitted to the CFM.

Attachments

Draft directive to ACC on Establishment of a Provisional German Government.⁶⁷

B. Plan for Establishment of Länder in Germany

The Allied Control Council is instructed to establish in Germany an appropriate number of Länder upon which a Federal German State could be established. The liquidation of Prussia as a German Land is of course authorized. The ACC is further instructed to retain as far as practicable the historic and traditional boundaries of former States or of Prussian provinces. Enclaves should be eliminated.

The following list of proposed Länder is inserted as a guide for the Allied Control Council:

1. Bavaria (except the Bavarian palatinate—see below under Baden);

2. Württemberg;

3. Baden (including the Bavarian palatinate but excluding the Saar);

4. Hessen (the three regions of Hessen, Kurhessen, Nassau-Hessen);

5. Rhine Province;

6. Westphalia;

7. Lower Saxony (including Hanover, Brunswick, Oldenburg and Lippe);

8. Schleswig-Holstein;

9. Thuringia;

10. Saxony (the former Land Sachsen, including part of Silesia);

11. Middle Germany (Halle-Merseburg, Province of Saxony and Anhalt);

12. Brandenburg;

13. Mecklenburg (including part of Pomerania);

14. Berlin;

15. Hamburg;

16. Bremen.

Additional territory to these Länder, or possibly additional Länder, may be considered by the ACC, but only to the extent that the Eastern frontier of Germany is revised.

The proposed Länder are illustrated as shown on the attached map, together with appropriate statistical data.

Recommendation

It is recommended that the U.S. propose the creation of German Länder in accordance with the attached list.

C. Structure of the Future German Government

The Allied Control Council is instructed to inform the provisional German Government when it is constituted of its obligation to draft the text of the new German constitution. It will likewise inform the provisional German Government that Allied approval of the constitution will depend upon the fulfillment of the following conditions:

(a) That Germany be a democratic State;

(b) That Germany be a Federal State;

(c) That Germany have (i) a Federal Council composed of representatives of the Länder; (ii) a Federal diet elected by universal suffrage with each Länder prescribing the methods of election and exercising control over electoral machinery;

(d) That the two houses of the legislature have an equal share in legislation;

(e) That the head of the German State be elected by the Federal Council from among its members in annual rotation. The head of the State would appoint an appropriate number of ministers. The head of the State would resign in case of a vote of non-confidence by the Federal diet;

(f) That there be a Federal Supreme Court as a constitutional court for the settlement of disputes between the Federal government and the Länder, and between the Länder. The Federal constitution and law shall, however, be enforced in the first instance by the Länder courts with appellate jurisdiction in the Supreme Court to assure uniform jurisprudence in Germany.

(g) That the constitution safeguard the democratic character of the Länder and local self-government;

(h) That the constitution contain a bill of rights ensuring effective guarantees for individual rights and liberties;

(i) That the Länder retain jurisdiction in the following fields: (i) administration of justice; (ii) police; (iii) internal administration; (iv) public welfare; (v) culture and education; (vi) religious affairs; (vii) such foreign relations as are necessary to implement the foregoing; for example, religious concordats.

(j) That where the Federal government exercises jurisdiction, it should wherever possible delegate the administration to the Länder (Auftragsverwaltung).

D. The Polish-German Frontier: Proposal or U.S. Government

A. The Problem

The Potsdam Protocol assigned to Poland the administration of former German territory east of the Oder-Neisse line (exclusive of the Koenigsberg district of East Prussia) pending the final settlement of the Polish-German frontier, which now remains to be determined.

This area under Polish administration has been de facto incorporated into Poland and is not subject to the Allied Control Authority for Germany. Most of the German population has been removed to Germany west of the Oder-Neisse line, and the land has in fact been resettled by Poles (4,320,000 according to a recent official Polish statement).

The United States is not committed to the cession of this particular area to Poland. It is committed to a revision of the former Polish-German frontier in Poland’s favor. In offering a specific proposal for the delimitation of the frontier between Germany and Poland this Government is influenced by the paramount consideration that, in the interest of a peaceful and lasting settlement, justice be done both to Poland and Germany.

To Poland it is only fair that some compensation be made for her territorial losses east of the Curzon line and for the severe damage and suffering inflicted by the German armed forces upon the Polish nation. For her economic well-being Poland is rightfully entitled to additional industrial resources and to more adequate sea frontage and port facilities. And there should be no restoration of the Polish “corridor” which proved a menace to international stability and security.

For Germany it is of critical importance that her agricultural resources, seriously reduced by the Oder-Neisse line, be enlarged by a restoration of some of the food surplus area lying east of this boundary. The danger of requiring an eventual German population in excess of 70,000,000 to live within an area of 142,000 square miles which falls far short of self-sufficiency in food supply, is apparent. Moreover it cannot be denied that much of the region in question has for centuries been indisputably German, historically and ethnically. It would be difficult to oppose the universal desire of all democratic German parties for revision of the present de facto frontier on grounds of justice and to do so would create a powerful irredentist sentiment and strengthen the forces of extreme nationalism.

B. Proposed Frontier

The United States proposes the following as the most satisfactory settlement of the Polish-German frontier:

1. Cession to Poland of East Prussia (except for the Koenigsberg district, as defined in the Potsdam Protocol, whose cession to the U.S.S.R. this Government approves), Danzig and German Upper Silesia (Oppeln district).

2. Establishment of the Polish-German frontier from Upper Silesia to the Baltic Sea at a line following the 1919 boundary from Upper Silesia to the confluence of the Netze and Draga rivers just west of Kreuz, thence to Neuwedell, and from there to Dramburg, and west of Belgard to the Baltic sea just east of Kolberg.

In addition to the territories mentioned in (1) this line would assign to Poland a substantial part of Pomerania. To Germany it would give Lower Silesia, Eastern Brandenburg and the major part of Pomerania.

For Poland this settlement would mean the addition in the west and north (to its 1937 area) of about 21,600 square miles, which had in 1939 about 4,200,000 inhabitants. The Polish-German boundary north of Upper Silesia would be straightened and shortened by 130 miles. Poland’s sea frontage would be broadened to about 200 miles. The Polish economy would be strengthened by the acquisition of the valuable industrial and mineral zone of Upper Silesia and the developed agricultural areas of East Prussia and Eastern Pomerania. Poland would possess two important seaports in Gdynia and Danzig (Gdansk). The new frontier north of Upper Silesia would run through a moderately populated region, and thus would not give rise to serious economic and communications problems. The territory gained by Poland would be sufficient to meet her needs for additional food resources and resettlement.

For Germany this settlement would mean the addition (to her present de facto area of 142,000 square miles) of about 18,600 square miles whose 1939 population was approximately 4,800,000. This accession of valuable agricultural land, formerly a major source of food for western Germany, and a well developed industrial area in Lower Silesia, would go far to meet Germany’s pressing requirements for food and resettlement. It is believed, also, that the democratic forces in Germany would be ready to accept this proposal as an equitable solution of the problem of Germany’s eastern frontier.

Recommendation

It is recommended that the Secretary consider the proposed frontier as a possible American position at Moscow, but not necessarily advance it as an American proposal initially.

If it be decided to advance an American proposal for a revision of Germany’s Eastern frontier, it is recommended that it be based upon the argument of the necessity of full utilization of the land in that area. To ascertain the facts on the expulsion of Germans and resettlement by Poles, the U.S. might suggest that a commission of investigation be established to report subsequently to the CFM on the utilization of the agricultural resources of the territory ceded to Polish administration.

E. German Boundary Problems (Other Than the Polish-German Boundary)

I. General Statement

Most of the Governments who have submitted claims for territorial acquisitions from Germany have based their claims on their right to receive compensation for damages done to their countries by Germany during the war. They have accompanied their territorial demands with other specific economic demands. They apparently mistrust Germany’s readiness to make good the damage done by any means other than the sacrifice of tangible assets controllable and workable by the injured parties. This attitude probably also reflects the belief that they are not likely to obtain very much compensation from Germany through reparations. In several instances historical reasons are advanced as justifying transfer of territory, usually dating back to the situation before the Treaty of Vienna (1815). The claims are not presented as annexationist in the old-fashioned chauvinist sense (in some cases the governments indicated that they are opposed to annexation in principle), but whatever the grounds advanced the claims are not inconsiderable.⁶⁸

II. French Claims

a. the saar

Present Status of the Problem

The French have demanded that the Saar be integrated with the economy of France. They have not demanded that it be formally annexed to France and it is not clear what special political status they propose for the Saar.

The French have already taken steps to separate the Saar economically from Germany and have instituted customs and monetary controls for this purpose. Its administration is separate from the rest of the zone. The French have also unilaterally extended the borders of the Saar territory, incorporating the districts of Saarburg and Wadern, thus extending the Saar up to the Luxembourg frontier along the Moselle.

Position of the Other Powers

Great Britain. Mr. Bevin declared in a speech on October 22, 1946 that the British Government was prepared to accept the French proposals about the Saar “subject to necessary adjustments of the French reparations balance and the delimitation of the exact area.”

The U.S.S.R. No official statement has been made regarding the Saar, although in general the Soviets have indicated that they do not favor frontier changes in the West.

In his Stuttgart speech of September 6, 1946,⁶⁹ Mr. Byrnes explained the United States position on the Polish-German frontier on “East Prussia and on the Saar. He then stated that “except as here indicated, the United States will not support any encroachment on territory which is indisputably German or any division of Germany which is not genuinely desired by the people concerned.” In view of this commitment it is believed that the United States should seek agreement on the principle that, with the exception of the questions of the Polish-German frontier, East Prussia and the Saar, no territorial changes shall be made unless they can be demonstrated to be minor “rectifications” or “improvements” in the frontier, or to be desired by the local population in the districts concerned. If more than minor frontier rectifications are permitted,—by recognizing the principle of transferring German territory as compensation for war damage,—the problem will be greatly complicated as those countries which have submitted moderate claims have expressly reserved their right to submit additional claims. (The Polish-German frontier question is discussed in another paper).⁷⁰

The United States. In his Stuttgart Speech on September 6, 1946, Mr. Byrnes stated that France’s claims to the Saar territory, “whose economy has long been closely linked with France”, should not be denied. In a personal letter to M. Bidault on October 14, 1946,⁷¹ Mr. Byrnes reaffirmed his position regarding the Saar and indicated that he did not object to the French taking certain administrative steps in the Saar, which were declared to be necessary in order to effect control of food distribution and currency provided the French informed the Council of Foreign Ministers of the steps contemplated. (Subsequently, in the meeting of the CFM in New York, the French member informed his colleagues in a general way of French intentions to take such administrative steps. This subject was not discussed further and the French immediately thereafter established a tight customs control on the border between the Saar and the French Zone).

Recommendations

The United States should continue to support in principle the French claim to integrate the Saar into the economy of France. It should not recognize the expansion of the territory of the Saar on grounds of administrative convenience to the French. The Saar in any event will have to rely to some extent on food and manpower from regions beyond its territory; this was the case when it was under the control of the League of Nations and its development during that period was not hampered as a result of having to obtain food and labor from outside the territory.

The United States will wish to study carefully any proposals which the French may submit regarding the political status to be accorded to the Saar. Outright annexation to France is considered undesirable. The French themselves are unlikely to want to grant the Saar full equality with the other parts of metropolitan France. Another alternative which would probably be more acceptable to the French would be to make the Saar an autonomous state under French protection, possibly with a French High Commissioner, some special form of passports and the right of the people of the Saar to elect local government officials. It is doubtful that the United States would wish to support such a scheme, which would have the effect of giving the Saar the status of a French colony. (Incorporation into metropolitan France would probably be more advantageous to the Saarlanders).

Another alternative, which it is believed the United States could support, would be to place the Saar under an international regime similar to that of the League of Nations from 1919 to 1935, except that this time no plebiscite would be called for and the arrangement would be of a permanent character.

b. the ruhr and rhineland

Present Status of the Problem

The French wish to separate the Ruhr and Rhineland from Germany. Since they realize that they have little likelihood of getting agreement on this demand they may not press their case for the political separation of these areas. They will, however, be all the more interested in measures to control the Ruhr industries in order to ensure their production for the benefit of France and other countries in Europe. (This question is discussed in other papers on the subjects of the Ruhr and on the control machinery to enforce the provisions of the proposed Disarmament and Demilitarization Treaty).

Position of the Other Powers

The other occupying powers oppose the political separation of the Ruhr and Rhineland from Germany.

Recommendations

The United States should continue to oppose the political separation of these areas.

III. Belgian Claims

Present Status of the Problem

The Belgians submitted a memorandum dated November 14, 1946,⁷² to the Council of Foreign Ministers indicating their desire for a rather moderate frontier adjustment. The Belgian memorandum points out that the International Commission charged with delimiting the new boundary between Belgium and Germany under the Versailles treaty decided on March 27, 1920 that the section of the railway connecting the two Belgian towns of St. Vith and Eupen was assigned to Belgium; that the railway for a distance of about 20 miles passes alternately through Belgian and German territory; that this has created six German enclaves on Belgian territory comprising a total area of about 8 square miles and containing a population estimated at about 3,850; that these enclaves should be eliminated by incorporating them into Belgium so that the railway line will not pass out of Belgian territory.

Position of the Other Powers

No information is available regarding the position of the other powers.

Recommendations

The Belgian claim would appear to qualify as a minor rectification and should be given sympathetic consideration. The views of the Germans residing in the area should be taken into account as well as the effect which the transfer of this territory would have on the economic situation of Germany.

IV. Luxembourg Claims

Present Status of the Problem

The Luxembourg Government in a memorandum dated November 27, 1946,⁷³ presented its demands to the Council of Foreign Ministers. Luxembourg wants the advancement of her frontier along the Moselle and the Sur Rivers in the South and along the Our River in the north up to a depth of six miles in certain places. According to the memorandum the population in this area is estimated at from 20,000 to 30,000 inhabitants. Luxembourg bases its claim on the right to obtain partial compensation for losses sustained during the war and on historical grounds, these areas having been taken from Luxembourg and assigned to Prussia by the Treaty of Vienna in 1815. All of the inhabitants in the areas demanded by Luxembourg allegedly speak the Luxembourg language (sic) and the majority allegedly favor the incorporation of the territory into Luxembourg.

The acquisition of the territory demanded would give Luxembourg the watershed required for the construction of a large dam on the Our and would make possible the acquisition and exploitation of the important railway along the German bank of the Moselle which connects the Lorraine mine basin with the Rhine and Ruhr mine basins.

Position of the Other Powers

No information is available regarding the position of the other powers on the Luxembourg territorial demands. However, it should be noted that the Luxembourg claim east of Moselle in the south includes territory which the French have unilaterally incorporated into the Saar.

Recommendations

The Luxembourg claim is more than a minor rectification of the frontier. It would represent an increase of around 10 percent of the total territory of Luxembourg. It is rich in agricultural and mineral resources. If historical claims based on the situation before the Treaty of Vienna of 1815 are to be considered, the whole map of Europe would have to be changed. The United States should maintain its position that only minor adjustments or improvements in the frontier can be considered. Even if the German inhabitants should not object to being annexed to Luxembourg, the United States should oppose the transfer of these regions, which are important to the German economy.

V. Netherlands Claims

Present Status of the Problem

The Netherlands Government presented a memorandum to the Council of Foreign Ministers dated November 5, 1946,⁷⁴ presenting territorial claims designed to straighten the Dutch-German frontier by annexations amounting to 700 square miles with a population of some 119,000. This change would shorten the frontier by about 115 miles. The Dutch claims include changes in the demarcation of the frontier at the mouth of the Ems River and would place the Island of Borkum in Dutch territory. The German city of Emden would remain in Germany but the proposed annexations would give the Dutch a large measure of control over that city. The changes would also give to the Netherlands the Bentheim oil fields and the coal basin south of Venlo.

Position of the Other Powers

Great Britain. The British Government is believed not to be enthusiastic about the Dutch demands, particularly as the changes proposed do not affect Dutch security. It is understood that the British attitude would be to accept changes only for very urgent reasons. This represents a change from a position taken earlier by the British Government, when it indicated that Dutch claims for territorial compensation at the expense of Germany would be given energetic support.

Belgium. The Belgian Government has not expressed its views officially but members of the Belgian Parliament have been disturbed by the extension of the Dutch claims and have indicated their particular interest in the future status of Aachen. No information is available regarding the attitude of other governments.

Recommendations

The Dutch demands are more than minor rectifications of the frontier. The loss of these agricultural surplus areas would affect the German economy and would incorporate around 119,000 Germans in the Netherlands. The territory claimed might result in certain improvements in the frontier but it would also create new more serious problems than those now existing, particularly in connection with the disruption of existing essential public utilities services. Only minor rectifications of the border involving few people, and possibly including changing the frontier in the coastal waters of the Ems Estuary, should be approved by the United States.

VI. Czechoslovak Claims

Present Status of the Problem

The Czechs demand frontier rectifications involving ten sectors of thirty-eight parts bordering on the Soviet and United States zones of occupation totaling about 320 square miles and 25,000 inhabitants. The Czechs originally wanted far more extensive areas, including important sections along the border of Silesia and the territory now under Polish administration.⁷⁵ If there is no change in the Oder-Neisse boundary, these changes involving Poland would not be submitted to the CFM but, if taken up at all, would be left for settlement between the Czechs and the Poles. The reasons for the Czech claims are “that the guarding of the frontiers should be made easier and that both transport and economic considerations call for such adjustment.” The present frontier, running along the tops of the Sudeten mountains, would be extended in many sections to include the slopes on the German side. The areas demanded are mainly woodland which would be useful to the Czech economy.

Position of the Other Powers

The Czech claims have not, as far as is known, received the support of the great powers.

Recommendations

The areas claimed would not be of great strategic importance vis-à-vis a demilitarized Germany. Furthermore, Czechoslovakia, which has been depopulated through the expulsion of its German minority, has no need for territorial expansion. The districts claimed are historically and ethnically German. On the other hand Czechoslovakia would obtain some economic advantage and administrative convenience by these frontier changes. If frontier rectifications of a minor nature are to be made, for example, on the German-Belgian border, the United States could not logically refuse to consider the Czech claims, but it would want to examine the claims minutely with the object of scaling them down to meet the qualification of minor frontier rectification.

VII. Austrian Claims

Present Status of the Problem

Austria no longer demands the Berchtesgaden area (to facilitate communication between Salzburg and Innsbruck) and apparently is satisfied to have the 1937 frontier restored. It requests free transit rights across the neck of the Berchtesgaden area to solve the communications problem.

Position of the Other Powers

The United States has opposed the cession of the Berchtesgaden area to the Austrians while the other Governments have not made specific statements on this issue.

Recommendations

The United States should favor the reestablishment of the 1937 frontier, and the granting of free transit rights across the Berchtesgaden salient.

VIII. Danish Claims

Danish public opinion is split on the question of the status of Schleswig, the area on the Danish-German frontier which remained part of Germany after the plebiscite in 1920. The Danes are primarily interested in assuring cultural rights for the Danish minority in Schleswig, in securing the removal of German refugees in that area and in securing the administrative separation of Schleswig from Holstein. The Danes may favor a plebiscite in Schleswig to determine whether the inhabitants wish the area to be annexed to Denmark. The Danish Government has not pressed for a plebiscite since a large group in Denmark (the Social Democrats) opposed any change in the frontier on the grounds that the Schleswig population would turn out to be troublesome German nationalists after annexation.

Position of the Other Powers

Great Britain. Schleswig is in the British zone and the British Government has opposed the Danish demands for the removal of refugees and for a separate administration for Schleswig. The British have not taken a position on the boundary question.

The United States. Mr. Byrnes informed the Danish Foreign Minister in New York last December that the problem might be taken up by the Conference of Foreign Ministers when they next discussed the German settlement.

Other Powers. No views expressed.

Recommendations

It is believed the United States should oppose any change in the border on the grounds that this would be more than a minor rectification of the frontier. The question of special privileges for the so-called Danish-minded population of Schleswig would have to be considered carefully as part of the broad problem of the treatment of special racial minority groups in Germany.

IX. Soviet Claims

Present Status of the Problem

The only Soviet claim is to the northern part of East Prussia, including the city of Koenigsberg. This area has been incorporated into the Soviet Union as a result of the agreement at Potsdam.

Position of the Other Powers

The United States and the British Governments agreed at Potsdam that they would support at the peace settlement the proposal of the Soviet Government concerning the ultimate transfer to the Soviet Union of the city of Koenigsberg and the area adjacent to it. In his Stuttgart speech Mr. Byrnes reaffirmed this, stating that “unless the Soviet Government changes its views on the subject, we will certainly stand by our agreement.”

Recommendations

We should stand by our agreement.

F. Implementation of United States Draft Treaty on Disarmament and Demilitarization of Germany

[Editorial Note: This paper, the source text of which bears the date of February 4, 1947, is not here printed. The paper reviewed the articles of the draft treaty (for text see document CFM (46) 21, April 30, 1946, Foreign Relations, 1946, volume II, page 190) and the general principles for the operation of the Control Commission envisaged in the treaty.]

G. Report of the Secretary of State’s Policy Committee on Germany, September 15, 1946

[Editorial Note: This Report, which covered 37 mimeographed pages, is not printed. It reviewed the permanent objectives of American policy toward Germany as well as the immediate goals of German policy. Members of the Committee preparing the Report were: James W. Riddleberger, Chairman, John Kenneth Galbraith, Edward S. Mason, and Henry P. Leverich.]

H. Treatment of Germany as a Single Economic Unit ⁷⁶

The Problem

. . . . . . . . . . . . . .

General Statement

The problem is to agree on the principle of the treatment of Germany as a single economic unit previously agreed by the United Kingdom, Soviet Union and the United States at Potsdam, and to implement such agreement.

Concise Statement of Background

The continued French veto of the establishment of central German administrative departments and the Soviet objection to common economic policies, required for the treatment of Germany as a single economic unit, have prevented the achievement of economic unity in Germany. The French veto has been based upon its fears of a politically centralized Germany. Since France was not represented at Potsdam, and has refused to be bound by the provision of the Protocol respecting central agencies, France is within its rights in objecting. The Soviet Union has repeatedly stated its agreement with the principle of common economic policies, but has refused to proceed with their formulation and implementation in the important fields of foreign trade, internal trade and monetary reform. In addition, it has taken unilateral action in establishing Soviet corporations in Eastern Germany, subject to Russian control and operating outside of the limitations imposed on German industry. For any occupying power to consider a portion of the resources of its zone as exempted from the common policies for Germany would make the treatment of Germany as an economic unit impossible.

The United States desires treatment of Germany as an economic unit

(a) to prevent the permanent economic and political division of Germany (and Europe) between east and west;

(b) to pool and plan the joint use of the resources of the four zones in such a way as to accelerate attainment of a self-sustaining economy and to establish a sound economic foundation for the growth of democracy.

Views of Other Powers

It is believed that the British will support the US position in general and for the most part in detail. They will, however, urge a higher degree of concentration of authority in the central agencies than desired by the US.

The French are likely to attempt to modify the powers of the central German administrative departments, either by having them headed by quadripartite committees, or by limiting their authority in the separate zones, or both. The French have indicated a willingness to subscribe to common economic policies for Germany, but it is probable that they would object to sharing the burden of financing the present import deficit.

The Soviet Union has hinted broadly that it is ready to subscribe to the treatment of Germany as an economic unit, provided that it receives reparation out of current production (see Memorandum No. 2). It is not clear, however, that it would be willing, even on this basis, to agree with the US positions on the extent of the authority of the central agencies; the sharing of an interim import deficit; the definition and limitation of occupation costs; and the recognition of German sovereignty over all enterprises in Germany.

Recommendation

It is recommended that the Secretary of State submit to the Council of Foreign Ministers a proposal, couched in the form of a draft directive to the Allied Control Authority, for the implementation of the provisions of the Berlin Protocol dealing with the treatment of Germany as an economic unit. This directive should require the Allied Control Authority to constitute the central German administrative Departments under terms of reference which would make their unhindered operation in each of the four zones possible; and to proceed with the implementation of common policies in production, foreign trade, financial and monetary reform. The nature of these common policies should be broadly agreed. It should likewise stipulate that all resources in Germany are subject to the direction of the Allied Control Council and to German law.

A suggested draft directive is attached as Annex A.⁷⁷

Alternative Positions

The Secretary of State may find it desirable to make concessions to the Soviet Union and France by excluding them from the necessity to contribute to the financing of the interim German deficit on the grounds that their zones do not operate at a deficit and because of inability to pay.

I. Reparation ⁷⁸

The Problem

Precise Statement

To give effect to the provisions of the Berlin Protocol regarding reparation to be paid by Germany, or to revise the Level-of-Industry Plan for Germany agreed by the Allied Control Council on March 28,. 1946 and to devise an alternative method by which Germany would pay reparation.

General Statement

The problem is to agree upon the resumption of reparation removals under the Level-of-Industry Plan, stopped on May 8, 1946, by General Clay because of the failure of the French and the Soviets to implement the terms of the Berlin Protocol regarding economic unification, provided always that the economic unification of Germany is agreed to. It is anticipated that the Soviet Union will propose that reparation out of current output be substituted for removals of capital equipment; a decision must be taken on this question. In connection with this proposal, the Soviet Union is likely to suggest an upward revision of the Level-of-Industry Plan. The British may be expected to suggest an upward revision of the Level-of-Industry Plan without providing for reparation out of current output. The IARA countries other than the US and UK, while generally preferring reparation from current output, are in any event interested in obtaining prompt resumption of reparation deliveries from the three Western zones. US bargaining and final positions must be taken on these points.

Concise Statement of Background

On May 8, 1946 General Clay halted reparation removals from the United States zone of occupation because of the French failure to agree to the creation of central administrative departments, provided for in the Berlin Protocol, and because of Soviet unwillingness to agree on common policies for the operation of German foreign trade. Assuming agreement on economic unification, called for in the draft US directive attached as Annex A to Memorandum No. 1, it would be appropriate to resume deliveries of reparation as previously agreed.

The Level-of-Industry Plan, however, was agreed to upon the basis of two assumptions additional to the one that Germany would be treated as a single economic unit. These dealt with population and borders. In view of the inaccuracy of the assumption regarding population, and the proposed separation of the Saar from Germany, some revision in the Level-of-Industry Plan is required. In addition, US experts are convinced that the Level-of-Industry Plan contains internal inconsistencies, particularly in respect of electric power and heavy chemicals. The nature of these inconsistencies is that too little capacity has been left in basic industry to provide the appropriate production of power and intermediate products required to maintain levels of output agreed on for finished goods industries. Revision to eliminate these inconsistencies is required.

An entirely different approach to the problem of reparation is likely to be presented to the Council of Foreign Ministers by the Soviet Union which, as noted in Memorandum No. 1, is anxious to trade its adherence to the economic unification for reparation out of current production. Discussions on this point have been conducted by Soviet representatives with members of the United States element, although no conclusions have been reached. It is clear, however, that the Soviet Union would expect the level of industry to be left to Germany to be substantially increased in order to provide capacity to manufacture the current reparation. It is likely that the Soviet Union’s position will be supported by a number of smaller countries, including the Netherlands. It may be expected that the British, likewise, will urge a drastic upward revision in the level of industry to be left to Germany on the grounds (a) that the assumptions of the original agreement are proved to be in error; and (b) that the standard of living objective of the Berlin Protocol is harmful to European trade.

Finally, it should be noted that there is increasing sentiment in the United States for some upward revision of the Level-of-Industry Agreement. This has been expressed by the Colmer Committee of the House of Representatives, in a speech by John Foster Dulles, which is said to have had the advance approval of Senator Vandenberg and Governor Dewey, and by various other groups. It is opposed, however, by Ambassador Pauley and by the Society for Prevention of World War III.

Views of Other Countries

As already noted, the Soviet Union will want to abandon the Level-of-Industry Plan in order to receive reparation out of current production as a quid pro quo for economic unification.

The British are likely to propose a drastic upward revision in the Level-of-Industry Plan without any change in the reparation provisions of the Berlin Protocol.

It is not expected that the French will have any strong views on the foregoing, except that they will be inclined both to retain the Level-of-Industry Agreement, and add reparation out of current output to reparation in the form of capital removals.

Recommendation

It is recommended that the Secretary initially take and defend in extenso a position based squarely upon the carrying out of the reparation provisions of the Berlin Protocol and the Level-of-Industry Agreement, the latter to be adjusted only for corrections in the original assumptions regarding population and boundaries and to remove internal inconsistencies. Separation out of current output should be resisted on the ground that exports are not sufficient to pay for imports and are not likely to prove so within the short-term future.

A draft directive, setting forth this position, is attached as Annex A.⁷⁹

Alternative Positions

No alternative position is recommended, except that the Secretary may, as a last resort in an effort to obtain agreement to the treatment of Germany as an economic unit, agree to allow reparation deliveries from capital equipment to be replaced by reparation out of current production, within narrow limits and without increasing the reparation burden on Germany.

J. Coal

⁸⁰

[Extracts]

The Problem

Precise Statement

To receive the report of the Allied Control Authority and its Experts on German Coal Production and Allocation and to take such action or issue such instructions to the ACA as may be agreed.

General Statement

The problem is to restore German coal production to prewar levels to ensure that coal retained in Germany is allocated in such a way as to implement effectively a common program of production and foreign trade for a unified Germany and to avoid waste and non-essential use; and to devise a formula for the division of coal output as between retention in Germany and export which will reconcile our conflicting interests in the achievement of a self-sustaining German economy and in the economic recovery of Europe as a whole.

. . . . . . . . . . . . . .

Recommendation

It is recommended that the United States attempt to obtain CFM agreement to:

(a) Emphasis on the urgency of increased coal production with assignment of an overriding priority in German industry to coal mine needs and food, consumer goods, etc. as incentives for miners.

(b) An instruction to the ACA to allocate coal for German domestic use without regard to zonal boundaries, in such a manner as to maximize industrial production for export and essential domestic needs and to eliminate use by non-essential industry, black market diversions and excessive use in mines, public utilities and other fields.

(c) Acceptance of the restoration of exports by April 1, 1947 to the level of September 1946 (1,150,000 tons, including exports to Austria) with further increases to be negotiated in ACA as production rises. Agreement on such an adjustment between the needs of the German economy and those of other countries in Europe should be reached prior to any agreement on reparation from current output or on trade understanding alternative to such reparation.

A draft CFM directive to the ACA is attached as Annex A.⁸¹

Alternative US Positions

No need is foreseen for an alternative position on the problems of production and allocation within Germany. Objection may be raised to language. Concessions may be made in this regard. It is, however, in the United States interest to have the most stringent and direct instructions for priority of export industries and for the elimination of expenditure of coal on low-priority German reconstruction or on non-essential uses.

So long as discussion is confined to principle and the CFM does not discuss detailed formulae, the only possible concession, which should be made with reluctance, would be that increases in exports take place from increases in production over the present level of production, rather than from the September 1946 level.

In any discussion of detailed formula, it is recommended that no US position should compromise a level of exports to Western and Southern European countries at average monthly rates of 1,750,000 tons in the second half of 1947, 2,250,000 tons in 1948, and 3,000,000 tons in 1949.

K. International Supervision of the Ruhr Economy ⁸²

The Problem

Precise Statement

To determine, with respect to a peace settlement with Germany, the U. S. views on various schemes for international control or supervision of the Ruhr economy, particularly as advanced by the French government in its proposal made to the CFM (CFM (46) 1) on April 25, 1946 and elaborated on a supplemental memorandum of February 1, 1947.

General Statement

To outline the essential features of any scheme for the supervision of the Ruhr economy which the United States can reconcile with its dual objective to establish a self-sustaining German economy capable of creating a sound economic foundation for the democratic reconstruction of Germany and to prevent Germany from using the vital economic resources of the Ruhr for its own exclusive advantage rather than for the benefit of Europe as a whole.

Concise Statement of Background

1. Views of the Other Powers

The French have been the most determined exponents of a special settlement for the Ruhr. They have steadfastly opposed economic unification of Germany and the establishment of central German agencies to ensure the treatment of Germany as a unit until the Ruhr-Rhineland issue is settled. They want the ownership of the basic Ruhr industries vested in the powers who took active part in the war against Germany, but are willing to leave the profits of ownership in the Ruhr. They would entrust management, as distinct from ownership, of the coal and iron and steel industries to international administrations in which the states “directly interested” would participate; and would organize other important Ruhr industries such as the mechanical and chemical industries into compulsory syndicates under the control of allied commissioners. A Ruhr commissioner named by the United Nations would be empowered to decide conflicts between the international administrations of Ruhr industries and the territorial authority for the Ruhr. While formally adhering to the original French view that the Ruhr should be politically and economically separated from Germany, the most recent French proposals appear by implication to leave the door open to the retention of the Ruhr by Germany.

The British favor socialization of Ruhr industries under German auspices, with provision for international supervision and control by an organization having certain rights against the owning German public corporation and the German Government which will be enforceable only by appeal to a superior international body.

The Soviet Union has made clear its opposition to political and economic separation of the Ruhr from Germany. It probably would favor international control provided that it shared in that control with a full vote and possibly with the right to exercise a veto.

The Low Countries apparently favor international control of the Ruhr but regard the separation of the Ruhr from Germany as impracticable and inadvisable.

2. The U.S. Interest

The United States favors the inclusion in the peace settlement of specific provisions governing the Ruhr not simply because it recognizes that an assurance of such provisions is necessary to overcome French opposition to the establishment of central German agencies and a provisional German government, but especially because it realizes that unfettered German control of the vital coal and iron and steel resources of the Ruhr would leave many European countries which are dependent on the Ruhr at the mercy of Germany.

The shortage of coal and steel is the most important obstacle to European economic recovery. As long as the shortage continues there must be an assurance that the product of Europe’s greatest coal reservoir, the Ruhr, will be distributed equitably. During this period Germany will want to retain as much of its coal as possible for domestic consumption and for the production of higher valued goods for export. Most of the western and southern European countries, on the other hand, will have a vital interest in maximizing German coal exports, while other European countries, particularly those in the east, will have a greater interest in exports of German steel and steel products than in exports of German coal. Means must therefore be found to reconcile the interests of Germany with those of the rest of Europe and to reconcile the varying interests of European countries in the export of Ruhr coal and steel.

During the period of occupation and military government the occupying authorities can be relied upon to effect such a reconciliation of interests, provided the Council of Foreign Ministers issues a directive on the production and distribution of coal to the Allied Control Authority and provided the non-occupying powers are given the means to express to the occupying authorities their views on the appropriate division of the output of such vital commodities as coal and steel as between consumption in Germany and export.

Present indications, however, point to the probable continuation of the coal and steel shortage beyond the period of occupation and military government. Moreover, even after the shortage has been overcome there is danger that the German government or German private interests may use their control over vital resources, particularly over the most important source of coking coal in Europe, for the purpose of extorting political concessions or reestablishing and reinforcing the predominance of the German iron and steel industry in Europe. The peace settlement will therefore need to contain provisions to insure the equitable distribution of Ruhr resources and to prevent Germany from using its control over such resources to its exclusive economic or political advantage.

Since the United States has no direct interest in the disposal of the Ruhr’s resources, it should leave to European countries the initiative of making detailed proposals for the international supervision or control of the Ruhr economy. It is interested in having as many European countries as possible participate in the framing of appropriate provisions governing the Ruhr so that they may reflect a consensus of views. It is interested also in excluding from a Ruhr settlement any provisions which are likely to prove impracticable or which may prevent Germany from attaining a standard of living sufficiently high to encourage the development of a peaceful democratic Germany.

The United States recognizes that the French are interested in a Ruhr settlement for reasons of military security as well as for economic reasons. It believes, however, that the security aspects would more appropriately be treated as part of the overall problem of keeping Germany disarmed and demilitarized.

Recommendation

1. The United States should favor proposals for international supervision or control of the Ruhr’s economic resources which reflect the views of as many European countries as possible and which would insure the equitable distribution of the Ruhr’s economic resources in the interests of Europe as a whole and prevent Germany from using such resources for selfish economic or political advantage.

2. The United States should reject as impracticable and inadvisable the political and economic separation of the Ruhr from Germany. Such a settlement would, by creating a serious deficit in the German balance of payments, make it virtually impossible for Germany to support itself on an adequate standard of living. It would also necessitate the abandonment of the reparation plan based on the Potsdam Protocol.

3. The United States should oppose international ownership and management of Ruhr industries on the ground that international management would require the creation of a large international bureaucracy, would probably be inefficient and would give rise to serious conflicts within the management. The United States should not oppose, however, socialization of Ruhr industries by German provincial authorities.

4. The United States should make sure that any limitations on Germany’s rights to dispose of the Ruhr’s economic resources do not make it impossible for Germany to attain a standard of living at least equal to the average of Europe exclusive of the United Kingdom and the Soviet Union.

5. The United States should use its influence so far as possible to insure that any necessary supervision over the distribution of the Ruhr’s economic resources is carried out in accordance with objective criteria and by a staff as impartial and free of political control as possible.

6. The features of a Ruhr settlement which would be acceptable to the United States are outlined in a suggested draft directive to the deputies of the CFM attached as Annex A.⁸³

L. Post-Surrender Acquisitions in Germany

[Editorial Note: The text of this paper, which was Memorandum No. 5 in the special series “Principal Economic Issues on Current German Problems for Council of Foreign Ministers Meeting, Moscow,” is not here printed. The paper reviewed the need to stop unilateral Soviet and French post-surrender acquisitions of interests in enterprises and property in Germany, to set aside such previous acquisitions as were inappropriate, and to establish uniform principles governing the acquisition of new foreign interests in Germany.]

67. For the Draft Directive as circulated to the Council of Foreign Ministers on March 21, 1947, see Germany 1941–1949: The Story in Documents, Department of State Publication 3556 (Washington, Government Printing Office, 1950), p. 189, or Department of State Bulletin, March 30, 1947, pp. 569–570.
68. Regarding the claims made by the Allied states for the rectification of their frontiers with Germany, see the documentation on the meeting of the Deputies for Germany in London, January-February 1947, pp. 1–112.
69. Secretary Byrnes’ speech is printed in the Department of State Bulletin, September 15, 1946, pp. 496–501 as well as in a number of other Department publications.
70. Supra.
71. Foreign Relations, 1946, vol. v, p. 621.
72. Foreign Relations, 1946, vol. ii, p. 1162.
73. Foreign Relations, 1946, vol. ii, p. 1316.
74. Ibid., p. 1016.
75. See telegram 100, April 26, 1946, from Praha, Foreign Relations, 1946, vol. ii, p. 122.
76. This paper is Memorandum 1 in a series entitled “Principal Economic Issues on Current German Problems for Council of Foreign Ministers Meeting, Moscow.”
77. Not printed.
78. This is Memorandum No. 2 in a special series “Principal Economic Issues on Current German Problems for Council of Foreign Ministers Meeting, Moscow.”
79. Not printed.
80. This paper was Memorandum 3 in the special series “Principal Economic Issues on Current German Problems for Council of Foreign Ministers Meetings, Moscow.”
81. Not printed.
82. This paper is Memorandum No. 4 in the special series “Principal Economic Issues on Current German Problems for Council of Foreign Ministers Meeting, Moscow.”
83. Not printed.