258. Memorandum of Conversation1
- Meeting between Vice Chancellor Erhard and Secretary Rusk, January 9, 1962
- Vice Chancellor Ludwig Erhard, Federal Republic of Germany
- Mr. Wolfram Langer, Chief, Economic Policy Division, Ministry of Economics
- The Secretary
- Mr. C. Arnold Freshman,GER, Department of State
The Secretary asked whether there were any special points the Vice Chancellor wished to raise before his visit comes to an end.
Professor Erhard stated he wished to review what was being done for Berlin by the Federal Republic. In addition to special ERP grants and loans, Berlin receives direct budgetary support of DM 1.1 billion; businesses [Page 733] in Berlin receive tax benefits and the people of Berlin are accorded preferential income tax allowances. Since August 13, DM 500 million has also been provided to enable the city to initiate cultural events and improve the economic situation. Sales have risen 7.4 percent over the same period last year and there is no unemployment. The Federal Republic is in constant contact with the Senat. There are plans to make Berlin a pedagogical center through attraction of teachers and creation of broader educational facilities. Particular emphasis will be placed on financial measures to increase the number of students resident at Berlin universities, especially from other countries. Professor Erhard stated that the impression of the wall on visitors, students in particular, is so great as to immunize them from communism.
Berlin’s problem is depression, moral and emotional. Here the U.S. can do a great deal, especially in the field of emotional reinforcement. Last week Erhard had talked with Mr. McCloy of the Ford Foundation. The Foundation would like to give some thought to their possible role, particularly looking to stimulating some activity in research, or by setting up a branch office in Berlin to handle cultural activities. President Kennedy’s proposals to promote Berlin exports and for U.S. participation in trade fairs would be especially useful. Perhaps export firms should be encouraged to set up branch offices in Berlin. The extent to which U.S. business could be induced now to invest in Berlin would testify to their confidence in that city and would serve to encourage capital from West Germany. The substantial tax benefits accorded firms doing business in Berlin would assist in the write-off of their investment. The morale effect of new U.S. business in Berlin would be tremendous. The West German National Association for Manufacturers (Bundesverband des Deutschen Industrie) might be induced to establish a permanent branch in Berlin. Large projects are not needed, but whatever is done should be visible and publicized. Other measures are also possible, but progress in this direction would be convincing evidence, especially to the Soviet Zone, of U.S. and allied determination not to abandon Berlin.
The Secretary stated that the enormous efforts of the Federal Republic in Berlin were appreciated. He asked whether U.S. banks, for example Chase Manhattan, could establish branches in Berlin, to which the Vice Chancellor responded that this was a good idea, and it would also bring in business.
The Secretary then noted that he had raised the question for immediate consideration whether the Buy American policy could be relaxed to enable our post exchanges to place orders in Berlin.
Secretary Rusk adverted to the passage in the Khrushchev memorandum to Kroll 2 in which he linked the wall with outside subsidies to [Page 734] Berlin. The Secretary asked Erhard for his opinion on what Khrushchev might have had in mind, noting that Khrushchev had indicated that the wall would continue to exist until Berlin became self-sufficient. The Vice Chancellor responded that to exist Berlin needs about DM 2 billion annually in outside assistance. Converted to the Federal Republic, this would compare to about DM 50 billion. If the economic level in Berlin is thus depressed, Khrushchev would have achieved his objective.
The Secretary stated that thinking ahead to the course of the discussions with the Soviet Union, he wanted to speculate on one point. Khrushchev seems to believe that a rapid erosion of life in Berlin will ensue, even under today’s situation. He may delay measures because of this element of erosion. Did the Vice Chancellor believe that in the absence of any accord between Moscow and the West the situation in Berlin is likely to deteriorate rapidly, or is Berlin sustainable by the means which have been discussed? Erhard stated that if Berlin is convinced that time will run against the West, that Berlin is to be nibbled away, then Khrushchev is in a very good position.
Herr Langer then interjected the point that every city draws on its suburbs for its human resources. This being no longer possible for Berlin, the city stands to lose 25,000 to 30,000 in population annually—entirely apart from the situation of Berlin’s aging population—which would in ten years mean a loss of 250,000 people or more.
The Secretary asked about possibilities for inducing younger West Berliners now living in West Germany to return to West Berlin. The Vice Chancellor noted that this factor did not begin on August 13. Better opportunities exist for them in West Germany although they retain their intrinsic ties to Berlin. To stimulate the movement of labor to Berlin at this time, the Federal Republic was providing marriage subsidies, non-interest bearing loans and paying moving costs to Berlin, among other benefits. Over 1,000 persons now relocated in Berlin from West Germany under this stimulus had found employment.
Prefacing with the comment that his query should not be construed as representing or indicating U.S. policy, the Secretary observed that during the period of the airlift the performance of the Berliners had been fantastic, but that they were then inured to situations of crisis. He wondered whether subsequent prosperity of the city might have had an undermining effect on Berlin morale so that they may not now be as disposed today to face a similar situation. The Vice Chancellor stated that the inner moral fortitude of the Berliners is unchanged; they will be all right so long as they continue to believe in the Federal Republic and the West.
The Secretary said that this point is very important. We are determined to stand fast on Berlin, but it is important that the Berliners be [Page 735] equally prepared. He added that the Vice Chancellor’s views on this point accorded with those of General Clay.
The Secretary asked if Minister Erhard felt that the GDR was attempting to reduce the extent of its economic dependence on the West. Erhard replied in the negative. He stated that interzonal trade flows without a hitch. This is not due to GDR love or sympathy for the Federal Republic; interzonal trade is more important to the GDR than to the Federal Republic. While there are certain signs that the GDR is drawing on countries other than the Federal Republic for some of its industrial needs, they would have difficulty switching to new sources since their capital equipment is primarily of West German origin. Erhard then noted that it would be desirable if talks (with the Russians) could begin as soon as possible. A nervous reaction could develop if the feeling arose that talks are being delayed for any reason.
The Secretary said that we will be conferring closely with the Federal Republic on the talks with the Russians. He asked that Professor Erhard convey his regards to Chancellor Adenauer and Foreign Minister Schroeder. The Secretary noted in conclusion that Lord Home would be in Berlin the next day and that this would be a tangible sign of our interest.
Professor Erhard expressed his strong interest in the matters discussed with the Secretary yesterday and during this meeting.3 He felt that everything that could now be done for Berlin—whether of a social, cultural or economic nature—would be a great help and would have considerable effect without necessarily entailing large expenditures.
- Source: Department of State, Central Files, 762.00/1-1162. Secret. Drafted by Freshman on January 11 and approved in S on January 18. Erhard was in the United States to speak at a dinner of the Economic Club in New York on January 10.↩
- See Document 247.↩
- A memorandum of Erhard’s conversation with Rusk on January 8, devoted primarily to trade policy and the Atlantic Community, is in Department of State, Secretary’s Memoranda of Conversation: Lot 65 D 330.↩