Between the Alps and a Hard Place (19 page)

On July 18, 1941, as the Soviet armies were surrendering by the millions, Reich negotiators forced the Federal Council to prohibit Swiss citizens from sending parcels abroad. The Germans had learned these parcels were used to fill British orders for the jewel bearings. Now they felt strong enough to stop it.

When the parcels stopped arriving in Britain, the British retaliated by eliminating
navicerts
for Switzerland except for food, tobacco, and “compensating exports,” which allowed goods to be imported to manufacture exports that the Germans would permit.

The jewel-bearing traffic now traveled by human smugglers,
organized by Swiss manufacturers and the British Embassy. As late as July 1944, while the U.S. Army was driving up the Rhône valley, American soldiers captured two suspicious men who, it turned out, were part of this traffic.
⁵
The Germans, who were generally more interested in exploiting the continent than in preventing its resources from leaking out, allowed the Swiss to sell watches for food. But the Swiss often used these sales to slip fine chronometer movements past the Germans by omitting the watch's third hand. So, even in the dark days of 1942, as Switzerland was delivering 656 million francs in merchandise on credit to Germany, it managed to export 310 million francs' worth of merchandise to the Allies.

Discussions between the Swiss and the Allies in 1942 consisted of polite Allied requests that the Swiss reduce their favors to the enemy, and Swiss protestations that they would like nothing better but could not do it. By the spring of 1943, however, the changing relative weight of swords meant that the Allies could squeeze the Swiss harder and that the Swiss could transfer some of their new pain to the Germans with less fear of dire consequences. In April 1943 the Allies cut off all food to Switzerland, a big sanction, and demanded something rather small—a reduction of 20 percent in industrial deliveries to Germany over the second half of 1943 as compared to the previous year, plus a cessation of credits to the Reich. In return, they promised to restore
half
the food shipments. In June the Swiss agreed.

The Germans had told the Swiss to reject the Allied terms, but by 1943 they were unable to punish Swiss disobedience. If the Reich cut off coal, the Swiss would stop all industrial deliveries. If Germany invaded—which made less sense for the
Wehrmacht
after its losses at Stalingrad and Kursk—Swiss industrial
production would have to be restarted and reorganized. A Reich Ministry of Armaments memo of June 3, 1943, stated that although Swiss deliveries amounted to only 0.5 percent of Reich procurement, they were too important to be disrupted. Better to suffer shrinkage than disruption.
⁶
Hence, the most efficient course of action for Germany was to take what exports the balance of power would give and to start paying cash for them. It was a sober calculation, despite the sensational claims of historian Werner Rings, who wrote that deliveries from unbombed Switzerland were big enough to make up for Allied bomb damage to German industry.
⁷
In reality, Swiss production was both too small to fight over and too big to disrupt. Again, we see that the terms of wartime trade can be set only by the balance of power.

No sooner had the June 1943 agreement taken hold than the changing balance of power allowed the Allies to cast it aside and demand tighter restrictions. Since the Allies could not impose greater pain on the Swiss in the present, they gave a concrete example of the huge pain they could dish out in the future. The Anglo-American negotiators had gotten to know a Swiss delegate, Dr. Hans Sulzer, the head of a powerful company who was known for supporting the Allies. The Allies placed his firm on the blacklist, banning it from any world trade after the prospective Allied victory. It was a warning to the captains of Swiss industry. If the Allies could ruin Sulzer, they could ruin anybody. Unless Swiss industrialists accepted the pain of detaching from the German war economy, they would be ruined after the war. Sulzer's name stayed on the list only a month. On December 19, 1943, to get Sulzer off the list and forestall further blacklisting, the Swiss government agreed to slash trade with the Reich by 50 percent in highly specific categories.
In high-tech fields, reductions averaged 60 percent. In cheese, the Swiss cut 100 percent of trade.
⁸
The Germans were furious, but now it was less worthwhile to invade Switzerland than it had been months earlier. By this time, the Germans would get what they could.

Until the third quarter of 1944 the Allies still had no power to offer Switzerland military protection, and no capacity to fulfill any of its economic needs. But by 1943 they had already gained power over the future. The German trade negotiators must have marveled at how the Allies were fine-tuning Swiss trade from far away. In 1944 the Allies pressed new demands, and by August of that year the Swiss had agreed to cut the previously agreed-on quotas in half again.

The final stroke against German economic domination of Switzerland came on one of the first trains to Geneva through liberated France. The train carried no economic goods to tip the balance, but rather an Allied delegation headed by Lauchlin Currie, assistant to the president of the United States. Along with his British counterpart, Dingle Foot, Currie told the Swiss that the Allies wanted Germany to receive no militarily useful items. Above all, they wanted Switzerland to stop Germany's railroad traffic through the Alpine tunnels. Complying with the first demand was legally easy; the Federal Council banned all shipments of arms and ammunition, to
any
country. The second was tougher, for the Reich had an undeniable legal right to use the tunnels. But the Swiss could no more afford to alienate the new masters of the continent by continuing to comply with the 1909 tunnel treaty than they had been able to afford, in 1940, to alienate the masters of
that
hour by complying with the War Trade Agreement of April 25, 1940. So the Swiss stopped the traffic, violating their obligation to Germany as they had
earlier violated their deal with Britain.

This, emphatically, is not to say that Swiss politicians treated the two sets of obligations as morally or politically equivalent. On the contrary, the Currie delegation was greeted with spontaneous joy wherever it went, because it represented the lifting of a horrible incubus. Rather, the point is that the vast qualitative differences between the Nazis and the Allies could not efface the fact that their military capacities were commensurable.

Even as Allied victory loomed, Switzerland faced tighter economic restrictions. After all, through 1944 Switzerland got 97 percent of its coal from Germany, and almost that much in 1945. As the deliveries from Germany were stopping, no one could foresee when or from where the next trainload of coal, other fuels, or metals was coming. Nevertheless, the Swiss recognized that the day's principal business was to determine the kind of life that the world would live after the war, and thus they were delighted that their economic problems were being imposed by a future Allied victory rather than by continuing German extortion.

The war forced the world to conduct ordinary economic dealings in hard currency—that is, in currency universally acceptable and reconvertible to gold. But World War II also shrank the supply of such currencies and cut the number of monetary gold markets. Until 1939 the world's hard currencies were the U.S. dollar, the British pound sterling, and the Swiss franc. In that year, however, the pound sterling lost its status as a hard currency when Britain declared war. Instead of using the London money markets, Germany bought dollars in New York with Swiss francs. In July 1941 the dollar, too, ceased to be
a hard currency, when the government froze European assets in the United States. When America entered the war, the U.S. Treasury would still exchange foreign banks' dollars for gold, but the gold would be frozen in American vaults. The only currency that could still be exchanged for gold (and the gold carried away) was the Swiss franc.

Demand for the Swiss franc was widespread, as was the demand for gold, among the Axis, the Allies, the neutrals, and the occupied peoples. After the Allies froze the two-thirds of Swiss gold reserves that had been sent to New York and London for safekeeping—stripping the franc of its normal backing—the Swiss National Bank had a strong incentive to buy gold with francs, in a very competitive market, to support the franc. Unfortunately, because imports and consumer-good production levels were very low, printing so many francs created a “currency overhang” that portended inflation. Hence the bank was being forced to fight against the insolvency of its currency at the risk of inflating it. Moreover, as the Reich and the Allies exchanged gold for francs and foreign currencies under their own special conditions, and as Portuguese, Spaniards, and Romanians reconverted francs and other currencies for gold, and as countless private parties bought up gold, the Swiss economy was mightily troubled.

Riding this tiger was an inescapable consequence of Switzerland's remaining a free, open economy. Had the Swiss government tried to eliminate the gold-currency imbalances by shutting down the gold market and outlawing the circulation of foreign currencies—that is, if it had tried to introduce exchange controls and bilateral clearing accounts with each trading partner—it would have impossibly complicated commercial relations already shrunken and deformed by the war. Even in
normal times Switzerland's trade with the rest of the world was highly unbalanced, and under the constraints of blockade and counterblockade Switzerland's gold-backed currency had become perhaps its most valuable resource. If Switzerland refused to let the Allies convert their gold into francs, the United States and Britain might retaliate by cutting
navicerts
. If the Swiss refused Germany's gold trade, they would eliminate one of the main reasons why the Reich respected Swiss independence.

Already by the end of 1940 the Reichsbank had noted the usefulness of Switzerland's free financial market. In November of that year Per Jacobson, counselor of the Basel-based Bank of International Settlements, reported to Swiss National Bank Chairman Eugen Weber on a conversation with Emil Pohl, vice president of the Reichsbank:

Weber passed this on to the Federal Council. But at that point Swiss currency, though important, was not vital to Germany because the Reich believed it had already won the war. Not until a year later, when the Russian campaign stalled, did Germany think seriously about total economic mobilization. Only then did the Reichsbank start taking full advantage of
the Swiss money market.

Keep in mind that what followed—the conversion of some 1.2 billion francs' worth of gold from the Reichsbank to the Swiss National Bank into francs and other currencies—was not, as Werner Rings charges, “the transformation of Nazi gold into Swiss gold.”
¹⁰
Most of that gold—781 million francs' worth—stayed “Swiss” only long enough for the Reich's central bank customers, to whom Germany had paid francs for merchandise, to convert their francs into Spanish or Portuguese or Romanian gold. Only a small part of the francs bought by the Reich was spent in Switzerland (after 1943 in real payment for merchandise) and thus did not undergo reconversion. By contrast, most of the francs purchased by the Allies were not reconverted (see below). In a nutshell, the Reich used the Swiss money market primarily to launder its gold. And nobody was innocent about how much laundering that gold needed.

So, Rings's principal contention, that Nazi gold mightily enriched the Swiss, is untrue. The Swiss National Bank kept only 28 million francs in brokerage fees—just 2.5 percent of the total. The commercial banks also were in the gold business primarily as brokers. Their balance sheets for the war years show that the gold trade added between 1 percent and 3 percent to their profits.
¹¹

Rings and the other conspiracy theorists say that the gold trade was the idea of Paul Rossy, vice president of the Swiss National Bank, to enrich Switzerland and that the Swiss got the Germans to go along.
¹²
But the Swiss gained little from the transaction, and the Nazis certainly had no incentive to enrich another country. No, the gold trade was not anybody's idea. As we've seen, it was inherent in a situation where the Reich had gold and needed raw materials, the suppliers were subject to
Allied pressure and demanded payment in clean, hard currency, the Swiss franc was the only gold-convertible currency, and Switzerland was the only country with a free market for monetary exchange. Most implausible of all is the notion that the Reich went along with a scheme to enrich anyone. The Reich was not an eleemosynary institution.

The situation was hardly comfortable for Swiss currency managers. All sorts of people saw gold as the safest wartime investment and were buying large quantities of gold coins. Prominent among them were European holders of credit balances in Switzerland, who converted their balances to gold, raising the metal's price. This in turn led to financial speculation by Swiss banks.
¹³
For example, a commercial bank might purchase a Swiss “Vreneli” coin from the National Bank at the official price of 30 francs and sell it to the public for 40, which added to inflationary pressure. To keep gold's price below 215 grains per franc, the National Bank was obliged to sell gold into the market, thus depleting its reserves and creating more francs. By mid-1940 the National Bank's gold stock had fallen below the 40 percent of the outstanding franc value that it was statutorily required to keep. A secret ordinance repealed the statute. By mid-1941 the amount in the vault dropped to 600 million francs, 31 percent of the value of francs on the street. The combination of German and private maneuvers on the gold market was draining gold from the treasury and undermining the franc.