The Secretary of
State to the Secretary of Defense (Lovett)
My Dear Mr. Secretary: Thank you for the expression of your interest, in your letter of April 19,2 in the early completion of the negotiations of the contractual arrangements with the German Federal Republic and of the treaty to establish the European Defense Community. There are still a number of questions remaining to be solved in the contractual arrangements, particularly in the field of the German financial contribution to defense and the support of the Allied forces in Germany. The solution of these questions will undoubtedly require the closest collaboration between our respective Departments.
Your letter refers to two questions in this particular field. The first has to do with the unliquidated balance of obligations incurred by the Allied forces which will exist at the time of the entry into force of the contractual arrangements. I understand that, since the date of your letter, this matter has been the subject of conversations between representatives of our respective Departments, and of Mr. Harriman’s office.
The establishment of the total German financial contribution to defense during the NATO fiscal year 1952/53, which was finally resolved in the agreement reached between the Foreign Ministers of the three occupying powers and Chancellor Adenauer during the Lisbon Conference,3 proved to be one of the most difficult problems encountered during the negotiations of the contractual arrangements. As you may recall, Chancellor Adenauer requested that the amount which the Germans should spend for defense should be fixed on the same basis as that of the NATO countries and under a similar procedure. The German desires in this respect appeared to the three governments to be reasonable, and we requested the members of the Executive Bureau of the TCC to consider the German case and recommend a total contribution for Germany which would be comparable to that of the other principal countries participating in Western defense. After two hearings of representatives of the Federal Republic and an intensive study of the German economic and financial position, the members of the [Page 58] Executive Bureau recommended a total contribution of DM 11.2 billion. The Germans were quite reluctant to accept this figure, which was considerably in excess of their own estimate of the maximum figure which the German economy could sustain and which it would be possible for the Federal Government to finance. However, Mr. Eden, Mr. Schuman and I pressed Chancellor Adenauer very strongly to accept the figure, and the High Commission eventually, with considerable difficulty, worked out a formula based upon the recommendation of the members of the Executive Bureau, which it was possible for both the Germans and the three powers to accept. The agreed formula was that the Germans should pay an average of DM 850 million per month from the effective date of the EDC Treaty and the contractual arrangements until June 30, 1953 for the support of Allied forces and the German contribution to the EDC, in addition to certain other defense expenditures which will be carried in the ordinary German public budgets.
I think it was the clear intent of the recommendation to the four governments by the members of the Executive Bureau, and of the agreement made at Lisbon, to establish the total amount which would be paid by the Federal Government for defense expenditures during the NATO year 1952/53, once the contractual arrangements have come into force. Any such expenditures during that period must come out of the agreed total of DM 850 million per month. Any other approach to the problem would mean that we would be asking the Germans to pay more than an objective study of their economic position, which has been accepted by the three governments, had indicated they could pay. I think this would obviously be a very difficult position for us to take and one which, it seems to me, would be prejudicial to the rapid conclusion of the negotiations.
It follows from this that the expenditures made for the benefit of the forces once the contractual arrangements come into force, regardless of the date at which obligations were incurred, must be paid out of the sums made available to the forces from the German defense contribution. This has already been agreed by the Allied High Commission.
While the sum to be made available for the support of the Allied forces during the NATO year 1952/53 has not yet been agreed, it seems to me that the funds which are likely to be made available for the benefit of the United States forces should be adequate to pay for any expenditures which may be required to liquidate obligations undertaken prior to the contractual arrangements. I understand that no figures are available on the amount of obligations outstanding at the present time, but I recall that in earlier discussions, representatives of the United States forces in Germany estimated [Page 59] the carryover at the beginning of the current German fiscal year would amount to approximately one billion Deutsche Marks.
Your letter also suggests we should obtain an undertaking from the Germans that any funds made available for the United States forces out of the United States contribution should remain available until expended. The Department has instructed Mr. McCloy to seek German agreement to this proposal. I think that the drafting of appropriate language for such an understanding can best be left to the negotiators in Germany.