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

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

No. 597
The United States High Commissioner for Germany (Conant) to the Foreign Operations Administration¹

secret
priority

Bonn, January 12, 1954—3 p.m.

Tousfo 468–A. Reference: (A) Usfoto 491, January 5² (B) Tousfo 323, October 23.³ Subject: Berlin Aid FY 1955

1. We believe Podeyn should not be informed at present time that Executive Branch now planning include in budget submission request for moderate amount aid for Berlin in FY 1955. This position based on following considerations:

2. In view strong economic position Federal Republic we are convinced Federal Government could and should increase its assistance to Berlin, not only in form of increased financial contribution but also by other measures designed to decrease Berlin’s burden such as channeling Federal Republic procurement to Berlin, greater inducements for private capital investment, better performance in resettlement refugees now in Berlin, etc. We have made representations to this effect in past with some success, (net Federal Republic financial contribution has increased from DM 299 million in GFY 1949/50 to approximately DM 1 billion in current GFY), but have observed that constant, unremitting US pressure is necessary to get results. However, probability that Federal Republic will augment present financial assistance to Berlin by substantial amount is slight (as previously indicated in reference telegram (B)). We think there is some prospect Federal Republic will increase contribution to work relief, improve its sagging performance on refugees and take steps to encourage private investment financing. We continue to regard amount new US aid requested for FY 1955 as being necessary for reasons indicated in reference telegram. Furthermore, we are convinced that additional German financial contribution, if obtained, will be insufficient and will not be in form of investment loans and equity financing which we believe are first priority requirements. Our concept US aid is that it should be supplementary to Federal Republic efforts and used only to finance programs such as risk investment loans and equity financing which we cannot reasonably expect Federal Republic to undertake.

3. We have observed that Federal Republic’s willingness to provide additional assistance to Berlin is related to availability US funds. Federal Republic’s planning appears to have taken into account not only currently available funds, but has postulated new US appropriation. Furthermore, Federal Republic has been inclined to use US aid for types of programs which Federal Republic should finance. Present emphasis of German Government is almost exclusively on order financing (which certainly should be provided by Federal Republic and commercial banks) and costly public works with low degree labor content in proportion to costs.

4. Consequently we have on several occasions urged increase in Federal Government financial assistance to Berlin. We have reemphasized strong US interest in Berlin but have cautioned against interpreting our desire to assist efforts to strengthen Berlin’s economy as commitment to provide aid for indefinite future or to finance programs which Germans themselves could and should finance. We have pointed out US will be encouraged to continue its assistance if convinced Federal Government has made maximum effort within its capacity; conversely, future assistance will be adversely affected if it appears US aid is substitute for and not additional to private and Federal Government financing or will be used for programs which should be financed by German and not US taxpayers. We have mentioned Congress is preoccupied with US budgetary problems and that future economic assistance cannot be guaranteed. This approach has been followed by Conant in conversations with Adenauer, by Harris in discussions with Bluecher and by other mission representatives in talks with working level members Federal Government.

5. We have seen indications that our efforts are beginning to have some effect. When High Commissioner raised problem, Chancellor said he would establish high level committee comprised of Bluecher, Schaeffer, Erhard, Abs and Vocke⁴ to discuss with mission problem of Berlin aid and ways of increasing Federal Republic’s support. (This meeting was to have been held immediately after the New Year holiday but has been postponed on grounds subject still under discussion by Cabinet economic committee. Seems reasonable to infer that Germans may have delayed these discussions while Podeyn attempting to determine in Washington US intentions re FY 1955 Berlin aid.) Other favorable development is fact that apparently as result discussions mentioned above paragraph, Germans are beginning explore ways and means underwrite programs previously financed by counterpart funds. Berlin Central Bank recently came up with proposal for financing DM 100,000,000 order financing program from German funds. Even if this proposal not ultimately adopted we consider this development particularly significant since we have flatly refused to allocate for order financing any of the DM 60,000,000 due to be repaid into GARIOA special account on March 31, 1954 (see paragraph 8 F Tousfo 323).

6. We believe it would be advantageous to withhold from Germans at present fact that Executive Branch intends include item for Berlin aid in budget submission. Shortly before budget details become public, we think Germans should be advised by us that:

(a) Administration has requested moderate amount Berlin aid for FY 1955; usual explanation re illustrative nature country breakdown should be repeated.

(b) Aid request in no way assures final appropriation by Congress.

(c) Probability of appropriation would be improved if Germans augmented substantially Federal Government assistance to Berlin and implemented current equity financing and risk investment loan counterpart programs more aggressively and effectively.

(d) US aid will be appropriated only for specific programs such as equity financing and risk loans and not for programs such as order financing and public works which are properly obligations Federal Republic and Berlin.

7. In the event, however, that Podeyn already aware intention Executive Branch to request appropriation for Berlin, we believe you should confirm to Podeyn in Washington and we to Federal Republic that administration’s budget does include figure for aid. It should be pointed out that this action designed solely to clear way for ultimate decision as to whether economic aid will be made available for Berlin. We believe it essential to assert at same time points mentioned in paragraph 6 above as well as most of basic arguments outlined in paragraphs 2, 3 and 4 above.

8. We think these tactics would facilitate our efforts persuade Germans to increase Federal Government aid to Berlin and to obtain more satisfactory implementation existing counterpart programs. Please advise if you concur. Also would appreciate being informed when details of budget transmission will be made available to public.

Conant

1. Transmitted in two sections and repeated to Berlin.
2. Usfoto 491 reported that Hans Podeyn, head of the Federal Republic Marshall Plan Delegation in Washington, had asked about fiscal year 1955 aid for Berlin, stressing the political and psychological importance of U.S. aid and stating that both Bonn and Berlin were uneasy over alleged statements by Harris which expressed doubts about 1955 possibilities. (MSA–FOA telegram files, lot W 131, “Bonn Usfoto”)
3. Document 590.
4. Hermann Abs, head of the Foreign Department of the Deutsche Bank, Berlin, and Wilhelm Vocke, President of the Bank Deutscher Laender.