by Benn Steil
Molotov may have been the more accomplished negotiator, but Marshall had at least one advantage. Unlike in China, he had come to Russia with a fallback position—a plan, or at least the outlines of one, to cut loose the tethers of Yalta and move forward on matters of vital U.S. interest unilaterally. Truman’s speech was still two days away, but, together with Clayton’s and Acheson’s memos, it would establish a framework for using financial, technical, and military aid to bolster allies against Soviet trespass. Molotov, in contrast, had no Plan B. A western Germany beyond Soviet control was, at this point, still unthinkable.
THE ENCOUNTER BETWEEN MARSHALL AND Molotov began in the ornate main hall of the Aviation Industry Building on March 10. The British and French foreign ministers, Ernest Bevin and Georges Bidault, represented the other two occupying powers in the Berlin-based Allied Control Council (ACC) governing Germany. Though spiritually aligned with Marshall, the Briton and the Frenchman each had his own national interest to protect in charting Germany’s future. The Soviet foreign minister was ready for opportunities to exploit divisions in the Western camp.
Ambassador Novikov set the scene: “Molotov, . . . Marshall, . . . Bidault, . . . Bevin and their assistants [sat] solemnly at a huge, round table, with their advisers sitting behind them with fat folders, ready to assist their chiefs at any moment.”15 Molotov, observed Colonel Marshall (Pat) Carter, the secretary of state’s liaison officer, sat “chin in hand,” occasionally nodding slowly with no discernible meaning. He was “completely poker-faced.” The tortoiseshelled Bevin, cigarette dangling loosely from his mouth, resembled “a cross between Santa Claus and a Welsh coalman.” Bidault, in contrast, was the “smoothy type,” effecting an air of ennui, wishing “to look bigger than he is.” The self-taught Bevin couldn’t pronounce his name, alternating between “Biddle” and “Bidet.”16
For his part, Bidault, who had not met Marshall previously, observed that the general was “unaffected” yet “quite cautious,” never “strik[ing] up rash poses or speak[ing] off the cuff.” He read from notes. He “did not pretend to be infallible,” but was firm “once he had made up his mind” on an issue—“nothing could [make] him change it, not even the President of the United States in person.” Weeks of interacting with Marshall would leave an indelible impact on France’s top diplomat. Deeply patriotic, an active French resistance fighter during the war, Bidault was never shy about criticizing the United States; yet he would echo Truman in calling Marshall “the greatest American alive.”17
Certainly too American for Molotov. In his characteristic guileless and unadorned style, Marshall stressed the importance of reviving German political life. The ACC, he said, was making no progress; the various states of the country needed to adopt constitutional guarantees of rights to association, speech, and movement. “We will never democratize Germany,” Marshall concluded, “by the mere negative process of depriving the Nazis of their positions and influence.” The interjection, Ambassador Smith observed, “was probably the most forthright statement on the rights of man ever made in Russia.” This was enough to explain its failure to engage Molotov, who saw German democratization as a hostile act to undermine Soviet rights.
The Soviet Union, Molotov put back laconically, was not interested in “the generalities of democracy.”18 Within the joint economic region the Americans and the British had established in the western part of the country, known as Bizonia, they were, he complained, merely rebuilding the old capitalist cartels and trusts that had helped bring about the war. Back in November, War Secretary Patterson had told a reporter that “Russia will be so impressed by the success [of Bizonia] that [it] will fall into line and join us”;19 the opposite was the case.
The exchange exposed the widening chasm between Washington and Moscow. Whereas the Americans appealed to hope, fear drove the Soviets. Marshall spoke of a stable, pacific, independent Germany as an aspiration, one that could be met with goodwill and cooperation among the victorious wartime allies. Molotov spoke of Germany as a looming mortal threat, one that could only be eliminated through Soviet power over the country’s economic and political structures.
The danger for both sides lay in the fact that the United States would not disengage from Europe until its aspirations were met; this in turn would heighten Soviet mistrust of American intentions, encouraging Moscow to tighten its grip on eastern Europe and foment resistance to non-Communist parties in the West. Realists such as Churchill and Byrnes had tried to head off such a spiral of conflict by groping toward a division of the continent into spheres of influence—a classic European concept to which Kennan had become a late convert. Yet unbridgeable differences over Germany were making a broader mutual accommodation impossible.20
Molotov returned again and again to the issue of reparations, which he insisted were Moscow’s right based on agreements made, though never officially recorded, during the wartime conferences. The Soviet Union wanted $10 billion ($108 billion in today’s money) out of current German production. But Marshall was immovable. “We cannot accept a unified Germany,” he explained, “under a procedure which in effect would mean that the American people would pay reparations to an ally.” Western Germany had to be able to feed itself before it took care of others. The United States was financing reparations, since it was filling the gap between what western Germany needed to survive and what it was capable of producing for consumption and trade. Failure to revive western Germany would mean an unacceptable never-ending drain on the U.S. Treasury.
For the Soviet Union, a revived industrial western Germany under American protection meant, in the long run, a renewed threat of invasion. Stalin, as an autocrat, was by nature and by circumstance paranoid; but paranoids have enemies. And Germany, which had just wiped out over a tenth of the Soviet population and a quarter of its capital assets, would always be one.21 Germany’s revival also meant a denial of the resources Moscow needed, and expected, to rebuild its own shattered infrastructure. Molotov rejected the logic of Marshall’s arguments about deficits in the western zones: these, he insisted, could be controlled just by cutting back German consumption. Germany was a rich country: its living standards simply had to fall until the needs of its victims were met.
More resources would need to be extracted from the east of Germany if less were extracted from the west, which created economic and political problems for Moscow. “America, England, and France were helping West Germany,” Molotov later recalled, and “bit by bit we were creating . . . our Germany.” But “what would these people think of us if we had pulled everything out of the country? . . . After all, we were taking from the Germans who wanted to work with us. It had to be done very carefully.”22
REPARATIONS HAD BEEN A SOURCE of contention among the wartime allies going back to Yalta. In February 1945, Roosevelt accepted the logic of reparations and agreed to $20 billion ($268 billion in today’s money)—half of which for Russia—as a basis for further discussion; but he would make no commitments. Churchill, however, opposed reparations that large, recalling the bitter experience with such claims after World War I.
“If you want a horse to pull your wagon,” the PM told Stalin, “you have to give him some hay.” Twenty billion dollars was roughly equivalent to Germany’s prewar gross exports. Starved Germans with no equipment would be in no position to produce on such a scale. But Stalin waved him off. Feeding the horse could be dangerous, he said. It might must just “turn around and kick you.”23
Despite the differences with Churchill, Roosevelt’s sympathetic bent settled the matter for the Soviets. “We assess [Yalta] as a highly positive fact, particularly . . . on the issue of reparations,” the Commissariat of Foreign Affairs informed Soviet diplomats immediately following the Crimean conference.24 When FDR died in April, however, Truman brought in his own hard-nosed reparations negotiator, Edwin Pauley. The Texas oilman transformed the tenor of the discussions from moral to commercial. Attitudes toward Russian claims hardened, particularly as reports came in from Europe of
Russian troops stripping bare German factories, railroad equipment, and the like—a third of the country’s capital equipment—and shipping the useful portions back to Russia.25
By the time of the Potsdam Conference in July 1945, U.S. experts had also persuaded the administration that repeating the German reparations experience of the 1920s would be a political and economic disaster. This time, reparations debt had to be calculated only after first allowing for a reasonable German standard of living.
The Big Three agreed that it should not be better than that of the neighbors Germany had brutalized. But this formulation only led to haggling. Britain, whose occupation zone was the most industrialized, pushed for high ceilings on German production. More output would afford Britain more tradable goods to pay for food imports. The bitter and fearful French, in contrast, demanded even stricter caps than the Russians. Paris also wanted to place the Ruhr under international control and annex the Saar as a means of arrogating Germany’s economic might and defanging its military. It had pressed the same course after World War I to underwrite German reparations and French border security.26
The Russians, for their part, believed the Americans had the lessons of the 1920s entirely wrong. The mistake made after World War I was allowing the Germans to escape obligations to their victims. “Everybody [in Russia] would say that reparations come first and imports after because we have suffered so much,” insisted Ivan Maisky, Russia’s diplomatic éminence grise. “If there is a conflict between reparations and imports, then imports must give way.”
Will Clayton rejected this stance point-blank. “The American people will not again,” he put back, “as they did after [the] last war, finance Germany.” Byrnes echoed him categorically: “Not a dollar will be paid on reparations until imports are paid for.”27 Ambassador Harriman insisted that the United States follow a “policy of taking care of Western Allies and other areas under our responsibility first, allocating to Russia what may be left.”28
In theory, Washington and Moscow were to avoid conflict in Germany through implementation of agreed provisions for handling its economic affairs. The Potsdam protocol called for treating Germany, though divided into four zones of occupation, as a single economic unit. Common policies were to be set for production, pricing, currency, transportation, and the like, but with due allowance for “varying local conditions.” Import and export programs were to be devised for the entire country, with essential commodities to be distributed equitably across the zones. The Allied Control Council was to determine a level of industry in the country that could support a base standard of living no higher than the European average, excluding Britain and the Soviet Union. So-called excess industrial capacity would then be dismantled and distributed as reparations.29 The Soviets, who had wanted a simple, firm, hard-dollar commitment on reparations, signed on to the arrangement only because it was the best they could get from the Americans in exchange for an agreement on Polish border changes.30
In practice, the protocol proved unworkable. “The Potsdam Agreement was incomplete, unrealistic, and ambiguous,” in the verdict of U.K. Treasury economist Alec Cairncross. “The clauses governing reparations,” in particular, “proved to be contradictory and obscure.” Since the unanimity required for action in the ACC was generally impossible to achieve, it was inevitable that each of the four powers would end up doing what it wanted in its own zone. And the fact that each power would lay first claim to reparations in its own zone was, as Treasury’s Wilfred Eady presciently observed in July 1945, “a decisive step towards the separation of Germany into a Western Area and an Eastern Area under Russia.”31
THE REPARATIONS STANDOFF WITHIN THE acc turned bitter in may 1946. The Soviets, who had been receiving 10 percent of reparations from the western zones, were failing to meet reciprocal obligations to deliver food and raw materials from the eastern zones. Soviet General Georgy Zhukov insisted that food supplies were insufficient to permit shipments to the West. Moscow further decided that moving industrial plants from Germany to the Soviet Union, a form of reparations approved by the western powers, was too costly and time-consuming. It began taking reparations from current production instead.
In effect, the Soviets chose to “have the golden eggs laid by the goose [rather] than the goose itself.”32 To this end, they transformed two hundred enterprises in their zone, representing over a quarter of its productive capacity, into Soviet-controlled corporations in which they granted themselves a majority stake. The output was then shipped to the Soviet Union for internal use or reexport.33 This arrangement made “economic unity” in Germany, to which the three powers had committed at Potsdam, a practical impossibility.
The British and Americans took the position that no occupying power could claim reparations from current production in its zone before Germany as a whole was self-supporting. British military governor Sir Brian Robertson argued that the so-called first-charge principle had to be applied: exports needed to be sufficient to pay for imports before reparations were paid. But his Soviet counterpart, Vasily Sokolovsky, retorted that the principle had no bearing on reparations, as exports were a matter to be managed on a zonal basis. American deputy military governor Lucius Clay rejected this interpretation, insisting that only a common trade policy could satisfy the requirement of economic unity.
Sokolovsky shrewdly shifted the blame to the French governor, Pierre Koenig (whom Clay dismissed as an “absolute out-and-out Gaullist” nationalist34), by asking him whether his government were ready to establish a central administrative apparatus to bring unity about. Koenig responded as the Russian expected: non. So whereas the French claimed to support the Anglo-American stance on German economic unity, the absence of any machinery to implement it made the issue moot.35
The hard-driving General Clay, known unaffectionately in the State Department as “the Kaiser,” declared an impasse. Acting on his own initiative, he now made one of the most fateful decisions of the early Cold War. He banned further reparations deliveries from the American zone, and ordered an end to the dismantling of German factories for such purposes. The British and French followed soon after, having little choice given the American refusal to participate further in the four-power administrative machinery to value plants for reparations.36
“The Potsdam agreement must be implemented as a whole and not in part,” Clay wrote by way of explanation to General Oliver Echols at the War Department. “Germany must be treated as an economic unit; indigenous resources must be used first to meet essential German requirements and second to produce exports that can finance essential imports.”37 Whereas Clay was determined to create a self-sustaining Germany with a base standard of living, from which it might advance without limit, the Soviets were determined to hold down Germany’s industrial capacity and ensure a continuous flow of reparations—irrespective of the effect on the local population. They would thereafter maintain that Washington had destroyed Potsdam by reneging on its reparations and policy-coordination commitments. Washington would retort that Moscow was at fault for failing to fulfill its commitments on German economic unity.
A FEW WEEKS AFTER CLAY’S suspension of reparations, in june 1946, former Soviet foreign minister Maxim Litvinov agreed to an interview with American correspondent Richard Hottelet in Moscow. His remarks were so candid that Hottelet decided to report them to the U.S. embassy rather than air them. The Soviet Union, Litvinov said, was withdrawing into the “outmoded concept of geographical security,” for which Germany was now of the essence. It had become the world’s “greatest problem.” And since “each side,” East and West, “wants a unified Germany under its control,” it would “obviously [have to] be broken up into two parts.” There was no other solution.38
Yet Clay had not intended to precipitate anything of the sort. His relations with Zhukov and Sokolovsky were warm, and he displayed persistent (Kennan would insist naive) faith that differences with Moscow could and would be overcome. Grilled by reporters in Berlin as to whether his action had been d
irected at the Russians, he shook his head no: “Not to the Russians. It’s to everybody.”39
“Everybody” was Clay’s euphemism for the French and the Russians, possibly more so the former.40 Walt Rostow, on a State Department mission in Berlin, cabled Washington that “Whether correct or not it is the Berlin [State Department] view that Clay’s hold-up of reparations is designed rather more to get the French obstruction cleared up than to show up Russian intentions.”41 Clay’s correspondence indeed shows clear and enduring frustration with the French for undermining four-power cooperation on reparations and trade. “The Russians are tough horse-traders,” Clay would tell a New Republic journalist in early 1947, “but we are negotiating with them on a basis of reasonable give and take. . . . The French, with their demand for the Saar and the internationalization of the Ruhr, are far more intransigent.”42 But if his intention was to shake the French rather than anger the Russians, he failed.