My immediately preceding telegram.

The following views on questions of substance involved in the
German settlement.

Principles of peace-making-
1. At the Paris Conference we outlined the fundamental principles
which should govern our approach to any peace settlement.

First, we should adhere to our undertakings in the Atlantic
Charter and the United Nations Charter and try to ensure that the
principles set out in these Charters are given the fullest
possible application in the Peace Treaties.

Second, we should ensure that our recommendations and decisions
are based on an impartial and thorough examination of all the
relevant facts affecting each of the questions raised.

Third, we should be careful not to impose such unjustifiable
burdens and humiliations upon the peoples of ex-enemy States as
will prevent the growth of genuine democratic forces and foster
the resurgence of Fascism.

Fourth, our main object should be the attainment of a just and
durable overall peace structure and not merely the settlement one
by one of a series of particular and isolated claims by individual
nations against their neighbours.

These principles must be borne in mind throughout.

2. Particular attention should be given to the fourth principle
stated in paragraph 1. It is vital that we should consider the
German problem in relation to the whole of Europe. Let it be
clearly understood that it is not our desire to extend sympathy to
the Germans. We believe that they are largely responsible for
their present situation, and we would be betraying the great
number of Australians who fought against Hitler's forces if we
overlooked this fact. We are, however, gravely concerned by the
poverty and distress of Europe as a whole. We think that the
settlement of the German problem should be approached as to help
to solve these overall European problems.

Potsdam Agreement-
3. In the absence of any other document, the Potsdam Agreement
serves as a basis of discussion. [1] The Potsdam Agreement had two
main purposes. The negative purpose was to ensure that Germany
would never again threaten her neighbours or the peace of the
world. The positive purpose is to give the German people the
opportunity to prepare for the eventual reconstruction of their
life on a democratic and peaceful basis. With both these purposes
Australia agrees, but we urge that they should be enlarged to
include the part which we expect Germany to play in the
reconstruction of Europe as a whole.

POLITICAL PRINCIPLES

Allied Control Machinery-
4. Paragraph 1 of the Potsdam Agreement concerns Allied control
machinery for Germany. There are two features about the present
machinery to which there is grave objection-
(a) It lacks the sanction of the Allies as United Nations. This
defect would, however, be overcome if Australian proposals for a
new Interim Agreement are adopted.

(b) The present machinery is too exclusive, and denies substantial
belligerents any share in the control of Germany. While it might
not be desirable to enlarge the present Control Council, Australia
would favour the establishment of a policy-making body for Germany
on parallel lines to the Far Eastern Commission. This body would
consist of representatives of all substantial belligerents, and
would be responsible for general policy decisions made in
implementing the Interim Agreement.

Demilitarisation and Disarmament-
5. Paragraph 3: With the principle of military disarmament
Australia agrees. The question of demilitarisation by elimination
or control of all German industry that could be used for military
production o[r] all German industry that could be used for
military production should be considered under economic
principles.

Abolitions of Nazi Laws-
6. Paragraph 4: Human Rights clause should be included in
Agreement as in peace treaty with Italy (Article 14) which reads-

'Italy shall take all measures necessary to secure to all persons
under Italian jurisdiction, without distinction as to race, sex,
language or religion, the enjoyment of human rights and of the
fundamental freedoms, including freedom of expression, of press
and publication, of religious worship, of political opinion and of
public meeting.'

Further attempt should be made to secure effective enforcement of
human rights clauses by establishment of suitable tribunal.

De-Nazification-
7. Paragraph 6: With regard to the denazification clause, two
issues arise: first, the necessity for uniform measures throughout
Germany and, second, the problem of rehabilitating ex-Nazis.

Australia thinks that where charges are pending against ex-Nazis
they should be brought to trial and justice as soon as possible.

All Germans (including ex-Nazis) should be re-educated for a
democratic way of life.

Education and justice-
8. Paragraphs 2, 7 and 8: The need for uniform measures throughout
Germany based on thorough examination is emphasised. Australia
regards education of the Germans for democracy as one of the most
difficult Allied tasks. Yet, unless it is carried out on a uniform
basis throughout Germany, the whole purpose of the Allied
occupation may be undermined. It is noted that education is not
proposed to be included among the matters to be controlled by
central German administrative department. We consider this to be
an error and suggest the creation of a central education
department which should, under Allied directives, control
education policy, although detailed administration should be left
to local authorities.

Decentralisation-
9. Paragraph 9 of Potsdam Agreement lays down certain principles
for the restoration of local self-government, encouragement of
democratic political parties and the introduction of
representative and elective principles into provincial and State
administrations. Australia agrees with these principles but again
draws attention to the need for their uniform execution. Potsdam
Agreement also states that there will be no central German
Government for the time being although certain central
administrative departments were to be established immediately. The
failure to establish central departments has undoubtedly
aggravated many problems. Objections to this course have been
based mainly on the fact that Germany's future frontiers were not
delineated in the Potsdam Agreement. This objection should be
overcome by the proposed interim agreement and there should be
then no obstacle to the immediate establishment of such central
departments.

The former Secretary of State for the United States has urged that
the time has now come for the establishment of a provisional
central German Government on certain conditions. In this regard
two questions must be considered, first, the nature of such a
central government, and second, the stage at which it is to be set
up.

As to the type of Government we consider that it could not be
stable unless it were in the long run accepted by the German
people. On the other hand we do not consider it practicable at the
present time for the type of government to be actually decided by
the German people themselves. We consider that the German
constitution should, in the first place, be outlined by Allied
Control Authorities with the advice of responsible democratic
Germans to the greatest degree possible. It should be the duty of
the representatives of belligerents at these meetings to lay down
the principles to be adopted by the control authorities in this
task. For the purpose of formulating these principles we propose
the immediate establishment of a special committee of the present
meeting.

As to the timing we consider that speed in setting up a central
government (as distinct from German Government Departments which
are immediately necessary) is not desirable in itself. The Germans
have not as yet proved themselves fit for democracy. Therefore,
any such government as is set up should be provisional and fully
subject to Allied direction and control. The Germans must by this
means serve their apprenticeship in democracy. The question of
timing should also be considered by the special committee which we
have proposed.

It is fallacious for the conquerors to lay down rigid rules about
union or federation or confederation for Germany. Decisions on
constitutional provisions or framework must themselves be related
to democratic developments. If the German peoples desire to return
to confederation or loose union, the solution would be clear. To
force such a solution could easily cause a resurgence of Fascism,
the obvious and attractive slogan for the new Hitler being 'United
Germany'.

Frontiers and Territorial Claims-
10. The major political issue omitted from the Potsdam Agreement
which should be settled in the immediate future is that of German
frontiers. In this connection three questions have to be
considered:-

(i) what principles are to govern any decisions;

(ii) how the facts are to be ascertained; and,
(iii) who is to decide on any claims for adjustment that may be
made.

As regards (i) Australia adheres to the views expressed at Paris
that decisions should as far as possible be based on the
principles of the Atlantic Charter and of the Charter of the
United Nations. In the case of Germany, there may be cases in the
settlement with Germany where the claims of security should be
regarded as of primary and paramount significance. However, the
effect of any changes on the economy of Europe as a whole must
also be taken into account.

As to (ii) we consider that all claims should be stated as soon as
possible and that they should be considered by fact-finding bodies
selected from the representatives of belligerents. It will be
essential if these bodies are to function successfully that
material should be made available, if required, from the Allied
Control Authorities in Berlin. Australia would propose that
representatives of the Council should be put at the disposal of
committees for this purpose. If full reports are made many of the
delays associated with the preparation of peace treaties with
Italy, etc., would be avoided.

As to (iii) the final decision on all claims must rest with a full
conference of belligerents.

It appears that the major German frontier questions will be the
Polish-German frontier, the future of the Saar and the future of
the Ruhr and Rhineland. Australia has undertaken no prior
commitments on any of these questions and urges that without
exception they should be decided by the methods just outlined.

The settlement should include renunciation by Germany of all
claims to the colonies and Antarctic territory.

ECONOMIC PRINCIPLES

General-
11. The economic objectives of the Potsdam Agreement are in
certain respects contradictory. Germany is to be economically
disarmed, her war industries eliminated and other industries with
a war potential severely limited. At the same time production and
maintenance of goods and services in Germany is to be sufficient
to meet the needs of the occupying forces and displaced persons
and to maintain in Germany an average standard of living not
greater than the average of European countries.

If economic disarmament were carried out to the letter the
complete impoverishment of Germany would follow. As it is, the
Level of industry Plan approved by the Allied Control Council in
March, 1946 [2], represents an inadequate compromise between the
opposing purposes of the agreement. It is inadequate because the
effects of the present Level of industry Plan would undoubtedly be
unemployment, poverty and loss of morale.

The economic purpose of the agreement also overlooked the part
which Germany might be expected to play in the rehabilitation of
Europe as a whole. Such paragraphs as No. 13 indicate that there
is contemplated a change in Germany's traditional role in the
economy of Europe. It appears that as a result of this change
Germany will be expected to compete with other countries in types
of production in which she did not engage before the war and in
markets whose demand might not be sufficient to meet the added
flow of goods.

If this is to be the case neither will Germany be able to pay her
way nor will other European countries benefit.

Australia's economic policy for Europe was stated by the Minister
for External Affairs at Paris. He urged there the consideration of
economic problems not piecemeal but in relation to the problems of
Europe as a whole, stating 'nothing can be more disastrous or more
likely to lead to a resurgence of war and Fascist aggression
throughout Europe than unemployment, poverty and low standards of
living'.

Australia therefore proposes that the economic purposes of Potsdam
can be restated in the new agreement in such a way as to make
clear:-

(a) the need for a reasonable degree of prosperity in Germany in
the interests of the world as a whole;

(b) the part which Germany should play in the economic
rehabilitation of Europe.

Level of Industry Plan-
12. It is agreed on all sides that this needs revision. We are not
prepared to consider the entire abolition of the plan because we
believe it is a useful method of controlling the German economy so
long as this should prove necessary. We support proposals for
gradual upward revision of the plan. At the same time we consider
that any revision should be qualitative as well as quantitative.

Allowance should be made for Germany's place in the economy of
Europe.

Reparations-
13. Australia considers that the exaction of properly assessed
reparations is reasonable and just, but assurance is needed that
reparations now exacted will not create a situation of serious
economic concern to Europe. Australia has already stated her
agreement to reparation principles of Potsdam, namely, that they
should be taken from industrial plant in Germany surplus to her
democratic peace-time requirements.

We have observed certain internal disadvantages in the present
arrangement. Difficulties of dismantling and transport involve
considerable delays and thereby lessen the value of such
industrial plants as may be received.

Treatment of Germany as an Economic Unit-
14. Australia advocates the adoption of this fundamental
principle.

Germany's Trade Relations with Allied Countries-
15. At present these are governed by control authorities in their
respective zones. These arrangements will be simplified if Germany
is treated as an economic unit. Immediate detailed information
should be given of all such arrangements, so that definite
proposals may be made.

Revision-
16. The agreement should include provision for review, subject to
safeguards against abuse.