Foreign Relations of the United States, 1952–1954, Germany and Austria, Volume VII, Part 2

MSA–FOA telegram files, lot W–130, “Bonn Tomus”: Telegram

No. 576
The United States High Commissioner for Germany (Conant) to the Mutual Security Agency¹

secret
priority

Bonn, May 8, 1953—8 p.m.

Tomus 671. MSA pass State and Defense.

1. This cable contains analysis promised May 4 telecon² of effects on Berlin economic development of failure US make additional dollars available 53/54 to Berlin investment program.

2. Believe repercussions discontinuance economic aid to Berlin would be very serious. By June 30 MSA will have programmed C/P equivalent of over $100 million for economic recovery in Berlin in fiscal year 1953. Under present NSC decision,³ no new money could be programmed 53/54, as Germans already aware our plans program funds now on hand prior June 30. Berliners will not regard disbursements in fiscal year 1954 of funds programmed in fiscal year 1953 as equivalent new programs. Stockpile expenditures are not ordinarily publicized. Result will give Berlin public impression of sudden withdrawal US support Berlin recovery. With annual average industrial production at approximately 50 percent of 1936 and unemployment still 250,000, this would be heavy blow. The concept of slow but sure progress under long-term program has been essential ingredient of population and business morale. Without new US aid, many would undoubtedly conclude city condemned to permanent dependence Federal Republic dole at sub-standard conditions instead of being showplace economic achievements of West.

3. Important US economic aid Berlin lies not entirely in amount thereof but also in psychological bolstering effect and impetus which MSA C/P loans give Berlin general economic and business climate. Willingness Berlin and other entrepreneurs invest in new or expanded capacity Berlin depends to large degree on their assessment future development general Berlin economy. Impression that long-term investment program being abandoned could therefore have serious effect on level non-C/P investment. Also wish point out Berlin’s isolated position has led reluctance Federal Republic and foreign buyers place orders Berlin. This reluctance, which is being overcome only with great difficulty, would be increased if it even appeared US support Berlin being reduced. Investment projections presented Tomus A–168 of April 3⁴ are estimates only and not based on public or private commitments. These estimates reliable but predicated on assumption new C/P investment funds would be available to supplement public and encourage investment private funds since no other source long-term credits available. If no new dollar aid Berlin 53/54, total new non-C/P investment would probably be considerably less than level foreseen Tomus A–168. Result would be shortfall from employment targets for 53/54 set in long-term program.

4. We assume was not NSC intention US permanently withdraw financial support from Berlin investment program. Essentiality program is agreed all quarters. Program, based on belief that long-term economic responsibilities resulting Allied occupation Berlin can only be reduced by economic recovery of Berlin, has from inception been designed reduce necessity US expenditure this area. We still believe this proposition sound, and that failure to follow through on advantages achieved initial segments long-term program would constitute serious error. We assume NSC decision make no new dollars available 53/54 based on belief that because of availability undisbursed funds, failure make fresh injection would not imperil existence program. Analysis shows, however, continuation program 53/54 without new dollar allocation would utilize pipeline entirely during 53/54 and bring program to complete halt. Even assuming fresh appropriation 54/55, hiatus between appropriation and initial disbursement would probably exceed 6 months and total expenditures required would probably exceed those involved in an orderly continuation of program on long-term basis. Failure continue program might eventually necessitate considerable US expenditures over indefinite period for enlarged work relief program.

5. Failure grant new funds Berlin investment would also mean substantial abandonment equity financing program proposed Wood report.⁵ Unprogrammed funds now on hand insufficient to finance even initial program equity financing proposed Tomus 616,⁶ which was supported MSA/W in Musto 616,⁷ and which has been agreed Federal Republic.

6. If our objectives Berlin to be achieved see no alternative to continuation of investment program. As indicated by all our past and present economic analysis, we do not believe orders alone, through US military or otherwise, can ever make Berlin independent and self-supporting without accompanying investment to create and modernize capacity. Berlin industry losing many orders present time solely because inadequate financial resources grant acceptable credit terms. Permanent solution depends general strengthening Berlin economy.

7. Continuation US support of program essential. No prospect Federal Republic providing funds for program since already spending DM 600 million per year to subsidize city budget and bearing 85 percent of Berlin refugee costs. Total annual amount Federal Republic contribution to Berlin now DM one billion, or 300 percent of what it was three years ago. If we proposed that Federal Republic take over program Federal Government position would be that they have already a budget deficit situation and could not find money for increased government expenditures of any kind. (We are running into this German position on 12 month stockpile goal.) Taxes, social insurance contribution and Lastenausgleich, which Federal Republic claims takes 37 percent of GNP, have direct effect on chances of increasing public expenditure. Federal Republic attitude stems not from lack of sympathy with Berlin problem, but from preoccupation with general West German problems. We urging Federal Republic care for refugees, make defense contribution, enlarge stockpile and pay increased maintenance costs. Must always realize Berlin occupied area not normal land of Federal Republic, and city must compete for assistance with politically organized refugees and other pressure groups in West Germany. For example, powerful city of Hamburg has substantial unemployment problem and is determined to have Federal help. Federal Republic aid to Berlin now absolutely and relatively far greater than aid provided other West German distressed areas. Consequently, definitely cannot hope for increase in Federal Republic support particularly for investment, which is long run problem, in view other claims against Federal Republic funds which are of immediate pressing nature.

8. Disagree implication Robertson report⁸ that large amount idle capacity exists in Berlin which can be activated without further investment. Mission studies indicate bulk unutilized capacity due either bottleneck critical machinery which must produce from 16 to 24 hours per day in order that rest plant operate one shift, or fact capacity now non-competitive and obsolete. Removal such impediments to increased production and sales, plus construction of new types productive capacity, were purposes of all past investment. Berlin Senat, Chamber of Industry and Commerce, and Wood report all estimate existing capacity adequate to employ no more than 25,000–35,000 additional workers without construction new capital equipment. Assuming this could be achieved, increase would approximate growth of labor force. It would provide no decrease in unemployment. Additional employment objective in long-term program is 135,000. Significant that Wood report also foresaw need additional billion DM investment aid in Berlin over next 4 year period.

9. HICOG and Mission, therefore, recommend that NSC decision be reconsidered. We cannot conceive more important program from standpoint of maintaining the Western position in Berlin and US prestige and influence in Germany. We urge minimum $35,000,000 be made available for economy assistance Berlin fiscal year 1954. This figure represents considerable reduction from $60,000,000 originally considered necessary, but believe program could be maintained at adequate level through reduction of outgoing pipeline to approximately DM 80 million on June 30, 1954. This would permit gradual tapering off program if final decision reached discontinue, and would avoid shock of immediate cessation result no new aid at all 53/54.

Conant

1. Transmitted in two sections and repeated to Berlin and Paris.
2. Not further identified.
3. Presumably the reference is to NSC 149/2, “Basic National Security Policies and Programs in Relation to Their Costs”, which was approved by President Eisenhower on Apr. 29. For text of this paper, see vol. ii, Part 1, p. 305.
4. Not printed. (MSA–FOA airgram files, lot W–140, “Bonn Tomus”)
5. See footnote 3, Document 570.
6. Not printed. (MSA–FOA telegram files, lot W–130, “Bonn Tomus”)
7. Not printed. (MSA–FOA telegram files, lot W–131, “Bonn Musto”)
8. Not further identified.