740.5/2–2352: Telegram

The United States High Commissioner for Germany ( McCloy ) to the Department of State 1
secret
niact

1681. Fourth cable.2 Press communiqué to be issued by FedRep not to be released prior to time set by FonMins in Lisbon.

The negots between the United States of America, the United Kingdom and the French Republic, on the one hand, and the Ger FedRep, on the other, in respect of the amt of the FedRep’s financial def contribution have produced as a provisional result the fol proposal of the Fed Govt.

The Fed Govt has declared its willingness to base the assessment of its def contrib in NATO year 1952/53 (1 July 1952 to 30 June 1953) on the recommendations of the three Wise Men (Exec Bureau of TCC). In this connection, the contracting parties based their considerations on the assumption that the expected effective date of the convention on the estab of a Eur def community and of what is referred to as the general agrmt will be at a date which will probably not require more than eight monthly installments of the def contrib to be charged against the Fed fiscal year which ends on 31 March 1953. Final determination of the deductible budgetary expenditures in the Fed Govt for def purposes cld not take place, since the recommendations of the Exec Bureau of the TCC gave no specific figure hereon. Therefore, the Fed Govt has suggested a provisional arrangement. This arrangement provides that the FedRep will pay a monthly def contrib averaging DM 850 million up to the end of NATO year 1952/53 (i.e. up to 30 June 1953). In doing so, the Fed Govt has made the proviso that, if the increase in the Ger national income as envisaged in the Exec Bureau’s recommendations were not to be forthcoming to the extent expected, which wld mean that the FedRep’s capacity to pay was being overtaxed, it will request financial aid for such period as will lapse until the def contrib can be re-assessed.

The def contrib is to be re-assessed in the light of the econ and fin development before 30 June 1953 not later, however, than simultaneously with the periodic reviews, of the def contribs of all participating countries, which are to take place in August of each year. The purpose of such review is to assess the Ger FedRep under the same principles as apply to all participating countries. Simultaneously with such review, a final ruling is to be made as to what budgetary expenditures [Page 257] of the FedRep are to be recognized as expenditures for def purposes and are, consequently, chargeable as part of the def contrib. In this connection and in addition to the clarification of the problem of maintaining internal peace, there is, in particular, to be brought about a final solution of the problem of deductibility of aid to Berlin.

The recommendations of the Exec Bureau already emphasized that Ger has to bear the heaviest or, at least, one of the heaviest of the tax burdens shouldered by any of the Western nations. The recommendations likewise recognize that a further substantial increase of the Ger tax burden is not deemed feasible. The arrangements proposed by the Fed Govt will presumably permit refraining from increases in the Ger tax burden.

If the convention on the estab of an EDC and the gen agrmt shld become effective as from 1 August 1952, the expenditures for occupation costs and the contrib for the 1952/53 fiscal year will add up to approx DM 8.8 billion. The amt of def contrib for the fol NATO year (1 July 1953 to 30 June 1954) will, by means of a further revision, be assessed according to the same principles as apply to all countries and in the light of the development of natl income and financial capacity.

Mccloy
  1. This telegram was repeated for information to Lisbon, Paris, and London. It appears that this telegram was discussed at tripartite meetings in Lisbon on Feb. 24 and 25; see the U.S. Delegation record of the AchesonEdenSchuman meeting, Feb. 25, p. 159.
  2. This is the last telegram in a series of four reporting on the German financial contribution to defense. The others, telegrams 1678, 1679, and 1680, are not printed.