Foreign Relations of the United States, 1948, Germany and Austria, Volume II

740.00119 EW/2–1248

Memorandum Prepared by the Department of State¹

secret

[Washington,] February 12, 1948.

Cabinet Decision on German Reparations

Although the position of this Government with respect to dismantling generally and with respect to deliveries to the east was first raised in the Cabinet on the fifteenth of January,² no decision has been reached. Decision is now urgently required by reason of the increasing concern about the program in the Congress and among the public, and the fact that the future of reparations deliveries is one of the items on the agenda for the impending conference with the French and British in London on Western Germany.³

Strictly speaking, the problem of reparation deliveries to the Soviet Union relates only to the 10 per cent of the total equipment to be made available from the western zones. The 15 per cent of such equipment is subject to exchange with the Soviet Union for commodities. Under the Potsdam Agreement there were to be two years for the delivery of industrial equipment, but five years for delivery of the commodities. Accordingly, while substantial deliveries of equipment have been made to the Soviet Union, the delivery of commodities in return has only just commenced. The result is an approximate balance (about RM 150 million) in the 1938 monetary value of the equipment yet to be delivered to the Soviet Union from western zones, and the commodities yet to be delivered by the Soviet Union. Notwithstanding that the issue relates properly only to the 10 per cent, it is considered quite certain that if the 10 per cent were denied Soviet Russia would refuse to make any further deliveries of commodities in exchange for the 15 per cent.

The reparations problem is a dilemma in which there are serious disadvantages to each of the alternative courses of action.

1. As you know, the British have set forth their strong view that deliveries should be continued to the Soviet Union, giving the following major reasons: (a) they regard themselves as bound by the Potsdam agreement to carry out a political commitment of great importance; (b) they see no economic grounds, from the standpoint either of increases in the Soviet military potential or of German and European recovery, which are of sufficient weight to justify reconsideration of this political commitment; (c) they consider the commodities to be delivered by the U.S.S.R. in exchange for capital equipment as of great importance to Western Europe, and believe their delivery would tend to stimulate trade between Eastern and Western Europe in general; and (d) they consider that cessation of deliveries to the U.S.S.R. would exacerbate relations in Berlin, and in general, with no compensating gain. The French position is believed to be similar to the British and in addition is complicated by internal political considerations.

2. For the United States to terminate deliveries unilaterally from the US Zone and the British and French to continue deliveries would have a number of unfortunate consequences. It would be an empty political gesture on the part of the United States because it would deny to the Soviet Union an amount of equipment which would probably not exceed one million dollars at 1938 prices. If the United States refused to participate in quadripartite allocations, it would destroy the existing reparations machinery and leave no agreed procedures for allocations to the IARA countries. It would invite reprisals by the Soviet Union which might be much more serious than the deprivation to the Soviet Union involved.

3. A split with the British and French over reparations would mean a serious break in the Three-Power front in Germany which the US is doing its best to maintain and which the Soviets have every interest in weakening. It is of the utmost importance that the closest possible common policy be followed by the three Western Powers. This will serve to represent a unified western approach to Germany, which will have a salutary effect on the German population in resisting Soviet encroachments. In the fulfillment of ERP, and especially in solving western Germany’s economic problems, the US will be obliged to count heavily upon the economic cooperation of its partners. The Three-Power front is furthermore a great tactical advantage in dealing with the Soviets in the Allied Control Authority. So far a fair identity of views has been maintained as against Soviet aims in Germany and it would be most unfortunate if a serious difference over reparations should jeopardize the prospect of increasing effectiveness offered by a development of the common western approach.

4. Whether deliveries are halted unilaterally by the United States, or a decision is made to continue them, it is of the greatest importance that the Administration accepts the full responsibility for the decision before the Congress and not place the responsibility upon the British and French. The implication, which is already contained in some of the statements submitted to the Congress, that this Government wants to stop deliveries but the British and French will not agree, is an invitation to the Congress to place conditions upon grants to the recipients of aid under the ERP which would be exceedingly unfortunate politically.

5. It follows that from a purely foreign policy point of view the most sensible course would be for this Government to continue deliveries to the Soviet Union. The two strongest objections are, first, that by reason of the reparations that the Soviet Union has already exacted from Germany it is not entitled to further deliveries, and, second, that by so doing the governments of Western Europe are gratuitously strengthening the military potential of the Soviet Union. However, in view of the situation with respect to reciprocal deliveries described above, it would be to the economic advantage of the Western European countries to receive badly needed commodities in exchange for delivery to the Soviet Union of excess capital equipment from Germany. Also, the increase in Soviet war potential involved is not significant. The equipment yet to be delivered to the Soviet Union from the other Western zones is worth something under $40,000,000 at 1938 prices and the 10 per cent to which the Soviet Union may in a sense be considered not entitled is thus worth at most $15,000,000. It includes no special purpose equipment for the production of finished war materials.

1. Copies of this memorandum were transmitted to the President and to the other members of the Cabinet on February 12. The memorandum appears to have been considered by the Cabinet at the meeting on February 13; see the memorandum by the Secretary of State, infra.
2. The reference here is presumably to the Cabinet meeting of January 16; see the Policy Paper Prepared by the Department of State, January 15, and footnote 1 thereto, p. 708.
3. For documentation on the preparations for the London Conference on Germany, see pp. 1 ff.