41. Letter From Secretary of State Rusk to Secretary of the Treasury Dillon 0

Dear Doug: I have your memorandum of January 13 and attached memoranda relating to the negotiations with the Germans over actions [Page 107] they might take that would assist our balance of payments position.1 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:

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.
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 matter2 as well as from the Japanese for the settlement of their vested asset problems.
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 [Page 108] solution of our balance of payments situation or to an improvement in confidence in the dollar.
Finally, the new measures which the President will outline in his balance of payments message3 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 4
  1. Source: Department of State, Central Files, 811.10/2-161. Confidential. Drafted by Myer Rashish (B).
  2. Document 40. One of the attached memoranda is in the Supplement.
  3. Interhandel was a Swiss business concern that claimed shares in the German company, General Aniline and Film Corporation. Several of the latter’s plants located in the United States were seized by the U.S. Government during World War II.
  4. Reference is to the President’s upcoming special message to the Congress on February 6. See Document 2.
  5. Printed from a copy that indicates Rusk signed the original.