Tower of Basel: The Shadowy History of the Secret Bank that Runs the World

by Adam LeBor

  After Kreuger, the Swedish match king and con man, went bust, John Foster Dulles sent Monnet to Stockholm to protect the interests of Kreuger’s American creditors. In 1933, bored with Sweden, Monnet moved to China to help the government set up the Chinese Development Corporation, to develop communications and infrastructure. Monnet then returned to the United States and moved into a large apartment at Fifth Avenue and 92nd Street.13 John Foster Dulles then suggested that Monnet—whom he described as “one of the most brilliant men I know” and “an intimate friend”14—go into business with another close friend of his, a banker called George Murnane.

  In fact Monnet and Murnane had known each other since the First World War, when Murnane had worked for the American Red Cross in France. Murnane was a partner in Lee, Higginson—the Boston investment firm that had financed Kreuger and for whose London branch Thomas McKittrick worked. “I have long felt that they would make an ideal combination,” Dulles wrote of Monnet and Murnane. The two men agreed to set up a new international finance house, using Dulles’s legal services. At this time Sullivan and Cromwell was making so much money, especially from its business in Germany, that Dulles suggested the law firm invest in his friends’ new company, Monnet, Murnane & Company. Sullivan and Cromwell put up $25,000, and Dulles invested another $25,000 of his own money.15 Monnet focused on business in France and China, and Murnane looked after Solvay & Cie, the Belgium chemical firm that was a partner of IG Farben. Dulles was the lawyer for Solvay & Cie’s American subsidiary.

  When the Second World War broke out, Monnet put his contacts and belief in international cooperation to good use. He was sent to London to oversee British and French arms production. From there he went to the United States, where he coordinated arms and aircraft purchases and encouraged American manufacturers to boost their output. Monnet met his “intimate friend” John Foster Dulles whenever he could. The two men shared a common vision for postwar Europe, one now being articulated by decision makers from Basel to Berlin and Washington, DC. There could be no return to the prewar system of nation-states, Dulles wrote in 1941:

  We should seek the political reorganization of continental Europe as a federated commonwealth. There must be a large measure of local self-government along ethnic lines. This can be assured through federal principles, which in this respect are very flexible. But the reestablishment of some twenty-five wholly independent sovereign states in Europe would be political folly.16

  National sovereignty led inevitably to war, Dulles argued in 1942. “The fact of the matter is that economic unity in Europe has primarily been held back by a small group of self-seeking politicians in every nation. . . . Because a lot of politicians want to hold on to the trappings of sovereignty, are we to allow a condition to persist which makes recurrent war inevitable and which now, apparently, also inevitably involves our being drawn into such wars?”17 Dulles’s arguments for a federal Europe were rooted not in hazy idealism about a Europe living in peace and security for its own sake, but hard-headed realism: the preservation of American military and geopolitical interests, building a bulwark against the Soviets, and the preservation of the links between the prewar transnational financial elites in Wall Street and Germany. A united Europe was simply the best means to achieve these ends.

  MONNET RETURNED TO Paris after the war’s end and began to plan the supranational project that he had drawn up with John Foster Dulles. The ECSC was the first step on the road to today’s European Union. The European federal project, like its financial agent the BIS, operated by stealth. The stated reason for the creation of the ECSC was to harmonize coal and steel production and sales in postwar Europe and usher a new spirit of economic cooperation and harmony between Germany and its neighbors that would prevent future wars. The real reason was to ensure the continuing dominance of the German steel and cartels and the power of men such as Alfried Krupp, whose industrial empire had worked eighty thousand slave laborers to death, and who was about to be released from prison by Monnet’s close friend John McCloy.

  The coal and steel barons intimidated even Ludwig Erhard, the architect of the German economic miracle, recalled Dutch politician Jelle Zijlstra, who had briefly served as prime minister from 1966 to 1967, before being appointed president and chairman of the board of the BIS, where he remained until 1981. Eight years after his retirement, as Europe prepared for the introduction of a single currency, Zijlstra gave a lengthy interview, where he spoke freely about the secret history of the European unity project.18 The ECSC was a “political exercise” and fundamentally, was “an impossibility,” Zijlstra said. The Germans “without any doubt” regarded it as a dachorganisation (umbrella organization) for their steel and coal cartels.

  Zijlstra served as Dutch minister for economics for most of the 1950s. After a few months in office he went to visit one of Holland’s largest coal and steel traders. His host warned him that the German coal and steel barons were so powerful that they were virtually a state within a state. Do not, he advised Zijlstra, upset them. Two months later, Zijlstra received an invitation to the Ruhr, Germany’s industrial heartland, to meet the barons himself. He was wined and dined and received the same warning. Zijlstra, then still in his mid-thirties, was not cowed. He thanked the coal and steel barons for their time and returned to Holland.

  Zijlstra saw the ECSC for what it was: a cartel for the German steel and coal producers that fixed prices in their favor, while removing its members states’ power to run two crucial strategic industries. He soon clashed with Ludwig Erhard. The German economist’s commitment to free trade was less ardent when the country’s own interests and those of the coal and steel barons were involved. Zijlstra berated Erhard and told him, “You are not true to your own faith.” Erhard did not deny the accusation. He shrugged and told Zijlstra, “Lieber Kollege, wir sind doch alle Sünder!” (Dear Colleague, we are all sinners). “In that debate,” recalled Zijlstra, “the coal and steel industrialists, the people from the Ruhr, saw the community as a possibility of extending their structures to the European system. And they were not, and they never have been free traders.”

  Back in 1944, as we have seen, McKittrick, the BIS president, was cutting deals with German industrialists with the support of the OSS and the State Department, as outlined in the Harvard Plan documents. The industrialists’ postwar cooperation, McKittrick promised, would preserve their industries and even bring a guarantee of continued profits. The ECSC fit perfectly into that framework.

  Zijlstra knew Monnet well. The French technocrat was an unelected bureaucrat, but he still had the power to instruct governments, including the West German government, said Zijlstra. If a problem arose, “Monnet went to see the governments and told them what they had to do. Monnet had an enormous authority over the national governments . . . he certainly visited from time to time the minister of foreign affairs and even prime ministers. He was very powerful.”19 Monnet’s power had multiple roots. He was immensely charismatic and persuasive, with a sharp, precise intellect. But more than that, Monnet had John Foster Dulles, Allen Dulles, John McCloy, and the American government behind him.

  Much of the United States political and intelligence establishment believed, like Jean Monnet, and indeed Winston Churchill, the wartime British prime minister, that a unified Europe would never go to war again, which meant that the United States would never have to go to war again in Europe. Germany needed to be locked into the unification project, both as a bulwark of stability, and as a counterpoint to rising Soviet power on the other side of the Iron Curtain. With Marshall Plan aid dependent on progress toward a federal Europe, the United States could, and did, wield enormous influence on the political structures of the postwar continent.

  In May 1948, eight hundred delegates met at The Hague, under the chairmanship of Sir Winston Churchill, to create the European Movement, with the ultimate aim of a federal union. The movement’s secretary-general was Joseph Retinger, a former adviser to the Polish government-in-exile during the war. At the same tim
e, Allen Dulles and William Donovan were using their OSS contacts and expertise to set up the American Committee for a United Europe (ACUE). The ACUE’s role was to channel funds to the European federalists and to use the new techniques of psychological warfare, such as the Harvard Plan, which had been honed during the war, to push for a united Europe.

  Donovan was appointed chairman of the ACUE and Allen Dulles his deputy. Walter Bedell Smith, the director of the CIA, the successor to the OSS, also sat on the board. Between 1949 and 1960, the ACUE injected more than $3 million into the European Movement, always at least half of its budget and often more. As Professor Richard Aldrich, an intelligence historian, notes, the European Movement’s officers and directors included at least four CIA officers. Donovan pushed hard for the creation of the ECSC. He gathered petitions from American and European politicians and released them to the press and directed a stream of federalist propaganda at members of Congress.”20 The message from Washington was consistent: Europe must unite. In April 1950, John McCloy gave a widely quoted speech in London, saying that the German problem could be solved only by a combination of economic and political factors, echoing the arguments of Per Jacobssen in 1946. “The fact is, we cannot solve the German problem without fitting it into the larger context of a united Europe. . . . These economic factors lead directly to the political. To insure the freer flow of trade and the development of European markets will require effective political machinery.” McCloy concluded, “I say no permanent solution of the German problem seems possible without an effective European union.”21

  From Paris to Washington, DC, the postwar committees and movements pushing for European federalism presented themselves as new and innovative, offering a fresh approach for a new era. But they were deeply rooted in the old ways of doing business—of powerful men gathering over lunch or dinner to reshape the world as they saw fit. During the war Allen Dulles had met with Thomas McKittrick and Per Jacobssen to plan the postwar European economic order. Jean Monnet had honed his thoughts on European unity with John Foster Dulles. Per Jacobssen had traveled to Berlin to share American plans for the postwar European economy with Emil Puhl, the BIS director, war criminal, and Reichsbank vice president. None of these discussions were made public, even though the plans hatched there would shape the modern world. The United States’ involvement in the European project continued the tradition of secrecy and covert action well into the 1960s. A State Department memo, dated June 11, 1965, to Robert Marjolin, the French president of the European Economic Community, recommends that he pursue monetary union without public discussion. The memo advises him to suppress debate until the “adoption of such proposals would become virtually inescapable.”22

  THE NEW TRANSNATIONAL ECSC naturally needed a transnational bank. In 1954 the ECSC was negotiating with United States for $100 million loan. The monies were to be spent investing in coal and steel projects. The US government had pushed hard for the creation of the ECSC but was reluctant to lend it such a large sum. The ECSC was a new organization. Who knew if it would even exist in a few years? The BIS came to the rescue. The bank would act as the middleman between the ECSC and the United States and manage the loan. If the ECSC no longer existed when the $100 million was due to be repaid, the BIS would collect the money and would then repay the United States. The involvement of the BIS reassured the US Treasury. The loan was agreed. With the BIS’s imprimatur the ECSC could now obtain credit on the international market.

  The following year the BIS celebrated its twenty-fifth birthday. The bank’s swift engineering of itself into the postwar global financial system was proving extremely profitable. Between 1950 and 1959 the bank’s assets and liabilities increased 4.7 times, while gold deposits, mainly from central banks, increased by 14 times, and currency deposits increased more than fourfold. The bank was as discreet as ever. Compared to the complications of the war years, the new era of peace was far simpler to navigate. In 1955 the Bank deutscher Länder was prepared to lend $100 million to the Bank of France but feared domestic criticism during an election year. The BIS offered to hold the monies on deposit for the BdL while it was understood, although certainly not mentioned in the contract, that it would make an advance of the same sum to France. That France, a victor of the war, needed to borrow such a substantial sum from Germany, a defeated country, was testimony to the effectiveness of the Marshall Plan.

  Newly confident of its future, the BIS had started to issue stern policy prescriptions to the world’s governments. Jacobssen was still fulminating against the curse of rising prices. “The inflation mentality,” demanded the 1956 annual report, “must be extirpated.”23 The BIS also criticized the cost of the substantial programs of public works launched by postwar European governments to raise standards of living, housing, and public services. “With regard to all these activities, the governments should, in the first place, abstain from inflationary methods of financing,” warned Jacobssen in the 1956 annual report. “But usually that is not enough; if the private economy is to develop and maintain a high level of investment for productive purposes—as would certainly be advantageous for a number of countries—other claims on resources must be kept within reasonable limits and in a great many cases this means that public expenditure should be curtailed.”24 An unelected, unaccountable, and secretive financial institution was issuing policy prescriptions for democratic governments.

  This was Jacobssen’s last report. He left the BIS in 1956 to run the IMF. Many of his colleagues were amazed at his decision. It was clear that the political dynamic was toward ever more financial and political European integration, all of which would need the BIS. And the project was working. Europe was stable and at peace. Trade and industrial production were breaking records. The BIS’s future was assured. The European Payments Union, managed by the BIS, was so successful that by 1959 western European currencies became freely convertible into each other and into the US dollar.

  The IMF was new and still defining its role. Sir Otto Niemeyer, the veteran British banker and former chairman of the BIS board, told Jacobssen that the IMF had no future and that he would be wasting his time there. But Jacobssen felt that after twenty-five years at BIS it was time to move on.

  JACOBSSEN WAS NOT the only international banker on the move. In 1956 Eric Warburg joined Brinckmann, Wirtz & Company as a partner. Rudolf Brinckmann, the bank’s owner and BIS director, ungraciously told Warburg that he should be grateful to be allowed to return to the successor bank to the House of Warburg. The dispute between the Warburgs and their former employee remained as rancorous as ever. Brinckmann still refused to change the bank’s name back to Warburg, or even include the family name in the bank’s title as it might mean a loss of Arab business.

  Emil Puhl, the former vice president of the Reichsbank and BIS board member, also had travel plans. In 1954 Puhl applied for a US visa, despite his conviction for war crimes, which would under normal circumstances immediately disqualify such a request. But it seemed there were special rules for valued international bankers, even for Nazi financiers. Puhl gave the Chase National Bank, the employers of his old friend McKittrick, as his reference. During the trial of Walther Funk, Puhl’s former boss, Thomas Dodd, an American war crimes prosecutor, told the court that Chase National had once offered Puhl a job in New York.25 Perhaps the bank wanted to make this offer again. The US Consul General in Berlin wrote of Puhl’s application, “It should be noted that the Consulate General has in the course of its examination found no other grounds that would prevent Mr. Puhl from receiving a non-immigrant visa. Mr. Puhl is one of the outstanding bankers in Germany and wishes to proceed to the United States on the invitation of several well-known American bankers to participate in discussions of some importance.”26 It is not publicly known if Puhl traveled to the United States, and if he did, with whom he met.

  Donald MacLaren, the British spy who brought down IG Farben’s American operation and who investigated IG Farben’s postwar empire, returned home from Berlin to civilian life.
MacLaren’s analysis of IG Farben remains as incisive as ever. “It has been called a State within a State; in the end it almost became the State itself.”27 The defeat of Hitler was merely a temporary setback, MacLaren warned. His conclusions echoed the Red House Report on the Nazi industrialists’ postwar plans and Puhl’s conversations with McKittrick: “Men who built such an elaborate structure and who thought so thoroughly of every contingency in the past are not likely to disappear from the scene without leaving a group of younger men who wait for the day when our backs are turned and our interest wanes to gather again their scattered resources of money and men to engage once more in an attempt of economic domination of the world.”28

  MacLaren was correct. The key man was indeed younger, born nineteen years after Hermann Schmitz. A BIS veteran who had worked in Basel during the early 1930s, he would be fulsomely welcomed onto the bank’s board.

  CHAPTER TWELVE

  THE RISE OF THE DESK-MURDERERS

  “What a Blessing we have a Blessing.”