862A.10/7–1050: Telegram
The Secretary of State to the Office of the United States High Commissioner for Germany, at Frankfort1
385. For McCloy from Byroade. We agree with urtel 254 July 102 that sums involved appear necessary to prevent deterioration economic and social conditions Berlin. We therefore agree to use of GARIOA special account funds in amounts you requested either directly or indirectly to meet Berlin deficit.
[Page 863]As we understand situation, Fed Rep hopes to bring Berlin deficit down to DM 500 million for FY 1951. Fed Rep will make contribution DM 250 million and will seek GARIOA funds to cover balance deficit, which wld not be expected exceed 300 million apart from DM 170 million explained below. However, in Toeca 705 July 12,3 which forecasts payments from GARIOA Special Account in FY 1951, provision is made for DM 500 million (not DM 300 million) in support of Berlin, apart from DM 160 million for Berlin work projects through March 31, 1951 and DM 10 million for Berlin capital loan project FY 1951. We assume larger figure in budget is to guard against contingencies.
We had foreseen political difficulties outlined reftel in forcing FedRep maximize Berlin aid. This situation primarily was basis for amendment ECA act continuing deposits GARIOA Special Account, providing DM funds which cld be assigned to Berlin without requirement consent FedRep. However, we had planned such funds for emergency use but are disturbed that emergency such magnitude already upon us.
Unless other solution found, Berlin budgetary difficulties will continue at approximately present magnitude over next two years, and perhaps longer. In meantime, US dollar aid to Ger will diminish and US ability to provide DM aid to Berlin will sharply decline. Under present proposal, US will contribute DM 470 million to Berlin during FY 1951 which will exceed planned intake GARIOA special account for same period. We do not see how we can plan to make amounts on this order magnitude available next year or year after. If FedRep now refuses on political grounds assume larger share burden supporting Berlin, have we any reason to believe it will be prepared make larger contribution in FY 1952 or thereafter? If not, we may indeed have a problem.
Entirely agree that UK and France shld contribute something to situation, and agree reduction occupation costs offers reasonable opportunity. This wld, of course, involve similar action by US. With curtailment ECA appropriations, do not believe suggestion reducing ECA allocations wld be desirable element introduce such negots at this time. However, will make strong representations to Brit and Fr if you so desire, in addition to action reported Para 15 Bonn 27 July 14.4
[Page 864]Basic problem wld appear to be distribution resources within Ger. We had hoped Berlin problem cld be brought within manageable limits by plan such as that outlined by Schaeffer for shift to FedRep of fixed Berlin expenditures, but on scale considerably larger than he apparently intends, and by intensified investment which wld increase economic activity and thereby increase city revenues over period of time. This wld result in progressive reduction Berlin deficit, at same time US controlled funds diminished.
We note statement Para 3 urtel 54755 that FedRep if it assumed larger responsibility for support Berlin wld use this issue as pretext for deviation balanced budget policy. We think this less serious than assumption by US of commitment for long term support Berlin without funds in sight for carrying out commitment.
Our main concern is that FedRep not be relieved of its obligation under bilateral to support Berlin and that US not be committed to assume burden supporting Berlin for future. We wld also appreciate any ideas you may have for handling situation in FY 1952 and thereafter if Schaeffer proposal accepted now. [Byroade.]
- Repeated to London as 302 and to Paris as 297.↩
- Not printed; in it McCloy reported his belief that a supplement, not to exceed 300 million DM, was needed to meet the Berlin budget deficit. (862A.10/7–1050)↩
- Not printed.↩
- Not printed; it transmitted a summary of the Allied High Commission Council meeting of July 13, at which, inter alia, McCloy had urged the British (Sir Ivone A. Kirkpatrick) and French (André François-Poncet) High Commissioners to step up their financial aid to Berlin. (762A.0221/7–1450) At the Council meeting on August 10 in Berlin, McCloy again raised this question with his colleagues. Kirkpatrick, seconded by Bérard for the French, replied that his Government recognized the importance of Berlin, but had just agreed to additional expenditures for Western defense and until the Federal Republic gave substantial financial aid, no British contribution could be expected. McCloy expressed his disappointment at this attitude and the Council agreed to reconsider the matter after a review of the Berlin budget. Telegram 214, August 10, from Berlin, not printed. (740.00/8–1050)↩
- Not printed; it reported various aspects of Federal Finance Minister Schaeffer’s attempts to advance financial aid to Berlin. In paragraph 3, Frankfort reported its reluctance to bring additional strong pressure to bear on the Federal Republic to cover the full Berlin deficit since this would contribute to Bonn’s budget deficit and conflict with the United States policy supporting a balanced budget. Frankfort reported further that it was “convinced necessity for continuous pressure on Berlin Magistrat restrict expenditures.” (862A.10/6–2650)↩