Abstract
This article analyses the British perspectives on the Luxembourg Reparations Agreement between Israel and the Federal Republic of Germany from 1952. Short-term economic interests were of central importance when it came to assessing the consequences of this deal for the United Kingdom. Her Majesty's Government welcomed West German reparations as a means of securing Israel's ability to pay for oil supplied by British companies, but at the same time saw them as a threat to its economic and political interests in the Middle East. British diplomats underestimated the long-term political value of the Luxembourg Agreement precisely because they read it verbatim. They recognized the reservations on both sides but did not expect that working relations between Israel and the Federal Republic would improve rapidly after the Agreement was ratified, limiting in turn the UK's political and economic room for manoeuvre in the region. By examining a hitherto little-noticed chapter of British foreign policy in the postwar years, the article foregrounds the commercial aspects of diplomacy in the early 1950s and contributes to a better understanding of international relations in the Cold War.
A few years after the United Kingdom had relinquished the Mandate in Palestine in May 1948, she developed a renewed interest in the Middle East for economic, political and military reasons. 1 The necessity to balance out Britain's global ambitions at the beginning of the Cold War with those of Israel, established at the end of the Mandate, and its Arab neighbours in order to contain a possible escalation of violence in the region also impacted on how her Majesty's Government observed the negotiations on compensation for Holocaust related damages between the State of Israel, the Federal Republic of Germany and the Conference on Jewish Material Claims Against Germany (Claims Conference), a Jewish umbrella organization formed by 22 Jewish organizations to represent world Jewry and to negotiate indemnification for victims of Nazi persecution and their heirs. 2 Negotiations began on 21 March 1952 in the moated castle of Wassenaar in the Netherlands and led, six months later, to a reparations agreement (in the following: Luxembourg Agreement, named after the place in which the agreement was signed on 10 September of the same year). For Britain, the former leading Western power in Palestine with geostrategic and military interests above all in Jordan and Egypt and home to about 80,000 Jewish refugees from Central and Eastern Europe since the 1930s, these negotiations and their outcomes were of domestic as well as of international importance. 3
As Arab states had protested against Israel's appeal to the Western Allies for support in obtaining reparations from Germany as early as March 1951, the Foreign Office had to reckon with the fact that a future German-Israeli agreement would be met with resistance from Israel's Arab neighbours who, in turn, might reach out to the Soviet Union for support in their struggle against the Jewish state. Fear of a possible rapprochement between the Soviets and the Arab States had already prevented closer military cooperation between Israel and the United Kingdom in 1951. 4 London was also concerned about how an agreement between the Federal Republic and Israel would affect the post-World War II Anglo-German payment agreements and Anglo-Israeli trade. British observers were quick to note the economic consequences of the Luxembourg Agreement. It not only obliged West Germany to ‘pay’ reparations to Israel (overwhelmingly in kind, to be paid from a bank account in Germany at the disposal of the Israeli purchasing delegation), but also gave German businesses a competitive advantage in Israel, to the detriment of the United Kingdom, it was feared. 5
At the same time, British diplomats in the early 1950s underestimated the long-term political value of the Luxembourg Agreement precisely because they read it verbatim. They rightly spotted the mutual reservations on all sides, but they did not imagine that the working relations would become so reliable that the initially deep reservations could be overcome. Using the terms of the philosopher Olufemi Taiwo, British observers stressed the ‘harm repair’ arguments – focusing on individual compensation for damage suffered – over those of ‘relationship repair’. The latter aims at a collective and more comprehensive justice, which, notwithstanding its material effects to ‘make good’ past wrongs, also attempts to impact on the present and the immediate future. 6 Contrary to what observers in the United Kingdom expected, things were moving fast after the ratification of the agreement in March 1953. Already early in 1954, a British commentator described it as a ‘unique political and economic phenomenon’ precisely because West Germany and Israel were ‘the last countries in the world from whom any such rapprochement might have been expected so soon’. 7
This article analyses the British perspectives on the negotiations between West Germany and Israel on the political and economic level by making use of the relevant archival holdings from the British Foreign Office between 1951 and 1954, the considerable specialist literature available as well as general newspaper coverage from the time. While Dominique Trimbur and Michael Wolffsohn have analysed the US-American influence on the nascent relations between West Germany and Israel in the early 1950s, no similar study on British politics has been undertaken so far. 8 In what follows, I will advance the argument that the British government, businessmen and journalists recognized the Luxembourg Agreement as a major step in the relationship of the two contracting states, but that short-term economic interests mattered most when it came to assessing the consequences of this deal for the United Kingdom. The British government saw West German reparations above all as a way to secure Israel's ability to pay for oil delivered by British companies (which was in fact paid for out of German pound reserves in London) but also perceived them as an economic and political risk to their interests in the Middle East. By examining a hitherto little-noticed chapter of British foreign policy in the postwar years, the article addresses the ‘relative neglect of the commercial aspects of diplomacy within diplomatic studies’ and contributes to a better understanding of international relations in the early Cold War. 9
Much has been written about the difficult negotiations between the Federal Republic of Germany, Israel and the Claims Conference in the early 1950s, so that a short summary of key developments should suffice here before the British perspectives will be explored more in detail. 10 From the spring of 1951 onward, the West German government led by Chancellor Konrad Adenauer tacitly explored the possibility of ‘direct negotiations for a global reparations settlement with the Jewish world and indemnification payments to individual Holocaust survivors’. 11 Leading West German politicians regarded a reparations agreement with Israel and international Jewish organizations as a precondition for the recovery of political discretion and international respectability, next to a solution of the complicated negotiations about German pre-war debts and the repayment of Allied postwar economic aid which took place in the same time period. It would only be concluded with the London Agreement on German External Debts which came into force in September 1953. 12 To think of negotiations between Germany and Israel only a few years after the Holocaust was controversial in both countries, for very different reasons. In the Federal Republic, most politicians preferred to avoid this topic which they knew was unpopular with voters, due to a mixture of shame, the prevailing Schlussstrich mentality, the continuity of antisemitic prejudices and concerns about the productive capacity of the economy which was just about to recover from the war. 13 In Israel, many people found it provocative to negotiate with the successor states of the Third Reich only a few years after the Holocaust. There was no ‘price tag’ for the plundering and murder of millions of Jews, these critics argued, and even those who were not principally opposed to talks feared that the Germans would not negotiate in good faith. From Israel's point of view, breaking off the talks once they had begun would have been another Jewish humiliation to be avoided at all costs. 14
However, Israel's economic situation was bleak. In the three years following independence on 14 May 1948, the new state registered more than 600,000 immigrants, many of them refugees from Europe or the Arab states. One out of three Jews in Israel was a Holocaust survivor, or a young child born to them. 15 Resources were so spare that the fledgling state relied on credit provided by the Western powers to procure the much-needed oil, machines, weapons and food. Famine was a genuine possibility. 16 At the same time, Israeli initiatives to end the Egyptian blockade of the Suez Canal which prevented the transport of goods from and to Israel remained unsuccessful. 17 In this desperate situation, Israel's Foreign Minister Moshe Sharett reached out to the four occupying powers of Germany for the first time in January 1951, requesting in broad terms reparations from ‘Germany’ without at this point of time distinguishing between the Federal Republic and the GDR. 18 On 12 March 1951, the Israeli government sent a more detailed second letter to the four powers. It had been drafted by the Jewish lawyer Leo Kohn, a political advisor in Israel's Ministry of Foreign Affairs, and by Israel's Finance Ministry director general David Horowitz. 19 In the opening paragraph, the Israeli government emphasized that it ‘reserved to itself the right to deal’ with ‘claims in respect to Jewish losses for which Germany must be held accountable as did not fall within the scope of the existing laws providing for individual restitution and indemnification’. Such laws had been issued by the three Western Allies for their respective zones of occupation in the second half of the 1940s. 20 Israel also requested from the USA not only another US$150 m in government aid but also suggested that they all put pressure on the two German successor states, asking them to pay a total of US$1.5 billion of reparations over a period of the following ten years. The lion share, one billion, was to come from the Federal Republic. 21 According to Israel's Finance Ministry director general David Horowitz, such compensation payments – basically a sizable injection of foreign capital without increasing Israel's debt burden – was the ‘only chance of averting economic disaster’. 22 The Soviet Union did not respond to this proposition, however, despite the fact that she had bolstered the Jews in the Arab-Israeli war only three years earlier. The German Democratic Republic (GDR) followed Moscow's course and, as Lorena de Vita has argued, realized that its international recognition could be more easily achieved by closer relations with the Arab states. 23 Even the Western Allies did not support Israel unreservedly. Many feared that significant reparation payments would strangle the West German economy that was just about to recover, partly with the help of the American taxpayers’ money sent to Western Europe as part of the European Recovery Program, better known as the Marshall Plan. 24
British diplomats reacted cautiously. On 10 March 1951, two days before the official Israeli request, William D. Allen, the head of the German Political Department in the Foreign Office, made the formal argument that ‘the Government of Israel cannot have any reparation claim against Germany within the accepted sense of the term since the Government of Israel was at no time engaged in hostilities with the German government.’ Thinking of the Jewish refugees who had meanwhile often been naturalized in the United Kingdom or in the United States, he also emphasized that these Jews were unlikely to ‘support a claim from the Government of Israel to receive compensation in their stead.’ If at all, German reparations to Israel would become relevant only in the context of an eventual peace settlement with a united Germany and so not any time soon, he argued. 25 A commentator in Truth, a British periodical on the right wing of the conservative spectrum edited by Collin Brooks, even lamented that Britain had ‘received virtually no German reparations’ and questioned why, given this situation, Israel should receive any. The commentator deliberately reduced the Holocaust to a question of property loss, blamed Israel of having used ‘Nazi methods’ in the late 1940s towards the Arab population of Palestine and concluded: ‘Israeli ruthlessness to a race which the Jews consider inferior to themselves puts them right out of court as spokesmen for the millions of Jews who lost their property in Germany’. 26 Most British newspapers were more receptive to the idea, however. The British-German journalist Sebastian Haffner, for example, argued in the liberal Observer that Germany was still a ‘highly developed industrial country’ and therefore it would not be ‘beyond her powers to assist the reconstruction and development of Israel by something like a “Little Marshall Plan” over three or four years.’ 27
In a landmark speech in the Bundestag on 27 September 1951, Adenauer admitted that ‘unspeakable crimes’ had been ‘committed in the name of the German nation and they render moral and material damage obligatory.’ The Federal Government, he promised, would be ‘prepared, jointly with representatives of Jewry and of the State of Israel which has accepted so many homeless Jewish refugees, to bring about a solution of the problems of material reparation, in order in this manner to ease the way towards a spiritual pacification.’ 28 While the British Economist praised Adenauer for his ‘brave attempt to steer German public opinion back to the right course’, many Jews had wished for a more comprehensive admission of German guilt. The Jewish Chronicle, the most important Jewish weekly in Britain, commented reservedly that Jews everywhere would study the speech ‘intelligently and sympathetically though cautiously’. The real significance of Adenauer's address would depend on the measures taken by the government in Bonn to fight ‘manifestations of neo-Nazism, such as are still a daily occurrence in Germany’. 29 However, Adenauer's promise and Israel's economic necessities combined were enough to get things moving. After Nahum Goldmann, the president of the World Jewish Congress, had met Adenauer for secret talks in the Claridge Hotel in London on 6 December 1951 to get the latter's assurance that the German side was serious, Israel and the newly established Claims Conference had to make the next move. 30 On 9 January 1952, the Knesset did not formally vote on opening direct talks with Germany, yet it empowered the Mapai-dominated Foreign Affairs and Defence Committee to decide on this matter. As expected, the Committee voted in favour of negotiations. 31 Official talks between the two states and the Claims Conference began under high security in March 1952 and lasted several months. A positive outcome was hanging in the balance more than once, despite the careful preparations of the talks. When an accord was finally reached, delegations which included Adenauer and Sharett met in Luxembourg where the agreement was signed on 10 September 1952. Another difficult six months followed, marked by boycott threats from the Arab League against the Federal Republic and further protests against the deal in Israel. However, in March 1953, both West Germany and the State of Israel ratified the Luxembourg Agreement, in which the Germans committed to pay Israel a total of three billion DM in ten instalments over the next 12 years to help with the costs of integrating the 600,000 Holocaust survivors in the country. West Germany also agreed to pay DM450 m earmarked for the Claims Conference. 32
The British government followed the negotiations between the Israeli and the West German government from the beginning, taking the international significance and the possible domestic repercussions into account. Official diplomatic relations between Israel and the United Kingdom had been established on 28 April 1950, and the British Legation in Tel Aviv fed a constant flow of information to the Foreign Office in London, at that time headed by the Conservative Anthony Eden, who in 1955 would become Prime Minister. 33 Although the tone of the reports in the files of the Foreign Office was often sympathetic, the British position was one of caution, with a clear understanding of the limits of the negotiation process and the tacit interests of the two main parties involved. Initially, in April 1951, Robert Steward Crawford from the German Political Department of the Foreign Office had argued that Britain should not support Israeli demands for reparations from Germany ‘for financial reasons’, as significant reparations would very likely weaken the exchange rate of the Deutschmark. He emphasized that occupying powers could not welcome ‘any very large increase in the hands of foreigners over and above those already in existence or likely to arise’, and that no exception should be made for the Israelis. If at all, Crawford thought that any form of reparations to Israel would have to be combined with ‘long-term investment in Germany’. Half a year later, however, the British Foreign Office assured the Israelis that every agreement acceptable to the state of Israel would also be in the interest of Her Majesty's Government. 34
Once the Luxembourg Agreement was signed, the British diplomats emphasized the rather business-like character of the contract which, they claimed, should not be seen an admission of German moral guilt, or at least not of a collective guilt.
35
Francis E. Evans, the first British Ambassador to Israel
36
, carefully noted the ‘long minutes of silence’ when the agreement was signed on the morning hours of 10 September 1952 and cautioned not to overemphasize its historical character: There is no attempt to gloss over ‘the unspeakable and criminal acts perpetrated against the Jewish people during the National Socialist regime of terror’, but there is equally no suggestion that the German people as distinct from the National Socialist regime should bear any guilt for these crimes. Neither is there any implication that the moral wrong done to the Jewish people is in any way atoned for by the agreement, which is presented simply as an acceptance by the Federal Government of financial claims for material damages inflicted by its predecessors. The agreement therefore closes no accounts and opens no doors for future relations between Israel and Germany, though it may be perhaps regarded as unlatching a wicket gate through which communication could be effected if circumstances warrant.
37
Apart from the political significance of the Luxembourg Agreement, it was above all the economic side that was important for the British, whose national budget had turned from a healthy surplus of £307 m in 1950 to a deficit of £369 m in just one year, mainly due to the cost of the extensive rearmament programme following the outbreak of the Korean War. 42 Against this background, the British government was delighted with one aspect of the agreement in particular: that West Germany was willing to provide DM150 m during the first two years after the agreement came into force for the purchase of ‘sterling oil’, that is oil to be paid in pounds sterling from the Shell Company of Palestine. The latter operated one of the world's largest British-owned oil refineries in Haifa and usually received its oil from the Anglo-Iranian Oil Company which was owned to 51 per cent by the British state. 43 The amount of DM150 m, taken out of the Federal Republic's Sterling balances, was enough to pay for between two-thirds and possibly even 80 per cent of Israel's oil needs in the period in question. The Federal Republic agreed to make half of this sum available immediately, even before the ratification had taken place, so that British oil deliveries to Israel were not interrupted. 44 However, as late as February 1953 it was still not clear how the German advance financing of these oil deliveries would be organized. The promises made to the Israeli negotiators in 1952 had not been factored in the West German budget for 1953. 45
Up to the Luxembourg Agreement, the State of Israel had been forced to use a substantial amount of its meagre foreign currency to buy oil from British firms, and it had relied on British and even more so American credits to pay for it. 46 However, on 9 May 1952 and in light of its own economic problems, the United Kingdom had refused to grant Israel a new loan of £5 m which put any future oil deliveries and thereby the Israeli economy more widely at risk. 47 The British government had not been interested in paying for these deliveries out of its own pockets, but at the same time it had been anxious to make sure that the deliveries were not discontinued. 48 The Luxembourg Agreement was thus twofold beneficial to the United Kingdom: it reduced the need to provide Israel with more credit, 49 and it secured the profits of British oil companies for the coming years, which also helped to flush money into the public coffers. In the autumn of 1952, neither the Israelis nor the British wasted time unnecessarily. Felix E. Shinnar, who had established the economic department in the Israeli Legation in London in 1949 and was meanwhile promoted to co-head of the Israeli mission in Germany, signed a new contract with the Shell Company in London only a few days after the agreement had been reached. 50
The British side also hoped to benefit from the German payments to Israel in another, more indirect way. They knew that Israel would, via the soon-to-be established Israeli Purchasing Mission in Cologne, spend most of their reparation purchasing power on metals and other products from Germany's steel manufacturing industry, on agricultural products and on products for the chemical industry. 51 According to public statements by Sharett, the Israeli government was planning to spend only 10 per cent of the reparations to the state of Israel for the import of consumer goods. Even though Israel had only a population of about one and a half million people at the time, archival documents reveal that the British diplomats assumed that there would be a ‘huge market’ for consumer goods to be imported outside the new German-Israeli framework, partly through new loans from German banks against the security of future payments from the German government. In other words, the British anticipated that German reparations would indirectly have a stimulating effect both in Israel and in Germany and that the increasing demand for consumer goods would also benefit British businesses, at least if Israel's spending priorities – as outlined by Sharett – did not change. 52
Other aspects of the deal were less promising from a British perspective, even if their diplomats acknowledged in the autumn of 1952 that it would be too early to ‘foresee what effect the Agreement will have on United Kingdom trade with Israel’ until the ‘detailed schedule of imports for the first year’ would be known. In a confidential letter to Anthony Eden, Francis E. Evans explained that in their eagerness to secure large imports as soon as possible the Israel Government will presumably try to secure from Germany as large a proportion as possible of their regular imports of raw materials. This step would not necessarily diminish the total quantity of imports from the United Kingdom, since the sterling saved on raw materials might be used for the import of consumer goods. It would, however, tend to have an unsettling effect on the pattern of trade between the two countries, and there is certainly a danger that the United Kingdom might be largely supplanted by Germany in the permanent markets of raw materials and heavy machinery which Israel will always offer, in exchange for the more temporary markets in consumer goods. Once large quantities of German machinery are imported under the Agreement, Israel must continue to import from Germany for replacement and maintenance, to the consequent detriment of similar British exports.
53
Already before the Luxembourg Agreement was signed, Israel's Arab neighbours objected to the deal and warned of serious economic and political consequences. In March 1952, Syria, Lebanon and Iraq urged the Western powers to make sure that the Palestinian refugees would benefit from possible German reparations to Israel. Three months later, in June 1952, the Arab Higher Committee wrote to the Federal Republic directly on this matter but was ignored with the argument that a third party could not take part in binational Israeli-German talks. 57 Once it became clear to the Arabs that the negotiations in Wassenaar would continue without that their interests were necessarily considered, they attempted to stop them and intensified these efforts once the agreement was signed. As it still needed to be ratified, Arab pressure had the potential to obstruct or at least significantly delay this process. Within days after 10 September 1952, the Arab League sent a delegation to Bonn, tasked of putting pressure on West Germany and her industry and threatening a boycott which might even be extended to include the participation of non-Arab states like Pakistan and Persia (Iran). 58 Whereas the first Arab boycotts against the Yishuv had started as early as the 1890s, the threats against the Federal Republic in 1952 were the first case in which such a boycott targeted a third country. 59 Once in Germany, the delegation led by the former Lebanese Minister president Ahmed Daouk met with leading politicians and government representatives, among them the Secretary of State in the West German Foreign Ministry Walter Hallstein, the Minister of Economics Ludwig Erhard, the President of the Bundestag Hermann Ehlers and the mayor of West Berlin Ernst Reuter. 60
According to British sources, the delegates said in these talks that they would not, in principle, ‘question the justice of the Federal Republic making amends for the crimes committed by the Nazis against the Jews’. However, the Arab League would not recognize the Government of Israel as ‘representative of world Jewry’. The League's delegates furthermore complained – in line with earlier demands – that claims of Arab refugees from Palestine against the Israeli Government had not been taken into account. 61 In the original aide-mémoire which the Egyptian ambassador F. D. Amr Bey had handed over to the Foreign Office in November 1952, the tone had actually been much harsher. According to this document, the Luxembourg Agreement is said to have no significance at all [‘le traité en lui-même n’a aucune signification’]. Furthermore, it is claimed that recent Jewish immigrants – many of them Holocaust survivors – had de facto already been ‘amply’ compensated at the expense of the Arabs ‘who had to flee the atrocities of the Jews of Israel’ and ‘whose property was worth billions of pounds.’ [Les Juifs immigrés en Israel avaient mis la main sur les propriétés des Arabes qui devaient fuir les atrocités des Juifs d'Israel et que ces Juifs immigrés avaient ainsi été largement indemnisés au dépens des Arabes dont la valeur de la propriété s’élève à des milliards de livres sterlings.] Even though the Arab boycott threats were directed against the Federal Republic, the blame for the Luxembourg Agreement, the Egyptian aide-mémoire from 1952 asserted, lay more with the Western powers and here particularly with the USA. According to the Arab view, the government in Bonn was pressured into signing. From their perspective, the Luxembourg Agreement was an indirect American economic help to Israel paid for by the Germans which could shift the military balance of power in the region and had the potential to de-stabilize the entire Middle East. 62 In the year before, experts in the US state department had indeed argued that ‘there would be a definite political advantage to making a contribution to the Israeli economy indirectly through Germany’, as in this way similar demands from neighbouring Arab states that were to be expected if Israel were given direct US-American aid could be more easily refused. 63
The Arab narrative of suffering and victimhood – a case of ‘victimhood nationalism in contested memories’ (Jie-Hyun Lim) – provocatively suggested that it was not the Jews who needed to be compensated in the first place but the more than 700,000 Palestinians who had fled or had been expelled by Jewish fighters and the fledgeling state authorities between 1947 and 1949, in the course of the Israeli ‘War of Independence’ or, as it is known in the Arab world, the Nakba, meaning ‘catastrophe’. 64 Prior to these events, Arab Palestinians had owned 90 per cent of Palestine's privately owned land. 65 Accordingly, one of the Arab demands was that a part of the total payments from the Luxembourg Agreement should be ‘set aside to cover the payment of compensation by Israel to Arab refugees’. 66 The idea of using German reparation payments to help the Palestinian refugees resettle at their places of refuge was at the time also discussed in Israel, despite the fact that establishing a connection between the displacement and in most cases murder of the European Jews during the Second World War and the expulsion of the majority of Palestine's Arab population between 1947 and 1949 was controversial. Such discussions built on earlier developments following the Armistice Agreement between Israel and Jordan from 3 April 1949, when both sides had discussed compensation payments for confiscated property in Jerusalem in exchange for a peace settlement. One of the contentious points had been whether these should be individual or global compensation payments. 67 These talks had continued until the murder of the Jordanian King Abdullah in July 1951 and thus timewise overlapped with the early initiatives for a German-Israeli agreement.
Jewish and Israeli leaders were aware that Israel's argument that it was too poor to pay compensation to the Palestinians would lose credibility on the international stage once substantial German reparations payments began to arrive. The US government under President Harry S. Truman in particular put ‘pressure, albeit modest pressure’ on Israel to use a fraction of the shilumim for the compensation of the Arab demands. 68 Nahum Goldmann likewise thought it ‘good for Israel’ if some of the future reparations would go to compensate Palestinian refugees. 69 The Israeli cabinet discussed this question on 19 October 1952, but only Foreign Minister Sharett spoke in favour of Israeli compensation for the Palestinian refugees, partly to avoid a possible anti-Israeli resolution in the upcoming Seventh General Assembly of the United Nations. Prime Minister Ben-Gurion thought such commitment unnecessary, at least for the time being. He only acknowledged that Israel would be ‘glad to make an adjustment with the Arabs’ once its own demands before the United Nations were adjusted’. 70 Positions that supported the idea of linking German compensation payments to Palestinian demands also found expression in the British liberal press. Sebastian Haffner had already argued in 1951 that the displacement of those European Jews who had survived the Holocaust had led to the displacement of several hundred thousand Arabs from Palestine. Ethnic cleansing for the sake of nation building was a reality in postwar Europe and the Middle East, Haffner concluded, but it had to be accommodated by compensation payments: ‘It is essentially just that Germany should make reparation for this to Israel and that Israel should pass on reparation to the countries which have to resettle the Arab refugees.’ 71 Despite the fact that in 1953 an Israeli committee lead by Horowitz came to the conclusion that part of the German reparations could be used as a collateral on an American loan in the region of US$100 m to pay compensation to Palestinian refugees, no Israeli government took the decision to enact such a policy. 72
In the autumn of 1952, the Israeli government feared that the West Germans might give in to Arab pressure and was alarmed when the government in Bonn quickly decided to send delegations to the capitals of the states organized in the Arab League, to ‘discuss the agreement with Israel’ and to ‘enter into comprehensive trade negotiations’. 73 Would the Germans really risk economic and political relations with several Arab states to honour an agreement with the Jews and their recently founded, small and economically precarious state of Israel? That the British government in late September 1952 finally agreed to negotiations between Israel and the Gloster Company, a British arms producer, about the purchase of up to 14 Meteor jet planes did little to alleviate Israel's concerns, in particular as the United Kingdom had also offered similar military aid to the neighbouring Arab States. 74 A few weeks later, in late October, talks between Israel and Britain about a joint strategy in defence of the Middle East eventually broke down, which made the Arab threats even more serious to the Israeli government. 75 Against this background, Israel's envoy to the United Kingdom, Eliahu Elath, met with James Bowker, the assistant Under-Secretary for the Middle East and North Africa at the Foreign Office, in London in early November 1952 and asked him in no uncertain terms to remind West Germany of their contractual and moral obligations towards Israel. 76 William D. Allen from the Foreign Office thought that such a reminder would neither be needed nor advisable. The West German government had already assured the British that they would not defer the ratification of the Luxembourg Agreement, despite the pressure from the Arab League. 77
Furthermore, Allen assumed that a possible British intervention would not be well received by the Germans, as they are ‘no doubt already suspecting that in our usual crafty way we have pushed them into this Agreement with Israel in order to prevent them from developing their relations with the Arab states while we make the most of the opportunity to extend our own trade and influence’. 78 The considerable opposition to the agreement in Germany should not be fed with further material for a campaign against its ratification. 79 In other words, it seemed advisable to the British diplomats not to expose her Majesty's Government more than absolutely necessary and to instead carefully explore the political and economic opportunities on all sides. Following this line in the months to come, the British diplomats told Israeli as well as Arab representatives that the United Kingdom's government could not intervene on their behalf. All concerns should instead be raised directly with the West Germans. This position proved difficult to defend, however, as everyone involved knew that the considerable British oil deliveries for Israel were financed by the German payments, which the Arab League saw as a kind of indirect military help that would strengthen Israel's armed forces. 80 As a report from Britain's Joint Intelligence Bureau stated, ‘an arms race between the Arab states and Israel’ was ‘well under way’, which made partisan support for one side of the Israeli-Palestinian conflict all the more dangerous for the United Kingdom. 81
Defamation soon became a weapon in the fight for the global public at the height of the Cold War. The cause of the Arabs was not helped in the eyes of the British diplomats by rumours that a group of former Nazis or ‘adventurers’, now based in Egypt as military advisors and engaged in arms trade, was actively agitating against the Luxembourg Agreement and in fact the West German government. According to – factually incorrect – press reports, notorious Nazi criminals like Fritz Katzmann, the former Police Chief in Galicia, SS Brigade Leader Oskar Dirlewanger and Adolf Eichmann, a decade later to be sentenced and hanged in Jerusalem, were said to have been among these men. 82 Whoever was responsible for such rumours: They did not win the Arab position more legitimacy, neither in the Federal Republic nor in the United Kingdom. Direct talks between Egypt and the GDR about possible arms deliveries from the latter to the former in early 1953 had the same effect in the eyes of the Western powers. 83 The Federal Republic's position, in turn, was not helped by its government's inept request for diplomatic and financial support from the USA. Next to exerting a ‘moderating influence on the Arab States’, the West Germans also asked for significant compensation payments from Washington should an Arab boycott come into effect. Not surprisingly, the US government reacted cold and hostile towards such demands. The Americans were repelled by the German attempt to hold them responsible for potential economic consequences of a deal that they had signed out of free will, even more so as Washington had previously refused to pressure the Federal Republic into a reparations agreement, as the Israeli government had wished. 84
While, ultimately, neither the Arab League nor West Germany wanted to cut their mutually beneficial economic and political ties, it could be argued that the haggling about oil, foreign currency and political influence in 1952 and early 1953 contributed to elevating the Luxembourg Agreement to a moral and righteous cause. This made it even more important for the West German government to ratify and subsequently honour this agreement, even though ‘large parts of the German public were completely ignorant about the whole question’, as one British observer dryly remarked. 85 Unlike most Germans, British Jews followed the negotiations closely. The Jewish Chronicle reported in detail about the developments since 1951. While generally sympathetic to the cause, it remained cautious even after the negotiations were concluded, emphasising that there would be ‘powerful influences on the German side which, with a Pharaonic persistence, are still working to annul, or at least water down, the arrangements.’ 86 The ‘solemn and impressive 13-min ceremony’ on 10 September 1952 made front page news in the Jewish Chronicle as well as in the AJR Information bulletin, the monthly of the Association of Jewish Refugees in Great Britain, 87 but when the agreement finally entered in force on 27 March 1953, the initial excitement among the Jews in Britain had largely vanished. A commentator in the Jewish Chronicle rather distantly remarked that ‘both sides are to be congratulated on the justice of this Agreement’ which, despite being a ‘momentous point in postwar history’, would only be a ‘token reparation’ and an ‘act of atonement’. Like Her Majesty's diplomats, Jewish journalists in Britain emphasized the political and economic importance of the Luxembourg Agreement, but focused almost exclusively on the possible consequences for Israel and the Federal Republic, ignoring the agreement's potential to alter the larger picture in the Middle East. 88 While seeking reparations from the perpetrators was initially understood as a task for all Jews, the Luxembourg Agreement helped to turn these efforts into a bi-national endeavour.
In April 1954, roughly one year after the Luxembourg Agreement came into effect, the British Ambassador to the Federal Republic, Sir Frederick Hoyer-Millar, provided his government in London with a summary of the recent developments. He noted that ‘the peaceful implementation of this Agreement has undoubtedly helped considerably towards the establishment of normal relationships between the two countries’, West Germany and Israel. By contrast, the threats by the Arab League to boycott German goods or to penalize individual German firms ‘have proved empty’, he observed, above all because these countries ‘seem to have realized that they themselves would have more to lose than the Federal Republic if their threats were actually carried out’. 89 On the economic side and especially regarding British interests, the picture was mixed: On the one hand, Hoyer-Millar pointed out that the Israelis had so far purchased sterling oil worth of DM150 m, as had been agreed. This amounted to a bit more than 44 per cent of all purchases resulting from the reparations agreement over the first year, as many of the other goods requested from the Germans had not yet been delivered, due to the difficult economic situation in the Federal Republic. DM60 m had not even been spent at all. On the other hand, these difficulties had not benefitted British firms. As stipulated by the Luxembourg Agreement, only about nine per cent of the money totally available to Israel had been used for buying food and raw materials from third countries – for example wheat (from Turkey), rubber (from Malaya), oil-seeds and hides. As the ambassador did not mention any British firms or products by name in his report, it is safe to assume that the UK's share of these deals was minuscule. Not the British but West Berlin's industry was the clear winner of the arrangements, in line with the preferences of the Federal Republic as laid down in the letter 3a which accompanied the Luxembourg Agreement. West-Berlin, cut off from the territory of the Federal Republic due to the fact that it was entirely surrounded by the GDR, had obtained some 30 per cent of all orders, which led the British ambassador to conclude that ‘the Israel Mission and the Federal Government have been able to work in close concert in the interests of Berlin firms’. 90
Prospects for British businesses were even bleaker than the present situation in 1954. The ambassador noted that the Israeli Purchasing Mission had not even made any specific provision ‘for purchases of goods of non-German origin’ for the following year. In other words, only one and a half years after the Luxembourg Agreement had been reached initial hopes that third parties could also economically benefit had already been evaporated. Consequently, Hoyer-Miller assumed that the mid-term significance of the economic and trade side of the agreement would be a further rapprochement of West Germany and Israel at the expense of everyone else. In fact, Israel had already started to export significant quantities of citrus fruits to West Germany, and the German industry hoped for an increasing and lasting market for its products in Israel. Ten years later, Germany's exports to Israel would already amount to US$61.2 m and its imports from Israel to US$39.6 m per year. 91 Yet, in 1954 it was too early to make more than informed guesses. The British ambassador thus noted that the extent to which these mutual expectations would materialize could only be fully assessed once the reparations payments had ended and when ‘the prevailing unpopularity in Israel of all things German has begun to fade’. 92 This was a very British understatement for what was in fact a highly emotional and often complete repudiation. ‘Not even a hairpin or shoelace of German manufacture’ should be allowed in the country, demanded a columnist of the widely read newspaper Yediot Aharonot from Tel Aviv, speaking from the heart of many readers. 93 Until the mid-1950s, the mindset of many Israelis was ‘hysterically anti-German’. 94
As has been demonstrated above, the necessities of the day combined with a pragmatic approach by the Israeli as well as the West German government gradually led not only to the Luxembourg Agreement but also to reliable working relations between the two states – even if mutual reservations remained. British Foreign policy contributed to this unexpected rapprochement. In January 1954, the Cabinet vetoed further military talks with the Israelis out of deference to the British interests in the Arab world which would ‘always exceed by far any possible benefits that the UK might secure from Israel’. 95 The fact that such a failure to address Israel's security needs would likely lead to a deepening of German-Israeli economic and military relations was recognized but not yet seen as a major problem – unlike a few years later, when British diplomats argued for a more aggressive foreign policy in the post-imperial age and convinced themselves that from now on they would have to put the national interest at the centre, in the Middle East and beyond. 96 Regarding the short-term economic consequences of the Luxembourg Agreement, the British observers were spot-on in their assessment, yet there was ultimately little they could do, at least if no substantial crisis in the relationship between Israel and the Federal Republic was to arise. Even when a so-called ‘Swastika epidemic’ broke out in West Germany only a few years after the ratification of the Luxembourg Agreement, with more than 600 different antisemitic offences registered between December 1959 and February 1960 alone, this did not lead the Israeli government to change its pragmatic course and question the ever-closer cooperation with the Federal Republic. 97 Reparation payments, the delivery of goods and the military cooperation were more important to Israel than publicly deploring continuities of antisemitism in Germany. 98
Despite the prevailing pragmatism on all sides, the Luxembourg Agreement had a historic dimension that distinguished it from other reparations agreements of the postwar period. Sharett's idealism remained an exception in the early 1950s, however. It did not find favour with pragmatically minded British diplomats and politicians like Eden and Evans, whose strategic thinking was shaped by the end of the Mandate and the subsequent years of financial negotiations with Israel that had already begun under Ernest Bevin. 99 The liberal press in the United Kingdom was significantly more positive about the historic dimension of the Luxembourg Agreement than the diplomats in Whitehall. Two days after the negotiations had been concluded, a comment in the Observer emphasized that the deal would represent ‘a major triumph of statesmanship. Never has diplomacy been conducted against a more poignant background of terrible memories and bitter emotions’, the paper wrote, yet ‘sober good will and good sense have in the end prevailed’. 100 However, even such a positive assessment focused on the expected short-term consequences of the agreement. Many British observers did not imagine that both contracting parties could benefit from the agreement beyond short-term economic and political gains.
Since the late 1960s, the Luxembourg Agreement occupied a central place in the national memories of both Israel and Germany. As Ian S. Lustick has pointed out, Israel's negotiations with the Federal Republic that were initially driven by attempts to secure the survival and consolidation of the state over time also became important because ‘the effort required the State of Israel, and Israelis, to identify at least indirectly with all the victims of the Holocaust’. Ben-Gurion and other leading Zionists had already predicted during the later years of the Second World War that the ‘world's conscience’ would soon awake, which would add another dimension to the Holocaust. It became a ‘wasting asset, linking the welfare of the Jewish state to the suffering of Jewish victims and the gentile guilt which evocations of that suffering could at least temporarily preserve’. 101 Although West Germany's political elites initially rejected the notion of collective guilt, the subsequent generation – the so-called 68ers – came to accept the idea that the Germans, because of their attempt to annihilate all European Jews during the Third Reich, had a particular responsibility for the survival of the Jewish state and the welfare of its citizens, at least if they were survivors of Nazi persecution. To credibly show to the world how much the Germany of the Federal Republic had changed in comparison to the Third Reich, the commitment to the survivors of the Holocaust and to the State of Israel became an international asset worth Germany's continuing financial contributions. 102 The Luxembourg Agreement from 1952 thus paved the way for a lasting ‘diplomacy of guilt’ (Todd H. Hall) and turned the West German state into a key provider of military, economic and financial support for Israel in the crucial construction years, before the US replaced the Federal Republic as Israel's main international ally from the late 1960s onwards. 103 Once diplomatic relations were established between Israel and West Germany in 1965, the Federal Republic now also officially took the principal decision to support Israel's existence – a position no subsequent government has backtracked from until this day. 104 At the same time, German diplomats were keen to leave the issue of reparations behind. As early as January 1966, Rolf Pauls, the first ambassador of the Federal Republic to Israel, made clear that in ‘the case of German-Israeli relations, foreign politics have to take up a forward-looking perspective and cannot be, or cannot be anymore, identified with the concept of reparations.’ 105
The reparation politics that dominated West German-Israeli relations in the 1950s only resonated in a limited way with the British politicians and diplomats who in these years of decolonization attempted to maintain their post-imperial ambitions in the region and harboured mixed feelings about Israel, a state created in part through terrorist violence during the late Mandate. 106 Israeli diplomats dealing with their British counterparts at the time remarked that those dealing in London with such delicate matters as the security and survival of Israel ‘failed entirely to appreciate the political and psychological background’. 107 The British policy towards Israel remained, in the words of Natan Aridan, a ‘festering wound’, even if relations slowly improved throughout the 1950s. 108 Against the backdrop of this complicated relationship, the British government viewed West German reparations to Israel as one piece in the puzzle of the complicated reorganization of the Near East at the beginning of the Cold War, relevant primarily to the oil operations of British companies and the state's own geopolitical ambitions in the region, culminating in the Suez Crisis of 1956.
Footnotes
Acknowledgements
I would like to thank Gill Bennett and Martin Farr for helpful advice and Irit Chen, Rotem Giladi, Iris Nachum, Gideon Reuveni as well as the anonymous reviewers of the Journal of Contemporary History for valuable feedback on an earlier version of this article.
