Morgenthau Plan

This was to be achieved in three steps

* Germany was to be partitioned into two independent states.

* Germany's main centres of mining and industry, including the Saar area, the Ruhr area and Upper Silesia were to be Internationalised or annexed by neighbouring nations.

* All heavy industry was to be dismantled or otherwise destroyed.

The plan was proposed by American Treasury Secretary Henry Morgenthau, Jr.

A toned down version of the plan, limited to turning Germany into "a country primarily agricultural and pastoral in its character", and lacking the requirement for the destruction of the Ruhr mines, was signed by U.S. President Franklin D. Roosevelt and the British Prime Minister Winston Churchill at the Second Quebec Conference in September 1944.

President Roosevelt then gradually pulled back from this extreme position, but had at the time of his death not made up his mind as to the future of Germany. With the death of the president the plan itself never took effect, but as its ideas permeated much of American thinking and planning, especially in secretary Morgenthau's Treasury and the War Department, it did lead to a number of offshoots.

Most notable amongst these offshoots are

    * Potsdam Conference,

    * Joint Chiefs of Staff Directive 1067 (April 1945 – July 1947) ,

    * The industrial plans for Germany. (Level of industry agreements)

JCS 1067 explicitly prohibited U.S. occupation authorities from providing any economic or reconstruction assistance of any kind to the German people, not even to maintain the current economic levels. U.S. occupation efforts were to be focused on denazification and the destruction of heavy industry war-production capability.

In January 1946 the Allied Control Council set the foundation of the future German economy by putting a cap on German steel production, the maximum allowed was set at about 25% of the prewar production level. Steel plants thus made redundant were dismantled.

Also as a consequence of the Potsdam conference, the occupation forces of all nations were obliged to ensure that German standards of living were lowered to the level of its European neighbours with which it had been at war with, France in particular.

Germany was to be reduced to the standard of life it had known at the height of the Great depression (1932).

The first "level of industry" plan, signed in 1946, stated that German heavy industry was to be lowered to 50% of its 1938 levels by the destruction of 1,500 manufacturing plants[3]

The problems brought on by the execution of these types of policies were eventually apparent to most U.S. officials in Germany. Germany had long been the industrial giant of Europe, and its poverty held back the general European recovery. The continued scarcity in Germany also led to considerable expenses for the occupying powers, which were obligated to try and make up the most important shortfalls through the GARIOA program (Government and Relief in Occupied Areas).

In view of the continued poverty and famine in Europe, and with the onset of the Cold War which made it important not to lose all of Germany to the communists, it was apparent by 1947 that a change of policy was required.

The change was heralded by Restatement of Policy on Germany, a famous speech by James F. Byrnes, then United States Secretary of State, held in Stuttgart on September 6, 1946. Also known as the "Speech of hope" it set the tone of future U.S. policy as it repudiated the Morgenthau Plan economic policies and with its message of change to a policy of economic reconstruction gave the Germans hope for the future. Herbert Hoover's situation reports from 1947, as well as A Report on Germany also served to help change occupation policy.

The Western powers worst fear by now was that the poverty and hunger would drive the Germans to Communism. General Lucius Clay stated "There is no choice between being a communist on 1,500 calories a day and a believer in democracy on a thousand".

The most notable example of this change of policy was a plan established by U.S. Secretary of State George Marshall, the "European Recovery Program", better known as the Marshall Plan, which in the form of loans instead of the free aid received by other recipients eventually was extended to also include the newly formed West Germany in 1949.

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