CFM Files: Lot M–88: Box 90

Memorandum Prepared by the Office of Military Government for Germany84


A Summarized Analysis of the German Problem

An analysis of the German problem indicates clearly that it may be divided into two distinct phases: [Page 224]
Matters beyond the purview of the Allied Control Council which were not determined in the Potsdam Protocol;
Matters determined in principle in the Potsdam Protocol and hence within the purview of the Allied Control Council which, however, the Council has been unable to resolve because of fundamental differences of viewpoint between the occupying powers.
The problems included in the first phase may be listed as:
The disarmament treaty;
The final fixing of boundaries;
The final structure of German government; and
The peace treaty.
The problems coming under the second phase, that is, problems which have been within the purview of the Allied Control Council but beyond its ability to agree, fall either into those concerned with political unification and/or those concerned with economic unification. While political and economic unification have been considered separately, it must be recognized that one can not be accomplished without the other. The unification of Germany both politically and economically must be undertaken concurrently and as a part of a common plan.
Twenty months of quadripartite government and the recent completion of a report of progress to the Council of Foreign Ministers85 have developed the fundamental differences between the occupying powers.
It would appear clear that the Soviet position is in favor of an economic unification accompanied, however, by a political unification which will leave substantial powers in the Zone Commander to control the economic resources of the zone for which he is responsible.
The Soviet position will favor a strong central government except as it is suborned [subordinated?] to the Zone Commander, as only a strong central government lends itself to single party domination. While favoring economic unification, the Soviet representatives will try to exact as prerequisite conditions completion of the reparations program for the delivery of capital plant from the western zones. They may be prepared to modify the program to provide substantial reparations from current production. They will insist that removals from Eastern Germany are not subject to quadripartite review.
While the French position will not indicate a direct opposition to economic unification, it is manifest that whereas the Soviet position is really in favor of economic unification, the French in fact want [Page 225] neither economic nor political unification. The French position will favor a weak central government with such limited powers that it cannot be effective either as a government or in exercising appropriate economic controls.
There would appear to be no basic differences between the American and British positions in principle, although their detailed proposals may be somewhat difficult to reconcile.
The Soviet representatives will charge the western occupying powers with having taken inadequate measures in demilitarization, denazification, and decartelization. They will attack also the strong state powers given to the Laender in the American Zone. However, the attack will be concentrated on the bizonal economic unification of the British and American Zones as being contrary to the provisions of the Potsdam Protocol. This attack will reveal their real apprehension—that the success of this economic unification will weaken the position of the U.S.S.R. in Germany. However, the record which is contained not only in the quadripartite report, but also in the special papers prepared by Military Government (indexed at Tab A)86 will easily refute the Soviet charges. In point of fact they are not to be taken seriously as they are primarily a smoke screen behind which the Soviet representatives will press for the acceptance of their views with respect to central government and to a production program designed to make vast quantities available for reparations.
The papers prepared by the State Department have been examined with great care and the comments of Military Government with respect to these papers are appended in Tab B.
In general, Military Government does not disagree with the basic concepts contained in the State Department papers. It does differ in various details, some of which are most important. An important difference lies in our disagreement with the establishment of a provisional German government which at the same times leaves certain specific powers in the hands of the Zone Commanders. We could stress the necessity to give the provisional German government a free hand except that its actions may be disapproved by the Allied Control Council. Otherwise a single dissent by an occupying power would prevent the enactment of necessary legislation.
We are also apprehensive that an internationalization of the Ruhr which is independent of the Allied Control Authority, or which forces the economy of the Ruhr to be considered separately from the economy of Germany, is unworkable and undesirable.
The State Department proposal for the structure of a future central government may be sound. However, we doubt the advisability of such extensive experimentation in the field of government as is proposed. No justification in German history, nor in the governmental experience of other democracies, can be found for such a plan.
We are of the view that the proposed directive on coal is not only inflexible but would prevent a revival of the German economy and prolong the period in which it would necessarily have to be supported by American and British tax payers.
In accepting the integration of the Saar with the French economy, we must recognize the necessity for an increase in the level of industry in Germany to compensate for the loss of surplus export and production in the Saar. Moreover, the State Department paper does not clearly define the boundaries of the Saar as that area is to be integrated into the French economy.
The proposal of the State Department for the investment of foreign capital should be reconsidered and in any event should not become effective until economic conditions in Germany have reached some degree of stability.
While the major problems have been considered in the State Department papers, our experience in quadripartite government has indicated that there are some basic considerations common to any and all plans for the treatment of Germany as a whole. These considerations are recognized in a general way in the several documents. However, their importance to the success of any agreed plans indicates that they should be agreed to prior to the acceptance of a specific proposal or else should be incorporated in each agreed proposal.
The United States should insist as the basis for any specific agreement to the following conditions:
A common utilization of the indigenous resources of Germany to include agreed allocations for exports, and when a balanced economy is obtained, for reparations if the use of production for this purpose is accepted.
An agreed import-export program designed to make Germany self-sustaining and to repay past costs incurred by the occupying powers. This program should provide for the acceptance by each occupying power, on a satisfactory basis, of responsibility for a share of the deficit incurred during the period in which a self-sustaining economy is being developed.
The acceptance of a financial reform program with a single issuing source for currency under quadripartite supervision and the decentralization to the fullest extent feasible of banking and taxation.
Complete freedom of movement in Germany for persons, ideas and goods, including freedom of the air for approved civil traffic.
Freedom of German press and radio, within the limits of security, throughout Germany.
Freedom of political action for democratic political parties approved to operate on a national basis without discrimination. Elections throughout Germany to be under quadripartite supervision and inspection.
Freedom of action throughout Germany for trade unions, authorized to establish federations of a democratic form in accordance with their own desires.
The definition of zonal boundaries to indicate only the areas of security responsibility of the several occupying powers.
An agreed definition of occupation costs.
An agreed plan to control the size of the occupying forces to be held in Germany on a timed reduction program.
If these conditions are accepted the establishment of central administrative agencies under a provisional national government can be effective. The central agencies mentioned in the Potsdam Protocol should be augmented by agencies for Food and Agriculture, and Justice. The time has passed for these agencies to report individually to the Allied Control Authority. They will receive national support and be effective only if they are responsible to a provisional national government which is under the general supervision of the Allied Control Authority.
The provisional national government would be composed of representatives of the Laender or provinces. Except in specific fields such as reparations deliveries and external restitution, it should be given broad authority subject only to the disapproval of its actions by unanimous vote of the Allied Control Authority when its actions transgress Allied objectives. In no event should Zone Commanders have authority to set aside, obstruct, or defeat the actions of the provisional national government except and unless acting under the instructions of the Allied Control Authority.
This provisional government should be charged with the creation of a drafting commission to prepare a German constitution under broad instructions which require the inclusion of democratic principles, and the establishment of a federal type of government which may have sufficient central authority to be effective under modern conditions. This preparatory Commission should be superseded at an early date by an elected constitutional assembly which should complete the constitution for the approval of the occupying powers. The approved constitution should be presented to the people for ratification and for the election of the constitutional government within a period of one year from the formation of the provisional government.
If the above measures can be accomplished it would appear that American objectives in Germany are capable of realization. It must be recognized that it will be difficult to secure acceptance of these objectives unless some allowance is made for reparations from German [Page 228] production. Obviously, it will be difficult for the United States to concede production for this purpose as long as Germany must produce exports which will eliminate the present occupation costs to the United States, and provide some repayment of past costs. Perhaps this could be met in part by waiving any claim to reciprocal deliveries although this will be opposed by IARA. However, there can be no question but that the complete integration of the German economy will in itself increase the ability of Germany to export, and perhaps a portion of this increase could be made available for reparations from production.
It is certain that the presently agreed level of industry in Germany will not support a production program for reparations. It is still our view that the agreed level of industry will provide a standard of living equal to, but not greater than the average for Europe (exclusive of UK and USSR). It will not permit the repayment of occupation costs. Moreover, under the provisions of the Potsdam Protocol, consideration could not be given to the effect of such a level of industry on a stable European economy. It is apparent that an increased level of industry in Germany is greatly needed by all of Europe, which is now recognized by the Netherlands, Belgium, and other countries whose progress to recovery is retarded by their inability to exchange goods with the German economy.
The tragedy inherent in present conditions is that skilled industrial workers for whom there is no industrial work fitted to their special ability, and skilled agricultural workers for whom there is no land, have been brought into Germany in large numbers. This has resulted in an abnormal concentration of population in an area severed from normal economic ties developed over centuries and unable to establish new ties while prostrate before Allied authority. Concurrently both agriculture and industry in the areas from which these people have been moved are retarded at a time when full production is essential to peace in Europe.
Recognizing the impracticability of correcting these conditions other than the correction which may be effected by readjustment of the eastern boundary, it becomes even more necessary to offer this concentrated population an early hope for political and economic stability. If this cannot be done, all of the steps taken in denazification and demilitarization will become meaningless, the words “reeducation” and “reorientation” of the German people to a democratic way of life will not only cease to be a hope but will become the symbol for the destruction of western ideas and civilization.
Destructive measures are temporary and transient. Constructive measures can succeed only if accompanied by progress. Almost seventy million people with a considerable background of stoic endurance [Page 229] and physical courage may not have the means within themselves to wage war, but if they are forced to live without hope, they are certain to become the pawn of future international strife.
It is easy to confuse constructive measures in Germany with sympathy for the aggressive, domineering German concept which led to two wars for conquest. However, Germany has received a punishment from this last war which should prove a lasting deterrent to the regrowth of militarism within Germany. Even if it does not, we must still depend on our controls being enforced in the years to come. An economic void in Central Europe will punish the German people indefinitely; it will punish Europe even more and destroy the stability which is essential to the growth of democracy and the maintenance of western cultural thought.

Tab B

Summary of Major Comment by Military Government on State Department Papers87

The Plan for Establishing Provisional German Government

Military Government concurs in the basic concept. However, it suggests that in addition to the central agencies provided for in the Potsdam Protocol, there should be added Food and Agriculture, and Justice.

The plan is also based on the provisional government being formed of “heads of governments of the Laender” who are democratically responsible to their respective state assemblies. This latter condition does not exist everywhere at the present time and provisional government should not be deferred awaiting elections in the French Zone.

Military Government feels strongly that the plan which provides that laws and regulations of the provisional “shall be valid unless disapproved by the Allied Control Council” is sound. However, the directive specifies that they shall “become valid upon approval by the Allied Control Authority.” We should never consent to such a condition as the resulting veto power in the hands of a single occupying power could nullify almost every action of the provisional government. This remark applies equally to the appointments and dismissals from key positions in the central administrative agencies.

Military Government believes the provision in the second alternative organization, which provides for representation on a zonal basis, is not sound as it would unduly emphasize the continuance of zonal boundaries.

[Page 230]

It is believed that the relationship between the central administrative agencies and the Laender should be clearly delineated to avoid the states becoming merely agents of the central government.

Plan for Establishment of Laender

The State Department proposal does not indicate whether the proposed Laender units are to be established immediately for provisional governmental purposes or are to be included in the ultimate federal government. The re-establishment of a united Wuerttemberg, a united Baden, and a united Rhine province, are desirable in the ultimate governmental structure. However, their re-establishment under the provisional government would not appear feasible with existing zonal boundaries. It would be very difficult to change these zonal boundaries during the period in which a provisional government is in operation.

Military Government is of the view that the proposal by the State Department is one of several alternatives which are acceptable. It doubts the wisdom of the detailed pattern being determined by the Council of Foreign Ministers and suggests that it would be desirable for the Allied Control Council to determine this pattern in consultation with German authorities.

The Structure of the Future German Government

There appear to be some differences in the three State Department papers which deal with these subjects. Military Government considers that there are serious difficulties in the State Department papers. The proposal for the election of the “head of the state” annually from the Upper House while subjecting him and his cabinet to a vote of non-confidence in the Lower House, is unique, and certainly not proven by experience. It would create a weak and unstable government and would build up pressures for the centralizing authority similar to those which wrecked the Weimar constitution. Moreover, the Upper House would become a mere appendage of constitutional government.

This proposal also delegates functions of government to the states rather than the reverse, whereas our position to date has been that the federal or central government will have only those powers given to it by the several states. The detailed conditions requisite for the approval of the constitution should not be prescribed, but rather general standards should be given to the Germans for them to work out in detail, subject of course to final Allied approval of the proposed Constitution.

The Polish-German Boundary

Military Government concurs fully in this paper. It has prepared a proposal for the internationalization of Upper Silesia in the thought that it may have bargaining advantages if and when the internationalization of the Ruhr is considered.

[Page 231]

German Boundary Problems other than the Polish-German Boundary

Military Government concurs in the recommendations of the Policy Committee. It would point out that the French occupying authorities have taken unilateral action to extend the boundaries of the Saar territory and that this extension should not be included in the integration of the Saarland with France. Moreover, it should be clearly understood that the integration of the Saarland with France will require an adjustment in the Level of Industry Plan to compensate the German economy for the loss of surplus exports from the Saar.

Implementation of the U.S. Draft Treaty on Disarmament and Demilitarization of Germany

Military Government concurs in the provisions of this draft treaty with the exception of the paragraphs in Article I which prohibit the manufacture of sporting arms and ammunition and the manufacture of commercial explosives. The Allied Control Council has already found it necessary to permit the controlled manufacture of sporting arms and ammunition, and also of commercial explosives.

Military Government also suggests that in paragraph (d) of Article I, first and second sentences, the words “scientific research” be included after the word “production” in each case so as to provide in the treaty for the prohibition of scientific research in military subjects.

Treatment of Germany as a Single Economic Unit

Military Government concurs in the statement of basic problems, however, the passage of time has made it necessary to establish a governmental organization stronger than the Central Administrative Governments contemplated at Potsdam in the form of a Provisional German Government. We are particularly of the view that the Department’s proposal to leave the occupying authorities in each zone the right of action in certain fields, would make it impossible to get uniform policy established throughout Germany. The authority of the Provisional Government should be exercised through German machinery under quadripartite top supervision.

It is believed most unwise to establish a directive which would limit German industry by limiting the coal to be made available to Germany. Certainly the American taxpayer would not be happy if this directive should leave him still in the position of having to finance Germany.

Soviet ownership of the so-called Soviet AG’s should not be recognized, and we should insist that such ownership be disavowed as a condition to economic unity.

The State Department omits reference to a Central Department of Agriculture. We feel that such a central department is essential and we have been authorized to support its establishment in the Allied [Page 232] Control Council. Likewise, we are of the view that a Central Department of Justice is needed.


Military Government concurs in general in this paper. It points out, however, that a revision of the Level of Industry Plan to be effective must also call for a revision of the proposed export of coal in the Level of Industry Plan. It has become evident that the Level of Industry Plan should be reviewed not only to take into consideration the standard of living contemplated in the Potsdam Protocol, but also the recovery and economic well-being of Europe as a whole. Moreover, if current production is to be used for reparations, the level of industry must be revised accordingly. If this is agreed, it should be specified that production will be used for reparations only when there is a balanced economy, unless agreement can be obtained for an equitable sharing of deficits until the economy is balanced.

The cancellation of agreements for reciprocal deliveries could be used as a bargaining point in resisting Soviet demands for reparations from production, although it is obvious that such a decision would not be acceptable to IARA.


Military Government does not concur in Memorandum No. 3 on Coal. This memorandum makes recommendations for the issuance of certain overriding priorities and also for the allocation of coal both within Germany and for export. It also enters into the field of denazification and into the findings of effective means of consultation and cooperation by miners and management of mines. It would hardly seem that these were matters for the Council of Foreign Ministers. In point of fact, they are well in hand. The recommendations are therefore unnecessarily critical of British administration.

While the proposed directive is sound in directing quadripartite allocation of coal produced in Germany, such allocation is undesirable if we did not secure full economic unity. If we do secure economic unity, it is unnecessary.

The directive with respect to economizing the consumption of coal lacks meaning, in view of the small amount of coal which has been made available to the German economy.

The directive to restore export coal to the September 1946 level in April means substantial increase in the cost of occupation. It would be difficult to justify before the American Congress. We have agreed here with the British to increase the export of coal in April by 50,000 tons, in May by 200,000 tons, and in June by 300,000 tons. This will restore the September 1946 export level. We have then agreed a sliding scale in which increased production would be shared between export [Page 233] and internal needs. Even this directive should not be given to the Allied Control Council in fixed terms if, in fact, it is desired to give to the Allied Control Council or to the US/UK Bizonal Agencies the flexibility which will permit the development of a self-sustaining economy.

The entire coal paper is devoted to emphasizing the export of coal rather than the utilization of coal to make the German economy self-sustaining and thus reduce or eliminate the present costs of occupation. It must be pointed out that the receipts from coal exports are perhaps less than one-third of the receipts from the exports which could be produced in Germany with this coal. The coal directive could entirely wreck the bi-zonal plan to obtain economic self-sufficiency within the U.S. and U.K. zones. It is interesting to note that several of the claimant countries having [have?] willingly taken reductions in allocations of German coal, recognizing the importance of German economy to Europe.

International Supervision of the Ruhr Economy

Military Government concurs in the views expressed in this paper rejecting the political and economic separation of the Ruhr and opposing international ownership and management.

However, it does not believe that allocations should be made by a Ruhr Authority independent of the Allied Control Authority or whatever Allied Authority may have supervision over the German government. Germany can not have two governments. A Ruhr Authority must not have a separate power to allocate. The power of allocation must remain with the Allied Control Authority and must be exercised for all of Germany, since the power to allocate is a basic power of government. Whatever body is established to control the Ruhr must be subordinate to the Allied Control Authority as long as the Allied Control Authority exists.

Military Government is also of the view that government ownership of the Ruhr will not prove to be the most expeditious way to bring the Ruhr back into production. In any event, it would recommend that this question be left to the German people. If an international control is to be established over the Ruhr, it is believed that it should be a quadripartite directorate operating under the Allied Control Authority with powers of the general sort exercised by the Federal Trade Commission in the United States. A Commission of this type could be continued in existence in the Peace Treaty after the Allied Control Authority has been dissolved.

Post-Surrender Acquisitions in Germany

Military Government agrees with the State Department’s views that foreign investors should be permitted to invest in Germany to recover [Page 234] holdings lost through reparations removals and, in fact, it would go further to permit such investment to replace property lost through war damage. We can not agree that any investment should be permissible which is supported by foreign exchange. The economic condition of Germany is such that the admission of foreign investors to the “bargain basement” of Germany while it is prostrate would result inevitably in extensive “carpet-bagging”. This would be particularly true if the foreign exchange is converted into German currency at a rate arbitrarily fixed by the occupying powers. We do not believe that foreign holders should be permitted an increase in their investment in Germany which would place them in a stronger position in Germany than their German-owned competitors. If this did result, and it could result from the proposed policy, Germany would be obligating herself to pay off a foreign debt for materials which were not allocated on an impartial basis within the German economy to permit that economy to first pay off occupation costs.

Economic Provisions of the Berlin Protocol

Military Government does not agree with the interpretation that the Potsdam Protocol prohibits a standard of living of post-war Germany greater than the average of Europe. It is the position of Military Government that this standard was established as a measure of reparations and not to prevent the Germans themselves from their own efforts to attain a higher standard of living in the future. This commentary also implies that agreement has been reached with respect to reciprocal deliveries, which is not correct.

  1. This paper was prepared by OMGUS at the request of the Department of State in preparation for the forthcoming session of the Council of Foreign Ministers in Moscow. Fifty numbered copies were printed for the use of the United States Delegation to the Council session.
  2. At its 3rd Session in New York, November 4–December 12, 1946, the Council of Foreign Ministers had directed the Allied Control Council for Germany to prepare a progress report. The last section of the Report of the Allied Control Council was completed on February 25, 1947. The Report is not printed, but for a brief description, see footnote 95, p. 239.
  3. Tab A under reference here is not printed. It listed 34 OMGUS Papers, Background Briefs, and Special Reports on various German questions for the use of the United States Delegation to the Council of Foreign Ministers.
  4. The detailed comment by OMGUS on individual papers prepared by the Department of State covering 31 pages in the source text is not here printed. The State Department papers under reference are those printed supra.