862.5151/10–149: Telegram

The United States High Commissioner for Germany (McCloy) to the Acting Secretary of State

confidential
priority

2692. Dept pass Dept Army, ECA, Treasury.

1.
Following is report in detail of conversations between High Commissioners and Federal Chancellor morning Thursday, 29 September, concerning decision on revaluation Deutsche mark (reference cable 9 from Bonn to Department1) which Council transmitted Chancellor on 28 September and which was discussed by Chancellor at press conference and in Bundestag 28 September.
2.
François-Poncet opened conversations by referring to Adenauer’s press conference of previous day, pointing out that it had been reported that Adenauer had questioned the power of the Commission under the occupation statute to take its decision. He stated that language of paragraph 1 of Council decision had been chosen to avoid appearance that the High Commissioners were dictating what the rate of exchange should be. He also referred to paragraph 3 and said that two alternative methods for safeguarding interests of coal-importing countries had been put forward by the High Commissioners to avoid imposing on the government one line of action.
3.
Adenauer then replied that many of the press reports of his remarks at press conference and in Bundestag were incorrect. At press conference, he said there would be no question of increasing the internal price of coal because he wished to avoid the creation of public unrest at the time of devaluation. He disclaimed making any statement that the High Commission had only advisory functions with respect to foreign trade. He then said, however, that he thought in this connection that the whole relationship of High Commission to Federal Republic under the occupation statute would have to be clarified. He recalled that the three preliminary drafts of the occupation statute, which had gone into great detail about Allied supervision of German affairs, had finally been replaced by a much shorter document in more general terms, capable of various interpretations.2 He understood that purpose of occupation statute was to realize purposes of the occupation. In the statute, occupying powers had reserved one field in which they had right to veto the actions of the German Government; in a second field, the occupation authorities reserved to themselves their authority within this second field, there was again a sub-division, with some powers reserved to the occupation authorities, but also providing for legislation by Federal Republic where High Commissioners had no objection. He said he realized that the High Commissioners had phrased their decision on fixing of the exchange rate for the Deutsche mark so as to avoid the impression that an order was being given. On the other hand, German public opinion would know that it would be difficult to change this decision.
4.

On the proposal in paragraph 3(b) to adjust the export and internal prices of coal, he said that such a course would produce a rise in home prices from 25 to 43 percent and would lead to grave domestic consequences. He could not see what relation the internal price of coal had to the purposes of the occupation. If the devaluation of the Deutsche mark led to difficulties for certain foreign countries importing coal, he thought the best solution could be found by discussion between the economic ministers of the Federal Republic [and economic ministers of those countries. The authority of the new government] with the German people was not strong and he asked the Commission not to diminish this authority by a too strict interpretation of the occupation statute.

In particular he felt that our devaluation decision had already weakened the authority of his government. He expressed himself as grateful for private discussions which I had with him on this subject, but said that he would have preferred that our conversation today might have taken place before a final decision was made.

5.
At François-Poncet’s request, I replied to Adenauer’s remarks by calling to mind the general framework of the circumstances under which the decision had been taken. I pointed out that solution of this problem went right to the heart of many interests in Europe and that, although we had been extremely sensitive to the conditions to which we were exposing the German Government and economy, it had been necessary to act with speed. After the devaluation of the pound, which had taken the world by surprise, there had been a series of devaluations, all effected unilaterally, which had created confusion in world markets. Every day’s delay in establishing a new conversion factor meant a serious loss to German foreign trade and added to confusion elsewhere. The decision which we reached on the conversion rate took into account not only the interests of Germany, but those of Europe as a whole.
6.
I next commented on the vital part which the coal trade plays in European commerce and reconstruction and observed that this fact had forced us to take into account the effect of a new conversion factor on coal exports and imports. I said that we could not ignore effects which changes in the Deutsche mark rate would have on the price of coal. Finally, I pointed out that, in the speed with which we had felt obliged to act, we had been somewhat limited in following out the niceties of approach in presenting our solution. However, the High Commissioners, in announcing their decision, had been insistent that there be no publicity until it has been communicated to the German Government. Even then, as I pointed out, the first news of the decision had come from sources other than the High Commission and, up to that point, it would have been possible for consultations between the Chancellor and ourselves to take place. By this, I added that I did not mean that the decision was in any sense provisional; the decision was firm and would have to be so regarded, irrespective of any interpretations that might have been provided for the Chancellor in discussions prior to the public announcement. I concluded by saying that I had purposely refrained from referring to any of the constitutional questions raised by the Chancellor, as I felt that they might be beneficially explored at a later time.
7.
Robertson then commented in detail on each of the three paragraphs of the devaluation decision. On the level of the rate of exchange he said that, although it was true that the only request made by the government was for a 25 percent devaluation, it was fair to say that it had been our understanding that a considerable body of opinion in German governmental circles would find a 20 percent devaluation acceptable. He further remarked that he had to take into account the effect of devaluation on all of the countries of Europe and that, since [Page 475]under the occupation statute we were charged with responsibility for foreign affairs, we were in a better position than the German authorities to determine what the reaction to devaluation would be in foreign countries.
8.
On paragraph 2, which orders an inquiry into discriminatory practices, Robertson said that the German authorities were mistaken in thinking that this requirement implied an accusation. If there were any reflection it could not be directed at a government which had been in office only a few days and could not be responsible for any previous or existing situation. This responsibility had resided in Military Government, so if any accusation had been intended it would have been against the predecessor of the Commission. He hoped it would be recognized that this measure was a necessary safeguard, in view of serious apprehensions abroad about discriminatory trade practices.
9.
On the measures to be taken to ensure that the interests of coal-importing countries are not prejudiced by Deutsche mark devaluation, Robertson said that it would be wrong merely because of the fortuitous fact that the DM was pegged to the dollar that Germany should be in a position to take advantage of coal-importing countries by an automatic increase in the price of coal. He observed that his own country was a coal exporting, not importing, country with ambitions to regain its position in the coal export market, and certainly had no particular interest in depressing German coal prices. British coal export prices had not been increased but were being allowed to follow the course of the pound. He said that it was arguable that the German coal export price was in any case too low and ought to be increased, but that we nevertheless maintained such increase should not happen automatically as the result of devaluation. It might be desirable as result of all the devaluation steps taken for there to be a general review of all coal prices. He then referred to the second alternative, calling for an adjustment between the export and the internal price of coal, emphasizing that this was only an alternative and required no immediate equalization of the two prices. He was aware that there were proposals for equalizing these two prices in all countries and that suggestions in this direction had perhaps been made to his own government. The inclusion of this step as one of the alternatives only corresponded with what was being done very widely elsewhere. He concluded by saying that what we mainly attached importance to was the quick achievement of the objective, and subject to that, we did not desire to dictate the manner in which the objective was to be achieved.
10.
After summarizing Robertson’s and my remarks, François-Poncet emphasized our joint aim to promote a system for European [Page 476]cooperation and the integration of Germany within that system. He also referred to Adenauer’s fear that we would put the German Government into a prejudicial position and said that we had no such intention and hoped that the Federal Government, which was also our child, would grow and become strong and healthy. At the same time, the Chancellor and the German people had to understand that the present regime had not been given complete freedom, a fact which might be regretted but which both sides had to accept.
11.

In response, Adenauer said that, although the High Commissioners and their governments must have the last word on the interpretation of the occupation statute, discussions on such interpretation between the German authorities and the High Commission was possible. He could not accept our preference that there be no discussion on this question at the meeting, unless it were understood that such non-discussion did not create a precedent. He then asked that such later discussion take place. He once again stated that the wording of paragraph 1 put him in an awkward position because, strictly speaking, the government was entitled to put through its own decision since the occupation statute provided that the government could legislate unless explicitly ordered not to do so by the occupation authorities. He hoped that his government would be given credit for not making difficulties about being put into this position. On paragraph 2 he expressed satisfaction with the assurances which had been given him. On paragraph 3 he said that he hoped it could be understood that it would be necessary to protect the interests of all coal-importing countries; for instance, he did not see why Switzerland should have cheap coal. He also asked whether he had understood correctly that proposals by his government for obtaining the objective of paragraph 3, other than those already set out, would be considered by the High Commissioners.

The meeting concluded:

a.
That the Federal Government would officially publish the rate of exchange at the level set out in our decision (0.238095);
b.
That legal experts of the three occupying powers and the Federal Government should meet for the purpose of examining the application of certain paragraphs of the occupation statute and the procedure for handling similar questions in the future, subject to the understanding that final decision on any such question would rest with the High Commission;
c.
That, with regard to obtaining the objective of paragraph 3 of our decision, the Federal Government might within the next 7 days present for the consideration of the High Commission proposal further to those contained in our decision;
d.
That today’s meeting would be followed by further exchanges of views between ourselves and the Chancellor and his ministers.

13.
[12.] We also agreed to issue a joint press communiqué, already been dispatched to you in ourtel 11 from Bonn.3

Repeated London 196, Paris 218, Berlin 160.

McCloy
  1. Supra.
  2. For documentation on the negotiations concerning the occupation statute for Germany in London and Washington, January–April, 1949, see pp. 1 ff.
  3. Not printed.