Foreign Relations of the United States, 1961–1963, Volumes VII, VIII, IX, Arms Control; National Security Policy; Foreign Economic Policy, Microfiche Supplement

339. Paper, January 10¹

January 10, 1961

Proposed Settlement of
Vested German Assets Problem

Background

German (and other enemy) assets located in the United States on December 7, 1941 were vested by the Alien Property Custodian under the authority of the First War Powers Act of December 18, 1941. The present value of the German assets originally vested is between $300 and $400 million.

In the Paris Reparations Agreement of 1946 the U.S. and 17 allied nations (excluding the Soviet Union and Poland) agreed to retain vested German assets within their territories as a form of reparations. They also agreed to hold or dispose of these assets in such a way as to preclude their return to German ownership or control.

In 1948 Congress enacted legislation (the War Claims Act) which provided that:

1. Vested German and Japanese assets would be retained by the United States without compensation to the former owners;

2. Priority would be given to using the net proceeds from liquidation of the vested assets for paying compensation to American civilian internees of the Japanese; to American servicemen captured by Germany, Japan and other governments which had failed to provide adequate subsistence as provided by the Geneva Convention; and to certain Philippine religious organizations that had rendered aid to American personnel. About $224 million of the proceeds of the vested assets have been used for purposes of the War Claims Act of 1948.

(The 1948 Act did not provide for the payment of war claims of Americans arising out of war-caused property damage but authorized a study of the problem.)

The War Claims Act in effect endorsed the principle of retaining vested assets as provided for in the Paris Reparations Agreement, by utilizing vested German assets to satisfy certain American war claims.

The Paris Reparations Agreement was followed by the Bonn Convention of 1952 between the U.S., U.K., France and Germany for the Settlement of Matters Arising Out of the War and Occupation. This Convention provided that: (1) Germany would compensate its own nationals for the loss of vested assets and (2) the U.S., U.K., and France would not assert any claims for reparations from current production or pending a peace treaty. In the Bonn Convention Germany reserved certain rights to pursue the question of vested assets even though it agreed not to raise objections against measures carried out regarding vested assets. The Bonn Convention was confirmed in the Paris Protocol of 1954, which came into force as a treaty on May 5, 1955.

For the past six years the German Government has been unceasing in its efforts to obtain a return of the German vested assets. Notwithstanding the Bonn Convention, return has become an important political issue in Germany and a continuing irritant in U.S.-German relations. Chancellor Adenauer has frequently intervened with President Eisenhower and other U.S. officials to press the German viewpoint.

Prior to World War II the United States had historically maintained the principle of the sanctity of private property even in time of war. (For example, the Settlement of War Claims Act of 1928 provided for the return of 80% of the property vested in World War I and vested Italian assets were returned to Italy after World War II.) Also, German agreement to American retention of vested assets in the Bonn Convention of 1952 was widely felt by the German public to have been extracted from the Germans at a time when they were in a weak negotiating position. On balance, the Department of State felt that, notwithstanding the undoubted legal rights of the United States, the Germans had a strong moral case.

Accordingly, on July 31, 1957 President Eisenhower announced the intention of the Executive Branch to submit to Congress a proposal to pay in full all United States war claims against Germany and to provide, as an act of grace, an equitable monetary return to former enemy owners of vested assets.

In March 1958 the Executive Branch was prepared to submit to Congress a plan under which (a) $100 million would be earmarked from the vested assets account for the payment of American war claims against Germany; (b) natural persons (but not corporations) who were former owners of vested German properties would be compensated up to $10,000 per claim;² and (c) any additional available sums from liquidating the remaining vested assets would be used first to compensate American war damage claimants in the event the initial $100 million proved insufficient, and second, to pay former owners of vested German properties who might not have received a full return under the $10,000 program. If the $100 million proved to be more than sufficient to satisfy all American war claims then the balance would be used for additional payment to former German owners.

This program was to be financed from the proceeds of vested German assets not wholly liquidated, plus an appropriation of $100 million, representing a substantial part of the proceeds of German assets already liquidated and earlier used for the payment of American claims against Japan.

This plan was never submitted to the Congress because of the objections of the German Government, which felt that the plan would not provide adequately for a return to the larger former owners (i.e., corporations and large owners whose interests exceeded $10,000). The Executive Branch thereupon decided to submit legislation to settle the American war claims problem alone, hoping in this way to remove one of the chief obstructions to the settlement of the vested assets problem. The Executive Branch had repeatedly informed the Congress that enactment of legislation authorizing the payment of American war claims out of the vested assets account was a necessary pre-condition to any return program. Legislation for this purpose passed the House of Representatives in 1960, but there was not time for its full consideration by the Senate. During the Congressional discussions of war claims it became clear that majority sentiment was opposed to any substantial return to Germany on the vested assets account.

The German Government has continued to press for a settlement of the vested assets problem. Late in 1959 they proposed that payment of the vested assets should be made from the amount owed by Germany to the U.S. under the GARIOA agreement.³ The principal sum remaining under the GARIOA agreement is now $787 million to be paid over a period of 27 years at 2½% interest, with no principal payments due during the period 1961–65. The Germans were informed that any payment of vested assets out of GARIOA debt would require approval by the Senate of a treaty amending the GARIOA agreement, which was originally approved as a treaty.

In the protracted discussions with the Germans on the vested assets problem the Germans have taken the position that an equitable settlement would be a two-thirds return of assets which they estimate at $400 million, or a settlement of $267 million. They have agreed, however, to accept $200 million as a compromise lump-sum settlement. The position of the U.S. has been that an appropriate settlement would be the sum of the German assets used to pay American claims against Japan, plus whatever assets remain in the German vested assets account after payment in full of American war claims against Germany. Our best estimate is that this total sum would be $175 million, calculated as follows:

	(In millions)
Value of present (unliquidated) GermanAssets Account	$152
Less anticipated administrativeexpense	11
	$141
Minus American war claims (estimated)1	100
Net		$41
German assets used to pay Pacific claims		134
Total		$175

1Based on estimate of head of Foreign Claims Commission two years ago. There is no assurance, however, that actual validated claims will not be larger.

During the recent discussions with Germany on actions which it might take to assist the U.S. balance-of-payments, the Germans have indicated that they might now be prepared to prepay the GARIOA debt provided only that an amount could be deducted to settle the vested assets problem. This would mean a payment to the U.S. of approximately $600 million, which would be of very substantial benefit to our present payments position and would also be a substantial savings to the U.S. in view of the very low interest rate and long term provided for in the GARIOA agreement. In fact, viewed as a straight business proposition prepayment of the GARIOA debt would save the U.S. an amount equal to the greater part of the cost of an equitable return on the vested assets.

It is not yet known whether the Germans would insist on conditioning prepayment of the GARIOA debt on approval by the Senate of an offset for the vested assets program, or whether they would be satisfied with a commitment by the Administration to submit an offset treaty to the Senate for approval. If the latter is the case, the Germans would pay immediately all of the GARIOA debt except that amount determined to be needed for the return program; and only the allocation of the residual amount to the return program would be conditioned upon approval by the Senate.

In its most recent discussions with the Germans, the U.S. has indicated that because of the various political difficulties surrounding the vested assets problem the U.S., in undertaking a specific legislative program for the return of the vested assets, would wish to be assured that Germany would take action not only to prepay the GARIOA debt but also to assist the U.S. balance-of-payments in other fields, including additional military procurement in the U.S. and removal of certain trade restrictions against our agricultural exports. There is reason to believe that Germany is prepared to take these additional steps as a part of an overall package including settlement of the vested assets. They may also be prepared to pay for part of the cost of U.S. military aid programs to Greece and Turkey. An over-all arrangement of this kind would not only be beneficial to the United States but might also dispose the Senate to approve the proposed treaty providing for a return program.

Recommendations:

1. It is recommended that, promptly after the new Administration takes office, the U.S. should seek to conclude the current discussions with Germany on the basis of the following principles:

(a) Immediate prepayment by Germany of $600 million of the GARIOA debt, leaving a residual of $187 million.

(b) Conclusion with Germany of a treaty amending the GARIOA agreement to provide that the residual of $187 million be cancelled in full settlement of the vested assets, with a specific understanding that Germany will compensate the private German owners. (The figure of $187 million would split the difference between the German figure of $200 million and the earlier American figure of $175 million. The vested assets account of $152 million—net $141 million—would then be used exclusively for the payment of American war claims.)

(c) Action by the Germans in the fields of additional military procurement in the U.S., the elimination of certain trade restrictions to assist the American balance-of-payments and, if possible, German payment for part of the cost of our military aid programs for Greece and Turkey.

1. “Proposed Settlement of Vested German Assets Problem.” Confidential. 7 pp. Department of State, Central Files, 811.10/1–1361.
2. Estimated cost: $50 million.
3. Government and Relief in Occupied Areas. The Agreement of 1953 provided for German payment of $1 billion, or about one-third of U.S. expenditures.