January 16, 1945.
 
Reparation and Restitution Policy toward Germany
 
1. Nature of American Interest
 
        It is dangerous to assume, because the reparation 
claims of this country are likely to be very small, that 
we have little interest in the subject of reparation. 
Not only can an ill-conceived reparation policy give 
rise to mischievous consequences in itself but, what is 
even more important, it may jeopardize the achievement of 
the political and economic objectives of this country 
vis-a-vis Germany. For these reasons the raparation 
settlement with Germany is an issue of major importance 
to the United States.
 
     Accordingly, the guiding principle of U. S. policy
in regard to reparation should be that the reparation 
claims of our Allies should be supported only if, and to
the extent that, such claims do not conflict with the 
other elements of the settlement with Germany. Reparation 
policies must conform and be subordinate to the security 
and economic measures adopted with respect to Germany; 
these measures should not be modified or weakened to enable 
Germany to pay more reparation.
 
       Conceived thus as a "residual",  the reparation pro-
gram will be determined, in its main outlines, by prior 
decisions with regard to industrial controls, export 
restrictions, territorial adjustments, etc. which may 
be imposed on Germany. For example, if chief reliance 
for economic security is placed on selective prohibitions 
and controls, Germany may be able (barring extreme war 
damage) to deliver a large volume of reparation goods
out of current production. If, on the other hand, large
sections of German industry are to be permanently dis-
mantled, the bulk of reparation payments would necessarily 
take the form of transfers of existing German capital 
equipment, rather than of current output, and the total 
volume of reparation deliveries is likely to be com-
paratively small. Similarly, restriction of exports 
for commercial reasons, or important transfers of terri-
tory, would likewise affect the amount and form of 
reparation.
 
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