[Enclosure 2]
Memorandum by the Executive Committee on Foreign Economic Policy
ECEFP D–37/44
Washington, August 12, 1944
Summary: REPORT ON REPARATION, RESTITUTION, AND PROPERTY RIGHTS – GERMANY
Interest of the United States in German reparation
The problem of German reparation is immediately related to the broader question of a general peace settlement, through which the United Nations hope to attain certain political, economic, and security objectives. While not in itself a major means of achieving these objectives, a reparation program can, depending upon its nature, greatly help or hinder their attainment. This Government has approached the problem of German reparation with a view to reaching a solution which would facilitate the attainment of these objectives. The “direct” interest of the United States in German reparation, i.e., in the amount of reparation which this country may receive, is small. The claims of other nations which have suffered severely from German aggression are direct and substantial. The main concern of this Government with respect to German reparation is that the program aid in the attainment of (or interfere as little as possible with) its economic, political, and security objectives and policies.
Broadly stated, the general economic and political objectives of this Government are as follows:
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The preservation of peace by a system of collective security and disarmament of the aggressors.
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The early return to a multilateral system of international trade and finance through the removal of excessive barriers to the movement of goods and funds.
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The rapid reconstruction and rehabilitation of war-torn areas.
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The maintenance of high levels of employment and standards of living.
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With respect to Germany:
a) The control of German economic war potential. This, however, is not assumed to imply a large-scale and permanent impairment of all German industry.
b) The elimination of German economic domination in Europe.
c) The eventual integration of Germany into the world economy.
d) The establishment of democratic institutions, including a free trade union movement.
Need for special arrangements for the immediate post-surrender period
It is unlikely that agreed decisions regarding all of the basic policy questions can be reached during the immediate post-surrender period. It is essential, however, that a program of restitution and reparation transfers be initiated promptly, both in order to hasten European reconstruction and to avert an undue imposition of European requirements upon the American economy while the war against Japan is still in progress.
In order to bridge this gap, immediate discussions looking toward agreement among the claimant states or, in any event, among the United States, United Kingdom, and Union of Soviet Socialist Republics should be inaugurated. Preliminary agreement must promptly be reached on:
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certain minimum basic principles;
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an interim reparation organization and the relation of this organization to the machinery of Allied economic control of Germany;
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the development in advance of the military collapse of Germany of an ad hoc program for reparation deliveries which will meet the immediate needs of claimant countries. Such an advance program is essential to the orderly reconversion of industry and labor to post-war production.
The purpose of such an interim arrangement would be to initiate and develop a large program of restitution and reparation transfers even before the terms of a final agreement had been settled.
A temporary arrangement of the kind contemplated would remain in effect until a more comprehensive program, based on a final agreement, could be inaugurated.
Résumé of recommendations on the final reparation agreement
The essential elements of the program recommended in the Reparation Report may be summarized as follows:
Time period
The reparation period should begin as soon as the United Nations have the power to impose economic controls on Germany. It should be limited to a minimum of about five years from its inception but perhaps may have to be extended to ten. Both political and economic considerations emphasize the need for a short reparation period.
The urgent needs of the devastated areas for relief and rehabilitation and the desirability of restoring normally functioning economies in these areas as rapidly as possible demand quick and decisive action. Moreover, unless the United Nations stand ready to exploit fully the opportunity for cooperative action during the early period after the surrender of Germany, it may prove difficult to accomplish the aims of the program.
The one-way movement of goods and services which takes place under reparation is artificial and necessarily different from normal trade. The longer it continues the longer is deferred the full resumption of regular multilateral trade and the desired integration of Germany into the world economy.
From the political point of view, it must be remembered that the humiliation and cost of reparation will almost inevitably be associated in the mind of the German public with the regime in power at the time. For this reason, long-continued reparation would prejudice the establishment of democratic government in Germany and, indirectly, the maintenance of peace.
The collection of substantial reparation from Germany will probably be impossible without fairly extensive controls over the German economy. Since this Government has taken the position that enduring controls of this nature are undesirable the length of the reparation period will need to be correspondingly limited.
It is realized, however, that the countries which have been devastated by Germany will probably demand a much longer reparation period. The long-range objectives of this Government make a five-year period preferable to a longer one. If it is found necessary to extend this period, however, reparation deliveries should in no event continue beyond ten years. In case a period in excess of five years is adopted, deliveries should taper off toward the end of the extended period.
Amount of reparation
In view of the numerous uncertainties surrounding the post-war situation of Germany, no useful purpose would be served in attempting to estimate at this time the amount of reparation Germany will be able to pay. These uncertainties relate especially to the amount of damage to physical plant in Germany, the degree of disorganization or disruption of the country’s working force, the nature and extent of economic disarmament, and territorial adjustment.
This much may be stated with confidence, however:
a) Barring dismemberment or extremes of devastation, Germany will be capable of paying, in absolute terms, a very substantial amount of reparation. This has been made manifest by the proportion of national income devoted by Germany (as well as by other countries) to war purposes.
b) Large as it may be in absolute terms the amount recoverable from Germany will, in all probability, be but a small fraction of the total admissible claims, and a much smaller fraction still of the total direct and indirect damage caused by Germany to the claimant countries. It would be highly misleading and dangerous to let the notion gain currency that Germany can be forced to make good all or even a large part of the damage she has wrought.
c) Reparation deliveries by Germany will be limited both in character and amount by the goods and services the claimant countries are willing and able to take.
Certain general principles regarding the amount of reparation are recommended as follows:
- As between the amount, on the one hand, and the time limit on the period of reparation on the other, the time limit should be the governing factor. This means that instead of beginning with the assessment of a definite amount of reparation and adjusting the time period accordingly, the maximum time limit should be defined from the outset and the greatest possible amount of reparation should be collected during that period.
Provision should be made for extending the time period in the event the Allied authorities believe the reparation program is being sabotaged. Conversely, in the event the reparation period is determined to be more than five years, it may be desirable to hold out to the Germans the possibility of reducing the duration of the period by fulfilling their obligations energetically. The decision as to the duration of reparation should not be made known to Germany until an appropriate time in the light of political developments.
- During the period of reparation, the German people should be permitted to retain such part of their production as may be required to maintain a minimum prescribed standard of living. It is clear that the execution of such a program will require effective controls over the economic life of the country, perhaps similar to the wartime controls now in force.
During the control period Germany’s production will consist of that required:
a) to maintain the prescribed minimum standard of living.
b) to furnish such exports as may be necessary to pay for essential German imports.
c) to furnish reparation.
The composition of German output and the reparation schedule should be so fixed as to utilize all German production above that required for (a) and (b) above.
All foreign exchange proceeds of exports should be utilized by the Allied control authorities to pay for necessary German imports and, if there is any surplus, to provide cash reparation. Imports should be restricted to the amounts necessary to effectuate the above types of German production.
Form of reparation payments
The bearing of form of payment on the long-range political and security objectives of this Government is regarded as an important consideration. The most important question that arises in this connection is whether payment should be made predominately in kind or in cash. It is agreed that a policy of requiring payments in kind with allowance for cash payments only in exceptional cases should be adopted.
Reparation in kind
Payments in kind can be made from the following sources:
a) Stocks of goods;
b) Existing capital equipment;
c) Current production of goods and services;
d) Direct labor services.
Stocks of raw materials and food above certain minima for German use will, no doubt, be taken immediately from Germany and transferred to the most needy surrounding countries. In regard to other classes of goods to be included in payments in kind, deliveries should consist of the widest possible range of goods needed by the claimant countries for rehabilitation and reconstruction purposes. Reparation in kind should include machinery, electrical equipment, and any other types of manufactured goods that Germany is fitted to produce and the claimant countries are willing to accept, as well as coal, fertilizers, chemicals, et cetera. Only in this way can Germany make its maximum contribution to the European recovery.
One major question, however, remains to be answered: To what extent should reparation come out of existing stocks of goods and capital equipment and to what extent out of current production?
This question involves consideration of the following factors:
- To what extent should deliveries be made out of existing stocks of goods and capital equipment for the purpose of satisfying immediate post-surrender needs in the claimant countries?
Deliveries of this nature should be confined to the early years of the reparation period, first, because they will make their maximum contribution to European reconstruction in these years, when the need will be most urgent, and secondly, because such transfers in the later years might impede the reintegration of Germany into the world economy. The transfer of equipment, particularly of equipment for capital goods industries, should be subject to the condition that the ability of such equipment to contribute the net reconstruction of Europe is not thereby seriously impaired.
This policy of taking reparation deliveries in the form of existing goods and equipment might be objected to on the ground that it will have the effect of reducing German productive capacity and will result in a reduction of reparation deliveries below the maximum obtainable over the total reparation period. It is believed that the long-range security objectives and the contribution to immediate reconstruction in the claimant countries outweigh this objection in many cases. It is recognized, however, that the great bulk of reparation deliveries over the entire period must come from current production since the reparation which could be derived from the transfer of capital equipment would, in any case, be relatively small compared to that available from current production.
- To what extent should German industry be rebuilt and operated for the purpose of maximizing current production for reparation deliveries?
It should be the policy of this Government to maximize reparation deliveries in so far as this is possible without extensive rebuilding of German plant and equipment. This kind of capital formation should be kept to a minimum in Germany and should be permitted to the maximum extent in the claimant countries. In general, Germany should be permitted only so much capital expenditure as may be necessary to maintain reparation schedules and the prescribed standard of living. It would be undesirable to leave Germany at the end of the reparation period with plant and equipment much newer and more modern than that of her European neighbors.
Qualifications to this principle would arise in instances such as the following:
a) In case of extreme devastation of German industry, it would be necessary to allow some rebuilding before substantial reparation could be delivered.
b) A limited quantity of capital equipment of a “bottleneck” nature will have to be provided so as to permit German production to get underway.
It is clear that decisions in regard to capital formation in Germany will depend not only on the extent of destruction but also on the types of plant and equipment destroyed in both Germany and the surrounding countries.
Reparation in cash
Cash payments depend on the commercial policy and the readiness to import of Germany’s potential customers. A program of heavy reliance on cash payments is accordingly vulnerable to the same difficulties that plagued the reparation program of the twenties. It will be possible to make use of cash reparation to the extent that a commercial cash market exists for German exports and to the extent that the control authorities decide in exceptional cases to permit such exports to exceed those required to pay for necessary imports. The gold and net foreign exchange assets available to Germany after the restitution program has been completed will be limited.
In a five-year reparation period there will be relatively little need for cash payment. Cash payment, however, can serve a useful purpose in taking care of exceptional cases and in lending flexibility to the reparation program provided the total volume is kept down to a relatively small figure.
If the period is extended to ten years, it may be desirable to increase the proportion of cash payment in the latter half of the period. With reconstruction substantially complete, the claimant countries will be less needful of German goods. As German resources are released from satisfying the wants of surrounding countries, they can be turned increasingly to the production of export goods for other markets on a commercial basis, thus creating foreign exchange for reparation purposes and beginning the process of reintegrating Germany into the world economy.
Reparation whether paid in kind or in foreign exchange should be strictly related to the export surplus of goods and services actually obtained from Germany. Any significant accumulation of external indebtedness by Germany during the period of reparation transfers is contrary to the objectives of this Government. This precludes both commercialization of reparation through the floatation of new German securities abroad and any other substantial extensions of credit to Germany.
Commercialization or other borrowing would in effect mean the financing of German reparation payments primarily by the United States and Great Britain. The continuance over a long period of years of payments by Germany may well become an internal political issue and thus create repercussions which would interfere with the long-range political and security objectives of this Government. Moreover, at present Germany’s credit worthiness is virtually nil. An estimation of Germany’s future credit worthiness cannot well be made until such time as the essential changes in her political and economic structure have begun.
Apportionment of reparation
It is recommended that the principal basis for the apportionment of reparation among claimant states should be the amount of damage to and loss of non-military property caused by or incident to hostilities.
This basis of admissible claims does not necessarily favor property owners over other classes of claimants such, for example, as those suffering personal injury since reparation payments will be made to governments, not to individuals. Governments may dispose of the proceeds of reparation and make such compensation to their injured nationals as they see fit.
A precise audit of property loss will be impossible. The total of admissible claims will have to be reached on the basis of reasonable estimates as determined by the appropriate Allied authorities.
It is recognized that the relative impact of property losses on different countries may not be accurately reflected by even the most careful computations. The hardships imposed depend on the circumstances surrounding the loss and on the wealth of the country concerned.
As a supplementary basis for the apportionment of reparation it is recommended that occupation costs levied by Germany also be allowed as an admissible claim but at a lower weighting than property losses. Occupation costs for this purpose should include clearing balances built up in Germany during the period of occupation. Some occupied countries have suffered relatively little physical damage but have undergone many other types of injury at the hands of the Nazis. It is felt that it will be difficult to deny the claims of such countries for some compensation.
In recommending the foregoing two bases for reparation claims, it is intended that all other claims should be excluded.
Restitution and replacement
The principal recommendations with respect to this subject may be summarized briefly as follows:
a) In principle there should be an unlimited obligation on Germany to restore identifiable looted property, even though in practice official efforts to locate such property will have to be confined to a limited number of categories.
b) Restitution should be restricted to identifiable property in existence prior to German occupation. Looted property should be restored to the existing governments of the territories where the property had its situs and not to the former owners individually.
c) Looted property should be returned in the condition in which it is found. The return of such property should not count as a credit against Germany’s reparation obligation nor should it be deducted from the reparation claim of the recipient.
d) All property transferred to Germany during the period of German occupation (except for current output) should be presumed to have been transferred under duress and accordingly treated as looted property.
e) The right to restitution is not absolute. The Allied authorities should have the discretionary right to prevent or postpone restitution of vital equipment (such as, e.g., rolling stock) whenever such equipment is deemed essential to assist the revival of a seriously disorganized country.
f) It has been suggested that, in addition to restitution and reparation, countries having suffered property losses be entitled to “replacement,” meaning the receipt of an equivalent piece of property for property lost or destroyed. It is believed that the “replacement” category would be a source of confusion and that it would serve no purpose that could not be served equally well by reparation in kind. It is, therefore, recommended that no claims for replacement be allowed except in the cases of (1) gold and (2) works of art and other cultural treasures, these exceptions being justified by the peculiar importance attached to those categories of goods.
g) Replacement of gold means that stocks of monetary gold found by the Allied authorities in Germany should be prorated in proportion to gold losses among the Allied countries whose gold stocks were looted. In no case, however, should there be transferred to any country gold in excess of its losses.
Labor Services (Tentative)
No final conclusion has been reached on this subject and it is receiving further study. In principle it is agreed that under appropriate conditions and to a limited extent labor services can be a proper and useful form of reparation. The chief problems relate to the method of selection of the laborers, their treatment and length of service, and the valuation of their services.
One suggestion receiving consideration is that there be two classes of laborers, one to consist of extreme Nazis such as members of the Gestapo, SS, etc., and the other to be recruited, on a voluntary basis, if possible, from the general German public. It is contemplated that the former class, which would receive punitive or semi-punitive treatment, would be selected on the basis of previous political affiliation or activity and not, like the latter class, on the basis of the needs of claimant countries for labor services. The latter class should be protected by more or less normal labor standards.
Reparation Commission
It is believed that questions of policy such as those discussed in this summary are outside the proper scope of a Reparation Commission. The Commission should be an administrative body whose function, broadly speaking, would be the supervision and management of the program of reparation and restitution. Within the broad limits of policy laid down by the Allied governments, it would be granted wide discretionary powers to determine the amounts of reparation to be paid periodically, to schedule deliveries in kind, to make adjustments in the schedules of payments, to determine whether Germany is complying with the provisions of the reparation settlement, etc.
The Reparation Commission should act in cooperation with the supreme Allied control authorities in Germany, which authorities should have the power to review and veto any of the Commission’s acts.
The Commission should consist of representatives of all claimant states, but equal plural votes should be provided for the United States, the United Kingdom and the Union of Soviet Socialist Republics.
Résumé of recommendations with respect to subjects closely related to reparation
Treatment of property
a) German property abroad
Each member of the United Nations should reserve the right to retain and dispose of all German property and rights within its territories, and to use the proceeds to pay off reparation claims, and possibly pre-war debts owed by Germany or its nationals to the country in question or to its nationals. The value of property so retained or disposed of, regardless of the claims which it goes to satisfy, should be counted as payment against the reparation claim of the holding country. Germany can be left to compensate its nationals for property so retained.
The problem of obtaining control over German property in neutral countries is a much more difficult one, since from a strictly juridical point of view there is no way of compelling the neutrals to transfer ownership. The matter thus becomes one for treatment on the political level.
b) Allied property in Germany
The German Government should be required to return to the owners Allied property in Germany where such property was sequestered by German authorities or seized in any other manner. Such return shall not be deemed to prevent German authorities from subsequent exercise of the customary governmental rights over private property. In the event that industries in which foreign owners have an interest are required to be dismantled for security reasons or are subjected to other measures impairing the value of their assets, consideration shall be given to the question of appropriate compensation. Where the property consists of liquid funds, such return should not carry with it the right to transfer the funds out of the country except in accordance with the exchange regulations established by the Allied authorities.
Countries should have the right to present reparation claims for damage to or destruction of property in Germany belonging to them or their nationals.
Pre-war debts and Ccaims
American citizens have outstanding substantial amounts of pre-war claims against both the German Government, and German nationals. These claims consist of short-term, long-term, and commercial obligations. While the problem has not been thoroughly investigated, it is believed both politically impossible and economically undesirable to leave American creditors of Germany entirely to their own devices in protecting their interests. The matter should receive further study.
It is recommended, however, in view of the urgent need of reparation for reconstruction purposes, that pre-war debts and claims receive a priority below that of reparation.
Compensation for injuries to persecuted German minority groups
It is considered appropriate for several reasons that the German Government be required in some way to compensate the minority groups persecuted by it. The moral basis for such compensation is self-evident. Moreover, it is now recognized that minority baiting and persecution is a potent weapon in the hands of totalitarian demagogues both for gaining political power at home and for spreading anti-democratic doctrines abroad. Finally, it is felt that since Germany was responsible for a situation in which many thousands of former German nationals needed to be rehabilitated or resettled, she should contribute to the solution of that problem and not be permitted to leave the entire burden to the outside world.
The restitution of property located in Germany is, on a number of grounds, regarded as an unsatisfactory answer to the problem:
a) Most of the individuals involved are either dead or outside the country and many would not find it worthwhile to return in order to regain their property;
b) Large-scale transfers of funds abroad in full satisfaction of these claims would be out of the question;
c) The full return of property to members of these groups at a time when the general German public was passing through a period of great difficulty would tend to create strong social tension in Germany.
d) Lack of proof by claimants, and the varying circumstances under which property was lost or sold, would make the administrative problem of restitution extremely difficult.
A two-fold contribution by Germany is, accordingly recommended:
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Resettlement aid, i.e., payments in cash or in kind, to an international agency, to aid in the settlement of individuals belonging to persecuted minority groups. Such payments would be akin to reparation, but their amounts would be related to the needs of the resettlement schemes rather than to the property losses of the individuals concerned.
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Indemnity for property losses. In addition to the foregoing payments, Germany should also be obliged in lieu of restitution, to provide an indemnity, up to some moderate maximum per person, to individuals who have suffered property losses since the inception of the Nazi regime through discriminatory measures. Transfers of such indemnities abroad should be subject to the availability of foreign exchange but should receive a priority equal to that of other reparation payments.
The foregoing recommendations apply to German nationals, or former nationals, situated outside Germany who have been subjected to discriminatory laws by reason of their racial, religious or political status.
While the racial and religious categories are susceptible of fairly precise definition and do not involve unmanageable numbers, a moment’s reflection will show that the political category offers formidable difficulties in both respects. In spite of this fact, it is considered both impolitic and unjustifiable to deny compensation to those Germans who have suffered loss because of their political opposition to Nazism while granting it to persons discriminated against on other grounds. The problem of defining the political category so as to keep within reasonable bounds the number included is now receiving further attention.
