The future of Germany and the chances of a lasting peace in Europe are intertwined. Potsdam took care of one and made a start on the other.

I. Only a Beginning

The making of peace in Europe is a job that has two main parts. One is the final de-struction of German military power. That part of the job was well planned at Potsdam. The other is far more elusive and difficult to accomplish. It is the creation of positive conditions which will encourage peace and friendly dealings among nations. This part of the job was only begun at Potsdam.

The smashing of German power had largely been achieved by the combined armies of the victorious Allies. What remained was a considerable industrial plant which might some day be used for the production of arms, and a lingering reluctance among certain sections of the German people to believe that they were totally and finally licked. Potsdam provided a program for ending both sources of possible future trouble.

The industrial capacity of Germany beyond what is required for peace-time needs, fru-gally defined by the victors, is to be carted off to build up the productive strength of the United Nations, particularly Russia. The economic details of this plan are discussed be-low. What it adds up to in broad terms is that Germany will be reduced to poverty. Its role as an industrial power will pass to other nations. It will not be able to plan to make war for it will have neither the resources nor the machinery to turn out modern weapons.

The other necessity was to change the attitude of the German people. It may be true, as most Germans today insist, that a majority of the people disliked the Nazi dictatorship. But whether it is true or not, no one can doubt that a dangerous proportion of Hitler’s subjects accepted the twin ideas of Teutonic superiority and the omnipotence of the state. At Potsdam the German state went out of existence, formally as well as actually. This event more than any other should drive into the German mind the reality of defeat, and its meaning. For in Hitler’s Reich even the army came second. It was the mighty dictator-state, personified by the Fuehrer, defended by the Wehrmacht, that concentrated in itself all the energy and intelligence and power of the people. Now the state has been supplanted by the absolute military rule of four victorious powers which will control Ger-many from top to bottom until it has developed acceptable evidence of a capacity to rule itself — peaceably and under democratic safeguards. This short demonstration of the collapse of the Hitler myth was a necessary contribution to the mental and emotional disarming of Germany. The “master race” was officially interred at Potsdam in the rub-ble of administrative buildings.

But the crushing of German power leaves a wide area for positive measures of peace-making in Europe. In this area the victors must establish justice, social equality, political freedom, and the protection of the rights of individuals and minorities and lesser nations — for these are the only secure foundations on which peace can rest. At Potsdam they made a few hopeful gestures in this direction. As far as Germany is concerned, the most hopeful was the agreement to permit political and trade-union activity among anti-Nazi groups. The Russians have allowed parties to function from the beginning of their occu-pation, now the permission will be extended to the whole country. Obviously it will be a half-artificial exercise as long as foreign military control continues. But it will give democ-ratic elements among the people a chance to rebuild organizations crushed by the Na-zis and to establish lost habits of administration. Out of this will come gradually a new political life for Germany. It is too early to try to guess what shape that life will take. What must be recognized is that the German people will meanwhile be preserved in a state of artificial social and political peace — like prisoners in a well-run jail — and will therefore have no opportunity to assist actively in the purge of the fascist poison that permeated the body of their country. That job will be left to the victors; and the Germans will be robbed of what would have given them their best chance of political health. Perhaps the most valuable positive act of the Potsdam conferees was the slap adminis-tered to Franco. This should knock out from under his regime a major prop, particularly if it is followed with the severing of diplomatic relations by Britain and the United States and an economic boycott such as was applied for a time to Argentina. Franco’s reaction to the verdict shows how fully he realizes his danger. While the Spanish Republicans pull together their strong but scattered forces, the Generalissimo is hastily summoning his advisers to consider ways of circumventing the intentions of the Big Three. He will have to work fast, for this time it looks as if the powers meant business. The new British government is clearly not going to continue Churchill’s tactics, and even in Washington one can detect evidences of impending change.

This move, together with the decision to make the peace promptly with Italy and Hitler’s other former associates, will have a wholesome effect on the entire European situation, it will make possible the renewal of normal processes of trade and diplomatic inter-course and restore hope to peoples who have labored too long under the frustrations of military control and political intervention.

A third excellent decision reached at Potsdam was to establish a Council of Foreign Ministers to carry on from where the three chiefs of state left off. This is a long-needed change. The European Advisory Commission has never had the authority to lay down major policies. The new Council presumably will have. In view of the gap left in the set-tlement of Europe’s outstanding problems, the creation of this Council is of immense importance.

For the gaps are enormous. They cover the larger part of the territorial claims that have been put forward by various nations and a wide range of economic and political adjust-ments. The start made in this field at Potsdam was not auspicious. We are particularly disturbed by the tentative decision, which will, however, almost certainly be ratified, to turn over to Poland areas of Germany west of the Oder and Neisse rivers. Changes on Poland’s western frontier were inevitable, but the annexation of such vast German re-gions is certain to create dislocations. The history of irredentism after the last war should have been a warning to the powers at Potsdam — including Poland itself. It is to be hoped that a better solution will be reached when the questions of Germany’s west-ern boundaries and of other disputed frontiers are considered by the Council of Foreign Ministers.

II. Germany’s Economic Future

The economic terms imposed on Germany by the Potsdam conferees are both harsher and more realistic than those of the Versailles Treaty. They are more likely to result in the actual extraction of reparations than the astronomical bill presented in 1919. That bill could be paid only by the delivery of newly produced goods (which the debtor countries were mostly reluctant to receive), and, before such goods could be forthcom-ing, Germany had to be supplied with credits for raw materials and for expanding its in-dustry. This time payment is to be in the form of existing capital equipment and will be directly linked with disarmament. Germany will thus make reparation through the loss of its war potential, which, it has been estimated, includes a productive capacity in the heavy industries about four times. greater than a peacetime economy would require.

For the division of the reparations taken, a rather elaborate formula has been concocted which, nevertheless, still leaves certain points obscure. Russia gets a major share, since it is to have whatever is removed from its own occupation zone plus 10 per cent of the takings in the western zone In addition it is to get 15 per cent of the total western “removals” against payment in food and raw materials. Out of its share Russia is to set-tle Polish claims but apparently it retains full discretion respecting the amount and na-ture of the satisfaction given. Claims of the United States, Great Britain, “and other countries entitled to reparations” are to be met from the western zone and from external German assets. As we pointed out last week, the division of reparations ought to be de-termined by agreement among the interested states and not by Anglo-American ukase. But on this. point the communique is silent.

While removals of reparations property are to begin as soon as possible, the amount and character of “the industrial capital equipment unnecessary for the German peace economy and therefore available for reparations” is to be decided by the Control Council comprised of the four Allied “zone commanders.” The Council, however, must follow principles fixed by the Allied Commission of Reparations, which is to include France, while final approval must be given by the commander of the zone from which equipment is to be removed. It is not going to be easy to operate all this complicated machinery without friction and delays. But, at least, it is encouraging to learn that during the occu-pation period “Germany shall be treated as an economic unit.”

“Payment of reparations,” the Potsdam report declares, “should leave enough resources to enable the German people to subsist without external assistance.” They must, how-ever, another paragraph suggests, subsist mainly by means of agriculture and light in-dustry. Their standard of living is not to exceed “the average of the standards of living of European countries” — excluding the U. S. S. R. and Britain. Just what this may mean it is hard to say. Before the war living standards in Europe varied tremendously: they were comparatively high in such western countries as Denmark and Holland, very low in the Balkan countries. That of Germany was almost certainly above the average, so that a decline, and probably a steep one, is to be its lot. On this score the Germans can hardly expect better treatment; they have no claim to more than subsistence so long as the countries they have victimized remain on short rations.

But the question does arise as to whether the arrangements made by the Big Three will permit even a low average standard to be maintained. Germany will have to grow al-most all its own food since its muck reduced surplus of coal and manufacturers will be needed to buy raw materials. Moreover, it will have to produce its food in an area barely three-quarters of the size of the pre-Hitler Reich if, as seems certain, the provisional as-signment to Poland of territories extending to the Oder and Neisse rivers is sustained.

Moreover, this diminished area will have to provide for a much bigger population than formerly since eventually ten or twelve million Germans are to be thrown out of the Sudetenland, Hungary, and the new Polish province. Even after making allowances for the very heavy casualties which Germany suffered in the war, it appears certain that the country is going to be seriously over-crowded.

In time Germany may be able to intensify its agriculture — it would require a big produc-tion of fertilizer, and fertilizer manufacture is closely linked to that of explosives — and so provide the bulk of its food and employment for a larger population on the land than be-fore the war. But it would still have to find jobs for a very large number of industrial workers. If the Ruhr remains German — the French would like to include it in a separate Rhineland state — it will still have surplus coal. But most of the raw materials it would need to operate light industries on a larger scale would have to be imported and that means it must rebuild its export trade. By means of low wages, and under the conditions being set for Germany wages will inevitably be low there, it might be able to offer con-sumers’ goods — textiles, toys, clocks, furniture, drugs, and so on — at very competitive prices. What will this mean in terms of labor standards in other countries?

Presumably, the suppression or strict limitation of the German metal and chemical in-dustries will mean reduced competition in world markets for America and Britain. But if Germany’s selling opportunities are thus curtailed, so too will be its ability to buy. Before the war it was a very large importer of primary products from all parts of the world. In particular, it was the thief customer for the agricultural surpluses of southeastern Europe which, in turn, looked on German industry as its main source of manufactured goods. Who will now buy these surpluses and so enable the Balkan countries to obtain the in-dustrial goods they need? Will Russia, which in normal times is likely to produce similar surpluses itself?

The fact is that Germany’s change of economic status must have wide repercussions beyond its own borders and it is not clear that the Potsdam conferees have considered all the economic implications of their decisions. A poverty-stricken Germany, bottled up in a confined space, must remain an endless problem, however much its aggressive-ness is curbed by strong-arm methods. Some means must be found to integrate it with the European economic system, of which geographically it forms the heart, or the penal-ties we impose upon it will backlash on its neighbors. From this point of view the eco-nomic section of the Potsdam report is disappointingly negative.