Extract BERLIN, 7 February 1946

SECRET

AUSTRALIAN MILITARY MISSION REPORT NO. 3

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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]

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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.

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(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]

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