Chapter XXXI: Part 32: Draft/KA

Final Copy

SR/17 Oct 1942
Paris, 16 October 1942
Del. W. No. 347 secret RS

1) To the Foreign office Berlin

(in ink) written in eight copies 3 copies of which to Berlin:

1 FRH v. Mahs
1 Int Ley (2)
1 Ambassador-Paris
1 Capt. Brandt
1 Qva

To the decree of 18 September this year--Ha Pol Frie 839/secret and
in connection with the report of 24 August this year--Del.

W. No. 307 secret RS

_Subject_: Occupation costs in France

2 information copies

I. In addition to the suggestions of the German armistice delegation for economy in its above-mentioned report and for the preparation of the execution of the decision of the HPA of the 7 September 1942 in the question of occupation costs, the following suggestions are made:

If one starts out, that because of political and financial reasons the French government does not find itself ready for the continuous advance of the occupation cost account above the daily installment of 15 million RM for the purpose of retention of a minimum amount of the account, because it will mean an increase of the cost of occupation, then it will depend during the coming negotiation with the French government upon getting its agreement to the suggestion of the German armistice delegation for economy, to settle the expenditures, unrelated to the occupation, which have been paid thus (or from occupation cost funds, via the clearing, to retain the occupation cost funds for their proper purpose).

1. In connection with this suggestion, it must be attempted to solve two questions:

a. One single transfer of a larger amount via clearing to the occupation cost to equalize at least partly the expenditures, unrelated to occupation costs, already paid in the first half year of 1942 from occupation cost funds;

b. Continuous monthly transfer via clearing of funds from Germany, which are necessary for the settlement of expenditures, unrelated to occupation costs.

At first it will depend upon making it clear to the French that we are forced to make a difference between expenditures for occupational purposes, and expenditures, unrelated to occupation costs. It is yet to be considered in detail, which instances are to be mentioned to the French as examples of expenditures, unrelated to the occupation costs. Without doubt, these will include in the past the funds out of which the compensations were paid for the requisitioned horses, and in the future the expenditures for food and fodder deliveries consigned for Germany. However, there are strong doubts about mentioning the black market purchases here also. At the end, the only thing to do will be to justify the distribution to the French by generally military reasons, which cannot be described in detail. Of course, such a basis for negotiations makes the accomplishment of the new German demands for the transfer via clearing of the continuously necessary funds of 150 million RM monthly more difficult, because the French will recognize that therewith additional purchases of goods outside the contingencies agreed to are to be paid.

Since the costs of the occupation have increased greatly especially since the beginning of the year, there is a definite reason to demand from the French that they also agree for the past to the settlement of at least a part of the expenditures, unrelated to occupation costs, in such a form that an amount as big as possible, is paid in via clearing and transferred by France to the occupation cost account. In that manner, it could be accomplished that the occupation cost account will again be replenished by this amount. In the first half year of 1942, 280 million RM have been spent for the purchase of horses, and 600 million RM for the purchase of the Raw Material Trading Co. Ltd. (Roges). Of course, it will not be possible to get from France the consent for the transfer of an amount of that size.

In case of the one single payment as well as in case of the future continuous monthly payments for expenditures, unrelated to the occupation costs, the French authorities will neither be informed about the distribution of the accounts, the latter of which are to be paid as lump sum payments at the end of each month, nor about the purpose.

It is a prerequisite for the settlement, that the procurement of funds in Reichsmarks is secured in the past as well as in the future.

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3. This type of settlement of the question of occupation costs secures the procurement of French funds in a simple practical form, and fits into the frame of the German-French financial transaction. Naturally, it amounts to a further considerable financial burden on French economy; but it does not appear in the form of an increase of the occupation costs.

The idea to balance this internal account at the final settlement of the occupations at the conclusion of the peace can be combined at the same time with the special internal bookkeeping of these expenditures, unrelated to the occupation costs, separate from other clearing transfers.

II. The fact that in the meeting of the HPA it was not finally given up to increase the amount of francs of the installments by change of the exchange rate, causes the German armistice delegation once more conclusively to take a standpoint to this question.

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However, a new evaluation of the Franc by 50% does not lie in the German interest. The present economical situation of France can no longer be compared with the one of 1940, where the interior purchasing power of the Franc was about in the ratio of 1 RM=10 Francs.

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The account has dropped since 1 July 1942 until 15 October 1942 from 2,476 billion RM to 1,532 RM.

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/s/ Hemmen

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