Memorandum of Telephone Conversation, by the Acting Director of the Office of German and Austrian Affairs ( Murphy )

top secret

Participants: Hon. John J. McCloy
Robert Murphy

Mr. McCloy telephoned from Bonn at 3:00 p. m. saying that the meeting of the Council of the Allied High Commission is still going on and had recessed in order to permit the Commissioners to contact their Governments. Mr. McCloy said that after his conversations with [in?] Paris yesterday and early in today’s meeting at Bonn, he thought that an agreement had been arrived at. This unfortunately proved not to be the case. The Commissioners had agreed on a 20% devaluation of the German Mark which is satisfactory to the Germans. It also agreed to set in motion a study of discriminatory practices which is [Page 467] to be coupled with an inquiry as to what if any measures to correct these practices are to be put into effect by January 1, 1950.

It was also agreed that during the period while these studies were to be undertaken that the existing disparities between domestic and export prices of German coal should be maintained at existing levels and not be increased by the effect of devaluation on the German domestic price.

There was disagreement on the French insistence that the U.S. High Commissioner give a commitment in writing to the effect that he would disapprove the maintenance of disparities between the domestic and export price of coal and other basic materials and in effect disapprove any subsidies which may be benefiting the domestic price structure. On this Mr. McCloy said that he feels that he should not be put in a position of taking an a priori commitment in the absence of a full knowledge of the facts, and that he should have a completely free hand to determine these after a careful study has been made. He said that he of course stands for the discontinuance of discriminatory rates and practices but that a number of things are involved; for example, the food subsidy, which is necessary in his opinion in view of the great effort now being made to increase German food production. In the field of mining, for example, certain subsidies in connection with housing, etc., are obviously necessary in the present situation.

He expressed the opinion that the time had arrived to take a decision and while he would regret an appeal to the governments which [it?] did not seem possible to longer delay the procedures. He said that François-Poncet seemed to have no latitude whatever.

I expressed the opinion that the Secretary would approve Mr. McCloy’s position and suggested that it might be well if possible to suspend the meeting at Bonn for approximately an hour which would give François-Poncet opportunity to contact Paris again in a last effort to obtain authorization to agree and that in the interval, we would also attempt to contact the Secretary.1

We would call Mr. McCloy as soon as we could.

Both Mr. McCloy and I feel that the French insistence on a unilateral undertaking by the U.S. High Commissioner is not only unjustified but is also unwise as a precedent, because such a practice would undoubtedly cause a deterioration in the operation of the High Commission and from every point of view is a bad precedent.

Robert Murphy
  1. Regarding Murphy’s conversations with Secretary Acheson in New York and subsequent conversation with McCloy, see his memorandum of telephone conversations, infra.