Has Our Policy in Germany Failed?

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ALLIED policy in Germany still is formally governed by the Potsdam agreement, though every day that passes increases the doubt whether this agreement can and will be implemented. Why is this the case, and what can we do about it? The danger of a breakdown of Four Power collaboration in Germany is so alarming that our examination of the alternatives still open to the United States should be stated in the most factual terms.

The principal economic provisions of the Potsdam agreement were as follows:

(1) Germany west of the Oder-Neisse line was to be treated as an economic unit. To this end, common economic policies would be established in the various zones and an "equitable distribution of essential commodities" arranged among these zones. Central economic agencies would be established to administer transport, finance, foreign trade, communications and industry.

(2) Reparations were to be collected by the removal of plant and equipment from Germany and by the appropriation of German external assets. The claims of the U.S.S.R. and Poland would be met by removals from the eastern zone, together with a share from the west. The claims of the western Allies would be satisfied by removals from the three western zones.

(3) German productive capacity was to be reduced, by means of reparations transfers and destruction, to a level no higher than sufficient to yield a standard of living in Germany equal to the average of other European countries, exclusive of the United Kingdom and the U.S.S.R.

The decision to partition Germany for the purpose of reparations collections seriously contradicted the decision to treat Germany as an economic unit and sounded an ominous warning of events to follow. It was not made clear at Potsdam whether reparations claims would be satisfied by capital removals or whether payment could also be expected from current output. At American insistence, the payment for necessary German imports was made a first charge on German exports from current output. Obviously, if Germany is de-industrialized to the extent proposed at Potsdam, and the "first charge" principle is followed, Germany cannot pay reparations out of current output. But it is by no means clear that this fact is recognized by all the claimants to reparations...