740.00119 Control (Germany) /12–3145
The United States Political Adviser for Germany (Murphy) to the Secretary of State
[Received January 2, 1946—1:15 p.m.]
1363. See our telegram 1323, December 22, 3 p.m. Despite compromises by all members, the Coordinating Committee was unable, at its special meeting of December 31,19 to reach final agreement on the level of German steel industry.
Sokolovsky pointed out that Russian figures were from League of Nations handbook of 1938 which gave the European population without Germany at 270 million, with European steel production outside of Germany (not including exports and imports) at 20.3 million tons, thus giving consumption of steel per capita at 75.2 kg. On the basis of German population of 62 million, this would indicate an annual level of German steel production at 4.66 million tons. General Templer20 replacing Robertson (who was ill) stated that British Delegation strongly believed it was not economically sound to determine steel figure divorced from other industrial figures. Clay supported the British position in favor of an overall analysis and pointed out that if an industry by industry basis were used it might be necessary to build up certain industries in Germany which have been below level of rest of Europe. Sokolovsky stated that Soviet is primarily [Page 1500] concerned with steel industry because of its relationship to war potential.
Clay pointed out that the Coordinating Committee previously agreed to a figure of the present population of Germany at 65 million. Sokolovsky agreed to use the 65 million figure, thus raising the Russian proposal to 4.9 million. French member pointed out that it has also been agreed that an additional 6½ million German refugees will return to Germany by the spring of 1946 and thus the population figure should be approximately 71 million. Sokolovsky refused to use that figure.
French member asked why Germany had not been included in calculating the overall European average. Aside from this point, he argued that needs for reconstruction would require European steel production well over 1938 levels increasing the average above 75.2 kg. Sokolovsky argued that 1938 European steel figures included non-German production for war and thus the 75.2 kg. average might be considered too high.
British member argued that steel production figures must be calculated taking into consideration, not only war potential aspects but the additional Potsdam directive that Germany is to be allowed a level of industry to allow its existing without external assistance.
Clay proposed a compromise of 5.5 for internal German consumption subject to future agreement on exports. Assuming export figure of .7 the British agreed with Clay proposal assuming a total annual production of 6.2 million. British asked an annual review of this figure and also that “productive capacity” of 9.0 million tons be allowed to remain. Clay and Koeltz both refused to accept the productive figure of 9.0 million tons but otherwise agreed with the British.
Clay argued that to obtain an agreed annual production there would have to be probably 20% additional capacity to allow for maintenance and repairs. This would be especially true as the newer and more efficient plants would be the first ones removed for reparations. The British favored a higher percentage, the French somewhat lower and the Russians reluctantly admitted a 10% figure might be appropriate. Clay asked that the matter of the figure be left to a quadripartite committee of experts.
British argued that 6.2 million annual production would not be sufficient to allow a balanced German economy and that British favored productive capacity of 9 million tons but would compromise to 8.
Sokolovsky agreed to minimum production of 5.0 plus agreed exports which left the Soviet figure 0.6 million tons below the 6.2 proposal.
At a further attempt at compromise Clay proposed annual production of 6.0 million with capacity of 7.2. After a recess the British [Page 1501] agreed to 6.0 annual production and reduced the British capacity figure to 7.5 with annual production to be reviewed each year by the Control Council “in light of existing export-import program and the approved needs of Germany” after French and American agreement, the Soviet refused to increase from its future of 5.6 plus 10% for additional capacity. Sokolovsky pointed out that while he considered 6.0 too high, he neither rejected nor accepted the figure but would have to have time for consideration. Clay pointed out that pending agreement on the steel figure and on the general level of industry, further progress on reparations would not be possible.
At the close of the meeting the British summarized their plan for Germany industry. The proposal provided for elimination of armament plants and aircraft manufacturing plants, elimination of entire German merchant marine and of certain industry with production and control of others. The British proposed:
- (1).
- Reduction in value of industrial output by over one-third that of 1938.
- (2).
- Reduction of output of metals and engineering by 60% of that of 1938.
- (3).
- Reduction in private and consumer expenditures 30% of 1938 levels.
- (4).
- Reduction in German diet by 20 to 25% of prewar.
- (5).
- Reduction in expenditures on textiles, books and shoes by 35% of prewar level.
- (6).
- Reduction in housing until by 1949 would be 30% below prewar.
- (7).
- Reduction of trade to allow for 3 billion reichsmarks of imports (presumably based on the 1938 value of the reichsmark) and 3.2 billion exports allowing a surplus of .2 billion which would be used toward costs of occupation.
- (8).
- Destruction or removal from each and of all capacities above minimum requirements. The above assumed no further territorial changes, and with an industry level related to agricultural level.
Clay stated that each country should submit its plan by January 10th and warned that the stumbling block might well continue to be steel with the American delegation reserving the right to revise its steel figures by that time.
Sokolovsky sarcastically referred to the British plan as safeguarding British interests through the elimination of aviation and shipbuilding and the maintenance of heavy industry which would allow Germany to fight on land but not on sea and in the air. Sokolovsky stated that a 20 to 35% curtailment of industry is not sufficient as German losses have amounted to this already, and therefore, in effect there would be no further curtailment.
General Clay deserves commendation for skillfully conducting the above compromise effort, which I believe will result in an agreement [Page 1502] on steel tonnage at next meeting of Coordinating Committee. Sokolovsky and Ivanoff21 privately have assured Clay and me that the 6 million figure will be acceptable.
Sent to Dept as 1363 repeated to Moscow as 117.