72 White and Hood to Australian Government

Extract BERLIN, 7 February 1946

SECRET

AUSTRALIAN MILITARY MISSION REPORT NO. 3

[matter omitted]

Part 'F'

The Future Level and Composition of German Industry The Inter-related Problems of Economic Disarmament, Reparations, and the Determination of Germany's Future Economy [1]

[matter omitted]

I. INTRODUCTION

(a) Scope of Report 1. Recent planning in the quadripartite Directorate of Economics and, as a result of disagreement therein, recent discussions in the Control council and in the immediately subordinate body, the Co-ordinating Committee, have been largely devoted, directly or indirectly, to a consideration of certain factors which will exercise a predominant influence over the relative sizes of the different industries and the total scale of production in the German economy throughout the period of the occupation and probably far beyond.

[matter omitted]

(b) The General Relevance of the Policy Discussions for Australia 4. The policy discussions in the Control Council and the Co- ordinating Committee referred to in para 1 above have been largely occupied with the problem of giving concrete expression to various agreements reached at the Potsdam Conference. Those agreements relate to the destruction and (or) control of German war potential, the quantities of industrial equipment which accordingly are to be either destroyed or removed from Germany in the form of reparations, and the standard of living which-partly as a means of ensuring control of Germany's future war potential and partly as a means of preventing unduly depressed conditions in Germany-is to be allowed to the German people. Because they concern the future level of certain basic German industries, and also the level of output of German production as a whole, these agreements not only set limits to Germany's possible future war potential but inevitably, in doing so, indirectly define-though by implication and only in the most general terms-the future composition and scale of the whole German economy and its capacity to engage in foreign trade and to play a useful part in the major tasks of economic reconstruction.

5. It follows that what the Potsdam Agreements are held to mean in concrete terms of the future level of production in specific German industries, and hence in the German economy as a whole, is potentially of great importance to Australia. The concrete interpretation to be placed upon the Agreements in these respects will be important to Australia both because the outcome will largely determine Germany's capacity (and perhaps her will) to wage war in the future, and also-and perhaps of more immediate importance-because it will be an important determinant of the future European economy, and hence world economy, by which Australian industry and trade may find themselves conditioned and confined. [2]

[matter omitted]

NO. 2-10,1946]

1 Section F of Report No. 3 was in fact written by Professor K. S.

Isles, who was attached to the Mission as Economic Adviser from 24 January until he took up a post at Belfast in March.

2 The remainder of Section F reported in derail on a deadlock in the Control Council, referred back to participating governments on 21 January, and arising initially from differences in interpretation of a Council decision on levels of production capacity to be permitted in the German steel industry, but in fact reflecting differences in emphasis on the relative importance of demilitarisation and of permitting a reasonable level of subsistence. Isles then examined a British economic plan for Germany, finding the projected outcome of the proposals unduly optimistic and foreseeing disastrous economic conditions. He suggested that, as the U.K. Govt had taken the most moderate line of the four occupying powers, conditions actually imposed were likely to be more severe than the British plan proposed.

[FA:AUSTRALIAN MILITARY MISSION TO CONTROL COUNCIL-BERLIN. REPORT