Foreign Relations of the United States: Diplomatic Papers, 1945, European Advisory Commission, Austria, Germany, Volume III

740.00119 Control (Germany)/9–3045

The Secretary of State to the United States Political Adviser for Germany (Murphy)

Washington, October 12, 1945—8 p.m.

663. Personal for Murphy from Clayton. Following is reply urtel 655⁴⁹ concerning appropriate extent of industrial removals from Germany and German post-war economy.

1. Dept has examined report on minimum German standard of living forwarded with your Despatch No. 998⁵⁰ and regards that report as an inadequate basis for finally determining either the appropriate level of industrial production or removals from Germany or for judgment on their consequences for U.S. or European position.

2. On difficult technical issues involved in calculation of basic structure of post-war German economy Dept believes Control Council should avoid hasty conclusions and continue study exploring alternative means of achieving a satisfactory foreign trade balance. Your attention is invited to a more detailed interim study⁵¹ completed by EOU⁵² London Embassy and forwarded USGCC which is based on zonal statistics, and may therefore be more directly useful to the Control Council. A further analysis under direction of Dept in Washington which will incorporate results of earlier studies should be completed within a month. This report which will include recommendations on levels for particular industries, will be forwarded to you on completion. Suggest U.S. position be reserved until receipt and consideration of this report. This should not exclude continuance of exploratory discussions, for reasons indicated below should in no way limit or deter advance deliveries.

3. Principal objection of Dept to report is that conclusion as opposed to analysis is seriously misleading. Report does not prove that large scale removals are incompatible with permitting post-war Germany a standard of living approximating European average. It is clear that very large removals can take place from available German capacity in western zones in respect of such industries as steel, machine-tool using industries, and chemicals, much expanded 1938–1944, before reaching level of industry required for pre-war German peace-time needs let alone levels envisaged in Berlin Protocol. (See EOU Report noted Para 2, above and Table III Hoover Report⁵¹). Hoover Report fails to make clear that such an excess is available, even should apparent foreign trade deficit be met by additional exports from these industries rather than by reduced imports or removal of occupation costs. However, in view of questions about size of necessary imports, status of occupation costs, and size of realizable exports from industries of low military importance, it is not yet clear that additional exports from metal-fabricating and chemicals groups will be necessary to achieve foreign trade balance.

4. The large deficit in foreign trade which emerges in Hoover Report is based on particular technical assumptions which require further examination. Specifically, it appears possible that exports may have been estimated too conservatively, and that food imports of different constitution and lower value may prove consistent with the standard of living objective. In addition the size of the deficit is heavily affected by the assumption that costs of occupation incurred outside Germany will be fully met out of foreign trade proceeds. This whole question is under examination by Dept and subject to later decision. Present view does not favor collection of occupation costs from foreign trade proceeds.

5. Dept does not believe that large removals in accordance with Berlin Protocol over the next year or two will give rise to need for increased U.S. assistance. Evidence indicates that, at present, and over the next several years, the supply of available industrial equipment will not be the limiting factor on German economic recovery. Other limitations will prevent the reactivation of a large proportion of German plants. The revival of the German economy over the short period appears contingent, primarily on improvements in coal and raw material supply, transport, on expansion of inter-regional and inter-zonal trade, and in general on efficient reorganization of German economy.

6. To the extent that the immediate revival of industrial production may depend on industries which will be subject to some removals (for example, steel), a selective earmarking of plants for retention might be considered. Just as it is clear that some steel and machine-tool capacity can be removed without prejudicing the appropriate final level, it is clear that some can be retained. The revival of particular plants should, of course, be related to immediate or foreseeable domestic peaceful needs.

7. For reasons given below, we cannot agree that program of removals will have a marked effect on progress of European economic recovery as a whole either from short-term or long-term point of view.

(a) In short run, economic recovery in Europe as in Germany is determined by availability of coal, transport, raw materials, and food, rather than productive equipment. As long as this condition exists, reactivation of industry in United Nations must have priority over that of German industry. Germany can make maximum contribution to short-term economic recovery of Europe by maximizing exports of coal and other products of extractive industry and by selective rehabilitation of certain German consumer goods industries like textiles. It is not envisaged that removals will prejudice shipments of goods in above categories to rest of Europe.

(b) In long run reparation removals will not bring about substantial reduction in European capacity as a whole but will bring about a shift in relative industrial strength of Germany and of rest of Europe. Moreover, prescribed reduction in German standard of living and German industry for purpose of determining removals for reparation should not necessarily be regarded as permanent. Whole question of restrictions on German industry will presumably be considered anew in framing of peace settlement; and it is assumed that within such limitations as may be imposed in a peace treaty, the Germans will be free to expand their standard of life. In that process, it is believed that German thrift, energy and organizing skill will be more important determinants than past removals of industrial equipment, although it is realized that removals may well affect rate of recovery after conclusion of peace treaty.

8. Dept suggest that in further studies of this question emphasis be placed on (1) means of reducing Germany’s necessary imports; (2) possibility of larger exports from industries not of military importance; and (3) maximization of removals after allowance for minimum necessary exports from industries of military importance such as metal-fabricating and chemicals industries. It is view of Dept that removal of a large portion of such industries will prove possible under any reasonable scheduling of imports and exports. Dept requests you keep it constantly advised of progress of these studies.

9. In short, Dept believes, on basis of all evidence available including Hoover report, that large industrial removals from Germany are compatible with and required by other U.S. objectives in Germany and elsewhere in Europe. [Clayton.]

Byrnes

49. Dated September 30, 10 p.m., p. 1320.
50. See footnote 95, p. 1320.
51. Not printed.
52. Enemy Objective Unit.
51. Not printed.