The Washington Agreement of 1946 and relations between Switzerland and the Allies after the Second World War

by Dr L. von Castelmur

 Introduction

If the Second World War ended, for Germany, with the unconditional surrender of 8 May 1945 and, for Japan, with the unconditional surrender of 2 September 1945, the end of the War for Switzerland paradoxically occurred only in the summer of 1946. Although Switzerland had not been at war either with Germany and the Axis countries, or with the United States, Great Britain, Russia and their allies, it was in fact the conclusion of the Washington Agreement of 25 May 1946 which sounded the knell of the long period of war. It was only at that point that Switzerland was able to normalise its relations with the coalition of victorious countries. In that sense the Agreement, signed in Washington and ratified in Berne by the Federal Chambers convened in an extraordinary session at the end of June 1946, represented an obligatory means of emerging from the shadow of German hegemony during the War to the new parameters of an Allied (or American) peace after 1945.

1. A heated parliamentary debate

The parliamentary debate in Switzerland was heated. In the discussions in the Chambers, basically three types of argument could be discerned:

• Firstly, the argument of the conservatives from rural areas, particularly those from German-speaking Switzerland, who spoke of an Allied "diktat" and invented the phrase "Might against Right". By this they implied that strength had prevailed over the rule of law and that the Allies, by exercising pressure on Switzerland, had stretched the rules of international public law. They reached the conclusion that this forcibly imposed treaty had to be rejected.
• Secondly, in the parties of the left and among certain deputies of the Christian movement, a sense of guilt became apparent. These deputies put forward the argument that the acquisition of gold by the Swiss National Bank from the Reichsbank had been morally reprehensible and that the Federal Council had not exercised its right of political supervision properly. They cast doubt on the good faith of the National Bank and pointed the finger at the conduct of the Government and the bourgeois elite during the Second World War. Although they had mixed feelings, these deputies were disposed to approve the Agreement.
• There was also a third trend, which could be qualified as internationalist "realpolitik". For these groups, mostly from urban areas and representatives of the world of business, the most important thing was to re-establish business contacts without any constraints. This was particularly the case in the large towns in French-speaking Switzerland. There, relief that an agreement had been reached prevailed over the irritation about Allied pressure. Thus on 29 and 30 May 1946 the Journal de Genève carried the following lines: "For us, the greatest satisfaction is that an Agreement has been reached." And National Councillor Picot, a Liberal from Geneva, added: "We want to re-establish normal relations with the Allies. We want to turn a page. We want to open the door to fresh collaboration with the whole world. We want to write off our losses vis-à-vis the Allies and take into consideration the legacy they have inherited from the war." It was in that spirit that the deputies who favoured this trend arrived at the conclusion that the treaty before them must be approved.

In his robust submission, Federal Councillor Petitpierre, Head of the Political Department, followed the same line. In the event of rejection of the Washington Agreement, all the laborious work towards normalisation undertaken since 1945 would be compromised as a result.

"We have to have friends in the world and we cannot afford to be quixotic. We cannot climb into an ivory tower and close the shutters on the world, we cannot continue to insist on positions which everywhere else - and this may be a matter of regret, I acknowledge this - have been abandoned."

These words did not fall on deaf ears. In the National Council, the Washington Agreement was approved by 142 to 29 votes, and in the Council of States by 24 to 11. In spite of a certain irritation, the great majority of the Swiss Parliament had opted for the normalisation of Switzerland's relations with the Allies and the world.

So here we are, pitched into the heart of the debate over the Washington Agreement. But let us not be too quick in setting to work. In this talk I propose to examine the following questions. What was it that led the Allies and the Swiss to conclude this treaty? What were the initial positions of the Allies and Switzerland, and how did they arrive at this outcome in 1946? How was this Agreement partially implemented after 1946 and replaced in 1952 by a new Swiss-Allied arrangement? And finally, how to evaluate the content and implementation of this treaty?

These are the various questions which I would like to elucidate with you during the course of this conference. The field of research is quite vast. You will understand that, through lack of time, I am not able to go into all the details and subtleties of the fascinating history of this agreement. I will therefore content myself with recounting the broad outlines here, leaving it to the more eager among you to read my doctoral thesis which gives much more detailed information.

I have distributed a fact sheet to you, containing the basic details of the Washington Agreement. It can serve as a basis for the debate which will follow my exposition.

2. The "pre-history" of the Washington Agreement

The origins of the Washington Agreement have to be sought in the war economy measures which the Allies had adopted. It was in 1943 that the Americans and the British launched the "Safehaven" programme. This programme aimed to thwart Germany's financial transactions worldwide. The Allies' idea was to prevent the Nazi regime from successfully transferring funds to neutral and non-belligerent countries in order to cut short all attempts at German re-armament. To do this, it was necessary to track down and freeze German assets all over the world.

Since January 1943, and on two occasions during 1944, the American and British Governments issued "Gold Warnings". In these declarations and in diplomatic notes, they drew the attention of all countries, and especially the neutrals and non-belligerents, to the practice of plundering carried out by Germany. They warned the neutral governments against buying gold from Germany because, in their judgement, there was a high probability that this was looted gold. They declared that they could not recognise such transactions after the end of hostilities.

Finally, towards the end of the War and immediately after the German surrender, the Allies defined their reparation policy towards Germany at a series of conferences. In Yalta in February 1945 they fixed the global amount of German reparations at 20 billion dollars. At the same time they adopted the principle that all German assets located outside Germany should be confiscated by way of reparations. At the Potsdam Conference in August 1945 a decision was reached on an apportionment between the Western Allies and the Soviet Union: the German assets in the three Western zones and the countries of Western Europe should be liquidated for the benefit of the Americans, British, French and 15 other Allied countries, while the German assets in the Soviet zone and in Central and Eastern Europe would revert in their entirety to the USSR and the victorious countries of Central and Eastern Europe. Finally, in December 1945, 18 Allied countries created the Inter-Allied Reparations Agency in Brussels. These countries - they are mentioned on the fact sheet which I distributed to you - instructed the United States, Great Britain and France to open negotiations with the neutral countries concerning the handing over of German assets to this Agency.

From this brief resumé it can be seen that in a short space of time the Allies set up an important legal and diplomatic mechanism with a view to seizing German assets throughout the world and particularly in neutral countries.

Not only had the Allies decided their strategy with regard to Germany, they also had at their disposal the means of implementing it:

• They exercised supreme authority in Germany and had access to all the archive documentation located in Germany;
• They had, in 1945 and 1946, a universal monopoly over the allocation of raw materials;
• They had significant means of bringing pressure to bear, the most important being blacklists and freezing of assets. In the case of Switzerland, private Swiss assets amounting to 4.5 billion were frozen in the United States from 1941 onwards;
• They benefited from a virtually universal monopoly over the media and could launch orchestrated press campaigns against uncooperative countries;
• And finally, as victors they enjoyed immense political and moral prestige.

What were Switzerland's aims, arguments and strategies in the face of the Allies' determination and means of action?

The objectives pursued by Switzerland in 1945 and 1946 were evident. Above all it was necessary to put an end to international isolation and to normalise relations with the Allies and the United Nations. It was necessary to demonstrate that Switzerland was a respectable member of the family of nations and that it had respected to the letter, even in the difficult situation of the Second World War, the laws of neutrality. Next, it was necessary to persuade the Allies to abolish the restrictive war economy measures - first of all the blacklists and the freezing of Swiss assets in the United States - which were hindering commercial and financial relations. Finally, Switzerland was anxious that its sovereignty should be respected.

To make its voice heard and to achieve its goals, Switzerland could invoke public international law and the laws of neutrality. It could, by means of an information campaign, describe the difficult situation in which it had found itself when it was encircled by the Axis powers. And finally it could consider making a voluntary contribution to the reconstruction of Europe which had been devastated by the War.

In the face of mounting American pressure, the Political Department proposed at the end of November 1945: "... to send some Swiss representatives to the United States to take up contact with those in authority ... and to endeavour to dispel the suspicions of which Switzerland is the object in that country." The American Government was not willing to respond positively to this. The State Department replied dryly that such a mission was pointless and that Switzerland would soon be invited to conduct negotiations to settle all the outstanding questions concerning financial relations. Moreover the United States refused to pursue bilateral negotiations on the release of Swiss assets, thus establishing a link between the fate of Swiss assets in America and German assets in Switzerland. In these circumstances, Switzerland finally accepted the invitation to conduct negotiations with the Allies in spring 1946.

3. The Washington negotiations

On the Swiss side as well as on that of the Allies, the assumption was that these negotiations would last two to three weeks at the most. This was not the case. They lasted more than two months. From the outset the American, British and French negotiators who - it must be remembered - were also negotiating on behalf of 15 other states which formed the Inter-Allied Reparations Agency, demanded that Switzerland liquidate German assets in Switzerland and remit to them the proceeds of the liquidated assets by way of German reparations. Furthermore they insisted that Switzerland accept an obligation to hand over to them the gold purchased from the Reichsbank which they considered to be looted gold. In return they were willing to abolish the blacklists against Swiss enterprises and the United States were prepared to begin negotiations immediately on the release of Swiss assets in America.

The Swiss delegation questioned the Allies about the legal basis upon which the liquidation of German assets in Switzerland and their delivery to the Allies might be founded. It also argued that in the event of liquidation the German owners should be compensated in German currency. Minister Stucki, the head of the Swiss delegation, also refuted the validity of the concept of looted gold. Switzerland was not in a position to recognise a legal obligation to return the gold bought by the Swiss National Bank from the Reichsbank.

After a week of tough negotiations, it became clear that the legal positions remained diametrically opposed to each other. Neither the Swiss nor the Allies were willing to give way on legal principles. Moreover, no judicial settlement or arbitration was acceptable to the Allies. They were anxious to reach an agreement with Switzerland rapidly because they wanted to conduct similar negotiations with other neutral and non-belligerent states including Sweden, Portugal and Spain. Failure in the Swiss talks would have seriously compromised an agreement with these countries. In order that an agreement with Switzerland could be reached, the Allies eventually realised that they had to seek a settlement based on political compromise. The Foreign Office instructions to the British delegation of 24 April 1946 are typical in this respect:

"Complete breakdown of Swiss negotiations cannot fail to prejudice very seriously other impending negotiations. We should therefore be ready to make further concessions to the Swiss if you think this would help. Treasury view is that half loaf is better than no bread and you are authorised to agree to any concessions which the Americans and the French are ready to grant ..."

It is clear that from then on it was a question of finding a solution based on political compromise which set aside the legal principles which had proved to be irreconcilable. This was the beginning of a process of serious financial bargaining, barely veiled by legal stances and moral claims. It is not surprising to note that the solution achieved in the end consisted essentially in cutting the cake in two.

4. The content of the Washington Agreement

The Washington Agreement settles three sets of problems: the acquisitions of gold by the National Bank from the German Reichsbank, the German assets in Switzerland and the abolition of war economy measures which the Allies had taken against Switzerland.

• Firstly, concerning the purchase of gold, Switzerland undertook to pay the Allied governments the lump sum of 250 million Swiss francs in gold without recognising any legal obligation in other respects.

  Article II.2 stipulated:

  "The Allied Governments declare on their part that, in accepting this amount, they waive in their name and in the name of their banks of issue all claims against the Government of Switzerland and the Swiss National Bank in connection with gold acquired during the war from Germany by Switzerland. All questions relative to such gold will thus be regulated."

  In the negotiations the Allies had claimed an amount of 130 million dollars, that is the equivalent of 560 million Swiss francs. They had backed up their claim with a vast array of documents which attempted to prove that the National Bank had acquired at least this amount of gold, which they described as looted gold. Switzerland, while rejecting the argument that its transactions had related to looted gold, had initially offered the sum of 100 million francs. The sum of 250 million francs represents a compromise figure which, after many twists and turns, was acceptable to all the delegations.

• Secondly, concerning the assets in Switzerland belonging to Germans living in Germany, Switzerland undertook to liquidate these assets. Half of their value would be transferred to the Allies for reconstruction in Europe, the other half would revert to Switzerland. The German owners would be indemnified in German currency. A joint Commission and an appeal procedure were created to accompany the implementation of the liquidation of German assets in Switzerland. The Swiss Compensation Office was instructed to carry out this task.

  Initially the Allies had demanded that German assets in Switzerland should be liquidated without compensation and that the proceeds of liquidation should revert to them in full. The fifty-fifty division between Switzerland and the Allies again demonstrates the political nature of the settlement which characterises the whole of the Washington Agreement.

• Finally, the Allies undertook to abolish all the blacklists against Swiss enterprises and the United States undertook to release Swiss assets in America.

Thus, after more than two months of negotiations, the framework of a political settlement had been identified. Nevertheless the text of the Washington Agreement was not unequivocal. It was incomplete and did not settle all the details of the implementation with the requisite precision. It could not reconcile the immediate interests of Switzerland and the Allies. It is therefore not surprising that considerable differences of opinion became apparent even a short time after the Agreement was signed. These differences in interpretation were to compromise the implementation of the Agreement.

5. Partial implementation and final settlement in 1952

The settlement of the gold purchases was achieved without difficulty. In June 1947 Switzerland paid out 250 million francs in gold to the Allied governments. The Allies, for their part, abolished the blacklists in July 1946. The American government released the frozen assets in the United States belonging to the Confederation or the National Bank as early as two days after the Agreement was signed. On the basis of a bilateral certification agreement, signed on 22 November 1946, Switzerland was also able to secure the release of almost 4.5 billion Swiss francs, which were previously frozen in the United States, by the end of 1948. However, assets worth 400 million francs could not be certified and were assigned to the Alien Property Custodian.

The provisions concerning the liquidation of German assets were never carried out. This part of the Agreement encountered many obstacles from the very beginning. The exchange rate for compensation to be paid to the German owners was disputed by Switzerland and the Allies. The treatment of sequestration conflicts constituted another source of contention. When a solution to these two problems was finally found, the question of how to indemnify the German owners in the practical sense resulted once again in an impasse.

In 1952, in completely different circumstances, a new solution was negotiated between Switzerland and its Allied partners, this time in co-operation with the Federal Republic of Germany. In terms of the new agreement concluded between Switzerland and the Allies, the latter received a global sum of 121.5 million Swiss francs by way of reparations. In return for this payment, they formally renounced all their rights to German assets in Switzerland. After this sum was paid, which occurred in 1953, the part of the Agreement relating to German assets in Switzerland was also settled. Thus in the opinion of both the Allies and Switzerland, the matter of the Washington Agreement could be closed as the Agreement had been executed.

In a second agreement between Switzerland and the Federal Republic of Germany, the latter undertook to pay 121.5 million Swiss francs, that is the amount paid by Switzerland to the Allies. In return Switzerland undertook to release German assets in Switzerland up to the amount of 10,000 francs in full. The owners of assets over 10,000 francs only received two-thirds of their assets; one third was placed at the disposal of the West German government which was thus able to recover the sum of 121.5 million francs.

6. Conclusion

All's well that ends well? Yes and no. It is clear that the negotiation of the Washington Agreement and its partial implementation was a constant source of irritation between Switzerland and the Allies from 1946 to 1952. But with the beginning of the Cold War the Agreement had become much less important. After the creation of the Federal Republic of Germany, a democratic state with respect for the rule of law and solidly anchored in the Western camp, the Allies' security worries concerning a resurrection of the Third Reich were no longer justified. Through American assistance via the Marshall Plan, the reparations to be imposed on Germany also became less important. The three Allied governments and the fifteen other governments of the Inter-Allied Reparations Agency naturally reserved the rights they had acquired under the Washington Agreement. But after 1947 they already began to realise how modest the amounts in question were: it was certainly not a matter of billions of francs, as some speculated in 1945/46, but of a few hundred million. At first politically, and then economically, the 1946 Agreement became more and more marginalised.

Thus in 1952, after the signature of the liquidation agreements, all the parties to the Agreement appeared to be reasonably satisfied:

• The Allies because they had managed to obtain, through this Agreement, 250 million Swiss francs in gold and 121.5 million Swiss francs relating to German assets in Switzerland, that is 371.5 million francs in total for the reconstruction of Europe.
• Switzerland, because it not only succeeded in normalising its relations with the Allies and the international community in 1946, but also because, by insisting on compensation which did not deceive the German owners, it had been able to defend the interests of savers and its role as a financial centre. This approach also enabled Switzerland to reactivate part of its clearing credits contracted during the War with regard to Germany.
• Finally, the Federal Republic of Germany because it had been possible to avoid the liquidation of German assets in Switzerland and because, through the liquidation agreement of 1952, Bonn was able to settle its financial relations with Switzerland which allowed it to gain access once again to the Swiss financial market.

Thus ended, in 1952/53, in relative harmony, a chapter in Switzerland's financial relations with the Allies and the Germans which had begun in 1945/46 in an extremely strained and irritable atmosphere. In spite of the frustrations on both sides, two agreements were concluded in 1946 and 1952, and a thorny problem was finally settled. These agreements were implemented as far as possible, with important modifications to the initial intention, it is true. The facts and the arguments were presented and placed on the table by the four governments during the different rounds of negotiations in 1946, 1949, 1950, 1951 and 1952. In signing the 1952 agreement, the states parties gave a sign that they wished, with full knowledge of the facts, to find a definitive response to an open question which in the meantime had become much less important.

Are there, in the cascade of "new discoveries" in the archives, fundamentally new elements which would justify the renegotiation of an agreement which was executed almost 45 years ago? It seems to me that the facts clearly militate against such an assertion, but, of course, I leave it to each one of you to come to your own conclusion.

The Washington Agreement of 1946 and relations between Switzerland and the Allies after the Second World War

1. Washington Agreement (WA) of 25 May 1946

States parties
· Switzerland, also acting on behalf of Liechtenstein, on the one part
· the United States, Great Britain and France, also acting on behalf of 15 states (Albania, Australia, Belgium, Canada, Czechoslovakia, Denmark, Egypt, Greece, India, Luxembourg, New Zealand, Norway, Netherlands, South Africa, Yugoslavia) on the other part ("the Allies").

Main provisions

Gold acquired from Germany
· Switzerland pays 250 million Swiss francs to the Allies (executed 6 June 1947)
· the Allies renounce, for themselves and their banks of issue, all claims against the Swiss Government or the Swiss National Bank relating to the gold acquired by Switzerland from Germany during the War.

German assets in Switzerland
· Switzerland undertakes to liquidate German assets in Switzerland belonging to Germans in Germany
· Switzerland transfers 50% of the proceeds of liquidation to the Allies and is authorised to keep the other 50%
· the owners of liquidated assets have the right to compensation in German currency (50% to be provided by the Allies, 50% by Switzerland)
· a Joint Commission (CH; USA, GB, F) is constituted as a consultative body concerning the implementation of these provisions (operates from September 1946 to June 1948)
· an appeal body against the body charged with the liquidation is created (implemented autumn 1946).

Release of Swiss assets in the United States
· the United States undertake to release Swiss assets in the United States in accordance with a procedure to be determined by common consent (release of the assets of the Confederation and the SNB 27 May 1946; release of private assets through a certification procedure up to end of 1948)

Abolition of blacklists against Swiss enterprises (executed 8 July 1948)

2. The WA liquidation agreements of 28 August 1952

Swiss-Allied Agreement, WA
· Switzerland undertakes to pay 121.5 million Swiss francs to the Allies (executed 2 April 1953)
· the Allies renounce their interests and rights over German assets in Switzerland

Swiss-FRG Agreement, WA
· Switzerland unfreezes German assets up to 10,000 Swiss francs in full (executed up to 1957)
· Switzerland unfreezes 2/3 of German holdings exceeding 10,000 Swiss francs, 1/3 used for liquidation purposes for the benefit of FRG (or liquidation in Switzerland and compensation in DM, less tax and deductions, for those who are not willing to give up a third to the German state) (executed up to 1957)

Swiss-FRG Agreement concerning German-Swiss clearing
· the FRG pays the sum of 650 million Swiss francs by way of German-Swiss clearing (German debts of around 1.2 billion Swiss francs), spread over a long period (executed)
· Switzerland renounces the filing of other claims concerning German-Swiss clearing.

Source:

L. von Castelmur, Schweizerisch-alliierte Finanzbeziehungen im Uebergang vom Zweiten Weltkrieg zum Kalten Krieg. Die deutschen Guthaben in der Schweiz zwischen Zwangsliquidierung und Freigabe (1945-1952), Zurich 1992, Chronos, pp. 421, Sfr. 58.