Foreign Relations of the United States: Diplomatic Papers, 1945, European Advisory Commission, Austria, Germany, Volume III

740.00119 Control (Germany)/3–2045

Memorandum by the Secretary of the Treasury (Morgenthau) to the Secretary of State

Washington, March 20, 1945.

Reference is made to the draft directive on the treatment of Germany, dated March 10, 1945 which was written by the Department of State to implement the decisions of Yalta.⁹⁶

On the basis of decisions made at Yalta of which I have been informed, it seems clear that the directive has adopted certain definitive views on the most fundamental issues involved in the treatment of Germany, which views are not required by or even implied in the Yalta decisions. I understand that these views were advanced prior to Yalta within the State Department; they are completely opposed to the Treasury’s views on these issues; are contrary in major respects to decisions made by this Government prior to Yalta; and are opposed in their most important implications to the views which I understood the President holds on Germany.

To be specific, the following is a brief summary of decisions made prior to Yalta, decisions made at Yalta, and decisions made in the draft directive of March 10, dealing with three of the most important issues involved in the German problem.

I. Decentralization of Germany

A. Prior to Yalta

Directive 1067 provided as follows:

(1) “Military administration shall be directed toward the promotion of the decentralization of the political structure of Germany. You may utilize in the beginning whatever German administrative agencies may serve the purposes of military government. You will wherever possible, however, endeavor to make use of and strengthen local municipal and regional administrative organs.”

(2) “The agreed policies of the Control Council shall be determinative throughout the zones. Subject to such policies the administration of military government in each of the three zones of occupation shall be the sole responsibility of the Commanders-in-Chief of the forces occupying each zone. You should, however, coordinate your administration with that of the other Commanders-in-Chief through the Control Council. The administration of each zone and of the regional and local branches of any centrally directed German agencies shall be such as to insure that all policies formulated by the Control Council will be uniformly put into effect throughout Germany.”

B. Yalta

At Yalta it was decided that:

“Coordinated administration and control has been provided for under the plan through a central control commission consisting of the supreme commanders of the three powers with headquarters in Berlin.”⁹⁷

This is a reiteration of what had been agreed upon prior to J.C.S. 1067 and was embodied in that directive. No change of policy was made here.

C. Draft Directive of March 10

The draft directive of March 10 provides:

(1) “The Control Council shall utilize centralized instrumentalities for the execution and implementation of its policies and directives to the maximum possible extent, subject to supervision and scrutiny of the occupying forces. Whenever central German agencies or administrative services which are needed for the adequate performance of such tasks have ceased to function: they shall be revived or replaced as rapidly as possible.”

(2) “The zones of occupation shall be areas for the enforcement of the Council’s decisions rather than regions in which the Zone Commanders possess a wide latitude of autonomous power.”

These provisions completely reverse what had been agreed upon as the American view prior to Yalta, despite the fact that there was nothing in the Yalta decisions contrary to such American view.

II. Elimination of German Heavy Industry

A. Prior to Yalta

At Quebec on September 15, 1944, the President and Prime Minister Churchill agreed upon a program designed to eliminate German heavy industry—the metallurgical, electrical and chemical industry.⁹⁸

B. Yalta

At Yalta it was decided:

(1) To “eliminate or control all German industry that could be used for military production.”

(2) That the removal of Germany’s national wealth in the way of reparations “be carried out chiefly for the purpose of destroying the war potential of Germany.”⁹⁹

These provisions are obviously not inconsistent with the position adopted by the President and Prime Minister Churchill at Quebec.

C. Draft Directive of March 10

Although the program set forth in the draft directive speaks of reducing “Germany’s relative predominance in capital goods industries of key importance” (paragraph 13), the only industries which Germany is specifically forbidden to maintain are “aircraft, synthetic oil, synthetic rubber and light metals,” (paragraph 15). And it is specifically indicated that Germany will be allowed to maintain “metal, machinery and chemical industries” (see paragraph 16), although exports of these industries to other countries will be restricted.

This program is contrary to the Quebec agreement and has no basis in the Yalta decisions, unless the reparations protocol requires the maintenance of some heavy industry—and I doubt that it does.

III. Control of German Internal Economy

A. Prior to Yalta

In the Directive known as J.C.S. 1067 (revised) which was agreed upon after considerable discussion between State, War and Treasury, and was presented to and approved by the White House as representing the American view, it was provided that:

“Except for the purposes specified above, you will take no steps (1) looking toward the economic rehabilitation of Germany nor (2) designed to maintain or strengthen the German economy. Except to the extent necessary (1) to accomplish the purposes set out above, and (2) to assure thorough elimination of discriminatory Nazi practices in actual operation of economic controls, the responsibility for and the task of dealing with such economic problems as price controls, rationing, unemployment, production, reconstruction, distribution, consumption, housing or transportation will be left in German hands. You should, however, take such steps as may be necessary to assure that economic controls are operated in conformity with the above purposes and the general objectives of military government.”

B. Yalta

Nothing was decided on this basic question at Yalta, to my knowledge. It appears from paragraph 2 of section IV of the draft directive of March 10 that the provisions of the protocol on reparations are being advanced as the basis for the argument that in order to collect reparations in the future it is necessary to direct, control and administer the German internal economy. Such a position, however, is not only not required by the reparations protocol but is contrary to the whole spirit of the protocol, namely that reparations policy be a function of reducing Germany’s war potential.

The Yalta decisions clearly did not contemplate that the collection of reparations requires the Allies to take steps designed to rehabilitate and strengthen the German economy.

C. Draft Directive of March 10

Paragraphs 3, 4, and 5 of section IV of the draft directive provide:

“It is recognized that a substantial degree of centralized financial and economic control is essential to the discharge of the tasks mentioned in paragraph 2. The Control Council shall have general responsibility for insuring that all measures necessary to this end are taken.

“In particular, the Control Council shall be empowered to formulate, within the framework of existing and future directives, basic policies governing (a) public finance; money and credit, (b) prices and wages, c) rationing, (d) inland transportation and maritime shipping, (e) communications, (f) internal commerce, (g) foreign commerce and international payment, (h) restitution and reparation, (i) treatment and movement of displaced persons, and (j) allocation of plants and equipment, materials, manpower and transportation.

“It is recognized that the prevention of uncontrolled inflation is in the interest of the United Nations. The Control Council shall strive to insure that appropriate controls, both financial and direct, are maintained or revived.”

These provisions are diametrically opposed to the provision of J.C.S. 1067 and have no basis in the Yalta decisions, except on the doubtful interpretation of the reparations protocol noted above.

Conclusion

Quite apart from the comments above, I would like to point out that, if a decision has been reached to dismember Germany or if there is a likelihood that such a decision will be reached, then the directive will, in my opinion, undermine this basic policy. The directive contains provisions designed to make sure that during the period of military occupation the various parts of the German Reich will be put together and kept together.

On the basis of the foregoing analysis and also of study of the other paragraphs of the draft directive of March 10, it is my firm belief that this draft directive is based in many of its parts upon policies which were not settled at Yalta and in some of its parts upon policies opposed to the decisions of Yalta. On the other hand, from what has been published and told us about the Crimean Conference all of its decisions seem to be consistent with the previous policies of this Government as embodied in J.C.S. 1067 (revised) or expressed by the President at the Quebec Conference.

In view of these conclusions, and in accordance with the President’s request and your, request that we assist you in implementing the decisions of Yalta, I would like to make the following suggestion:

That for the time being we allow J.C.S. 1067 to remain unchanged as the statement of policy for the U.S. forces during the first period of occupation, and that we attempt to get immediate agreement through the European Advisory Commission on J.C.S. 1067.

I am informed by the Army that General Eisenhower can operate satisfactorily prior to collapse under directive 551 and that after the collapse of Germany initial operations by the Army can take place satisfactorily under J.C.S. 1067.

On reparations and other longer-run policies for Germany, the Treasury is of course prepared to meet with you and your representatives for further discussions.

Henry Morgenthau, Jr.

96. For the decisions reached at the Yalta Conference regarding the occupation and control of Germany, see the Communiqué issued at the end of the Conference, Conferences at Malta and Yalta, p. 968.
97. Conferences at Malta and Yalta, p. 970.
98. Documentation regarding the Second Quebec Conference, September 11–16, 1944, is scheduled for publication in a subsequent volume of Foreign Relations.
99. Conferences at Malta and Yalta, p. 970.