396.1–ISG/2–1051: Telegram

The United States High Commissioner for Germany (McCloy) to the Secretary of State 1

secret

6641. Reference Bonn’s 481 to Department January 25, repeated information Paris 130, London 130;2 Bonn to Frankfort 564, January 30, pouched Department unnumbered, Paris unnumbered, London unnumbered;3 Department to Frankfurt 5413, February 6, repeated London Tosig 398;4 Department to Frankfurt 5435, February 7, repeated London 3694, Paris 4121;5 and Bonn to Department 524, February 9, repeated London 138, Paris 141.6

Finance advisers had meeting February 8 with Blankenhorn and Dittmann concerning debt agreement undertakings. Discussed two letters on this subject which Chancellor intends addressing High Commissioners and which in present draft have been approved Bundestag committee. Text of two letters appended end this cable.

Letter number 1, in general, embodies view which financial advisers had expressed to Blankenhorn (hereinafter wherever in this cable Blankenhorn appears, intended refer to both him and Dittmann) in meeting February 3. Financial advisers so indicated at February 8 meeting with reservation (a) neither financial advisers nor High Commissioners authorized give final approval. Would therefore submit it to respective governments for such approval or comment; (b) entire question whether post-war debts are subject to negotiation must be settled at government level. Financial advisers agreed letter acceptable but did not so inform Blankenhorn.

With regard to letter number 2, financial advisers indicated to Blankenhorn that they had considerable doubt as to its acceptability by their respective governments. They made various suggestions to change its tenor and content but Blankenhorn indicated great doubt Bundestag committee would make any significant changes. In reply specific inquiry Blankenhorn indicated that chief purpose of second letter is not merely to emphasize that Federal Republic ability to pay under any settlement plan will be affected by loss of pre-war foreign assets but rather that Federal Republic wants to make clear now that when settlement plan discussed it has hopes of recovering such of [Page 1415] seized foreign pre-war assets as have not already been liquidated. Blankenhorn further indicated that various countries, notably Brazil, have given signs of willingness to return certain assets of above stated category or possibly use them as offsets to claims against Federal Republic either by Brazil or Brazilians. This appears to us to raise far-reaching questions, specially whether beneficiaries under IARA are at liberty to dispose of such seized assets as they desire, including return to Federal Republic or whether they would have to account for or return them to IARA instead of untramelled return to Federal Republic. We are studying matter here but would appreciate your views.

On this point Brazil may have special views due to certain ex gratia payments which we understand UK has made to various UK creditors against Federal Republic out of sequestered German pre-war Brazilian assets.

Financial advisers suggested to Blankenhorn that they report financial advisers views to Bundestag committee and ascertain whether committee will either agree to withdrawal of second letter or changes reflecting said views. Financial advisers suggestion concerning withdrawal of letter predicated on consideration that Federal Republic can express its above noted views at beginning of any debt settlement negotiations; therefore unnecessary state them now.

Blankenhorn indicated Bundestag committee attaches great political significance to statement this point now so that German public does not gather impression that Federal Republic foreclosing all possibility of recovering any of assets in question.

Buttenwieser, who represented US in absence Cattier, gained impression that this stated reason is only part of real Federal Republic purpose. He thinks further aspect is Federal Republic’s hope that letter might act as deterrent to various governments against further liquidation of seized assets, at least until this issue settled at debt settlement negotiations. Financial advisers final suggestion to Blankenhorn was to resubmit letters to Bundestag committee and then deliver final drafts to financial advisers who would submit them to governments for approval or comments. Only after all this accomplished would chancellor sign letter or letters thus avoiding delivery and probable publication of signed letters which might prove unacceptable to three governments. In latter connection financial advisers indicated to Blankenhorn that letter number 2, if finally submitted unchanged, might result in reply from governments of such tenor as to vitiate political advantage which Federal Government seeking to achieve through it. Blankenhorn indicated final draft text would be in hands of financial advisers by February 13.

[Page 1416]

Translation present text of draft letters on which February 8 discussion predicated follows:

Letter number 1.

In reply to your letter of 23 October 1950—AGSec (50)2539—7 I have the honor inform you of following:

I. Federal Republic confirms herewith it will be responsible for external pre-war debts of German Reich, inclusive of liabilities of other bodies, later on to be declared liabilities of Reich, as well as for interest and other costs for bonds of Austrian Government, to extent to which such interest and costs have become due and payable after March 12, 1938 and before May 8, 1945. General situation of Federal Republic and in particular effect of territorial limitations of its authority and its solvency shall be borne in mind when ascertaining manner and extent to which Federal Republic shall fulfill these liabilities.

II. Federal Government recognizes in principle the debts which arose by reason of economic aid given Germany since May 8, 1945 provided the liability therefore has not already been recognized [or assumed responsibility?] its liability therefore pursuant to Article 133 of basic law. Federal Republic is ready grant priority to its obligations by reason economic aid before all other foreign claims against Germany or German Nationals.

Federal Government considers appropriate settle all questions in connection with recognition and settlement these debts in bilateral agreements with governments of countries participating in economic aid, in manner of agreement concluded December 15, 1949 with USA.8

It is of opinion that, in case difference opinion these agreements shall contain clause providing for arbitration. Federal Republic Government is ready bring negotiations for conclusion such agreements with governments concerned.

III. Governments US, UK, France and Government of Federal Republic Germany agree that it is in interests of re-establishment normal trade relations between Federal Republic and other countries, to work out payment plan soon as possible, which will provide for settlement public and private claims against Germany and German Nationals.

All interested governments, creditors as well as debtors, including Federal Republic, shall participate in working out this plan.

Payment plan shall, in particular, deal with claims, settlement of which would contribute to normalization economic and financial relations of Federal Government with other countries. It should therefore provide for possibility immediate settlement private commercial obligations.

Payment plan will take into account general economic situation Federal Republic, in particular increase of burdens and decrease economic substance which occurred since May 8, 1945. Total effect plan must not bring about undesirable results for German economy as far as equilibrium internal financial situation is concerned, nor put undue [Page 1417] demands on present or future foreign exchange on hand in Germany. In addition thereto, it must not noticeably increase financial burden on any one of occupation powers.

Governments participating may obtain opinion experts on all questions arising from negotiations on payment plan and on ability to pay.

Result negotiations shall be laid down in agreements. It is agreed that this plan shall only be of provisional nature and shall be revised as soon as Germany has been reunited and final peace agreement will have become possible.

Letter number 2.

I have the honor of informing you of following:

By letter (number 1) I transmitted to Allied High Commission declaration made by Federal Government concerning German pre-war and post-war debts and on readiness Federal Republic participate in drawing up of general payments plan within framework international conference on debts.

Governments US, UK and France and the Federal Government agree that economic capacity of Federal Republic should be taken into consideration when drawing up payments plan. Federal Government is of opinion that problem German foreign assets has an immediate material relationship to settlement debts problem, as manner and extent debtors capacity pay substantially depend on this question. It will only be possible arrive at settlement which is also satisfactory for creditors, foreign assets will be taken into consideration in economically sound sense.

In this connection it may be pointed out that after World War One, Allied Governments in Hague convention January 20, 1930, declared that—in acknowledgement of fact Germany had accepted obligations of Young Plan for purpose providing for general settlement of effects of war—they were prepared in future no longer make use of their right to sequester, withhold and liquidate German rights, properties, and interests in their countries.

McCloy
  1. Repeated to Bonn, Paris, and London.
  2. Extracts from telegram 481 are printed pp. 1411 and 1458.
  3. Not printed.
  4. Not printed, but see footnote 2 to telegram 481, January 25, p. 1412.
  5. Supra.
  6. Post, p. 1461.
  7. For text see Foreign Relations, 1950, vol. iv, p. 767.
  8. For the text of the Economic Cooperation Agreement signed at Bonn on December 15, 1949, see Department of State Treaties and Other International Acts Series (TIAS) No. 2024 or 64 Stat. (pt. 3) B81.