Foreign Relations of the United States, 1950, Western Europe, Volume III

740.5/4–1450: Telegram

The Ambassador in the United Kingdom (Douglas) to the Secretary of State

top secret

London, April 14, 1950—7 p. m.

2039. ToMAP. Personal for Martin from Bonesteel. Please restrict distribution. Reference Deptel 1313¹ to London.

1. Possibility utilizing German production in support defense production of Western Europe explored by Lindley at Frankfort. Matter discussed with Gerhardt, Marshall, Taylor and Wilds.² Also discussed with John Harriman of OSR and JAMAG.

2. Following information obtained from Taylor. Figures are approximate. Present production Western Germany industry 98 percent of 1936 level. Most industry on one shift 48-hour week basis but two million unemployed including many skilled workers. Quality workmanship in all lines excellent. Some deficiences in machine tools but German tool industry could probably supply most needs if permitted.

3. Steel industry running at permitted capacity. Estimate reasonably sized orders could be met since extent and continuation of present internal demand not yet ascertained. Permitted aluminum production 85,000 tons per annum only half used. Copper production totalling 15,000 tons per month capable 30 percent expansion. Lead available in large quantities and considerable zinc. Primary magnesium prohibited. Much unused capacity in semi-fabrication entire non-ferrous metal industry.

4. Production all types textile yarns 38,000 tons per month including 21,000 tons cotton yarns. Internal demand not well sustained and can easily increase production 25 percent. Clothing industry has much idle capacity.

5. Automotive industry has large unfilled backlog passenger car orders but unused capacity exists in trucks particularly heavy models. Present total truck production about 3300 units per month expandable quickly by 50 percent and in six months by 100 percent. Estimate steel requirements such production available.

6. Much capacity available heavy industry particularly railroad equipment. Machine tool industry prohibited making certain types tools designed for war, but some tools serving both peacetime and war purposes permitted by Military Security Board. Present monthly production cutting and non-cutting machines now exceeding 5,000 tons expandable by 30 percent.

7. Great capacity exists electronic industry, particularly Siemens-Halske, but all types radar equipment and most types electronic valves prohibited. Large additional production available in switchboard apparatus, cable, wire and insulating materials. German optical industry well known and much idle capacity but equipment designed for war forbidden.

8. German shipyards could handle much business but ships with speed in excess 12 knots prohibited. Much capacity exists in cranes and hoists. Diesel engines and diesel electric generating units producible in large quantities. Also considerable unused capacity antifriction bearing industry though production some lines restricted.

9. German automotive industry already experienced rebuilding US types vehicles and good possibilities sizeable production automotive spare parts for US equipment. Much unused capacity in truck tire production.

10. With large physical capacities as above, financing apparent as major limiting factor, other than political, in utilizing German production and there seems little utility further census productive capacity until some progress made in financial and political fields. Financing possibilities discussed with Marshall, Taylor and John Harriman and following lines suggested for exploration:

(a) Ordinary commercial transactions related to EPU in which Germany now stands in short term debtor position. As and if Germany moves into creditor position might extend credits on production with some partial covering of net payment position from dollar pool. Objections likely by NAT countries to using own budget resources to purchase or barter in Germany. Many NAT countries have excess physical capacity at present and would probably prefer use own funds to keep employment high in own country rather than buying from ex-enemy.

(b) Offshore procurement in Germany with MDAP dollars. This would not imply necessarily full payment German local production costs but some substantial proportion. For balance local costs, possibly some proportion could be met by receiving country and some by Germany. Such procedure would imply general application partial offshore procurement principle to all NAT countries, but particularly applicable to Germany in view psychological impediments to getting any goods transferred to other NAT countries without using some US dollars. Some such step may be necessary if early utilization German production desired. Obvious, however, that there are many political aspects to US financing this production, with possibilities accusation US subsidizing rebuilding German armament production.

(c) Conceivably there might be partial answer found on basis of reduction in three western Allies occupational costs chargeable to Western German government with corresponding application of saving effected to financing production Western Germany for transfer to NAT countries. This possibly acceptable to Germans as use their budget funds for production and employment of German labor might seem preferable to using same funds for occupation costs. If this basis employed at all probably would have to be combined with one and two above.

11. See no realistic utility attempting prepare detailed factual statement suggested second paragraph urtel before seeing light re financial and political solution. NATO still working on overall deficiencies which will be so great that possibility substantial contribution by Germany will exist, although NAT countries also have sizeable additional physical capacity, without danger recovery, if financing can be found. After NAT–MPSB has done further work on European production programs, the areas where German production would be most useful will be clearer. Do you want us do anything further now? [Bonesteel.]³

Douglas

1. March 23, 1950, p. 32.
2. Presumably Thomas H. Marshall and Harold A. Taylor, Analyst and Production Specialist, respectively, in the Office of Economic Affairs at Frankfort, and Walter Wilds, Deputy Assistant Secretary of State.
3. Telegram 1806 to London, April 20, for Bonesteel from Martin, replied as follows: “This is exactly what we wanted. Do not request further action on your part now. [Signed] Acheson” (740.5/4–1450).