Foreign Relations of the United States, 1952–1954, Germany and Austria, Volume VII, Part 2

762A.5 MSP/1–1854

No. 598
The Acting Special Assistant to the Secretary of State (Nolting) to the Defense Adviser to the United States Special Representative in Europe (Voorhees), at Paris

secret

[Washington,] January 18, 1954.

Dear Mr. Voorhees: You will recall that you asked me just before you left to return to Paris to send you a note on our ideas on the relationship of OSP in Germany to other objectives of the United States there and to prospective U.S. negotiations with the Federal Republic. We are in general agreement with HICOG’s telegram to you, 411 of December 31.¹ There are, however, some points which I think we emphasize more heavily than does HICOG and I think it will be helpful to you to know them.

You know, of course, the importance which we attach to our position in Berlin and to maintaining economic stability and welfare in the city. The needs of Berlin are very large and probably a complete recovery there is impossible as long as the present division of Germany remains. Our aid is intended in large part to encourage the Federal Republic to continue and increase its assistance to Berlin. Ambassador Conant is now engaged in an effort to obtain agreement to an increase in German aid to Berlin. Since, however, the needs of Berlin are still so great, it is doubtful that any likely increase in German assistance will reduce the need for U.S. assistance, but will permit some further improvement in Berlin without bringing about a fully satisfactory economic situation.

You may also have been informed that the President, Secretary of State, and Mr. Stassen, after considering the problem recently, decided on the amount of economic assistance which would be required in the coming fiscal year. Our ultimate aim is to come as close as possible to complete recovery in Berlin based on a more active commercial relationship between it and the rest of free Europe. In order to realize this objective it is very important that OSP be used in so far as can be helpful to increase the level of business in Berlin. This means not only direct purchases in Berlin but also encouragement of OSP contractors either in the Federal Republic or elsewhere in Europe to subcontract in Berlin and to place whatever business they possibly can there. While we can not believe that efforts along these lines can overcome the handicaps which Berlin’s unnatural and difficult position imposes on it, the need is so great and unemployment is still at such a high level that any feasible increase in the orders placed in Berlin will be most helpful.

HICOG’s telegram concentrates largely on the unusual situation in the Federal Republic. As we see it, an effort at this time to bargain the amount of OSP in the Federal Republic against concessions in other fields involves two major problems.

First, the Germans have just agreed to let us spend DM which are due to us in repayment for surplus property transferred to them some years ago without paying German taxes on the expenditures. The Germans consider that they have made a substantial concession since they consider OSP as exports and had expected to receive foreign exchange for it. They apparently expect OSP to be large enough to bring them foreign exchange as well as DM.

The second point, which is most confidential and could not possibly be discussed with the Germans at this stage, results from the examination which the NSC recently undertook of our future problems in connection with the German defense contribution and U.S. military assistance to Germany and the EDC. The study which was made for the NSC suggests that the Germans will have a substantial financial capability for defense and will themselves be able to pay for all the military equipment for their forces which can be procured elsewhere in Europe, including the U.K. This has suggested to us the possibility that Germany through the EDC might later be asked to pick up and pay for contracts to be placed in Germany destined for the use of German EDC contingents, particularly the vessels which the Navy is considering procuring in Germany.

We therefore believe that we should not attempt to bargain OSP contracts in Germany for concessions by the Germans since to do so could make it more difficult for us to take up with them and the EDC at the appropriate time the possibility, outlined above, which could, we think, make possible very substantial savings in dollar funds.

I would like very much to have any comments you have on these ideas and I am sure that they will be carefully considered in the Department and the other agencies concerned. Please drop me a line if you get the chance or we can discuss this problem further the next time you are in Washington.

I am sending a copy of this letter to Ambassador Conant in Bonn.

Sincerely yours,

Frederick E. Nolting, Jr.

1. Telegram 411 reported, inter alia, that HICOG favored the placing of as much of the OSP program for West Germany as possible in Berlin and added that firms in West Germany with branches or subsidiaries in Berlin should also get contracts. (762A.5 MSP/12–3153)