In October, Echevarrieta signed a far-reaching contract during a visit to Berlin. With Deutsche Lufthansa he agreed to the founding of a German–Spanish airline. The foreign minister observed in a confidential telegram to the Madrid embassy that the Reich transport minister would support it as the monopoly concern for German air traffic with Spain and if possible between Spain and South America.68
Canaris and the Marineleitung, meanwhile, forged ahead with the projects disparaged by the Foreign Ministry. At the instigation of Canaris, who since 1 October 1926 had been adviser to the Marineleitung Chief of Staff Kapitän Peter Donner,69 former Oberleutnant Messerschmidt70 was installed in Madrid as liaison officer between the Marineleitung and Echevarrieta.
Canaris had the particular support of ambassador Welczeck, who mentioned the political advantages of German–Spanish cooperation in letters and telegrams to his superiors and pressed for a decision of the Reich Government: ‘As you know, it is the exclusive merit of the Navy, especially Herr Canaris, to have led the most important and influential financier Don Horacio Echevarrieta from the French camp into our own.’71 The mood in Berlin had finally tipped in favour of Canaris. who once again had succeeded in his goals without the help of official agencies. He had convinced Deutsche Bank to take over the financial aspects of the project and to negotiate with Foreign Minister Stresemann and Secretary of State Schubert. On 1 February 1927 the Foreign Ministry reiterated its reservations, but following a conference at the Reichswehr Ministry eight days later everyone had fallen in line behind Canaris. The Deutsche Bank would negotiate the five million Reichsmark loan with the Reichs-Kredit-Gesellschaft.72
In mid-February Canaris discussed with King Alfonso XIII the ever more ambitious plans he was developing with Echevarrieta. Besides the torpedo factory at Cadiz there would be others for torpedo-carrying aircraft, general aircraft and for engines; these sites would also double as test-beds for the E-boats for which Echevarrieta was negotiating with Weser shipyard and the Travemünder Yachthaven AG, part of the Lohmann group. Canaris was also thinking of the Lufthansa project in which Echevarrieta would attempt ‘to penetrate Spanish air travel at the earliest’ and was already in talks with Junkers regarding the aircraft factory at Cadiz.73
The list of projects grew steadily, and extended from negotiations with Mercedes to build a car plant, a planned Spanish oil monopoly and the joint exploitation of mineral wealth and farming in areas in Spanish Morocco and Guinea.74 Much of this was wishful thinking: radical political change in Spain overturned Primo de Rivera’s dictatorship, replacing it with a republic and bringing all these wonderful ideas crashing down. For all the enormous financial investment of the Marineleitung, the Cadiz torpedo factory never began production, while the Echevarrieta shipyard managed to turn out only a single completed U-boat for testing by German personnel.75
The long-term value of Spanish–German cooperation for those states cannot be underestimated, however. The Spanish Navy placed modern submarines at the disposal of German naval forces for testing and manoeuvres. For the future German production of U-boats, these preliminary steps and the fact that Spain helped Germany keep up with new developments in submarine technology would prove of decisive importance.76
In an appraisal, Chief of Staff Donner wrote of Canaris:
In the exercise of his duties, he has created and developed valuable overseas contacts, in his clever, objective and tenacious manner mastered the most delicate tasks. In difficult situations for Reich and Navy he has demonstrated that he can combine caution and correctness with a bold approach. Modest, on first impression almost shy, intelligent and perceptive, people – including foreigners -are swift to recognise his good character and energy, and trust him.77
As with others before him, Donner was concerned that Canaris’s tireless pursuit of his goals could overtax his strength:
Care will have to be taken to ensure that this valuable officer is not ruined for a seagoing career by exclusive employment in internal or foreign political service and on special missions; there is also a danger that he is being overstretched physically and mentally . . . there will always be missions of which it will be said that only he can solve them fully and that accordingly he should postpone returning to sea a little while longer.78
Worries about the health of his subordinate may not have been the only reason for Donner’s attempt to have Canaris removed from the naval-political scene. That summer there had been progress in U-boat construction and air transport affairs,79 which had resulted in the autumn in a contract between Echevarrieta and IvS for the construction and testing of a 600-tonne U-boat and possible ancillary agreements.80 But soon the name Canaris was to make headlines once more, headlines which were anything but welcome even if it would not be Canaris personally who unleashed the greatest scandal for the German Navy since the Kapp putsch.
10
The Shadow of the Past
Under titles such as ‘Captain and Businessman’ and ‘The Film Scandal in the Armed Forces Ministry’, from 8 August 1927 the Berliner Tageblatt began running a series of articles about the connection between Kapitän zur See Walter Lohmann and the Phoebus Film Company, the second-largest film producer in Germany. Eight days later the Weltbühne joined in. The ‘ Lohmann Affair’ would plunge the Navy into crisis.1
The background to the scandal was simple: Lohmann, head of the Naval Transport Division (BS), imbued with a mixture of too much zeal, arrogance and false patriotism, had become involved in a number of ‘madcap’ schemes. He had continued to expand his ‘armaments empire’ and had so lost sight of what he was doing that it finally collapsed.
Canaris had suspected as much and warned his superiors:
As acting chief of staff of the Marineleitung for several months this year, I gained the impression that BS was undertaking operations unknown to us and in particular to the head of the Marineleitung. Upon his return from furlough, I advised the chief of staff, Kapitän zur See Donner accordingly, and suggested that he order Kapitän zur See Lohmann to account for all his operations. A few days before the publication of the Phoebus affair, the head of Marineleitung gave Kapitän zur See Lohmann the said order. The intention was to consolidate all the operations and then relieve the Naval Transport Division of all enterprises that could not be justified.2
Exactly what Canaris knew about Lohmann’s improprieties is not known for certain,3 but the warnings came too late. Phoebus went bankrupt and the financial backing Lohmann had provided on his own behalf but using the name and money of the German Navy now came to light. It had been his aim to gain influence over the growing film industry, which he thought could be made useful for military propaganda purposes. He wanted to make his own films to combat foreign productions with a pacifist message such as the Soviet release Battleship Potemkin;4 even Admiral Zenker saw the ‘distribution of pro-Fatherland and culturally valuable films’ as a suitable way ‘of correcting the false impressions nourished by injurious films made at home and abroad’.5 Lohmann feared that the German film industry was too heavily dominated by foreign ideology, as had already happened – so far as he could see – with Germany’s leading film producer Ufa, which was half American-owned.6
Phoebus had come into being in 1922 through the merger of various small filmmakers.7 Director Sally Isenberg had sought Lohmann’s support at the beginning of 1923 knowing that he had good contacts with the Soviet Union, where she wanted to try her luck with her films, which were no longer performing so well in Germany.8 During 1924 Lohmann made credits to Phoebus of 870,000 Reichsmarks from secret naval funds without informing Admiral Zenker and Reichswehrminister Gessler;9 subsequently he decided to become a major Phoebus stockholder. It was agreed that in exchange for recapitalising the company, he would receive stock with a nominal value of 1.3 million Reichsmarks plus old stock worth 320,000 Reichsmarks, an inclusive capital investment of almost 1.75 million Reichsmarks, made up of the 870,000 Reichsmarks he had already credited, leaving 850,000 Reichsmarks to subscribe.
By the beginning of 1926 Phoebus needed a fresh injection of cash. An audit showed that three million Reichsmarks was needed to avoid liquidation,10 and Lohmann requested a meeting with Reich Finance Minister Peter Reinhold in the hope of obtaining a Reich guarantee for the loan, this guarantee being the precondition of the Deutsche Girozentrale before they would bail out Phoebus. Reinhold declined to help but was then tricked into signing. Lohmann told him that if he guaranteed the loan, his guarantee would be backed by the re-guarantee of Lignose AG, a supplier of explosives and raw film material, one of Lohmann’s jungle of companies. He had obtained the re-guarantee by assuring Lignose AG that the Reich was legally bound to pay if Phoebus found itself in difficulties.11 That the Reich might then call on the re-guarantee to liquidate its loss does not seem to have occurred to Lignose AG. Reinhold, Reichswehrminister Gessler and Admiral Zenker signed the Reich guarantee on 26 March 1926 in the belief that the re-guarantee covered it,12 the two ministers having been misled by Lohmann that the other had agreed, and the signature was purely a formality.13 Unfortunately, Phoebus’s run of bad luck continued and Lohmann had to continue to pump cash into the enterprise to prevent the Deutsche Girozentrale calling on the Reich guarantee for its three million Reichsmarks. Since Lohmann could not approach Zenker or Gessler again personally, he obtained more credit on the basis of guarantees in the name of the Reichswehr Ministry,14 and in 1927 Phoebus received another 4.4 million Reichsmarks.
The press campaign that brought about the collapse and set the scene for the explosive budget debate in early 1928 was fuelled by major interests inside the German film industry. Sally Isenberg, who remained in dispute with Phoebus after her departure from the company, had passed information about Lohmann’s involvement with Phoebus and the Berliner Bankverein to staff at publisher Ullstein. Here the scoop was attributed to the liberal-left press, and not to Berliner Tageblatt, which they owned, for as co-owners of Terra Film, the proprietors of Ullstein were rather hoping to acquire Phoebus’s cinemas at a knock-down price.15
Reichswehrminister Gessler and Canaris as Marineleitung deputy chief of staff admitted later that they were aware at the beginning of 1927 of the financial disaster looming with Phoebus and Lohmann,16 Canaris adding that steps had been taken to disentangle the trust and extricate Lohmann by promoting him.17 Gessler appears not to have grasped the extent of the problem; immediately after the press made the first revelations, Canaris was ordered to Sylt to explain the situation to Gessler, but he seemed ‘little perturbed’,18 and when Canaris furnished the guarantee document Gessler had signed in early 1926, he took the view that by co-signing it the finance minister had accepted sole responsibility. Gessler did not return to Berlin from vacation until 17 August 1927, by which time the affair had become much uglier.
Two days after the first article appeared in the Berliner Tageblatt, Admiral Zenker was ordered to explain the matter to Reichswehrminister Wilhelm Marz. He brought up not only Phoebus and the Reich guarantee, but also reported on the cover operations ‘Navis’ (E-boat construction) and ‘Trayag’ (training and trials) which Lohmann had initiated with the approval of the Marineleitung for the purpose of secret naval rearmament.19 Marx realised at once that no cover-up was going to hide all this and, in order to avoid a committee of inquiry, ordered Friedrich Saemisch, president of the Reich Audits Bureau, to investigate and report.20
The Naval Honour Court that examined Lohmann found him free of personal corruption but guilty of exceeding his area of competence, and of irresponsibility in financial matters.21 Gessler considered this irrelevant since Lohmann was bound to have exceeded his area of competence22 by the nature of his appointed job.23
The result of Saemisch’s audit was so serious for financial, naval and political circles that on 8 November 1927 he published only a part of his report and delivered the rest orally to the Reich chancellor.24 A full publication was impossible politically and it was essential to withhold the matter from the Reichstag before the 1928 Reichswehr Estimates, and the 1927 Supplementary Budget debates, since seven million Reichsmarks was required to cover Lohmann’s deficiency. In order to draw off the opposition, Gessler resigned on 19 January 1928, the day before the debate. He was succeeded as Reichswehrminister by General Groener, an independent.25
The affair could not be swept under the carpet. At a session of the Budget Committee on 13 March 1928, KPD Reichswehr expert Ernst Schneller read extracts from a certain report that the government, Reichswehr and party leaders wanted kept secret, after which the matter was referred to a committee of inquiry sitting in camera. Here the delicate questions of German–Spanish cooperation in the area of secret naval rearmament, and those projects that had so occupied Echevarrieta and Canaris, were discussed, while Admiral Zenker explained the circumstances of German support for Spanish warship building and dismissed as untrue Schneller’s allegations that U-boat commanders were trained there.26
The Reichstag voted on the closing report on 27 March 1928; the most awkward political implications were avoided and the Reich Government kept to itself the question of reimbursement by those implicated. At the beginning of May, Ulrich Fritze, former secretary of state at the Prussian Justice Ministry, began the inquiry in civilian law within very restricted terms of reference.27 Since it was feared that the public would not tolerate Lohmann going unpunished, he had been retired from the Navy on 31 March 1928 after the Marineleitung held him liable to repay 120,000 Reichsmarks as compensation. After all adjustments he was left with a pension of 396 Reichsmarks a month; he emigrated to Rome and died there on 30 April 1930.28
At the end of May 1930 the Fritze Report presented the appalling statistics: Lohmann alone was adjudged responsible for the loss of thirteen million Reichsmarks and liable for its return; Gessler, Zenker and former Finance Minister Reinhold, all of whom had put their signatures to a Reich guarantee favouring the Phoebus Film Company, had each incurred with Lohmann liability to repay 1.1 million Reichsmarks.29 In conclusion, Fritze recommended an amnesty for those responsible ‘on political grounds’.30
All of this – not least because of the exposure of Zenker and Gessler – decided Reichswehrminister Groener to draw a veil of silence over the scandal. In Cabinet he refused to reveal the details, nor refer them to the Reichstag, and neither was he inclined to demand compensation from those four personalities implicated; the affair should be ‘killed off’,31 he thought, not least so that the rearmament programme could go ahead untouched.
Canaris had nothing for which to reproach himself; in a memorandum he described his collaboration with Lohmann regarding the Spanish projects and obtaining loans for Echevarrieta. ‘I had nothing to do with any of Kapitän zur See Lohmann’s other enterprises. Recently I did discover the Trayag link, and I knew of the existence of Navis, von Mentor32 and the involvement of IvS. I had heard nothing about the film operations, the Bankverein33 or the numerous other involvements of which I became aware during the inquiry.’34 His superiors also vouched that Canaris ‘not only had nothing to do with the things that came to be grouped together as the “Lohmann Affair”, but on the contrary worked intelligently and energetically at clearing them up and therein rendered great service’.35
Nevertheless, the affair had unpleasant consequences for Canaris and brought him once more into the spotlight of the anti-government and anti-rearmament press. ‘Canaris’s Secret’,36 ‘Canaris in the Baltic’,37 ‘Canaris Films and the League of Nations Theatre’38 and ‘The Canary Islands Fairy Tale’39 followed in quick succession in the Weltbühne. His past was put under the microscope: his contacts with Org-C, links to the Hitler putsch, allegations of knowledge after the fact relating to the murder of Foreign Minister Rathenau were all placed at his door. Worst of all for the Marineleitung was the ‘Canary Islands Fairy Tale’ whose anonymous author related the relationship between ‘The Canary Islander’ (obviously Canaris) and ‘Esche’ (Echevarrieta):
Now Esche had many slaves, mines, furnaces and built ships that could swim un
derwater like fish. The Canary Islander came and promised him a lot of the money which his people had given him if only the Esche would build him such ships too. The Spaniard agreed and the Canary Islander promised to send him lots of money.40
The well-informed author of the article knew that Lohmann had brought the pair together in Madrid:
Here he received sacks of money, went off at once and built the ships which do what fish do, for the Canary Islander. At the request of the latter he kept the building work secret and hid the finished vessels away from the gaze of other people, for he probably knew that the Canary Islander had had to swear a holy oath to other nations not to do that.41
The likely consequences were painted in apocalyptic terms: ‘The other people saw through the tricks of the Canary Islander, showed us his lack of faith and breach of promise and killed all his people.’42 The knowledge of Welbühne about the allegedly secret efforts to rearm must have alarmed the Marineleitung, and the next scandal followed hot on the heels of the first.
On 15 December 1927, at a Reichstag Committee of inquiry into the ‘Causes of the German Collapse in 1918’,43 SPD deputy Dr Julius Moses stated that: ‘The charges we are proposing to make are so grave that a refusal to accept Korvettenkapitän Canaris as the representative of the Marineleitung before the Committee of Inquiry is more than justified. One must express renewed surprise that the Admiralty would dare to present as its official representative to the Committee of Inquiry a person of such qualities.’44
Thus came to a head a dispute that had begun two years previously in the committee investigating the ‘Stab in the Back’ legend and the 1917 Red Revolution in the Fleet. The spokesman for the critics of the Navy was former USPD party secretary and present SPD deputy Wilhelm Dittmann. The actions of the Marineleitung and naval justice at issue were those directed against the ringleaders of the Fleet mutineers of 1917 and the death sentences handed down for treason. In 1917 the Navy had accused the USPD of incitement and causing unrest and it was still demanding that USPD leaders Haase, Dittmann and Vogtherr be handed over to stand trial.45 The USPD took the view that the death sentences were excessive since internal circumstances in the Navy had given rise to the mutiny; these battle lines remained unchanged. After all efforts in the preliminaries to the inquiry to ‘remove’ Dittmann had failed,46 and to prevent his testifying,47 Canaris was nominated as the Marineleitung representative to rebut the opposition case. On 23 January 1928, after Dittmann had held the floor for six hours, Canaris was called: ‘Deputy Dittmann has attempted to supply proof that the breakdown in the Fleet cannot be attributed to revolutionary influences, but to a combination of circumstances, in particular the failure of the officers. He has made grave accusations against the officer corps and has spoken of officers mocking the men; I have to refute these grave charges.’48
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