Chapter Three

Clay Wrecks Currency Reform

Currency reform was the issue on which the unity of Germany was to be decided. Everybody was agreed that there must be a new currency. The old marks had been run off the Nazi printing presses by the billions without any real backing. They had been added to by Allied occupation marks. In effect they were worthless. Farmers were reluctant to exchange their farm produce for notes with which they could buy nothing. Manufacturers had no incentive to rebuild, plan and produce goods. The honest worker who put in his eight hours a day at factory or office, found the money he earned would buy less goods than he could obtain in a few minutes' activity on the black market.

If the Allies could agree on one currency for the whole of Germany, then there was hope for gradual agreement on other matters, primarily in the economic field. If east and west decided on separate currencies, economic and political unity would be postponed for years. The matter had been discussed by the Allies for many months in 1947, but no agreement had been reached. The Russians wanted the Potsdam provision for the setting up of a central German financial secretariat to precede the printing of a new currency.

For several months prior to March 20, 1948, propaganda had been fed to the western-licensed German press, that the Russians were printing notes of their own and were about to introduce a unilateral currency reform. I was myself told by the deputy chief of a division in the British Control Commission that he had indisputable proof, in early 1948, that the Russians had distributed the new notes to banks in the .Soviet Zone. Had he seen the notes? No. Could he describe them to me? No. Quantities? No. Dates of issue or distribution? No.

In the four-power discussion on currency the Russians were said to be holding out for an unrestricted printing of notes in Leipzig in the Soviet Zone, without any control by the other Allies. Every word of this was false, and was put out only to cover up American intrigues designed to avoid a united currency at all costs.

In January, 1948, shortly after General Marshall broke up the London conference of the Council of Foreign Ministers which was debating the German problem, General Clay returned to Berlin and announced that he "was going to have one more try to get agreement on currency reform." The implication was that for the sake of public opinion, he was prepared to talk about it once more.

British financial experts had been convinced from the earliest days of discussion on currency reform that agreement was possible on this fundamental question. A report by Mr. Chambers, head of British Finance Division, following a trip to the Soviet Zone, emphasised that there was little to choose between the Soviet plan and the British for a united currency. Mr. Chambers was replaced shortly after that and the stories were churned out again in the western-licensed Berlin press that the Russians and the Russians alone were blocking currency reform because they wanted to issue their own currency with no control on the amounts issued.

After General Clay's January, 1948, announcement, there were "closed" meetings of the Control Council, that is to say, meetings at which only the military governors and their financial advisers were present and about which no communiqués were issued. General Clay's adviser produced a plan and the Russian financial chief, Valetin, produced a counter-plan. In principle, the plans were very similar. After several more "closed" meetings, agreement was so near that it was left to a special financial committee to iron out the final details and report back to the Control Council or the Co-ordinating Committee by at latest April 10, 1948.

In early March I had dinner with one of General Clay's financial advisers. He was very gloomy and depressed, and had no appetite. Gloomy and depressed because, as he said, "It looks as if we can't get out of having a united currency now." He added, with some bitterness, "God knows what was biting Clay, when he made that statement about having another shot at currency reform. Now we're in a devil of a jam. The Russians have agreed to everything and it's going to be as embarrassing as hell to wriggle out of it now... We had everything ready for something quite different and then Clay had to go and put his god-damned big foot in it."

“But I thought you had been fighting for this for years past,” I said, most astonished. "That's what the press have been led to believe certainly."

"How can we have a common currency with them unless we can control their imports and exports?" he asked, putting forward arguments which had never seen the public light before. "To do that we would have to control their zone. And if we want to control their zone, they would want to control our zone. And where the hell would we be then?"

By the middle of March, however, the four powers had reached such a stage of agreement, that they had decided how much money was to be printed, at what rate the new notes would be exchanged with the old. It was decided to print the notes under four-power control at the Reichsdruckerei (State Printing House) on the borders of the Soviet and American sectors of Berlin. The Russians had abandoned their early project of dual printing in Berlin and Leipzig. The designs of the notes were approved – in deference to General Koenig's phobia, they were to be known as Deutschemarks instead of Reichsmarks. Plates were cut and printing was actually started.

The campaign was stepped up in the press that the Russians were preparing to flood their zones with new currency to cover the fact that new notes for the Western Zones were actually lying offshore in United States freighters in Bremen Harbor. They had been printed before General Clay's hypocritical announcement about "one more shot for united currency reform." They had been printed in the United States on the same presses which printed the American scrip dollars for use of the U.S. occupation forces in Europe.

The situation on the day of the crisis in the Control Council was that to all intents and purposes united currency for Germany was an accomplished fact. The notes-were ready to come off the printing presses.

Marshal Sokolovsky withdrew from the Control Council on the Saturday. On the Monday, as Control Council president until the end of the month, Sokolovsky called for a meeting of the special finance committee. Half an hour before the committee was due to meet, the British and Americans followed by the French announced they would be unable to attend. Later in the week, Marshal Sokolovsky called for two meetings of the Finance Directorate, a permanent body comprising the four Allied chiefs of their respective finance divisions. In each case the Western Allies replied that as Sokolovsky walked out of the Control Council, the latter no longer existed and they would attend no further committee meetings.

General Clay's financial advisers could breathe freely again. Their plans were saved after all. April 10th came and passed. No report was presented by the special financial committee. General Koenig called no meeting of the Control Council. The completed plan of the financial committee was never seen. Eventually work stopped at the Reichsdruckerei and the four-power control officers were withdrawn.

It is true that Russian officials did not attend other committee meetings scheduled for between March 20 and 31st, and this was partly made the excuse for the Western Allies not attending the finance committee meetings. Russian officials with whom I have discussed this point, said that after all the hypocrisy in the past, they wanted to test Allied sincerity on this one point. They wanted to make a test of currency reform and if that worked out favorably, they would accept it as a sign that the Western Allies still wanted some form of four-power co-operation. Almost all other questions had bogged down in the Control Council. Even important matters which in the past had worked smoothly, as for instance the highly important question of inspection of demolition of military installations, was stopped by the Western Powers although it had worked well for a year and a half. The Russian view was that if the Western Powers wanted to co-operate and not just discuss co-operation, they would agree on currency reform, and on that basis one could painfully rebuild co-operation in other fields.

The chance was lost. Three months later, on June 20, the bright new notes, printed many months previously in the United States, were introduced in the Western Zones. The Russians as from midnight June 20, clamped a control on all road, rail and river transport leading into their zone from the west. The new currency in the west of course made the marks in the Soviet Zone valueless, and the whole of production in the Soviet Zone could have been bought up with the new west marks. One would have thought that having decided to go ahead with a separate currency, the Western Allies would at least have warned the Russians, so they could prepare for simultaneous reform in their own zone.

The barrage of propaganda that the Russians had prepared a separate currency was shown to be false. The Russians had prepared nothing, had prepared no notes at all. After the western currency was issued, as an emergency measure, the Russians improvised stamps which were pasted over the old marks circulating in the Soviet Zone. A currency reform was carried out there at short notice with the improvised notes which were replaced after three or four months by a new Soviet Zone note issue.

Germany was sliced in two as cleanly as if she had been divided by a surgeon's scalpel, when German banks all over the Western Zones began handing out fifteen new marks for fifteen old ones, to each of the 50,000,000 citizens of the British, French and American occupation zones on a Sunday in June, 1948.

German citizens were taken in at first by the dramatic, immediate results of currency reform in the west. Goods that for years past had only been exchanged behind closed doors, flooded the shop windows that first Monday morning after the new money was issued. The wealthy and the black marketeers were able to deal in the open now, in fact they were forced to for a while, to accumulate some of the new money, rigidly rationed at first.

The food "crisis" which had enabled the United States to get complete control of Western Germany disappeared overnight. The day following currency reform, many categories of foodstuffs, including eggs, vegetables and poultry, were removed from the list of rationed goods.

The wealthy, who had invested their war profits and black market earnings in consumer goods, gradually released these on to the markets and were able to buy openly the luxury foodstuffs which appeared like magic in the shops. The workers who had honestly sold their labour for bad marks in the past were as badly off as before, except that they could now gaze at glittering shop windows. In many respects they were worse off than before. Now that the new currency had the real value of scarcity, wholesale dismissals of workers started. Employers could afford the luxury of large staffs of cheap labour when they were paying in worthless paper money, but the axe soon fell after the currency change.

Within six months of the new money, unemployment in the Western Zones had risen from nil to almost a million. Within eighteen months the figure had risen to over 2,000,000 – ten per cent. of all workers, according to the West German Chancellor, in February, 1950.

The display of fat, dressed geese and Niersteiner wines; of cream sponges and preserved cherries, and of imported delicacies from Belgium, Holland and America, in the shops which sprang into being in Koenigsallee, Dusseldorf, produced nothing but bitterness in the hearts of the Ruhr workers who saw for the first time in open display, the luxuries which the company directors and black marketeers had been enjoying throughout the worst days of the food crisis.

The exploding of the myth of the desperate food shortage was one of the most surprising results of currency reform in the West. From the early days of 1946, food shortage had been a very real thing to the industrial workers. They went without food and so did their families. Rations were cut over long periods from a promised 1,500 calories a day to as low as 600 and 700 calories daily. A slice of bread, two or three small potatoes a day was the normal diet for hundreds of thousands of working class families in the Ruhr area for months on end. Yet the day after currency reform, the Economic Council, meeting in Frankfurt, debated a proposal to end potato rationing, because a sudden "surplus" had developed in the American Zone. The farmers could not get enough of the new marks quickly enough with normal quota buying by the government, and were dumping their hoarded supplies on the market.

There were many things which did not ring true about the recurring food crises if one checked up on some elemental facts. And the surprising end to the food shortage within 24 hours of currency reform indicated that there should be some checking of the facts.

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