740.00119 Control (Germany)/1–1748: Telegram
The United States Political Adviser for Germany (Murphy) to the Secretary of State
137. Personal for Saltzman and Hickerson. Informal discussions were undertaken last night by US and British with French. These were carried on by Steel for British, Saint Hardouin for French and by me. I opened meeting stating that while I had no instructions from [Page 29] my government we should be glad to explain what had been done in Frankfurt. I recalled that basic outline of discussions that had already been given and emphasized that Frankfurt meeting was preliminary discussion to determine what practical steps could be taken to improve economic conditions of Bizonia. I explained that no constitution was envisaged but rather a modus vivendi under which certain proposals have been submitted to Germans. There were no texts as yet to be given but when charters for the bank and the court were prepared they could be shown to the French.
St. Hardouin replied by stating that French delegation would first prefer to take up question of the other discussions which had been proceeding between the experts respecting Saar and particularly question of Saar coal.1 After that they would return to Frankfurt meeting.
We and British then explained that experts had come to agreement on schedule for withdrawal of Saar coal and were now awaiting instructions from our respective governments respecting the date. Negotiations can continue as soon as such instructions are received.
French then stated that in Paris there is apparently misunderstanding with respect to question of Saar trade with Bizonia and question of trade of truncated French zone with Bizonia as result of separation of Saar. French had come prepared to conclude if possible arrangements for separation of Saar from German economy but had not come prepared to discuss in detail question of balance of trade between Bizonia and truncated French zone. French zone would obviously have to pay in goods for coal from Ruhr but difference of opinion had developed in meeting with respect to what goods and what amounts French zone can give for coal. There then ensued long discussion on this point in which British and Americans finally pointed out that if there were a deficit between Bizonia and truncated French zone, deficit would have to be covered in dollars. In other words, Bizonia could not undertake, as result of situation that would arise from separation of Saar, to support economy of truncated. French zone with population of 5 millions. Bizonia had limited funds on which to operate and if balance of payments should lead to deficit it could not be expected that Bizonia could absorb additional costs.
Discussion then ensued regarding amount of deficit and it was brought out that this would depend upon amount and character of commodities which Bizonia could take. While no figures had as yet been submitted by experts, there was obviously difference of opinion respecting how a balanced trade could be accomplished. French pointed out that an equilibrium could be attained if Bizonia were to accept certain products such as wine. US–UK replied that Bizonia obviously [Page 30] could not absorb luxury products and reminded French that in case of Dutch vegetables and Greek tobacco we had refused sometime ago to take such products however desirable they might be because with our limited funds Bizonia must be certain that only essential products are imported. Furthermore if French wish US–UK to share deficit of their zone they must be prepared to share deficit of Bizonia. US–UK have specific instructions to make Bizonia self-sufficient and are not authorized to increase Bizonia deficit.
To this French replied that in their opinion the two questions of separation of Saar and trade relations of truncated French zone, while related, should be settled separately. US–UK pointed out that this segregation is difficult to make and while we realize that separation of Saar would lead to certain consequences, we could not assume added burdens in respect of French zone which was not under our control and which was not covered in funds available for Bizonia deficit.
I then asked what was estimated annual deficit of truncated French zone and French replied it would probably attain $60 million for food alone.
Discussion then turned to effect of free exchange of goods between Bizonia and truncated French zone. French indicated they might cover food deficit of their zone under ERP. I replied I could not debate this aspect in detail here as this would obviously be matter for Washington decision. Both US–UK pointed out that we are primarily concerned with our budget for Bizonia and costs chargeable thereto.
There then ensued brief discussion respecting mechanism for shipping arrangements between Bizonia and French zone and US–UK indicated they could easily establish system by utilizing interzonal shipping documents already approved on quadripartite basis. In conclusion on subject of Bizonia-French zone trade, French pointed out that French could only agree to free circulation of goods between two areas after exchange of important products had been agreed upon and programmed.
Attention was then given to question of currency reform and US–UK indicated that French had been kept informed. Bank charter will not be given to Germans before Monday and French will be shown charter before it is discussed again in Frankfurt. French would likewise be informed before we would go to ACC with currency reform plan.
It was then agreed that while awaiting reply on date of application of coal schedule that experts will continue to examine problem of trade between Bizonia and truncated French zone with particular reference to statistics on probable trade and what commodities could be exchanged. Furthermore they would examine size of probable deficit of French zone.[Page 31]
Re Frankfurt discussions, French stated their government’s surprise over developments at time when we had agreed to examine jointly various German problems. Inquired whether they could be given texts for study after which they might desire to ask questions and submit further observations. As result of information given few days earlier to experts, Paris had been informed of principal points. US–UK replied there are no final texts as yet, that discussions had been of preliminary character, that certain texts are now under discussion with Germans and there is no approved general text as yet of an Anglo-American agreement. French stated their concern at budget provisions of Frankfurt proposals whereby Economic Council would acquire certain financial autonomy and would be able to subsidize German industry. It was stated in reply that Council cannot levy taxes in excess of expenses and subsidies properly legislated. Furthermore, these proposals would not prejudice future tax structure. French were then informed that there is no text as yet available and discussions with Germans on taxing power were still going on.
In any case, it could be stated in general that taxing powers to be conferred upon Council would not go beyond US idea expressed at Moscow respecting segregation of powers between central German government and Laender. US–UK willing to give summary of this question at early date.
French then inquired re proposed Laender union bank and said they must have adequate information on this in connection with any consideration of fusing their zone with Bizonia. It was agreed they would be given this information as soon as charter for bank was more specifically developed.
At conclusion this meeting Generals Clay, Robertson and Koenig met with delegations. After some brief and highly informal exchanges, General Clay made following proposal orally to French. US will agree to sell Ruhr coal to truncated French zone for reichsmarks. When this has been done, if there should still remain deficit in French zone trade with Bizonia, French will have to cover this deficit in dollars. If, on other hand, balance goes against Bizonia, such deficit will be charged against coal shipped to French zone.
French professed themselves personally as delighted with this proposal and think it will make it possible to come to agreement here in near future. British will probably go along as we underwrite costs of Bizonia. However, none of this has as yet been reduced to writing and respective delegations are consulting their governments
St. Hardouin expressed himself as pleased with spirit of meeting and progress made which he hoped would aid in calming Bidault’s irritation and lead to better understanding of problem in Paris.
Sent Department as 137, repeated Paris as 24, to London as 17.