The Chairman, of the Allied High Commission for Germany ( Kirkpatrick ) to the Chancellor of the Federal Republic of Germany ( Adenauer )

Mr. Chancellor: I have the honour to refer to the communiqué issued by the Foreign Ministers in New York in which they indicated that the Federal Government would be expected to undertake certain commitments consonant with the new responsibilities which the Governments [Page 768] of the three Occupying Powers contemplated would be conferred upon the Federal Republic. The three Governments hold that, at the moment when the Federal Government assumes responsibility for the conduct of its foreign relations, the status of the obligations resting upon it in its relations with foreign countries should be clarified. The three Governments regard the Federal Government as the only German Government which can speak for Germany and represent the German people in international affairs pending the ire-unification of Germany. They consider, therefore, that pending a final peace settlement, and without prejudice to its terms, the Federal Government is the only government entitled to assume the rights and fulfil the obligations of the former German Reich.

The High Commission has communicated to the Federal Government separately the decisions which have been taken by the Foreign Ministers concerning the clarification of the status of treaties to which the German Reich was a party. The question of the obligations of the Reich also involves the external debt of the Reich. The three Governments consider that the Federal Government should in consonance with what has been said above, assume responsibility for the pre-war external debt of the Reich. They recognise that, in the determination of the manner in which and the extent to which the Federal Government is to fulfil the obligations arising from this assumption, account must be taken of the general situation of the Federal Republic, including, in particular, the effect of the limitations on its territorial jurisdiction.

The determination of the financial responsibilities of the Federal Government necessarily also involves the obligations resulting from the economic assistance which has been furnished by the Occupying Powers to Germany. As the Federal Government is aware, the Occupying Powers have, at considerable cost to the peoples of their own countries, extended substantial economic assistance to Germany since the termination of hostilities, with a view of ensuring the well-being of the German people and assisting them in the rehabilitaton of their economic life. In due course the Occupying Powers will call for a settlement of the obligations arising from this assistance. They will consider in the settlement of these obligations the ability of the Federal Government to pay and other relevant factors. Meanwhile, they consider that the Federal Government should acknowledge its debt in respect of the expenditures which they have incurred and that it should recognise the prior status of these obligations over other claims.

It is the intention of the three Governments to proceed as promptly as possible with the development of a settlement plan which will assure fair and equitable treatment of the interests affected and remove as far as practicable obstacles to normal economic relations between the Federal Republic and other countries. These arrangements would [Page 769] necessarily be provisional and subject to revision when Germany is reunited and a final peace settlement becomes possible. The three Governments are agreed that the plan should provide for the orderly settlement of the claims against Germany, the total effect of which should not dislocate the German economy through undesirable effects on the internal financial situation, nor unduly drain existing or potential German foreign exchange resources. It should also avoid adding appreciably to the financial burden of any Occupying Power.

The three Governments have instructed the Intergovernmental Study Group on Germany in London to prepare a plan for handling claims in accordance with the above principles and to recommend arrangements for the appropriate participation of other interested Governments and the debtors and creditors, including the Federal Government. The Federal Government will in due course be informed of the results of these studies.

Although there are numerous problems to which it has not yet been possible to give consideration the three Governments are in agreement that the settlement plan should include, in particular, those categories of claims whose settlement would best achieve the objective of normalising the economic and financial relations of the Federal Republic with other countries. In their view the plan must therefore necessarily deal with the pre-war external debt as well as with the claims in respect of post-war economic assistance which enjoy a priority status over all other claims. The plan should also provide for the settlement of certain claims in connection with social insurance operations and with the conversion into Deutschmark of Reichsmark brought back from Germany by repatriated prisoners-of-war and deportees, if these claims have not been disposed of before the establishment of the plan.

In addition to the foregoing matters, other questions may arise in the detailed working out of the settlement arrangements. For example, it may be necessary to give consideration to certain pre-war debts owed to the residents of foreign countries which may not be strictly classifiable as external in character.

The three Governments recognise that a settlement plan of the scope envisaged can be put into effect only through some modification of the priority of their claims in respect of post-war economic assistance. Accordingly, the three Governments have agreed that, provided a settlement plan is worked out in accordance with the principles outlined in the preceding paragraphs and provided further that agreed procedures and controls are established that will govern this settlement plan and all payments made under it, they will modify the priority of their claims in respect of post-war economic assistance to the extent necessary to permit the fulfilment of such an agreed plan. This qualified modification of the priority of claims in respect of post-war economic assistance will not preclude the continued fulfilment of the [Page 770] obligations which the Federal Government has already incurred under existing agreements concerning such claims.

The three Governments feel certain that the Federal Government shares their view as to the desirability of restoring Germany’s credit and of providing for an orderly settlement of German debts which will ensure fair treatment to all concerned, taking full account of Germany’s economic problems. They feel equally certain that the Federal Government will share their belief that such a settlement will contribute to the restoration of normal relations between Germany and other countries.

The three Governments would appreciate receiving a formal assurance from the Federal Government that it regards itself as responsible for the pre-war external debt of the German Reich and that it recognises its debt with respect to the expenditures incurred by the Occupying Powers for economic assistance to the Federal Republic and affirms the priority of the claims arising from such assistance over other claims against Germany. They would also appreciate receiving assurances of the co-operation of the Federal Government in working out and implementing a settlement plan as outlined above.

In order to give formal effect to these undertakings and assurances and to the undertakings and assurances offered by the Governments of the three Occupying Powers, I have to propose that an agreement should be concluded by an exchange of notes between the Allied High Commission and the Federal Government. It is the intention of the High Commission to proceed with the modification of the controls in the Occupation Statute on the lines agreed by the three Foreign Ministers as soon as this exchange of notes is completed and the assurance in respect of co-operation in an equitable apportionment of materials and products in short supply required for common defence, on which a separate letter is today being sent to you, has been received. However, it is the understanding of the three Governments that the exchange of notes on debt obligations will be submitted to the Federal legislature for approval and I have to request you to confirm that this will be done at the appropriate time.

I beg [etc.]

Ivone Kirkpatrick