The Secretary of State to the United States High Commissioner for Germany (McCloy), at Frankfurt
2093. Retel 2940.1 Fol is agreed State–Treasury–ECA position.
We agree that it is imperative to provide in a satisfactory manner for the financial requirements of Berlin without delay. The amt of funds needed stipulated in your Niact 2940 seems to be in line with our understanding based on prior studies of the problem. It seems to us, however, that the methods suggested for raising the required amts present peculiar difficulties in some respects which we would like to avoid. The proposed financial program is acceptable subj to fol reservations and suggestions:
- In our opinion, the NAC wld probably object to an advance of ECA counterpart funds to take care of Berlin city deficits even though future GARIOA counterpart funds wld be pledged as security, since the use of ECA counterpart funds is clearly stipulated by congressional legislation.
- Present and future commitments and allocations of GARIOA counterpart funds might be rescheduled so as to make some funds available on temporary basis for Berlin needs without affecting investment program unfavorably. It might be possible to transfer to ECA financing of selected investment projects (e.g., Reichsbahn). Suggest you discuss this possibility with OSR.
- Within a few weeks, GARIOA counterpart receipts shld increase substantially over scheduled figures due to mark devaluation which may enable you to find funds for Berlin stockpiling and subsidy needs and to restore funds shifted in accordance with para 2. GARIOA counterpart availabilities wld also be substantially increased if immediate arrangements made for deposit counterpart upon notification as in case of ECA imports. This procedure will be required under terms of new bilateral. Recognize difficulties financing, perhaps arrangements cld be made for self liquidating bank loans. It is also our understanding that the requirement that all GARIOA imports be charged in at the uniform conversion rate has not been fully enforced. If this is true, it is our view that enforcement be no longer deferred. Accruals of GARIOA counterpart funds would thus increase soonest.
- The proposed public corporation stockpiling supplies for Berlin shld be restricted by charter to the activities outlined urtel and expansion into other fields prevented by all means. Only in this manner [Page 415] cld we have reasonable assurance that the procedure of financing specific public needs with the help of a public corporation will not become a vehicle for the German Government to evade existing fiscal regulations.
- Wld prefer to avoid using central bank credit, in connection with stockpiling in Berlin, but wld agree to temporary use such credit in case procedure outlined in 2 not satisfactory, subj to the condition that a schedule for repayment not exclusively conditioned on reduction of stockpiles be arranged within a comprehensive plan for financing Berlin.
- We note from your Berlin 14222 that the Berlin magistrat has been ordered to revert to the pre-blockade procedure of financing supply of food and coal. It seems to us that the financing methods which were designed to cover an emergency period might well be continued until a more permanent solution to the Berlin problem could be found. This might possibly obviate establishment of stockpiling corporation.
- Also wld like to call to your atten that the German Government may dispose for Berlin needs of some DM 120 million now held in specific account as proceeds of STEG imports (see ourtel 1510, Sep 142).
Please repeat your 2940 to Paris for OSR.