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Walther Funk:
The economic reorganization of Europe

July 25, 1940

The speech by Funk, The Reich Economic Minister, had a sensational effect as a kind of distillation of long deliberations on the economic reorganization of Europe. It was regarded as a kind of semi-official blueprint for all the occupied countries.

Discussions about the structure and organization of German and European economy after the war and about the effects which the war will have upon world economy have been filling the columns of the German and foreign press to an increasing extent in recent times. Both men of affairs and theorists press to an increasing extent in recent times. Both men of affairs and theorists are giving much attention to these problems and some more or less fantastic ideas and plans have emerged which have caused considerable confusion. Even the great philosopher Hegel has been claimed as the source of evidence in support of certain opinions. Catch phrases of all kinds abound, the favorite being ‘the Greater European economy’. Whatever truth there may be in this notion, one must recognize first of all that this Greater Europe does not yet actually exist, that it has first to be created and that within its area there is still much friction. In these circumstances I feel it my duty to make a clear and objective statement which will bring the discussion back from the realm of fantasy and speculation to the world of reality and fact. As yet there is no hard and fast plan in existence, but only preparations for comprehensive planning in accordance with orders from Field marshal Hermann Göring, who will decide upon the final form and execution of the plans. Thus I must limit myself to a statement of the basic principles and methods. I shall therefore merely indicate the means which can be used to achieve our aim. Moreover, the new European economy must grow organically.

National Socialist economic policy has never allowed itself to be governed by rigid dogma in its methods. We have always used whatever methods seemed most expedient at the time. Nor do we intend in future to erect an artificial structure. In the same way the new economic order in Europe will grow out of the existing circumstances, more especially since the natural conditions exist for close economic co-operation between Germany and European countries. Obviously the war will have far-reaching effects on European as well as on world economy. We shall co-operate closely with our ally Italy in all spheres and combine German and Italian economic forces for the purpose of European reconstruction.

The question of the future general economic order in Europe must therefore be answered as follows: after the victorious conclusion of the war we shall apply those methods in economic policy which won us our great economic successes before the war and especially in time of war, and we do not contemplate again allowing the operation of the unregulated play of forces which involved the German economy in very great difficulties. We are convinced that our methods will prove to be of great advantage not only to the Greater German economy, but also to all European economies which naturally stand in close trade relations with Germany.

Regarding the question of the basis of a new currency, which has recently been the subject of particularly lively debate, the following should be said:

Currency is always secondary to general economic policy. When the economy is unsound, there can be no stable currency. In a sound European economy and with a rational division of labor between the economies of the European countries the currency question will solve itself, because it will then be only a technical problem of monetary management. It stands to reason that the Reichsmark will have a dominant place. The great increase of power of the Greater German Reich will inevitably bring in its wake a stabilization of the Reichsmark. The currency area of the Reichsmark, which will be freed from the getters of unsettled foreign debts and multiple currency practice, must then increase. Starting from the methods of bilateral trading already applied there will be a further development in the direction of multilateral trading and of the adjustment of the trade balances of individual countries, so that the various countries can engage in regulated trade relations among themselves through the medium of a clearing house. Naturally there will be no questions of abolishing foreign exchange control and compulsory clearing all at once. Nor is the problem one of free exchange of foreign currency versus a European currency union, but the next step will be to develop the technique of clearing further so that payments can be operated smoothly among the countries linked with the clearing house. Moreover, the prerequisites for such a development exist, for almost all countries, suitably placed for inclusion in a European clearing center already have some form of foreign exchange control. The prerequisites for the satisfactory working of a clearing system are that the clearing agreements should lay down fixed exchange rates from all payments, that rates should remain stable for a long time, and that amounts assigned for clearing should always be paid out immediately.

Payment of ‘uncovered’ clearing transfers naturally poses an internal monetary problem for individual countries. The fear prevalent everywhere today of such ‘uncovered’ balances will, however, disappear; for in the first place the general economic revival which is to be expected after the war will cause an increase of money circulation even in countries which have adhered hitherto to an orthodox central banking policy based on the gold cover theory and the automatic operation of the gold standard, and, secondly, owing to government control over the balance of payments the problem of clearing balances will gradually disappear.

The price level will have to be adjusted to that of Germany. But a currency union will bring about a gradual leveling of living standards which even in the future will not and should not be the same for all the countries linked with the European clearing system, because the economic and social prerequisites for it are lacking, and it would be absurd to regulate the European economy on this basis in the foreseeable future. In Europe each country should develop and expand its own economic forces and each country should be able to trade with any other, but the principles and methods governing this trade must, generally speaking, be the same. This has the advantage that measures for economic control and compulsion under a general currency and payment system can be largely reduced; because these detailed controls and regulations, involving a system of form-filling which can greatly impede individual trading, will no longer be necessary. When the peace treaty has clarified the situation and settled the functions of the European central clearing system, it will be possible to eliminate foreign exchange control within this area; first for traveling and small-scale frontier business, then for foreign trade within the framework of import quotas, when the allocation of quotas can be entrusted to trade organizations which operate on an adequate scale in the various countries. Commercial banks can then take over definite responsibility for payments to be made trough the clearing account, particularly for short-term financing of trade. But for capital transfers state direction and control will remain indispensable.

The question as to what will be lacking in the new European economy and what goods will be available for export must be answered as follows:

It depends on what is included in the European economic area and what other sources of supply are available. Certain products will always be lacking in Europe. We are not, however, contemplating changing over to an exclusively self-sufficient economy, a system such as we have not attempted to achieve in Germany either before or during the war; on the contrary we shall play our natural part in world trade in the usual manner. Therefore it is not a question of autarky or export, but of autarky and export, which requires a proper understanding of the term. We shall consider it important to trade our high-quality industrial products in exchange for raw materials in the world markets. But here we make a reservation. We must see that there is a sufficient supply in the European economic area of all those commodities which make this area economically independent of other areas. We must therefore guarantee its economic freedom. That is largely a question of living standards. For instance, in future we should not need to import a single ton of oil from overseas markets if we were to limit our consumption of petroleum products by rationing. But if everyone is to be free to drive a car as much as he likes and if as many cars as possible are to be produced, then there is nothing to prevent our importing this extra oil from world markets, because in case of need consumption

Goods such as coffee, tea, cocoa, etc. We shall have to be careful lest in time need the economic area of Greater Germany should become dependent, as regards what it can produce itself, upon forces and powers over which it has no control. In this connection we much remember that the raw material situation of Greater Germany has improved immensely during the war and that Germany will emerge at the end of a victorious war with a potential volume of exports such as she has never had before. As regards coal, potash, iron, timber, electric power, and also all synthetic materials developed with such success by German economy and science and with the help of new products, we shall become even more independent of world economy, and especially of the monopoly products of the world, that was previously the case. This is true of all raw materials, especially agricultural produce. In the food sector a systematic increase in production and an adjustment of production to meet vital needs will ensure a greater degree of self-sufficiency that has yet been the case in Greater Germany. The centrally regulated and organized European grain market, however, will not be like the old speculative corn exchange, but will function like the currency clearing system as a grain clearing center. Fundamentally, however, economic ties with the rest of the world in order to raise the living standards of the German nation and of the highly developed industrial states in Europe.

Another question which is repeatedly asked is: What deliveries of goods does the new Europe expect from Russia, America, South America, and East Asia? And what goods will she supply in exchange? In this connection the following should be noted.

We have a very useful trade agreement with Russia. Russia is the natural trade partner for highly developed industrial states. We are of the opinion that, by supplying us with raw materials in exchange for finished German products, Russia will in the future stimulate her own economic development even more than hitherto. The extent to which we trade with the United States of America depends entirely on the Americans themselves. Of course, so long as they discriminate against German goods, such trade is problematical and so long as they adhere to dogma for its own sake our trading with the United States will always come up against difficulties. But if the United States wants to assist in restoring cohesion to world economy, she must abandon her erroneous idea that she can be at the same time the greatest creditor and the greatest exporter. These two things cannot be brought down to a common denominator, because it is impossible for a great creditor nation to encourage exports in every way and systematically obstruct imports. What the Americans will eventually do with their gold, we are not in a position to say. The gold problem is first and foremost a problem for the Unites States of America. In future gold will cease to be the basis for European currency, because the currency will be independent of gold and will depend on the value given to it by the state, or in this case by the state-controlled economic system. The clearing system described above makes gold superfluous for currency and payment purposes within the clearing area. It is a somewhat different question whether gold is to be considered a suitable means of settling the balances not subject to clearing, that is to say for free trade and payments; but we shall never pursue a currency policy which makes us in any way dependent on gold, because we cannot tie ourselves to a medium of exchange the value of which we are not in position to determine. If the Americans wished to rid themselves of their gold, which at present lies idle in the cellars of Fort Knox, bearing no interest, they could revalue the dollar, which naturally would involve the American economy in considerable difficulties. But then gold would flow out of America, that is, there would be a ready market in America and thus a flow of goods to America would be set in motion. But this question will depend on the extent to which American domestic policy will permit the carrying through of such measures. Moreover, if all the gold which lies underground in America were to be placed on an island and if this island were to be submerged as a result of a natural catastrophe, the economic life of nations would still go on. The last word on the gold problem has not yet been said.

We have maintained the best of trade relations with South America and East Asia and we are convinced that, as soon as English piracy ceases, trade with South America and East Asia will develop favorably, for we must always bear in mind that the difficulties of world economy and the supplying of Europe in particular, apart from the crazy methods of Versailles, can be attributed firstly to the shrinking of Russia’s huge market, which disposed of her superfluous grain in Europe, and secondly to the adverse effects suffered by the great East Asian market as a result of the unrest in China, and that a different situation would immediately arise if China should again establish stable political and economic relations, which is what Japan desires. Our old-established and well organized trade with South America has been interrupted only by the English blockade. We are convinced that here, too, normal trade will be resumed once the war at sea can no longer prevent it. Nor do we believe that the efforts to make American markets autarkic and to cut them off from trade with the world will be successful. The economic prerequisites for such a policy do not exist, because the United States cannot buy the same volume of products from South America as Europe can. The United States must abandon the idea that she can dictate her own economic terms to Germany or Europe. We do not need North America as an intermediary in trading with South American countries. Either Germany trades with South America on the basis of free agreements with sovereign states, or she does not trade with South America at all. Moreover, the United States actually favors a fundamental economic bilateralism I connection with her policy of commodity agreements for South American products. Technical difficulties do not, however, stand in the way of the normalization and extension of mutual trade relations provided German-American trade is allowed to develop freely. The European clearing system does not in any way exclude the free exchange of foreign currency with countries not included in the system. The Reichsmark will become acceptable in this type of trade after the war. After all, it is not the methods used but the quality of the goods which will be the deciding factor. And in this respect we certainly need not feel any anxiety about German export goods!

Turning from the external to the internal sector, the question, ‘How is this war being financed in Germany?’ is one in which the world shows a lively interest.

The war is financed by work, for we are spending no money which has not been earned by our work. Bills based on labor – drawn by the Reich and discounted by the Reichsbank – are the basis of money. And these bills are of absolutely invariable value because prices and wages are stable, apart, naturally, from those cases where higher prices or higher wages have to be recognized as justified and necessary as a result of definite developments. Where higher production is achieved, higher wages are also paid. The extent of our consolidation of short-term credits is therefore of no importance. Present indebtedness in Germany does not cause concern, chiefly because we have succeeded in reducing the rate of interest for Reich credits in war-time and the public finances are in order.

And now, finally, the last question: How will the war economy be reconverted to a peace-time economy? Will not this changeover cause an economic crisis? The answer is clear and simple.

Since we have guided our economy both before and during the war according to the needs of the state, and since, also, there will be tremendous tasks to be accomplished after the war for the general welfare, the changeover to a peacetime economy will not cause great difficulties, because a great need for money or credit will not arise all of a sudden, more especially because the stocks which have to be replenished can be made available only gradually. Moreover, after the war we shall direct the flow of money and credit into the production of those goods which are most necessary and important for us. A system of priorities, tasks, ad orders will be maintained after the war.

To sum up, the following must be said:

  1. By concluding long-term economic agreements with European countries it will be possible to assign a place for the German market in the long-term production planning of these countries, i.e. as a safe export outlets will be found to exist for German goods in European markets.
  2. By creating stable exchange rates a smooth working system of payments must be assured for the carrying on of trade between individual countries. In so doing we hall link up with the existing payments agreements, which will be expanded to include a greater volume of trade on the basis of stable exchange rates.
  3. By an exchange of experience in the field of agriculture and industry a maximum production of foodstuffs and raw materials must be our aim, and a rational economic division of labor must be achieved in Europe. By the appropriate use of all economic resources available in Europe, the living standards of European nations must be raise, and their safety in face of possible blockade measures from outside Europe must be increased.
  4. A stronger sense of economic community among European nations must be aroused by collaboration in all spheres of economic policy (currency, credit, production, trade, etc.). The economic consolidation of European countries should improve their bargaining position in dealings with other economic groups in the world economy. This united Europe will not submit to political and economic terms dictated to it by any extra-European body. It will trade on the basis of economic equality at all times in the knowledge of the weight which carries in economic matters.

The coming peace-time economy must guarantee for Greater Germany a maximum of economic security and for the German nation a maximum consumption of goods to raise the level of the nation’s well-being. The European economy must be adapted to achieve this aim. Development will proceed by stages and differently in different countries; it is still beset with numerous uncertainties, for – we must never forget – we are still at war!

See the original document (in German)