740.00119 Control (Germany)/1–748: Telegram

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

secret

14. Eyes Only personal for Saltzman and Hickerson. Clay and I proceeded to Frankfurt last evening accompanied by Economic Adviser [Page 5] Wilkinson and Financial Adviser Bennett. We met this morning together with American bi-zonal authorities with Robertson and his advisers and bi-zonal group to discuss the strengthening of the bi-zonal organization along the lines denned at last Friday’s bipartite board meeting in Berlin (see my Berlin 4 of January 31). Clay presiding made a brief introductory statement regarding this first of a series of routine meetings and asked Robertson to begin a description of the outline of our plan. Robertson explained our purpose in strengthening the German organization as it affected the Economic Council, the Council’s offices in the several Laender, the reorganization of the Executive Committee, and the creation of the second house of the Economic Council, explaining that the latter powers would be a matter of agreement between the Minister-President and the Council with provisions that the second house will not have power to originate “money bills”. Robertson explained that the Executive Committee will be converted into a proper executive body (really a cabinet but we are not calling it that) to be appointed by Council and approved by second house for first period. Chairman of Executive Committee will appoint his colleagues and Germany will have power of hiring and firing.

Clay took up second phase relating to creation of high court to be composed of nine members with responsibility of final court of appeals of all matters coming within purview of Council (disputes with Laender). He explained that it was not to be called a “supreme” court and will have no general powers of the usual court of law. We are seeking uniformity of trial of cases coming under laws of economic matters passed by Council. We are seeking immediate establishment of high court.

Clay also outlined plan for establishment of land union bank, to be owned by the several land banks, which would be empowered to issue currency, control of credit, and act as an accounting agency and depository for export-import business. It would be hoped that soon bank can be given responsibility of issuing credit instruments to German exporters and importers. He stated that the land banks in the UK zone are in process of establishment. Robertson agreed to have directors requested at early date to meet and devise procedures. It was desired that the charter be agreed before the end of January.

Regarding powers of Economic Council, it must have powers to give effect to the measures it authorizes. It is desired that the Council have the right to establish budget within which to take such percentage of income tax assessed by the Laender governments as may be required. Council may include in its percentage of income tax whatever necessary to meet required expenditures. Council also to have immediate control of excise tax and customs and the necessary personnel [Page 6] to enforce under these headings, also have specialized policy control necessary to functioning of the equivalent of a central government. Economic Council already has been given authority to control funds of the Reichsbank and the post. Clay emphasized that the foregoing is an outline of the general phase of measures to strengthen the German organization.

Clay went on to explain that on the US–UK side, it was agreed to do away with any residual functions remaining with the zones (Laenderrat). These would be transferred to the bi-zonal agency as soon as latter is able to absorb them.

It was agreed that branch land offices of the Council would be held to a minimum, but if the state mechanism fails, bi-zonal organization will have the authority to establish necessary land offices to carry out requirements.

In the discussion reference was made to a department for labor (I note reference thereto in your No. 6 of January 6, 8 p. m.2) but military government authorities desire to proceed establishment of those departments outlined in the Potsdam Agreement3 plus a civil service department. Regarding latter, its status would be left to plans to be worked out by Adcock and Macready.

On subject of title for Economic Council, it was agreed to listen first to German views and agreed that it was desirable that the word “economic” continue to appear in title.

It was emphasized that high court will be established (MG proclamation).

Regarding land union bank charter would be drawn up in such way to make it most convenient for French eventually to join.

Regarding US–UK bi-zonal organization, it was agreed that the common objective to be pursued would be close integration of bizonal staffs in Frankfurt. Adcock and Macready, joint chairmen, will each continue to have personal staffs. Everything below chairman level will be integrated. In case, for example, there is a US head of group, he will have a UK deputy and vice versa.

It was agreed that the several departments would have chairmen of the nationality indicated below with deputies of the other nationality: Economists, US; food and agriculture, US; civil service, US; transport, UK; finance, UK; post and telegraph (or communications), UK.

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Robertson emphasized that the principle to be observed basically is that there must be loyal staffs with integrated opinion and not working in two separate streams. Clay cited the below for heads of departments by observing that in the integrated organization, while some former heads of divisions will be reduced to deputies, the scope of their undertaking becomes far more important.

Clay pointed out that [regarding] JEIA and JFEA both US and UK are agreed that they must be brought closer together. There will be a single body of directors for both organizations in which representatives from each side will include the economic and financial advisers, the director and deputy director of the executive agencies and the director and deputy director of JFEA.

It was also agreed that as rapidly as possible, both agencies will develop parallel German organization which can be made of a public or quasi-public type similar to control organization established for bi-zonal area. This would be pressed in effect immediately. Idea is to maintain present controls but to simplify them. It was emphasized that the present number of German exporters must be expanded largely.

It was also announced that several branches will be integrated for deeding UK personnel into US zone branches and vice versa.

A committee on US–UK reorganization was set up. Steel and Panuch will represent the UK and US sides respectively.4

There was also agreement that all operating functions will be in Frankfurt and none in Berlin. There was a discussion of JEIA functions, Weir pointing out the German weakness of not having a department of external trade. This is important because of future volume of necessary trade agreements with foreign countries, and seeing that foreign trade policy cannot be separated from government. It was pointed out that JEIA will be a semi-independent agency and that the German parallel organization should be set up accordingly.

Clay requested that the charter of the several organizations, that is, the bank, the court, and the German equivalent of JEIA should be prepared as urgently as possible by the respective groups and submitted to Clay and Robertson for approval.

Regarding effective desire of integration of staff, this was to be accomplished just as soon as possible.

There was further discussion of the difficult problem connected with office space and housing. Clay informed the meeting that he was not yet prepared to move the army headquarters out of Frankfurt because of misunderstandings that this might cause in certain quarters. However, [Page 8] some units will start to move January 15 and their departure will provide certain urgently needed space.

Murphy
  1. Supra.
  2. Telegram 20, January 6, to Berlin, repeated to Frankfurt as 6, not printed. It transmitted to Ambassador Murphy some informal comments and queries formulated at the working-level of the Department on the main points of telegram 4, January 3, from Berlin, supra. (740.00119 Control (Germany)/1–648)
  3. The reference here is presumably to the Political and Economic Principles to Govern the Treatment of Germany in the Initial Control Period, set forth under Part III of the Report on the Tripartite Conference of Berlin, August 2, 1945, Foreign Relations, The Conference of Berlin (The Potsdam Conference), 1945, vol. ii, pp. 15021505.
  4. As subsequently established, the Bizonal and Bipartite Reorganization Committee (BBRC) operated under the co-chairmanship of J. Anthony Panuch, General Clay’s Special Adviser, and the British Deputy Military Governor, Major General N. C. D. Brownjohn.