761.00/9–849: Telegram

The Secretary of State to the United States High Commissioner for Germany (McCloy), at Frankfurt

top secret

1512.1 To McCloy (Eyes Only) from the Secretary.

Part I

I agree with your feeling it wld be desirable take advantage any opening which Chuikov’s attitude may offer to press Berlin discussions [Page 381] re interzonal trade to a conclusion. Reur 2178, Sept 8.2 These talks were apparently bogged down over long period largely because of difficulties raised on Soviet side. Most recent reports from Berlin (CCF–1067 Aug 31 and CCF–1093 Sept 23) indicate many of these difficulties have been cleared away. Ger economic authorities seem to be on their way to agreement.

It wld seem to me desirable for you to go into situation in detail to see if an informal discussion on your level might be helpful in resolving remaining issues. I wld like to see agreement reached on trade, both in order to carry out fully intent of Paris agreement4 and because we are interested in improving trade position.

On currency and question of Berlin elections and reunification of the city, further talks at this stage may serve useful purpose in demonstrating whether Soviets have constructive proposals to make. Positions on both sides were made clear at Paris.5 They are far apart and reflect fundamental differences in approach to problem by the two sides. Positions which have been taken by Western Powers go as far as we think safe to go without jeopardizing substantial advantages of our present position. In absence of fundamental change in Sov attitude, new discussions would, it seems to me, lead only to restatement of same positions, same arguments, and same recriminations as in past. Initiation of such discussions might well be misunderstood, especially at time when our plans are materializing in Western Ger in a positive way. I think it of utmost importance that nothing be done which could weaken position and prestige of Bonn Govt or to cast doubt upon our determination to go ahead with the Western Ger program. As far as substantive questions go, our moral and propaganda position is good, our attitude is clear and has the support of the Germans, and we must be most careful not to jeopardize these gains.

The Chuikov approach may be timed, as so many such Sov moves are, to produce confusion. Matters specifically referred to by Chuikov in his conversation with François-Poncet, unification of Berlin and question of restoring common currency, have not been under discussion in current Berlin talks. It had been our hope that the continuing contact envisaged in Paris agreement would enable us to work out with Soviets some amelioration of conditions in Berlin and as between the zones, proceeding from a recognition that the four governments had not been able to overcome the split in city or in Ger. If Sovs are going to import into these discussions same old issues between USSR [Page 382] and the West re Germany, we wld doubt that the talks would produce any constructive result. In point of fact, we understand that lack of progress in trade talks at German level is caused in part by introduction on Sov zone side of essentially same proposals re an all-German economic organization which were rejected by Western powers at Paris.

There follows statement of our position on specific matters mentioned urtel.

Part II

Berlin City Administration:

In dealing with this subject, we have always considered that any plan for reunification of Berlin involves new city-wide elections, revision of city constitution, and new plan for quadripartite Allied Kommandatura. We accordingly presented proposals on all three points at Paris, to which USSR raised objections which amounted either to outright rejection of our proposals or their complete distortion through amendments. We simply never began to have meeting of minds. Position taken at Paris was agreed Western position, and proposals set out below were agreed proposals, supported by Brit and Fr.


We proposed that four Allied commandants in Berlin arrange for free city-wide elections under Four Power Control on basis of procedure employed in Oct 1946. This election procedure wld be modified in four ways: (a) In absence of city-wide administration, temporary body shld be established to take place of Magistrat functioning under 1946 election law. This temporary body wld be composed of equal number of Germans selected by each of Allied commanders in Berlin; (b) electoral law wld be modified only by unanimous consent of four commanders; (c) any political party authorized in one sector wld be free to operate in all sectors; (d) Allied body designated to supervise elections shld be quadripartite in composition and wld operate in all sectors of Berlin. (This proposal is contained in paper CFM/P/49/21.6)

USSR accepted proposal for city-wide elections in Berlin in principle, but proposed fol amendments: (a) temporary Ger body shld be composed of equal number of representatives of Sov sector on one hand, and three western sectors as unit on other; (b) public organizations authorized by the former Kommandatura, as well as political parties, shld have right to nominate candidates in elections. (CFM/P/49/20 Rev.7)

[Page 383]

Since Sov proposal re composition of the Ger supervisory body wld give undue representation to Germans from Sov sector, and since permission for public orgs to submit candidates wld result in large number of Communist front candidates, Sov amendments wld radically change conditions under which elections wld be carried out. These amendments were not accepted by us and we consider them impossible of acceptance.

Preparation of Permanent Constitution for Berlin:

No serious disagreement existed between Western Powers and USSR concerning desirability of preparing new constitution for Berlin. US proposed new constitution be prepared along lines of Constitution of Apr 1948, which was adopted in Western sectors of Berlin, while USSR merely advocated that a new constitution be drafted in accordance with Art 35 of temporary Constitution of 1946.8 Issue as to nature of a permanent constitution was not really joined at the Paris CFM. However it is clear from debates on powers of Magistrat and Kommandatura that USSR wld oppose liberal constitution such as that of Apr 1948.

Powers of Berlin City Govt:

Pending adoption of new constitution it wld of course be necessary to define clearly powers to be granted to new all-city Govt which wld be elected in new elections. We did make proposals on this score at Paris and Sov reaction and counter-proposals indicated clearly gulf which separates us on this question. We proposed that reconstituted Berlin Magistrat shld function under organizational structure provided for in the temporary constitution of Greater Berlin of Aug 1946 with appropriate modification of Art 36. This Art really is one of keys to whole problem. It was Sov “Trojan horse” from moment it was adopted until adoption of new constitution in Berlin in 1948 after Sov authorities left the Kommandatura. Art 36 enabled Sov Commandant to veto any appointment and any action of city govt and functioning of city govt was to all intents and purposes completely hamstrung as result. We cld never agree to go back to any such system. In general our proposal at Paris therefore sought to give Magistrat much greater powers vis-à-vis Kommandatura than it enjoyed under former quadripartite system of control. (CFM/P/49/109). We defined three categories of activities of the Magistrat: (a) in such areas as disarmament, reparations, security, prisoners of war, and supervision of elections, Allied authorities wld act directly, and the Magistrat wld conform to these decisions; (b) in such areas as amendments to the [Page 384] constitution and internal restitution, Magistrat wld have authority to act only after receiving written approval of Allied authorities; (c) in all other matters Magistrat wld be free to act, unless such acts were specifically disapproved by Allied Kommandatura within 21 days. (USDel Mins, 12th Mtg, Jun 410)

Unchanging determination of USSR to retain complete stranglehold on govt of Berlin was clearly illustrated in their counter-proposal. Sov delegation proposed that Art 36 shld be revised to read as follows:

“The Administration of Greater Berlin is subordinate to the Inter-Allied Kommandatura and in the sectors to the Military Authorities of the respective sector, except in cases which may be specifically provided for by the Allied Control Authorities.

All legislation adopted by the City Assembly of Deputies, as well as decrees and orders issued by the City Magistrat shall conform to the laws and orders issued by the Allied Authorities in Germany, through the Inter-Allied Kommandatura of Greater Berlin. The decrees of the City Assembly and Magistrat on matters which fall within the competence of the Inter-Allied Kommandatura, are subject to approval by the Inter-Allied Kommandatura; the same applies to decrees of the City Assembly or Magistrat in the event of any of the Sector Commandants raising objections to such a decree with the Inter-Allied Kommandatura.

The approval of the Inter-Allied Kommandatura of Berlin must be obtained for effecting changes in the Constitution, resignation of the City Magistrat as a whole or of its individual members as well as the appointment or dismissal of administrative personnel of the City Administration.

The activity of the district Administration is subject to approval by the Commandants of the sectors.” (CFM/P/49/20 Rev.)

While foregoing Sov proposal introduced much new verbiage it cld not disguise fact that situation wld remain unchanged with Sov authorities able effectively to veto anything done by city govt even with approval of other three Commandants.

Reconstitution of Allied Kommamdatura:

It was feeling of our delegation at Paris and continues to be our feeling that it wld be politically ruinous to return to type of Kommandatura which existed before June 1948. With that thought in mind, our delegation at Paris put forward suggestion that Kommandatura shld exercise its powers in the following fashion: (a) action of the Kommandatura wld be by unanimous decision in matters of security, independence of Magistrate authority, and control of certain convicted persons, if unanimous action not possible, each power wld take whatever action necessary in its own sector; (b) in area of [Page 385] “reserved powers” Kommandatura wld act directly; (c) in certain other areas, Kommandatura wld reserve right of direct action unless specifically authorizing Magistrat to act in its place; (d) in area of normal administration, Kommandatura wld block Magistrat only by unanimous action. Basic purpose of Amer proposal was to avoid stalemate in administration of Berlin arising from need for unanimous affirmative action in any and every case, as provided by terms of reference in Allied agreements of 1945 (CFM/P/49/1811)

USSR however desired reconstruct Kommandatura on same basis as orginally laid down in agreements of 1945. Sov proposal defined certain areas in which (a) Kommandatura wld act directly, (b) which wld come under joint competence of Kommandatura and Magistrat, and (c) which wld be dealt with primarily by Magistrat. Nevertheless, Sov proposal permitted any one power to block any action taken by the Magistrat (CFM/P/49/20 Rev.) and thus, in effect sought to reestablish the veto.

As you know, there have not been any quadripartite talks on these subjects since Paris meeting, but we doubt if Sov viewpoint has altered and nothing in record of Paris discussions gives us any hope that agreement is possible in foreseeable future. It is barely possible that Sov position on holding of new elections wld be moderated sufficiently to make such elections possible. But our feeling here is that it wld be folly to elect a new city govt even under terms most favorable to us unless we can agree as to terms on which that govt and four occupying powers wld subsequently operate. In considering these questions we feel that fol principles are vital. First, election arrangements must not be rigged in favor of Communist and Communist front organizations. Second, we have made great steps forward in Western sectors of Berlin in granting greater powers to Germans. We cannot permit new arrangement which wld be substantially less liberal than that which we now have. Third, we cannot under any circumstances permit re-establishment of Sov veto.12 Reunification certainly remains our ultimate goal but reunification on terms other than above wld appear necessitate payment of too high a political price.13

Part III

Currency and Trade:

As you know, we have spent great deal time this subj, both in connection direct negots with Sovs and in discussions with UN Committee [Page 386] as well as during Paris CFM. Since results of discussions within USDel at Paris not readily available to you, we have set forth our thinking this subject at some length. Conclusions we reached were as follows:

Restoration of currency unity in Berlin can be effective only if city is politically unified.
No satisfactory arrangements cld be worked out under which East mark cld be accepted as currency for a unified city. While various attempts to work out safeguards were made during consideration of problem by neutral commission appointed by Chairman Security Council, we believe interests involved are irreconcilable and that use of East mark on any terms Sovs cld accept wld involve leaving economic life of city, and eventually its political life, to mercy of Sovs.

Only solution to problem, therefore, wld be adopt West mark or establish third currency. Since it is scarcely conceivable that Sovs wld agree to West mark, third currency seems only possible solution if currency issue is to be subject of agreement with Sovs.

(At Paris CFM, Brit, particularly Robertson, expressed opposition to third currency on ground it wld involve various technical difficulties and that we shld not subject population of Berlin to new currency conversion. While we recognize that independent currency in area which is as small as Berlin and has a deficit economy involves extremely difficult problems, we have not felt these problems wld be insuperable if West Ger and US continued provide aid to Berlin.)

Our experience in previous negots with Sovs leads us feel any attempt negotiate currency plan in detail with Sovs wld involve risk that plan wld have serious defects. Lack of common approach to problem by two sides in itself involves major difficulties in negotiating on so technical a subject. Currency plan so negotiated cld not be worked out in all its details but wld have to be confined to certain principles. Negot of these wld necessarily involve compromises, significance of which cld not be seen in absence of having worked out full plan.

All these considerations led us to conclusion at Paris talks that best solution, given premise that agreement cld be reached on political unification of city on terms acceptable to us, wld be to leave to Gers preparation of currency plan which cld at least eventually be activated without being subj to unilateral veto of any Occupying Power. Our proposals were never submitted to Sovs, but they were worked out in paper prepared in USDel, of which Riddleberger has copy (USDel/Working Paper/24 Rev. 1, June 7, 194914). This paper was cleared at technical level with Br and Fr, but altho considered briefly by Ministers, was tabled by them without action pending further developments on political reunification. When US presented in CFM general proposals on municipal administration and Allied controls (CFM P/49/18 of June 6, 1949), it was explicitly stated this paper did not [Page 387] purport to cover special problem of administration of currency and banking. Substance of this paper is as fols:

Political unification of Berlin is an essential prerequisite to currency unification.
Detailed agreement on currency cld not be negot’d by CFM.
New Magistrat (to be established in accord with US proposals on political reunification) shld be charged with development of proposals for solving currency problem. Proposal to be submitted to representatives of Four Powers in Berlin. If they are unable to agree, to be submitted to Govts.
Pending solution, existing dual currency system wld continue with each Occupying Power reserving control over financial matters in its sector.
If within six months after submission of proposal by Magistrat no solution agreed by Four Powers, Magistrat wld have auth to deal with financial questions in Berlin subj only to directives agreed unanimously by Kommandatura.

Foregoing proposal thus envisages reestablishment of political unity, retaining the dual currency system for at least an interim period, but then giving new Magistrat opportunity (after six months) to make its own determination with regard to currency standard of city, subj only to unanimous veto. We recognize chances of acceptance of this proposal by Sovs were extremely dubious, since democratically elected Magistrat unlikely to adopt East mark. We also recognized risks to ourselves but concluded these were worth taking if our proposals generally were adopted. We felt that if Magistrat adopted West mark or third currency, we cld maintain reasonably effective control over currency administration thru indirect powers deriving from our control over external aid (and in case West mark was adopted, our control over currency source). We were unwilling to consider further concessions to Sovs, feeling that perpetuation of dual currency system subj to Sov veto in Eastern sector might result in breakdown of unified political administration and reversion to present situation.

Desirability of permitting Berliners to wrestle with this problem seems to us pointed up by developments since lifting of blockade. While our thinking some months ago was in terms of use of West mark or third currency pegged to West mark, problem deserves analysis and review in light Berlin’s current difficulties. As we understand it, Berlin is being squeezed now from competitive viewpoint by its high costs vis-à-vis Western Ger and exchange ratio with Sov Zone. From this viewpoint, there is something to be said, assuming political unification of city, for third currency which might not be rigidly pegged. An independent, flexible currency, however, wld inolve all sorts of problems, both political and economic, and we think it dangerous adopt any a priori position.

[Page 388]

If discussions on Berlin currency were to be resumed, we believe position in paper referred to above shld be that which Western Powers shld put forward. However, we do not believe subj of currency shld be even discussed unless there is evidence of substantial agreement on political unification of Berlin.

Relationship between East and West marks in general:

As in case of Berlin, political reunification of Ger. is essential precondition to restoration of currency unity. In view differing economic systems in East and West Zones, different policies and different stages and direction of economic development, we see no possible basis for any arrangement under which East and West marks cld be made freely interchangeable or converted into new all-Ger currency.

In existing situation principal significance of relationship between East and West mark is with ref to interzonal trade, discussed below. Among other reasons in order not to prejudice results of eventual discussions on terms of exchange of currencies, we have consistently opposed in current negots re interzonal trade any provision which cld imply parity between two currencies or lead to suggestion we are fixing rate of exchange. We have felt that, with differences in price levels which exist between East and West and different situation respecting price control, as practical matter trade wld have to be carried on on West mark basis.

Interzonal trade:

This matter is, of course, now under negot, and we are not certain we have complete and up to date picture of what is taking place. Since you are in position to get full briefing on what has transpired, we believe it will be most helpful to you to state our gen. views on this subj, rather than comment in detail on various proposals which have come up in negots.

We have felt that trade between West Zones and Sov Zone cld be substantially increased over levels envisaged in 1948 trade agreement15 without harm to us, providing we can obtain from Sov Zone imports of commodities which will be genuinely useful to West Germ recovery.
We believe that controls must be exercised over trade. There has been much misunderstanding on this point and of our obligations under New York Agreement.16 Interzonal trade prior to March 1948 was subj to control by zonal occupation auth pursuant to Four Power agreement. We have not construed New York Agreement [Page 389] as requiring us to permit unrestricted trade with Sov Zone or to require exact reestablishment of trade pattern existing at time blockade was imposed. We know considerable concern has been expressed by some people in Germ on this subj, since they feel that to exercise control over interzonal trade or even to change form of controls existing prior to March 1948 wld open us to charge by Sovs that we were violating New York Agreement. Since Sovs impose controls themselves over interzonal trade, it has always seemed to us difficult for them to make great point of control arrangements on our side. We have been inclined feel that their interest was not so much in formal aspects of matter but in question of what trade they cld carry on, and on this we have been prepared negotiate with them and make reasonable attempts increase interzonal trade.
As to character of trade, we must insist that items of strategic importance (1A list and AEC list) not go to Sov Zone and that 1B list items be subjected to appropriate quantitative limits.17 We reluctantly agreed in spring to allow any 1A items covered by 1948 trade agreement or existing contracts to go forward but made plain that we were not disposed to approve any new business in these articles.18 To do otherwise wld completely destroy our efforts to persuade ERP countries to adopt lists.
Aside from security items, our preoccupation has been that (1) shipments to Sov Zone of short sup. items shld not be permitted on scale which wld interfere with West Ger essential requirement or obligations to export to ERP countries and (2) that we shld receive goods of comparable essentiality for essential goods sent to Sov Zone. In other words, we do not wish trade with Sov Zone to divert West Germ resources from ERP. Obviously, Sov Zone will want essential goods and we are prepared see such goods move if properly compensated, but we have been disturbed over pattern which appears to be emerging of exchange of West Ger hard goods for Sov Zone soft goods.
It has always seemed to us difficult to incorporate our position on trade in any form of words. It must come out eventually in form of trade and payments agreement with Sov Zone. We wld welcome conclusion of agreement consistent with instructions which have been given OMGUS, which have among other things envisaged possibility of clearing system which wld enable Sov Zone to acquire essential goods in West Zones only against payment from proceeds of deliveries of essential goods to West Zones. It has seemed to us that in general West Zone Germans are going along right line in their discussions with DWK and that lack of progress in these discussions has resulted largely from introduction by DWK of extraneous political issues and DWK unwillingness to engage in genuine negots. How to deal with West Berlin trade with Sov Zone and sector in context of these negots presents extremely difficult problem. We have expressed to OMGUS our concern that whatever arrangements were worked out shld not [Page 390] unduly impede this trade, but have not felt sufficiently close to situation to make specific suggestions.

Ur 2178 being repeated Paris, Moscow, London.19

  1. Repeated to London, Eyes Only for Holmes, as 3317; to Moscow, Eyes Only for the Ambassador, as 647; and to Paris, Eyes Only for the Ambassador, as 3411.
  2. Ante, p. 375. McCloy’s telegram had been repeated to Moscow, Paris, and London on September 12.
  3. Neither found in Department of State files.
  4. For the text of the Paris communiqué, June 20, see p. 1062.
  5. For documentation relating to the discussion of Berlin at the Council of Foreign Ministers, see pp. 915 ff.
  6. See footnote 1 to USDel Working Paper/13 Rev. 1, p. 1043.
  7. Not printed; but see footnote 3 to CFM/P/49/20, p. 1048.
  8. For the text of the temporary constitution for Berlin of 1946, see Plischke, Berlin, pp. 214–229; regarding the constitution of 1948, see ibid., pp. 69–78.
  9. Not printed.
  10. Post, p. 949.
  11. Post, p. 1044.
  12. At this point in the source text Murphy had deleted the following sentence: “Frankly we doubt that there is any possibility of reaching an agreement based on these principles.”
  13. At this point in the source text Murphy had deleted the following sentence: “We incline to view that present split in Berlin will last just about as long as split in Germany since it is caused by precisely same factors.”
  14. Not printed.
  15. An excerpt from the trade agreement for 1948, signed on November 25, 1947, is printed in Germany 1947–1949, pp. 483–485.
  16. For the text of the four-power communiqué on the agreement to lift the Berlin blockade and convoke the sixth session of the Council of Foreign Ministers, see editorial note, p. 750.
  17. Documentation relating to East-West trade in prohibited (1A list) and restricted commodities (1B list) is in volume v ; documentation relating to the AEC list of strategic commodities is in volume i .
  18. For documentation relating to the discussions of the Military Governors for the resumption of trade with Berlin and between the four zones of Germany, May 12–June 13, in Berlin, see pp. 751 ff.
  19. In telegram 3707, September 14, from London, not printed, Holmes reported that he had been shown a copy of Robertson’s report on François-Poncet’s conversation with Chuikov which corresponded closely with McCloy’s. At the same time he was shown a copy of the Foreign Office’s instructions to Robertson which called his attention to the position taken by the Western powers at the Council of Foreign Ministers and advised him that this position had not changed. Robertson was informed that he could attend an informal meeting of the four Military Governors, but should enter no commitments. (862.5151/9–1449)