by Benn Steil
In January 1950, Hoffman would press further, making up to a quarter of ECA aid dependent on progress in trade liberalization and integration. Cripps decried it as “dollar dictatorship.” Even Acheson, ever pragmatic and anxious to sustain solidarity in the face of Soviet threats, opposed such conditionality. But van der Beugel defended Hoffman, noting that “it was again American and not European initiative which pushed Western Europe further on the road to greater cooperation and integration.”15
Seeing the need for a “Marshall Plan” of his own to showcase Soviet economic leadership in eastern Europe, Stalin decreed one. Launched in January 1949, the Council for Mutual Economic Assistance, often called Comecon, would in practice take the form of Kremlin-dictated bilateral barter arrangements imposed on its captive members: Bulgaria, Czechoslovakia, Hungary, Poland, and Romania. In this regard, it mimicked Nazi trade arrangements.16 In assigning to each country its own production requirements, it also implemented the very policy that Molotov had claimed, falsely, that Marshall wanted to impose in June 1947. As for the aid element of the Marshall Plan, Comecon operated it in reverse. By the time of Stalin’s death in 1953, the Soviet Union would extract as much from its allies in unrequited flows as the United States would confer on its own.17
“THE [BERLIN] CRISIS,” WROTE THE new Republic, “Is certain to figure in future textbooks on economics. Seldom before has Gresham’s famous law that ‘bad money drives out good’ had such a proving ground.”18 The Allies, in their earlier determination to leave space for a currency compromise with Moscow, had burdened West Berlin with a currency regime that no competent economist could endorse. East marks, which no one wanted, were accepted for government transactions at par with west marks, which everyone hoarded. Arbitrage incentives driven by perverse price-control, rationing, and tax-accounting regimes worsened shortages. Murphy decried the fact that two thirds of the food provided for Berlin was being paid for in east marks—which was “so much waste paper.”19 And so in early 1949, currency chaos brought the interests of Washington and West Berlin closer together, even as it drove those between Washington and its wartime partners further apart.
Clay wanted to push the east mark out of West Berlin by declaring the West German deutschmark the sole legal tender. The State Department saw diplomatic as well as economic benefits in the move, concluding it would “be viewed as proof of Western . . . determination to remain in Berlin, which might in turn make [the Soviets] reassess the value of the blockade.” For Britain, however, this was a step too far. “Bevin,” Lovett observed, was “concerned [it] might slam the door on a settlement” with Moscow. Robertson insisted that Germans “would never accept” a divided Germany. Murphy suspected the French did not even want Berlin “tied in politically with the West.” He condemned “the British and French attitude” as craven. Washington, Clay concluded, needed to “demand acquiescence in our policy . . . as a condition to our continued financing of the German deficit.” And if that didn’t do the trick, he suggested, “we have other resources to force the issue.”20
That a technically simple monetary reform should cause such a rupture in Allied unity might appear strange, but the political significance of the move was considerable. First and foremost, it played to the agenda of West Berlin’s new leaders, who were pressing “irrevocably to tie [the] Western sectors” of the city “with the Western zones” of Germany. Reuter wrote an impassioned letter to Clay arguing that with the Russians “no longer execut[ing] any powers” in West Berlin, “there can no longer be objections, relating to the law of nations, to the inclusion of the three western sectors . . . into the ERP”:
Whilst therefore legal barriers no longer exist, political as well as economic reasons make the inclusion of the western sectors of Berlin into the ERP a matter of utmost importance. Berlin is situated as an outpost of Europe in the struggle against Russian expansionist efforts. Her task has become a European problem. . . . [Inclusion] would mean not only critical economic relief but also a moral support of the population of Berlin and an important demonstration against the Russian plans for strangulation.21
But for the French and the British, extending the deutschmark to West Berlin also represented a further unwelcome step in Marshall’s radical agenda of binding western Europe together, including as much of Germany as possible.
On January 12, 1949, State Department officials tried to convince their British counterparts to accept January 30 as the date for the currency transition. If the Soviets did not meet requirements for the operation of a single Berlin currency, the east mark would cease to be legal tender in the western sectors. The British refused to go along. State considered banning the east mark unilaterally in the American sector, but ultimately deemed it impractical.
By February 9, however, the British had conceded there was “no hope” the U.N. would resolve the currency standoff in the context of a split city administration. And indeed, the neutrals’ “Technical Committee on Berlin Currency and Trade” abandoned its efforts two days later, declaring that “the present positions of the experts of the Four Occupying Powers are so far apart in this matter that further work . . . does not appear useful.”22 So Bevin reversed himself. “The division of Germany, at all events for the present,” he concluded, was now “essential for our plans.” The Allied-occupied zones needed to be brought within “our Western European system.” He proposed March 10 for the currency transition, but refused to join the Americans in telling the French to take it or leave it. If the French left the east mark circulating in their sector it would, he feared, reveal “a split among Western powers” and “damage Anglo-French relations.”23
On February 16, Clay and Robertson tried to persuade Koenig to join the changeover, but, as expected, he resisted. The matter, he reminded them, was still before the Security Council, and the linkage of “Berlin with [the] Western zones” of Germany was in any case “contrary to his government’s policy.” On the 19th, Caffery brought the issue to Schuman, who agreed to cooperate only after the Security Council had decided what to do with the neutral committee’s forthcoming report.24
Acheson, now returned to the front lines as secretary of state, still feared that the resentful neutrals would place some “onus for failure on [the] Western powers.”25 Canadian ambassador to Washington Humphrey Hume Wrong had, after all, asked Bohlen point-blank whether the United States actually wanted a settlement of the Berlin crisis.26 Acheson did, but, unlike Marshall, never had faith in the U.N.’s ability to assist it. In a blow to the institution in which FDR had lodged such great hopes, he told the House that the U.N. was “utterly worthless to create that environment which we want.” Only a “powerful group” of democratic countries, led by the United States, could do this.27
Fortunately, Bragmuglia was no longer Security Council president. Cuba’s anti-Soviet Alberto Alvarez, who took up the rotating post in March, readily agreed not to publish the neutrals’ report as a Council document. When the report was buried instead as a minor press release on March 15, the State Department put out pre-prepared press points blaming the Soviets for the mediation failure.28
Five days later, on March 20, the three Allied military governors issued their own release stating that “the East mark shall [henceforth] cease to be legal tender in the Western sectors of Berlin.” Reuter was elated. “This step is more important than a whole sheaf of declarations that the Western powers were going to stay here,” he proclaimed. “It means the definite recognition that Berlin belongs to the West ideologically and politically.”29 It also split the city economically far more effectively than the blockade, causing a collapse in trade between its eastern and western sectors. West Berlin unemployment soared as its “export” goods became three to six times more expensive in East Berlin, and its firms became uncompetitive against more productive West German counterparts.30 At that moment, however, the city’s leaders were more focused on politics, believing that better economic results would follow in time.
Meeting with Attlee in B
erlin before the changeover, Reuter had called for quick recognition of West Berlin as a state (Länd) that could be incorporated into the new Federal Republic.31 Murphy backed his call in cables to Acheson, arguing that West Berliners saw Germany more in an “international framework” than West Germans, “who often appear mired in local nationalism.” Berlin’s influence on West Germany would, therefore, be in the direction of State Department thinking.
The French, however, objected to including West Berlin in the new state, fearing that the city’s former status as a national capital would help centralize West Germany and make it too powerful. The Soviets condemned the idea as “provocative.” Other German political leaders also resisted Reuter’s push to bring West Berlin into West Germany too quickly. Mayor Friedensburg acknowledged that there was little hope of reuniting East and West Berlin anytime soon. In spite of “at least 90 percent” of East Berliners thinking exactly as West Berliners, he said, “the ‘Trinity’ [of] Soviet-style administration, police, and state-owned enterprises formed a very strong framework” for maintaining communist control. Still, he opposed treating “a permanent separation between East and West Germany as inevitable,” which weighed in favor of keeping West Berlin outside West Germany. Adenauer had political reasons for opposing West Berlin’s inclusion. The city was dominated by the SPD, meaning that its incorporation into West Germany would lessen the power of his CDU in the new Bundestag (parliament). In the end, Acheson came down against West Berlin’s incorporation “under present air-lift circumstances,” arguing that it would strengthen Moscow’s case that the Allies had forfeited their rights in the city by abrogating the four-power control agreements.32
ALLIED RETALIATION FOR THE BLOCKADE was Hurting eastern Germany far worse than Moscow had anticipated. Shortages of coal and steel, a product of the counter-blockade, were acute. The Soviets, too, suffered, as they had been siphoning off food and industrial shipments from western Germany as hidden reparations. This practice was now impossible.33 Stalin was, furthermore, failing to achieve his objectives in either Berlin or western Germany. Mostly mild winter weather meant the airlift could continue indefinitely, ensuring the Allies an ongoing propaganda coup. Dean Acheson, a more rigid cold warrior than Marshall, was now heading the State Department. Stalin, faced with the choice of whether to climb down or escalate, characteristically chose both.
On January 30, 1949, in a rare response to an American press query,34 Stalin said that if the Allies postponed establishment of a West German state pending a meeting of the Council of Foreign Ministers, and lifted their transport and trade restrictions in Germany, the Soviet government saw “no obstacle” to removing its own restrictions.35 Curiously, he made no mention of withdrawing the B-mark.
Bevin felt sure it was a trap. He thought his reaction confirmed two days later when an SED-organized “German People’s Council” issued a statement praising Stalin’s call for the Western powers “to give up their measures . . . for a [West] German state.” The communication was a revival of Stalin’s “insistent wish,” making clear that his real aim remained abandonment of the London Program.36 Kohler in Moscow therefore saw no news in Stalin’s initiative. The “currency problem and blockade could always have been solved overnight,” he cabled Acheson, “if we agreed to make concessions on West Germany satisfactory to Stalin.”37
But Acheson had no intention of bargaining away West Germany. The London Program, he told the press, remained “necessary.” In a cable to Douglas, he said he was willing “to begin discussions with the Soviets for resolution of questions affecting Germany as a whole,” but only “once [the] blockade is lifted.”38 Stalin’s “insistent wish” remained out of the question.
Nonetheless, Acheson was intrigued that Stalin had delivered his terms publicly without mentioning the currency issue. Was it intentional? Determined neither to negotiate through the press nor to suggest weakness by making official inquiries, Acheson decided on a secret probe. He directed Jessup, recently appointed ambassador-at-large, to approach the Soviet U.N. ambassador, Yakov Malik, ostensibly on his own initiative and out of the spotlight in New York.39
On February 15, Jessup contrived to bump into Malik in the U.N. delegates’ lounge. Following an exchange of pleasantries and a few “bantering” jokes, Jessup casually began his inquiry. “I wondered,” he said, “whether there was anything new in Premier Stalin’s reply to the newspaper questions regarding the Berlin question.” Malik asked what he meant. Well, Jessup clarified, “Stalin . . . had said nothing about the currency question.” Did that have “any special significance?” Malik frowned, shaking his head; he had “no information on that.” Jessup thanked him, adding he “would be glad to have it” if he got any.40 The back channel was open.
Acheson, however, was not about to reprise the Smith and Vinson fiascoes, in which Truman made himself look feeble through peace overtures. While sending Jessup to New York, Acheson also authorized an expansion of the counter-blockade, banning freight movements across the Allied zones to and from the entire Soviet bloc.41 Removal of these and other western sanctions would be atop Malik’s agenda when he would reemerge in March.
Before he would do so, however, Stalin would reshuffle his diplomatic deck. Having had Molotov’s Jewish wife arrested for treason in December, and having compelled him to divorce her, Stalin now, on March 4, sacked him as foreign minister (though he left him deputy prime minister). In Molotov’s place, Stalin elevated his deputy, Andrei Vyshinsky—a man known for expressing few thoughts beyond those given him by the vozhd. Molotov’s demotion must have embarrassed the CIA, which had just tapped him as Stalin’s heir apparent.42 A few weeks later, Stalin would also replace Sokolovsky in Berlin with war hero Marshal Vasily Chuikov. “If anyone attacks us again,” Chuikov would say years later, “there will be a new Stalingrad. But this Stalingrad will be far away, somewhere in the West.” Meanwhile in Berlin, clear spring skies brought the resumption of regular buzzing maneuvers against U.S. and British transport planes. Stalin showed that he would not shy from a military incident, even in the midst of a diplomatic offensive.43
On March 15, Malik invited Jessup to the Soviet U.N. delegation Park Avenue headquarters to hear Moscow’s official response. Though his English was fluent, Malik spoke in Russian. Emphasizing the importance of the message, the interpreter himself read the translation from pre-typed English text. Stalin’s omission of the German currency matter, Malik said, was “not accidental.” It could be discussed among the foreign ministers when they reconvened over the Berlin and German questions.
If true, this statement was a concession. But would the blockade be lifted before such a meeting? Jessup asked. This point was, for Acheson, nonnegotiable.
Malik said he “had no directive on any other point.” He could offer only to inquire with Moscow.44
Negotiation with Malik, Jessup saw, was to be a classic Soviet diplomatic operation, with the Russian encouraging his counterpart to talk but revealing nothing himself. (A typical Kremlin directive said that “the Soviet expert must not immediately answer the presented questions, but must inform [his counterpart] that answers will be provided after some research.”45) It would be six more days until he was called back to Malik’s office for Moscow’s next response. Vyshinsky, Malik told Jessup on March 21, had indicated that “a reciprocal lifting of the restrictions on transportation and trade in Berlin” could take place after a date for a foreign ministers meeting was set but before it actually began. This appeared to be another concession.
But Malik then slipped in Stalin’s “insistent wish”: Vyshinsky, he said, understood the Allies would also “call off” creation of “the Western German government if there were a CFM” meeting. Jessup cut him off, objecting that he had never suggested such a linkage. He could only say that if a meeting date were set soon it could, as a factual matter, be held before such a government were created. He was careful, however, not to suggest that Washington could exercise any power in the matter. Malik, to his surprise, appe
ared to accept this formulation. Jessup remained wary of a trap.46
Malik now wanted assurance that there would be “a full resumption of trade between the zones,” meaning elimination of all Allied blockages. Jessup was “careful to dodge this,” as American priorities had changed since 1947. Opening up trade with the East had been an objective then, but withholding it was now seen as the more promising way to weaken the Soviet bloc. The severing of trade between East and West Germany had made it impossible for Moscow to fulfill its targets for reparations deliveries from current production. Without trade controls, there was also the likelihood that goods sent to West Germany under the Marshall Plan could end up in Soviet hands. Jessup was, therefore, not authorized to agree to any liberalization that went beyond the status quo ante at the time the blockade was imposed.47 This was less than Stalin would want as a price for lifting the blockade. But the two agreed to meet again, after the three Allied governments had considered the Soviet position.
Acheson brought Schuman, Bevin, and their advisers together in Washington on April 1 to brief them on the talks and solicit their agreement on an Allied position statement, which Jessup would then present to Malik. The atmosphere was tense. Schuman was skeptical, Bevin scornful. The Briton detested this American habit of using backdoor emissaries, and resented his country being shoved to the margins of European diplomacy. Sir Oliver Franks, now ambassador to Washington, warned that anything resembling an Allied “proposal” risked “expos[ing] ourselves to Soviet propaganda and a swindle.” Bevin added that it “might imperil” everything from the creation of West Germany to the Marshall Plan to the solidarity of western Europe and the Atlantic security pact—all of which were arriving at important milestones.48