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

341. Memorandum from Ball to Rusk, January 30¹

January 30, 1961

I am enclosing a memorandum regarding balance of payments negotiations with the Germans, with particular reference to the settlement of the vested German assets question.

I met today with Foy Kohler, Bill Macomber and Ed Martin to discuss some of the political elements that are involved. Foy Kohler is sending you an EUR memorandum evaluating the German political considerations involved in the negotiations and the vested assets question.

Attachment

January 30, 1961

SUBJECT

• Balance of Payments Negotiations with Germans and Vested German Assets

This memorandum covers two subjects:

1. It responds to your request for my comments on Mr. Dillon’s memorandum of January 13, 1961 (Tab B) regarding the present negotiations with the Germans on actions to support the United States balance of payments position. It deals specifically with the question of whether we should accede to the probable German demand for the settlement of the German vested assets issue.

2. It deals generally with the question of the German negotiations.

I

German Vested Assets

I recommend against the United States undertaking a commitment with respect to the return of German vested assets as a condition for German agreement. I do so for the following reasons:

1. We should, I believe, insist that the Germans take the measures under discussion without requiring as a quid pro quo that we satisfy a totally unrelated demand. The actions we are asking the Germans to undertake are consistent with their obligations as a responsible member of the Western community to help relieve our balance of payments deficit which is attributable to the heavy burdens we are carrying for the defense and economic development of the whole free world. It seems to me that we would detract from the logic of our position by acceding to an irrelevant demand of this kind.

2. We are under no legal obligation to compensate the Germans for the vested assets. Agreements made following the war explicitly provide that the United States is to retain the proceeds of the assets and that only the German Government has any obligations to reimburse the owners of the assets. The fact that the German Government has not seen fit to make such reimbursement is not our responsibility.

3. Nor do I believe that there is any moral basis for the German claim. It cannot even be justified on the ground that the proceeds would be restricted to small holders since there is no limitation of the amount which would be payable to any single claimant.

4. The question of the vested assets is, as you know, highly controversial. To agree to a settlement of the assets question along the lines proposed would provoke opposition on the part of Americans with war damage claims against Germany who have not yet succeeded in obtaining legislation to provide for their compensation. In addition, we can certainly expect that a settlement of the German assets problem would evoke renewed pressures for us to settle the Interhandel (General Aniline and Film) matter with the Swiss as well as other vested asset problems with the Japanese.

5. If the Administration were to accede to the German request it would then be in a position where it would either have to take the full responsibility for attempting to justify the German assets settlement on legal and moral grounds—which it could not do in good conscience—or disclose to the Congress that the settlement was being exacted by the Germans as the price for their cooperation in assisting on balance of payments difficulty.

The first alternative would represent a burden that the Administration should not be asked to assume.

The second alternative might very well generate resentment against the Germans which could poison the atmosphere for our whole foreign aid presentation to Congress.

I think it would be unwise for the Administration to accept the onus of defending either position. This feeling is intensified by the fact that the Congress would quite likely refuse to approve the legislation which the Administration requested. It has been suggested that the Germans would be satisfied if the Administration merely sought legislation, even though unsuccessfully. But I do not think that the President should run the risk of having Congress turn him down on such an issue. He will have too many other important battles to fight.

6. To the best of my knowledge there are only three arguments that could be made in support of acceding to the German demands:

(a) The vested assets question is an important domestic political issue in Germany. The granting of the concession would help Chancellor Adenauer in the fall election.

(b) In 1957 President Eisenhower issued a statement expressing his willingness to submit legislation to Congress providing for compensation to former enemy owners of vested assets. The legislation proposed by the Eisenhower Administration pursuant to this declaration provided for an initial return limited to $10,000 to natural persons. Further payments were authorized in the event an unexpended balance were available after making certain prescribed payments. The German Government rejected it as inadequate.

(c) The urgency of the United States balance of payments deficit problem requires that we take whatever action is necessary to obtain action by the German Government as promptly as possible. It may be contended that we cannot expect a prompt response from the Germans to assist us in this problem unless we agree to concede the German asset question.

7. In approaching this question I do not believe that the Kennedy Administration should feel bound by any statements of policy which President Eisenhower may have made on this question, nor do I think that we should feel committed to any preliminary negotiating positions that may have been taken during the discussions in Bonn. For the Kennedy Administration to risk defeat on such an unpalatable issue seems to me so disadvantageous as to override any countervailing considerations.

8. I strongly recommend that we take a whole fresh look at the problem of negotiating with our allies toward a solution of the balance of payments problem. To the extent possible it seems to me desirable that these negotiations be undertaken on a multilateral basis. Our bilateral negotiations with the Germans have not produced a happy result so far. Most of the major issues remain unresolved and we are now waiting for the Germans to come forward with concrete proposals.

9. As you know, the President plans to present a message on the balance of payments early in February. In that message he will put forth a new set of measures to ameliorate the balance of payments problem. These will include action through the OECD to obtain commitments from balance of payments surplus countries (particularly Germany) for economic and financial policies to relieve the United States balance of payments situation. I think we might well prejudice our position in multilateral negotiations by establishing the precedent of a negotiated settlement in which we agree to pay for actions on the part of our European partners in an irrelevant currency.

10. I am attaching a suggested reply to Secretary Dillon for your signature.

II

German Negotiations Generally

During the last ten days I have had private talks with almost all the members of the Senate Foreign Relations Committee and have also had a long visit with Speaker Rayburn. From these conversations it seems quite clear that if we are to be successful in obtaining passage of adequate foreign aid legislation we must be able to produce tangible evidence that our European partners are prepared to carry a heavier burden in this area.

This means that we must press quickly ahead for a resumption of the German negotiations. So far, the Adenauer Government has been uncertain as to the attitude which the Kennedy Administration would take toward German political problems. I think we would be well advised to push forward for a larger German contribution to our common responsibilities before giving the Adenauer Government too many assurances regarding our sympathy for their position on any of the problems which concern us.

With that in mind I have proposed in the attached letter to Secretary Dillon that you, he and I meet very soon to review the whole situation. (Tab A).

I am having a comprehensive background memorandum prepared which I shall send you shortly.

Recommendation: that you sign the letter to Secretary Dillon at Tab A.

George W. Ball

Tab A

February 1, 1961

Dear Doug:

I have your memorandum of January 13 and attached memoranda relating to the negotiations with the Germans over actions they might take that would assist our balance of payments position. I have taken note of your recommendation that these negotiations be consummated as quickly as possible and, in particular, that the United States be prepared to reach an agreement to recommend legislative action for a limited return program for vested German assets as a contribution on our part to the satisfactory completion of the present negotiations. I am, of course, anxious to have these negotiations consummated quickly and successfully and would hope to proceed with them as soon as the Germans are in a position to translate their broad interest into specific proposals.

I do have substantial reservations with respect to any United States commitment to the provision of compensation for vested German assets. It is my understanding that this commitment would be directly related to the prepayment of the GARIOA debt and that the two items would constitute a separate component of the total package under negotiation. My reservations are briefly as follows:

1. The vested assets question is a highly controversial political issue in the United States and it is questionable whether it is wise or feasible at this time to seek Congressional approval to such a commitment given the past history of the matter. I would be reluctant to endorse a commitment to submit legislation if there were no reasonable assurance that approval for such legislation could be secured.

2. We are under no legal obligation to compensate the Germans for these vested assets. Any act of grace on our part would certainly provoke opposition on the grounds of equity, particularly from Americans with war damage claims against Germany who have not yet succeeded in obtaining legislation to provide for their compensation. In addition, such action would also lead to considerable pressure from the Swiss for the settlement of the Interhandel matter as well as from the Japanese for the settlement of their vested asset problems.

3. Although I regard constructive measures to solve our balance of payments problem as being of the highest importance, it seems to me that the Germans have an obligation to make a contribution to the solution of this problem without the need for any compensatory action on our part. Even if we should prejudice the prepayment of the GARIOA debt by our unwillingness to compensate for the vested assets or to consider the vested assets question as part of a negotiated package, I believe that adherence to this principle would outweigh the relatively minor contribution that the GARIOA debt prepayment would make to a durable solution of our balance of payments situation or to an improvement in confidence in the dollar.

4. Finally, the new measures which the President will outline in his balance of payments message will, I trust, make a substantial contribution to the solution of our present balance of payments problem. In particular, negotiations through multilateral arrangements, such as the OECD, offer a good prospect of obtaining further contributions from our Western allies in a position to make such contributions. I fear that we might well prejudice our position in multilateral negotiations by establishing the precedent of a negotiated settlement involving compensation on our part.

George Ball and I would welcome the opportunity of meeting with you at your convenience to review the vested assets question as well as the whole subject of the German negotiations.

Sincerely yours,

Dean Rusk

1. German negotiations on U.S. balance of payments and settlement of vested German assets question. Attached is a February 1 letter from Rusk to Dillon noting reservations about a U.S. commitment to compensate Germany for vested assets. Confidential. 8 pp. Department of State, Central Files, 811.10/2–161.