501.BC/10–2048: Telegram
The Secretary of State to the Acting Secretary of State
Delga 417. For Lovett from Jessup. In connection with suggestion in paragraph 3 your Gadel 229 October 17,1 or with other possible developments here, we may need to define our interpretation August 30 directive, especially as regards extent four-power control in Berlin of German mark of Soviet zone.
After review of record, following seems to us to be situation on this matter:
There were two basic issues involved in this question. First, whether the financial commission had authority over any of the activities in Berlin of the German Bank of Emission. Second, granted such authority, did the functions of the financial commission extend to all matters involved in the introduction, use, and continued circulation in Berlin of the German mark of the Soviet zone, or did they extend only to the functions described in A through D of the directive as those activities relate to the introduction use and continued circulation of the single currency?
With respect to first question, Stalin’s statements at August 23 meeting provide categorical affirmation that financial commission would control German Bank of Emission at least regarding its activities in Berlin.2 Sokolovsky apparently denied financial commission would have any control over bank, or was at least evasive on this question. We took issue back to Moscow on September 14. Molotov replied on September 183 and seemed to affirm what had been agreed to at August 23 meeting with Stalin.
[Page 1229]With respect to second question, August 23 meeting with Stalin does not seem definitive and, in fact, attention of conferees seemed directed at question of authority. However, at August 27 meeting and particularly August 30 meeting with Molotov, question seems to have been settled and agreement reached that functions of financial commission would extend only to those activities described in A through D of the directive as they related to the introduction, use and continued circulation in Berlin of the German mark of the Soviet zone. It was not agreed that the financial commission should control all activities in Berlin of the German Bank of Emission. (See statement on this issue made in subject six London to Washington telecon of September 125). But at Berlin and at September 18 meeting in Moscow, we seemed to take position that the financial commission should control all activities in Berlin of the German Bank of Emission. On the Other hand, Molotov aide-mémoire of September 186 seems to meet point that financial commission’s functions are those as agreed at August 30 meeting, i.e. A through D.
You will understand, of course, that we believe record on above points most complex and difficult. Directive itself is not clear and requires some kind of interpretation since “arrangements indicated above” in last paragraph clearly refers to “arrangements” mentioned in preamble to lettered paragraphs and lettered paragraphs (A–D) themselves. It is not clear that the phrase “arrangements indicated above” also includes paragraph regarding German Bank of Emission. If it does not, then one could say that the financial commission has no authority over the bank. On the other hand, if it does, then this not only answers affirmatively the question of authority but also broadens the functions of the commission beyond A through D. But while it is clear that question of authority was settled, it is also clear that agreement was reached on August 30 that functions extended only to A through D.
For reasons set forth above, we considered it important to be clear in our own minds on this matter since some interpretation of the directive may be necessary.
Apart from question of what was or was not agreed to with respect to functions of the financial commission, are there specific functions over the introduction, use, and continued circulations of the German mark of the Soviet zone in Berlin which we would insist we must control on a four-power basis and which are not covered in paragraphs A through D of the directive?
It appears true that even if Soviets accept interpretation of directive most favorable to us, they could still make trouble for us by currency manipulation in Berlin. That is a risk we would have to run.
[Page 1230]In regard to foregoing we draw a clear distinction between problem of fixing negotiating positions and question of ultimate minimum we would take.
Sent Dept Delga 417, repeated Berlin 645, London as 1082, Dept pass Moscow as 546. [Jessup.]