Speech

Speech delivered before logeign Policy Association Cincinnati, Ohio October 9, ig/,7 GERMANY'S ROLE IN EUROPEAN RECONSTRUCTION Economic recovery of Europe is a prerequisite of economic stability the world. Economic stability is a prerequisite of peace. Economic chaos leads to war. All short-range measures in the field of international economics, sometimes apparently contradicting each other, must be related to our -•ong-range policy: the maintenance of economic stability in this country °na abroad, with one single aim—peace in the world. Our own economy is directly related to what happens in Europe. We nust enable Europe to produce and exchange goods. We must help rebuild & sound system of foreign trade, in the interest of both the United tates and the rest of the world, based upon the mutual exchange of goods and services and the unrestricted flow of means of payments. Meanwhile, however, we must weather a transition period. At present, ou ** export surplus is abnormally large: it will have to be curtailed— some day. x the future, increased imports of goods and services will n supply other countries with dollars. Until then, foreign purchases of certain scarce goods affect our price structure. The world is in short supply of our goods, and of the means of payments for our goods. In this Period of transition we must be concerned primarily with forestalling starvation and unrest in the world, in order to make possible in the long n norn fV ial economic conditions and stable economic relations between na- tions. This general aim has been the reason for a second stage in our Policy in occupied Germany. During the war, we could not relax our ef~ ^'ts. We had to win the war—regardless of the economic consequences of he destruction of Germany. The first directive sent to General Eisen- ^ower immediately before the end of hostilities in Germany expressly for- "^he occupation authorities to be guided by the interests of German enabilitation. By its own terms, however, that directive—commonly Known as JCS-1067—was only for "the initial post-defeat period" and never was intended to be a long range policy. The Potsdam Agreement, concluded three months later, softened that injunction, A more penetrat- study of the complex relations of European political and economic problems has convinced most American experts and observers of the neces- sity of reintegrating the German economy into the European framework, ormer Secretary Byrnes at Stuttgart, Germany, in September 194-6 gave a c -ear public expression to this conviction. He concluded his historic speech with this statement: "The American people want to help the German People to win their way back to an honorable place among the free and peace-loving nations of the world." This conviction resulted in the di- rective issued to the Military Governor of the U. S. zone of occupation ln Ju ly 1947. From that time on, American policy has placed increasing emphasis on Germany's importance for the rehabilitation of the rest of Europe. 66 This shift in emphasis is not without some danger. Many European na- tions are apprehensive iest we go too far in aiding Germany. Such a fear is perfectly understandable in view of Germany's aggressive war record. It is exploited, however, by anti-American propaganda, which proclaims daily that the American interest in Germany is a serious threat to the safety of the rest of Europe. People are told that American imperialists and capitalists went to rebuild Germany in order to use a reconditioned German war machine for dreams of world domination similar to those of Nazism. We can dismiss these charges as senseless but we cannot dismiss the genuine anxiety of many Frenchmen, Belgians, and Central Europeans that we may further German rehabilitation at the expense of the recovery of the rest of Europe and that unwittingly we may help to rebuild a dan- gerous German war potential. In recent weeks such concern has been ex- pressed not only by responsible European statesmen but also by serious American observers like former Under Secretary of State Sumner Welles. A continuous discussion of the German problem therefore is necessary in order to refute the arguments against our participation in German reha- bilitation, and, on the other hand, to define the limits which this par- ticipation should not exceed. First of all we may concede that several reasons which sometimes are advanced in support of this second stage in our policy cannot stand up to serious examination. It has been said that a harsh policy toward Germany would be inconsistent with our ideas of international justice. This argument overlooks the fact that whatever the Germans have suffered for the last two and one-half years is nothing as compared to the suffer- ing they brought to the rest of jairope, and that morally the victims of German aggression certainly have a better right to our assistance than the Germans. Secondly, some people hope that the policy will lead im- mediately to a lowering of the cost of occupation. We shall see pres- ently that this will not be the case. Thirdly, some business interests—in the words of Mr. Welles—ex- pect fat profits from a highly industrialized Germany. These expectations certainly will not be realized: even with all possible assistance, for many years to come Germany will remain too poor to afford the importation of American semi-luxuries. Moreover, the German economy is largely com- petitive with the American, and the reconstruction of the German industry is just as likely to diminish as to increase the profits of American indus- trialists. Apart from those considerations, the expenditure of huge amounts of public funds in order to increase the chances for profits of a few exporters or investors certainly would not be justified. Finally, some people cherish the hope that a. rehabilitated Germany could be used as a buffer state against the Soviet Union. These people may well be mistaken. It is true that today most Germans are emphatically anti-Russian, but this attitude need not endure. If the Soviet Government wants to gain the good will of Germany, it need only offer to the Germans sufficient political and economic concessions. For instance, as Walter Lippman recently pointed out, we could never match the territorial and other advantages that Russia, as the suprome power in Eastern Europe, could effectively promise to the Germans at the expense of its Eastern European satellites. In such a case, any reliance upon Germany as an ally against Russia would be ill-founded to say the least. 67 hUS WG airQ v i l l i n to a ree na bp ^ S S ny of the arguments that have en br °ught forth against our occupation policy. These arguments, how- v QT a re n ot n. ' decisive because they overlook the essential point: unless uormuny is economically rehabilitated, Western Europe cannot attain econ- llc stability. In order to refute the arguments against our efforts to owara the rehabilitation of Germany, we have to show that this rehabili- tation .is necessary for the recovery of Western Europe. Let me , . . emphasize the fact that X speak to German economic recovery 5 p l a ys an art in t he Europe essential P recovery of the econony of he e c o n o m ic unn r interrelation of Germany and Western Europe is based ,on Germany as a source of supply and Germany as a market. Under the | egent conditions of scarcity, the first point is far more important n he second To a lar e Eur . - E extent Germany has to supply the rest of Pe Witil tW c imnodities du + ° ° primary importance: coal and steel pro- M o st of the f exportable coal comes from the Ruhr district, v;hich 0 ruis part of the British zone of occupation. In peacetime this district a3 m U Ch aS t h r ee rniliion tond air° Per month, mainly to Western _ rope. Ruhr coal was essential for the heavy industries in France, Bel- ura ° > Luxembourg, the Netherlands, and Sweden. Hard coal production in the areas that today form the British zone occupation dropped from 117 million tons in 1936 to % million tons in A f t er a d establishing a system of substantial incentives, including aaily food ration to the Ruhr miners of 4,00U calories as compared with rmal consuraer, b«o? s ration of 1,550 calories, which made them by far the S ; supplied part of the German population, production increased in July lq/ to an annual rate of 72 million tons. The deficit as compared to S UU a m o u n ts to to about A5 million tons annually. These 45 million ns are a principal reason for the present plight not only of Germany t also of the industrial countries of Western Europe. They are the bot- eneck for the rehabilitation of transportation and for the production steel and machinery. The lack of transportation facilities and -achinory retards the reconstruction of all other industrial enter- in Euro e# It ma eve on r ^ y n be said that these A5 million tons are also e of the main reasons for the present world-wide scarcity of foodstuffs, e European food deficit is largely due to the lack of fertilizer, and ® luck of artificial fertilizer in turn is due to the scarcity of coal. g -iilarly, the lack of coal hampers the production of textiles and other scarce consumer goods. A lG , . ss direct effect of the lack of Ruhr coal is the deterioration in t International financial position of the United Kingdom. If industrial ^oduction in continental Europe had reached a higher level, the United ^^gdom would have been able to purchase more of its necessary imports in ^entinental Europe. In that case, it would have experienced less of a rain upon its dollar resources and perhaps would have been in a better Position to maintain the convertibility of sterling. Ge ™an steel and steel products are equally indispensable to the rest of mrope. German machinery always has been extensively used in most in- dustries of Western and Central Europe. Half of all industrial enter- P lses in the Netherlands, for instance, are equipped with German machine 68 tools. During the war and postwar years, inany machines were destroyed, and the rest has deteriorated. Their owners urgently need spare parts for repairs and new units for reconstruction and expansion* It is not surprising, therefore, that a recent statement by the Netherlands Govern- ment asserted that "the security and welfare of the Kingdom are in a high degree dependent on the prosperity of Germany • • . and the Netherlands is vitally concerned in the decisions which are ultimately to be made by the Allies with regard to the future of the German economy." The shut- down of the German machine industry has prevented the mines in Polish Silesia from working at capacity, hampered transportation in countries as far apart as Austria and the LOT; Countries, and made it impossible for many other industrial nations to reach their prewar level of production. It has thus delayed the recovery of all of Europe, The Committee of European Economic Reconstruction, which was appointed by the Vfestern European nations in response to the historic appeal by Sec- retary Marshall, clearly has recognized these facts. Although many of the nations represented on the Committee had every reason to feel extremely hostile toward Germany, the Committee report emphasizes again and again the need for an increase in the production of Cerman coal and steel. It bemoans the "continued inability of the German economy to supply the coal and other products upon which so much of Europe's economic life depends." It proposes an increase in the coal production of the combined U.S.-U.K. zones of Germany by 60 million tons and an increase in the steel produc- tion of these zones by 7.2 million tons annually over and above the pres- ent level. Finally, it states expressly that a large part of Western Europe's import requirements for steel products should be met from these zones. The proposal for the huge increase in steel output is particularly remarkable in view of the fact that hitherto the French Government, whose delegates played a leading role in drafting the report of the Committee, had sharply objected to American and British proposals for large-scale ex- pansion of German steel production. This change in attitude shows the in- terdependence of economic and political considerations in all European problems. Deep-seated political animosities can be overcome once it is understood how one country benefits from the improvement in the economic status of another country. The increase in German coal and steel production, however, cannot be accomplished without an increase in total production. Ruhr coal output is so much lower than before the war mainly for two reasons, namely the low- ered productivity of labor caused primarily by lack of sufficient food and the deterioration in mine equipment. The miners, despite the recent im- provement of the economic situation, still cannot hope to receive for their increased wages a substantially increased volume of food, other consumer goods, and housing accommodations; they have little personal incentive, therefore, to do their utmost in the mines. Moreover, after many years of insufficient nutrition, defective housing, and lack of most amenities of life, they are neither physically nor psychologically able to work as hard as before the war. Thus any large-scale rise in Ruhr production villi be possible only if sufficient food is supplied and if the amount of consumer goods available to the miners is substantially increased. Such an increase in turn depends upon a rise in the German production of food and consumer goods since continued importation of the bulk of such goods would place an unbearable stress on the German foreign exchange position. Farmers and industrial workers who must produce the food and consumer goods needed by i 69 the miners, also require more goods for themselves as an incentive for harder work. It would be impossible, therefore, to attempt the regenera- tion of one particular branch of the German economy, such as coal mining, "without being prepared to help all other industries that participate in the production of consumer goods. The second reason for the low output of the Ruhr mines is the obso- lescence of the technical equipment. Since the beginning of the war and especially since the end of hostilities, mine machinery has not been ad- equately renewed. More important still, transportation equipment has been permitted to deteriorate so that the transportation of coal has be- come almost as much of a problem as its production in the mines. These difficulties can be remedied only by making available large quantities of steel and steel products to those industries that produce the neces- sary equipment. For this reason an increase in the output of coal re- quires not only the revival of the German consumer goods industries but also the reconstruction of the German heavy industries. Steel production hitherto has been hampered by difficulties with labor, equipment, and transportation similar to those encountered in coal wining, and especially by the lack of coal. Moreover, the so-called level-of-industry plan, adopted in the spring of 1946 by the four occu- pying powers, limited steel production in all of Germany to $.8 million tons, or about half the amount that today is being contemplated for the combined U.S.-U.K. zones alone. Although this limitation did not have a ny direct effect since actual production remained far below the per- mitted level, it probably had an indirect influence by making managers and workers despair of the future of the steel industry. An attitude of that's the use", fostered by the strict limitations of the level-of- industry plan, certainly contributed to the reduction in the efficiency German labor. The recovery of the German industrial system also is necessary for the solution of the second problem, namely, the restoration of Germany as a market for the products of other nations. Germany needs large quantities of foodstuffs, raw materials, and other producers' goods. At Present, it is unable to pay for any substantial amount of imports. Shipments that the occupation authorities in the combined U.S.-U.K. zone? consider absolutely necessary for the prevention of disease and unrest have to be financed by advances from the occupying powers. In the first six months of 1946, such shipments into the combined zone were valued at $299 million, including ^274- million of foodstuffs, £19 million of fer- 1 tilizer, and $6 million of oil products. In contrast, commercial import, totaled only &17 million. The value of food imports, most of which came from the United States, certainly looks very large, but it was just suf- ficient to keep the German people on a semi-starvation diet of about 1>500 calories a day for the normal urban consumer—one-third less than the amount considered a minimum subsistence level by the United Nations F ood and Agricultural Organization. If we want to restore a level of nutrition that enables the German worker to reach his prewar efficiency, food imports will have to be increased rather than reduced even if the productivity of German agriculture can be raised to its prewar level. Obviously, these imports cannot be financed forever by the occupying pow e rs. Moreover, Germany needs raw materials and other producers' goods in such quantities that their value should at least equal that of food 70 imports. Exports of coal and crude steel, significant as they vill be, can cover only a fraction of that value., Germany must be able to pay for its imports by exporting finished industrial products, just as it did be- fore the war. The future need to export will be even greater than before the war, because of the necessity for imports of foodstuffs end raw materials pre- viously obtained from those parts of the Reich which now are under Polish administration. Moreover, a larger proportion of imports will have to come from the sterling and dollar areas, at least as long as the grain and timber surpluses of Eastern Europe are withheld from western markets. Fortunately, the highest valued types of exports from Western Germany, like special machinery, precision instruments, and chemicals traditionally went to the Vest. It is true that as long as the general scarcity of dollars continues Germany too will be affected. The dollar scarcity in Europe, however, will be much smaller if Germany is reconstructed because Western Europe will obtain goods from Germany which otherwise would have to be pur- chased from the United States for dollars. At present, imports of raw materials and other producers' goods are negligible because they are not financed by the governments of the occupy- ing powers, but handled on a commercial basis. They cannot, therefore, exceed the sum of exports end commercial credits. Curing the first six months of 1947, exports from the co.ibined zones totaled only ^60 million; they consisted mostly of coal and some other raw materials like timber and potash, rather than of industrial products which before the war formed the bulk of German exports. So far, it has been possible to negotiate credits 'only with the help of government institutions, such as the Export-Import Bank, the U. S. Commercial Company, and the Commodity Credit Corporation, and their sum has not exceeded ^60 million. Moreover, most of the credits have taken the form of processing arrangements, German manufacturers re- ceiving raw materials such as cotton, and paying for them out of the pro- ceeds of the exportation of the finished products. Such arrangements are feasible mainly in some consumer goods industries, especially textiles, and not readily applicable to the heavy industries \;h.ich form the basis of the German economy. Neither exports nor commercial credits, however, can be expanded substantially as long as domestic industrial production is hampered by the lack of imported raw materials and producer goods. Ob- viously, this vicious circle must be broken. At present, the bizonal Joint Export-Import Agency has at its disposal a fund equal to more than $100 million, accumulated out of the proceeds of past exports and of certain • former German assets made available to the Allies by the Swedish Govern- L ment on the basis of an agreement concluded in 194-6. This relatively s:aal- fund is to be used for initial imports that will stimulate the production of export goods, but two-thirds of it consists of sterling and therefore is available for international payments only within the sterling area, which at present can supply only limited quantities of necessary commodi- ties. Accordingly, the economy of the combined zones is confronted with the problem of finding additional sums in dollars in order to finance ade- quate imports of goods other than minimum food requirements. The extent of our contribution needed for the recovery of Germany thus becomes painfully clear: we must not only continue and if possible, in the light of world conditions and the needs of liberated countries, in- crease our exports of foodstuffs, but wo must also make advances of one kind or another for the importation of raw materials and equipment, moreover, as far as the materials have to be purchased in the dollar area, ve are confronted with the fact that the United Kingdom has made it ^nov/n that it wishes to be relieved from the burden of having to use its scarce dollar resources for German rehabilitation. The cost°of the Ger~ aan occupation to be borne by the United States during the next few years mainly will be higher rather than lower in comparison with 1946-47. he r e p o rt of the P a r is cit r Conference estimates the foreign trade defi- f the x . combined U.S.-U.K. zones in relation to the dollar area alone a of Xt billion for 1948. This would be almost twice the total deficit the zones, as estimated for the year 1947 at the time of the bizonal agreement in December 1946. Only part of that increase, however, would lar° aUSed b y . t he P r °P°sed extension of the reconstruction program: a £ So Part will be due to the rise in American prices, especially for ffS> a nd a n o t h er art t0 the la can i < P S the production of export goods ubed oy the catastrophic weather of the last winter. The sum is very 6 it is o n ly one V/eo?' ~seventh of the estimated total deficit of S rn !f Europe, exactly corresponding to the proportion of the population of the zones to the total population of Western Europe. Since Germany's construction is far less advanced than that of any other Western Euro- dn na 'tion, the estimate of German needs does not appear excessive. . ^e ^way for the implementation of our policy has been paved by the joint U.S.-U.K. decisions that were taken in the past weeks. We have S d the erraissible l e v el of m-f? P industry for the combined zones approxi- a ,ely to the 1936 figures so that there will be no artificial limitation ^ the capacity of the German industries the rehabilitation of which we eeni e s s e n t i a 1 We a l so h a ve me + ^ ' secured an equal voice in the manage- - of the Ruhr mines. In addition, discussions are about to commence the problem of sharing the occupation costs for the coming year be- ^/een the United States and the United Kingdom. They will determine how the resent P agreement, under which each power defrays half of the ota l> should be amended, at least as far as dollar payments are con- cerned. All our efforts toward a solution of the German economic problem will ® in vain, however, if we do not allay the fears of our Allies that we P U t t i ng the Oth interests of Germany ahead of those of our friends. nerwise, we might lose, as a result of growing anxiety and animosity in • e rest of Europe, whatever we might gain from German rehabilitation, ^rtunately, the program adopted in Paris in response to the appeal of CI taiy M a r s h a 11 ad + promises the reconciliation of viewpoints. The plans -opted in Paris show what commodities Western Europe needs. We also ow what commodities the German economy can produce if we are willing to naer initial assistance. For the reasons which we discussed previously, would not do to concentrate exclusively upon the reconstruction of ^erman export industries since all branches of the German economy are ^eeded for the efficient operation of the export industries. Within these Citations, however, we certainly shall put emphasis upon the develop- ment of those German industries that produce the goods needed in Western Pe eut° * Obviously, it is easier to propose these principles than to exe- - te them. It will be necessary to reconcile the need for coal, steel, ^ other goods for German domestic consumption with the equally pressing ee cls for these commodities on the part of other nations. Last Spring, a 72 compromise was reached with the French, ..promising them an increased per- centage of Ituhr coal in case of an increase in output. The report of the Paris Conference shows that a similar solution is acceptable to the West- ern European nations in the matter of Ruhr steel production. This indi- cates that working compromises also can be reached for other heavy indus- tries. In this connection, I am fully aware of the fact that our allies are interested nob only in present allocations of increased German production but likewise interested in future long-term allocations which relate to their long-range planning for the reconstruction of their economies and the maintenance of economic stability at a high level. This is a proper con- cern of our allies and should not be overlooked. I feel certain it will not be overlooked. The reintegration of the German economy into the European framework will pay, in the long run, for the financial burdens in the form of fooa and other supplies which we have to assume during these coming years. In this respect, the fact that the German economy is competitive with the American paradoxically will prove to be an advantage rather than a short- coming. Whatever Germany can furnish to Western Europe need not be fur- nished by the United States. Since Western Europe suffers from a scarcity of dollars, additional exports to Western Europe would have to be made largely on the basis of advances, the repayment of which would pose diffi- cult questions. It will be cheaper for us to furnish foodstuffs and raw materials to Germany rather than more expensive finished goods to Western. Europe. In this respect, the reconstruction of Germany will directly bene- fit the financial position of the United States. German economic recovery and therefore European recovery, however, can not be attained by one step or gesture. It requires, first, an atti- tude. That attitude is that European economic recovery is necessary—to Europe and to us. Second, it requires a realization that the alternative is chaos. Third, it is evident to me that recovery in Europe is a grad- ual process in which we play an important part. If we succeed in our rehabilitation program with proper safeguards against German rearmament, Germany will plan again the economic role to which it is predestined by its natural resources and the skill of its vot- ers, and the cause of intra-European economic cooperation will be materi- ally advanced. Thus we are led back to our first premise. Our present stage of economic policy in Germany is not dictated by soft hearts or shor memories, and it is not destined to give Gorman recovery any priority over and above the rehabilitation of the rest of Europe. On the contrary, it is meant to make possible economic stability in all of Europe, and thus to further the maintenance of our own economic stability at a high level, and--most important of all—it is meant to promote world peace'.

M.S. Szymczak (1947, October 8). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19471009_szymczak

@misc{wtfs_speech_19471009_szymczak,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1947},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19471009_szymczak},
  note = {Retrieved via When the Fed Speaks corpus}
}