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

740.00119 Control (Germany)/9–1848: Telegram

The Ambassador in the Soviet Union (Smith) to the Secretary of State

top secret
urgent
niact

Moscow, September 18, 1948—9 p. m.

2034. Eyes Only for the Secretary. Molotov received us alone and handed us aide-mémoire (mytel 2033).¹ After we had read it he asked whether we had any comments and seemed disconcerted when no spontaneous reply. He then asked what impression the Soviet aide-mémoire made on us.

US Ambassador said the first impression was similar to Molotov’s after reading our aide-mémoire.² As regards repetition that Military Governors should have prepared joint report he had studied again the records of the Berlin talks which showed that they had not previously been able to do so. Therefore the view of our three governments on this matter appeared justified. As regards section on traffic restrictions we could see no justification for the Soviet attitude. We were of course willing once the restrictions had been removed to discuss methods of regulating air traffic in order to protect legitimate Soviet interests but could see nothing in Soviet proposal but an added restriction. As regards Financial Commission his view was that Soviet interpretation was unsatisfactory. There was no intention on the part of the three western governments to extend control of the Financial Commission over the German Bank of Emission beyond its functions pertaining to Berlin, but it was clear that the Financial Commission could not exercise its controlling functions as provided in directive unless the Financial Commission had powers of control over the bank in respect of its activities in Berlin. He pointed out that his intention in placing the paragraph on the Financial Commission at the end of the directive was to show clearly that its functions of control applied to all the preceding paragraphs “indicated above” including the relating to the functions in Berlin of the German Bank of Emission. It was in reliance on what we interpreted as specific Soviet commitment that these operations of the bank would be subject to the control of the Financial Commission that we had agreed to send the directive to the Military Governors although it failed to establish this relationship as specifically as we wished. We were fully conscious of the Soviet Government’s responsibilities for safeguarding their currency in the Soviet zone but we must insist on the basic principle of control by the Financial Commission in regard to Berlin itself.

As regards trade we had repeatedly made it clear that while anxious to find a satisfactory basis we could not accept a solution placing unilateral control of Berlin trade in the hands of the Soviet military administration. No agreements for the control of trade in Berlin could be satisfactory unless they provided for the joint responsibility of the four occupying powers. The US Ambassador went on to explain our position in regard to food and fuel imported into Berlin and our insistence upon controlling the disposal of the proceeds derived from such imports.

He emphasized that while willing and anxious to reach an acceptable agreement and so to settle the present grave situation in Berlin we did not intend to sacrifice our participation in the control of the economic and financial life of Berlin or to give up our rightful position there. Our position could be safeguarded without weakening the position of the Soviet military administration in Berlin. But we were not seeking a face-saving arrangement which only left us in Berlin as unwelcome guests with no control over the financial and economic life of our sectors. At first sight the Soviet interpretation of the three basic points set out in our aide-mémoire would produce just such a result. It was because we feared this that we had insisted on trying to work into the directive a clear-cut interpretation of the basic provisions on which we had been arguing for the past six weeks.

Turning to final paragraph of Soviet aide-mémoire US Ambassador said the four Military Governors in Berlin had been working on these lines but had failed to agree on meaning of directive. There was a difference of interpretation of our own discussions in Moscow. Our present purpose was to obtain and reduce to writing a full understanding on these oral exchanges. Since that apparently was not possible we could only refer back to our respective governments.

French Ambassador said last paragraph of the Soviet aide-mémoire did not reply to our questions but merely put another question. Our aim had been to ensure that the four Military Governors in Berlin interpreted the directive in same way. As regards Soviet reference to air traffic, Control Council decision of November 30, 1945 foresaw no restrictions in regard to matter of occupying powers. As regards Financial Commission, we had never asked to control activities of Bank of Emission in Soviet zone, but only the circulation of currency in Berlin and to ensure that credit establishments there were in as good a condition as those in the Soviet zone. As regards Commerce, insofar as there were exchanges between the four sectors there must be quadripartite control of such exchanges.

Roberts said that while this exchange of documents had been useful in clarifying respective views, questions at issue were so important that we should certainly have to refer the Soviet reply to our governments. His comments supplementing those of US and French Ambassadors were therefore only provisional. As regards traffic he noted that Soviet aide-mémoire accepted date of March 30 as that from which restrictions should be withdrawn. Insofar as the question of new air restrictions was raised, this was question which would be open for consideration once the blockade was lifted. We would no doubt wish ourselves to raise matters outside defined scope of present conversations. Control Council decision of November 30, 1945, however read as follows: “Flight over these routes will be conducted without previous notice being given by aircraft to the missions governing Germany.” There was no restriction in this decision and although in the discussions preceding the decision the Soviet and British representatives and possibly also the American and French, had put forward their wishes, their wishes could not be regarded as any agreed decision. Decision did not relate to the needs of the occupying forces, but to those of occupying powers in regard to Berlin, which naturally included fulfillment of their responsibilities in regard to Berlin. As regards functions of the Financial Commission, he fully agreed with US Ambassador. He would add, with view to showing general British approach to this problem, a quotation from a message from General Robertson, who had suggested that the relations between the Financial Commission and the bank might be established roughly as follows: “The regulation of currency circulation in Berlin would be undertaken by German Bank of Emission of Soviet zone through medium of credit establishments operating at present in Berlin. Activities of German Emission Bank in this connection would be under supervision of Financial Commission as indicated in final paragraph of the directive. As a practical method of implementing this principle Financial Commission would approve instructions issued by German Bank of Emission for regulation of currency circulation in Berlin and would supervise execution of these approved instructions by the credit establishments operating at present in Berlin.”

This was mentioned to illustrate point of view. As regards trade, he welcomed passage in the Soviet aide-mémoire that trade of Berlin would be under general control of the Finance Commission, but thought his government would have grave doubts about additional reference to “existing procedure” to licensing by the Soviet military administration. In any case introduction of separate currencies into Berlin and the western zones involved changes in the trade procedure, and past position was therefore irrelevant. However, any suggestion that Soviet military administration should have exclusive control over Berlin’s trade was unacceptable, since this must be on four-power basis. As regards importation of food and fuel he agreed with American Ambassador. His government thought it essential that we have our proper say in the use of proceeds of such imports.

Molotov said he would like to add following statement to his aide-mémoire, with reference to our remarks. The regulation of air transport referred to in our aide-mémoire of September 14 had no connection with any decisions taken this year, and air transport decision dated back to November 1945. But situation was now different as there were two currencies in operation, and regulation covering currency and trade in respect of surface transport must be considered for air traffic as well. It was essential to conform to the Control Council regulations of 1945, and Soviet Government must insist on compliance with these regulations. As regards the Financial Commission, degree of control provided for in directive should be carried out, but attempt to provide for other functions than those in directive would mean there was no real responsibility for currency circulation in Berlin and therefore in Soviet zone. Soviet Government could not agree to this. As regards trade with western zones and third countries, Soviet Government agreed it should be controlled by the Financial Commission subject to certain minimum conditions. Soviet licensing procedure should be maintained and quadripartite control which did not previously exist should be introduced. As regards our requirements in connection with the import of food and fuel into Berlin, Soviet Government thought these should be discussed in Berlin in greater detail. They agreed that we had right to import food and fuel for the inhabitants and industries of our sectors, and to receive proceeds. Concrete aspects should be subject to negotiations in Berlin, taking into account interests of all four powers. Referring to a remark of the US Ambassador, Molotov added that Soviet Government’s reply did not touch upon the question of juridical rights, since this had not been touched upon in the directive.

As regards French Ambassador’s comments on last paragraph of aide-mémoire, this was only conclusion proceeding from whole of the text. As regards Roberts’ references to trade, he noted that reply of Soviet Government satisfied western desire that this should be controlled by Financial Commission, but trade question had not been worked out carefully enough in Moscow and Soviet Government hoped this would be done by the Military Governors in Berlin. Since, however, it has been referred back to Moscow, they considered it necessary to formulate their position in terms of their aide-mémoire. If anything still remained vague, he would be glad to explain it.

US Ambassador said that he thought we understood one another perfectly after lengthy discussions. Therefore he would summarize position of three western governments. As to traffic restrictions, there were not insuperable obstacles. On the last day in Berlin Military Governors had made progress towards agreement. We realized that Soviet Government needed certain safeguards and these could easily be provided, but our three governments interpreted Marshal Sokolovsky’s proposal as limiting air traffic. This was now our only sure means of communication with respective sectors, and we had no intention of accepting any actual limitations. Reference trade, agreement had been reached in Berlin on inter-zonal trade but there was deadlock on control of trade between Berlin, western zones and third countries. Soviet representatives insisted that Soviet military administration had exclusive responsibility for controlling such trade and issuing licenses, whereas we could accept nothing less than quadripartite control. Present Soviet aide-mémoire indicated such control but also required maintenance of “existing procedure” of Soviet military administration licenses. Implications not clear, and might not be clear in Berlin, but if this meant unilateral control it was unacceptable. If there was agreement on basic issue of four power control trade question should not be too difficult to solve. The functions of the Financial Commission were sticking point. While we had not mentioned our respective juridical positions in directive, their ghosts lingered in conference rooms and could not be ignored. We were willing to accept Soviet currency in Berlin but not under conditions which would militate against maintenance of our rightful position in Berlin. We had good will to assist Soviet Government to protect Soviet zone currency, but could not agree to depriving the Financial Commission of authority to control emission of currency in western sectors. Soviet representatives in Berlin were unwilling to decentralize control and insisted on restricting functions of the Financial Commission to points (A) to (D) in the directive. This was major difference of over-riding importance and brought us back to the fundamental question of whether Soviet Government would meet our requirement of four-power control in Berlin. Relevant passage in Soviet aide-mémoire was too limiting, and too restrictive, and if insisted upon it would lead to a situation where technical difficulties might also interrupt the use of Soviet zone marks in the western sectors. We had already pointed out that it would be very foolish of us to exchange our present transportation difficulties for corresponding financial difficulties, hence position taken by our respective governments over control functions of the Financial Commission.

French and British representatives said US Ambassador had stated positions of their governments in this respect accurately.

US Ambassador repeated that unless we could make further progress in our discussions today, and so remove differences of interpretation, there was nothing for us to do but to refer back to our governments. The Soviet trade proposal might be helpful to certain extent, but real sticking point remained the control functions of the Financial Commission.

Molotov said he could give the following reply.

Regarding Financial Commission Soviet Government would follow directive strictly but it could not allow it to be widened. Regarding US Ambassador’s reference to the possibility that implementation of directive might place western sectors in a difficult position on finance, he pointed out that eastern sector would be in exactly the same position as the western sectors and that this would be under the control of the Financial Commission of representatives of the four powers. The main guarantees were contained in the directive. All four powers were in the same position and the Soviet Government was equally interested as otherwise it would have difficulties in its own sector. Regarding trade he had already said that Soviet Government did not think that discussions in Moscow had gone far enough to produce a clear directive. However, much time had elapsed and he had hoped the Military Governors would do this. But since they had failed, Soviet Government had drawn up a more concrete directive in aide-mémoire.

US Ambassador said that consideration of two aide-mémoires and directive brought us back to the functions of the Finance Commission. He quoted the final paragraph of directive to show that it covered not only sections (A) to (D) but everything above it including the penultimate paragraph about functions in Berlin of the German Bank of Emission. That was our position but the Soviet representatives in Berlin had said the control only applied to section (A) to (D). There was not much chance of agreement in Berlin unless we could reach agreement here on this important policy question. We were not trying to enlarge the scope of the directive but to find out what it meant. We had tried to clear this up orally without success and we now tried to do this in writing but apparently had failed again as his government would be unlikely to be satisfied with the explanation in the Soviet aide-mémoire.

Molotov said the Soviet Government had followed and would continue to follow the decisions reached between us. As regards German Bank of Emission Soviet Government believed that Financial Commission should control work of Bank on matters in (A) to (D) of directive but could not agree to interpretation which did now follow from directive and which placed the whole activity of the bank under the control of the Financial Commission. (We pointed out that this was not our interpretation.) Soviet Government believed that controlling functions of Financial Commission should be limited to points listed in (A) to (D) and thought this followed from text of directive. US Ambassador said that his reading of the text showed clearly that not only (A) to (D) but the penultimate paragraph as well were all covered by the final paragraph. We did not wish to put any further interpretation on the directive but nothing less would be acceptable. Arrangements on such a basis need not jeopardize Soviet currency but any lesser interpretation would jeopardize the whole western position in Berlin and our governments could not possibly agree to that.

Molotov thought it best to follow what had already been agreed which fully took into account interests of all four parties without jeopardizing position in Soviet zone.

American Ambassador said we were willing to provide Soviets with essential safe guards but would not abandon our own. He did not think that our exchange would help Berlin much to reach agreement. We had done the best we could in Moscow and could not be accused of lack of patience. Molotov said that he still hoped that the present Soviet proposal would help towards a solution.

US Ambassador asked whether Molotov would assist us in reporting to our governments by giving his views on relationship between the Financial Commission and the Bank of Emission with regard to Berlin currency. Molotov said he was quite prepared to discuss the question further although much had already been said.

Roberts read out General Robertson’s suggestions on this subject,³ stating that it had been put forward as a practical illustration of the way British Military Government at least would like to see things working in Berlin. Molotov said that it was difficult for him to enter into details such as those mentioned by General Robertson but he believed that there were no obstacles which could not be disposed of in negotiation. Of course a more concrete formula was needed than that in the directive itself and General Robertson had attempted to provide one. It was difficult to tell at first sight whether this attempt was acceptable or not. Undoubtedly certain points were acceptable but he could not say now which ones were unacceptable. He believed that when the question was raised Whether Financial Commission would control regulation of the circulation of currency by the Bank of Emission reply would be found in the directive. Financial Commission would have control of currency circulation in Berlin since there were four groups of questions listed under (A) to (D) in the directive which related to currency circulation. There was therefore no issue of principle. But whole question should be made more concrete. There were useful points, for instance, in suggestions of General Robertson as read by Roberts.

The meeting ended with our statement that we would refer Soviet aide-mémoire to our governments.⁴

Sent Department 2034, repeated London 229 for Douglas, Paris 349 for Caffery, Berlin 400 for Murphy and Clay.

Smith

1. Participating in this meeting, held at the Kremlin at 6 p.m., were Smith, Roberts, Chataigneau, and Molotov. The Soviet aide-mémoire under reference is printed supra. Regarding the telegram under reference, see footnote 1 to the aide-mémoire.
2. See telegram 1101, September 12, to Moscow, p. 1152, and footnote 3 thereto.
3. Apparently the reference here is to the agreed western position on the functions of the Bank of Emission, transmitted in telegram 2286, September 9, from Berlin, not printed (740.00119 Control (Germany)/9–948).
4. In his next telegram (2035, September 18, from Moscow, not printed) Smith reported the comments of the three heads of mission on the interview with Molotov. They agreed that the Russians were no longer attempting to reach an agreement and were merely trying to spin things out. Molotov seemed to be playing his hand for the record, sensing that, perhaps, this would be the last meeting with the western representatives (740.00119 Control (Germany)/9–1848). Ambassador Douglas also commented on the aide-mémoire, expressing his and Strang’s opinion that it was a more categorical rejection of the western aide-mémoire than had been anticipated. (Telegram 4175, September 18, from London, not printed, 740.00119 Control (Germany)/9–1848)