Between the Alps and a Hard Place (5 page)

The Swiss were not in a political, military, or economic position to refuse the transactions. In those hinge years, the Allies' main means of cutting down the flow of tungsten, chrome, and iron ore to Germany was to offer the neutrals Swiss francs, which they also bought for gold. But by 1944 the Allies' prospects of victory had become real enough that they did not need money of any kind to influence the neutrals. Their power was better currency than any money, or even gold. Conversely, because Germany's relative power had declined, it could offer no currency attractive enough to overcome Spain's and Portugal's reluctance to displease the Allies. By then the Turks had declared war on Germany to please the Allies. In sum, all of these transactions occurred at the price they did, in the shape they did, when they did, because the balance of power was what it was.

The Allies, too, needed gold-convertible Swiss francs, because the dollar and sterling's postwar value were uncertain, because other currencies were even less acceptable, and because settling international accounts by transporting gold overseas was too risky and cumbersome. So they used gold to buy about 2.2 billion Swiss francs. But when the Swiss National Bank made these francs available, American and British authorities paid the gold into accounts at the New York Federal Reserve Bank—frozen, along with the bulk of the prewar gold that Switzerland had deposited in New York for safekeeping.
Switzerland could make no use of any of it to support the value of the franc at home. Moreover, beginning in 1943, Allied economic demands on Switzerland were backed by the threat to appropriate all or part of this gold unless their demands were satisfied.

To understand why and how the value of currencies fluctuates with the balance of power, one must realize that, contrary to the popular misconception that money makes power, in fact power gives money whatever value it has.
²⁴
If Germany had won the war, all the gold in Europe, regardless of country, bank, or account, would have been at its disposal, and all of Germany's debts would have been uncollectible. But as Germany was losing total war totally, it became clear that its financial assets would be taken totally in (minimal) compensation for German debts incurred and German damages done. There were more claims against Germany than German assets could possibly satisfy. The gold that Germany had stolen from the central banks and private parties of occupied countries had been liquidated to pay more or less willing suppliers for goods that were ground to dust in the war. When it became clear that Germany would be defeated, German assets in Reichsmarks or in stocks in Germany's domestic companies became worthless. Only the assets of German companies abroad, or in foreign accounts in foreign currencies, had any value. But since Germany had lost all power, those values effectively belonged to the countries where they were located. All of the countries where German assets existed—including the United States and Britain, but also the neutral countries—seized the assets, against their own much larger claims.

Given the disproportion between claims and assets to satisfy them, an unhappy set of international negotiations ensued. The
saddest part was that the countries that had lost the most—preeminently Poland—had the least power over German assets. Most disadvantaged of all were the millions of individuals throughout Europe who had spent the war years working hard for submarginal livelihoods. Nearly all Europeans had been stripped of their lives' savings. The Germans had confiscated all private gold. People were understandably eager to believe that all that vanished wealth must be hidden away somewhere, and that it could be restored if someone would only crack open the vaults. But it really was gone.

The victorious Allies toyed with the idea of combing German assets out of neutral countries—though not out of their own—and dedicating the money to relieve a suffering continent. But the neutrals objected on the reasonable ground that they too had been victims of German or Soviet power. All the neutrals had legitimate claims against which to apply German assets that happened to be within their borders. Comparatively, Switzerland had lost less than, say, Belgium, but more than, say, Portugal. Switzerland, however, had power over a disproportionate chunk of German assets. So Allied negotiators brought greatest pressure on Switzerland. In the end, all sides made token payments to relieve Europe's misery, and agreed that the way to recovery lay not in fighting over small leftovers but in building anew.

Attempts to revise tragedy usually end up as farce. The notion that the major chunks of Europe's wealth that disappeared during Hitler's war must still exist, hidden away in Swiss banks by the “Gnomes of Zurich,” has been a staple of conspiracy theories for a half century. Through most of this period
it remained confined to the fever swamps of believers in the omnipotence of money, who see profiteers behind every disaster. Then in the 1980s what one might call the Oliver Stone view of history-as-conspiracy became fashionable among academics. In the universities, prestigious people also touted the notion that history could mean anything one wanted. In the ranks of society, growing ignorance predisposed audiences to accept anything. During the 1990s, as U.S. foreign policy was being franchised to interest groups, the public did not blink at a campaign to build a pseudo-historical base for blackmailing Switzerland to give up allegedly bloodstained billions.

The details of this campaign are the least important part of this book. More important are the lessons to be drawn about the role of the balance of power in relations between belligerents and countries in various stages of neutrality and engagement, as well as the lessons to be drawn about the economic power of tyrants.

D
URING WORLD WAR II the Swiss army deterred an Axis war machine thirty times its strength from invading its homeland. This contains lessons for strong and weak states alike. History is full of examples of weaker nations that survive encounters with the stronger, and sometimes prevail. American history reminds us that thirteen weak colonies defeated the mighty British Empire, that America at the height of its power was defeated by tiny Vietnam, and that little Serbia stood off the whole NATO alliance. By definition, the strong can crush the weak. But in real life there are countless reasons why the strong may commit only a portion of their strength. If then the weak use all of theirs well, the actual balance of power in a specific circumstance may sometimes give the weak a precarious edge. If both the weak and the strong judiciously work the margins of the balance of power, both may get what circumstances dictate at any given time.

When a large, powerful country intends to rule a smaller, weaker one, it must measure what resistance it may meet and what it is willing to do to overcome that resistance. The smaller target, for its part, must ask what combination of military
deterrence and concession will avoid the worst. Machiavelli wrote: “Princes who are set upon by forces much greater than their own can make no greater error than to refuse terms of settlement, especially when they are offered. Because never will an offer be so low as not to contain some element of good for those who accept them. And these shall be part of their victory.”
¹

Two-and-a-half millennia ago, a dialogue of the deaf took place between the Athenians who were besieging the small Greek city of Melos with overwhelming forces, and the Melian rulers. The Melians demanded respect for their ancient neutrality and reminded the Athenians of the economic advantages they received from that neutrality. They pointed out that the losses that Athens would have to suffer to overwhelm Melos would not be compensated by the difference between what they would get from the
status quo
and what they would get after a military victory. Moreover, destroying Melos would cause other neutrals to turn away from Athens. But the Melians discounted their own military feebleness. For their part, the Athenians discounted the costs of military victory. Neither side bargained. The Athenians conquered by force, and as the Melians had warned, the little the Athenians gained was more than offset by the resentment they built up among neutrals. But as the Athenians had warned, the fight ended with every Melian man dead and every woman and child enslaved. Thucydides blamed both sides for not sufficiently considering what the balance of power and interest entitled them to.

In September 1938 Adolf Hitler summoned Austria's chancellor, Kurt von Schuschnigg, to Berchtesgaden for an ultimatum. He demanded that Schuschnigg appoint the Nazi Artur
von Seyss-Inquart to the Austrian cabinet and practically agree that Germany would absorb Austria; if not, Hitler warned, the
Wehrmacht
“would not stand idly by.”
²
Schuschnigg caved. Germany absorbed Austria without firing a shot. Thucydides, and common sense, would have us lay more blame on Schuschnigg than on Hitler.

Consider the balance of power. What would a war to annex Austria have cost Hitler? What could Austria have done militarily to raise that cost? Schuschnigg might have replied to Hitler with certain concessions pleasing to German public opinion and then begun realistic preparations for military self-defense. If Austria had thrown its inferior military power into the balance, what sort of deal could it have extracted from Hitler? Millions of Austrian lives were
not
at stake. Under no circumstances imaginable in 1938 would Hitler have done to Austria what he did to countries he occupied during the war, much less what Athens did to Melos. German public opinion would not have tolerated much harm to Austria. After all, Hitler's propaganda was telling Germans (with some reason) that Austria yearned to be part of the Reich. Almost any kind of resistance would have made Hitler look bad. So the balance of power, rightly understood, should have dictated that Austria's response to Hitler's demands contain a military component. But because Schuschnigg never threw that component into the balance, Austria got a worse deal than it might have.

The key, then, is balancing power and interest. In some cases, bluff aside, the great power can temper its demands, gain a negotiated surrender, and forgo the cost of fighting. In 1940 Nazi Germany presented Denmark with a combination of overwhelming force, determination (in its war with Britain,
Germany
had
to control the Danish straits), and apparently reasonable demands: the Danes would grant the Germans passage to the straits and in turn would receive a gentle protectorate. The Danes gave in without a fight. Later the Germans chose to be ungentle.

In other cases, fighting is unavoidable. In May 1940, as in 1914, the Germans had to go through Belgium to defeat France. But in 1940 they could not lull the Belgians into surrender, because the Belgians remembered all too well German occupation a generation before. So Germany had no alternative but to spend blood and iron attacking the Belgian fortresses.

In 1940, what did Germany want of Switzerland, and what force was it prepared to use? Germany did not need to go through Swiss territory to attack any major enemy. Nor did it fear attack through Switzerland from any major enemy, much less any Swiss attack. The Nazi regime would have liked to incorporate the two-thirds of the Swiss people who speak German dialects, and it urgently wanted to stop the flow of hostile commentary from the German-language Swiss press. But these were not military necessities. Even though Germany absolutely needed to ensure its uninterrupted innocent traffic to Italy through the Alpine railroad tunnels, military operations were unnecessary for that; the treaty of October 13, 1907, between Germany, Switzerland, and Italy guaranteed that traffic, and no one imagined the Swiss would violate it. Of course the Germans would have preferred to send troops and weapons through the tunnels as well, going beyond the treaty. But that would have required a full-scale invasion, of which the tunnels might well have been a casualty. The Germans must also have wanted the fruits of Switzerland's precision manufacturing industry, and an invasion would have enslaved the makers of Swiss watches.
But while slave labor can run assembly lines, it was by no means sure that slaves could produce anything as good as what Germany could buy from free but economically constrained Swiss. Germany also needed access to an accepted neutral currency and banking center, both of which would have been destroyed by an invasion. Besides, if Germany won the war, Switzerland would fall into its hands as a matter of course. Most important, while Switzerland made no urgent claims on Germany's military resources, lots of other places in the world did. Hence, German military planners put a low priority on invading Switzerland.

What about Switzerland's objectives in the Second World War? Absolutely, the primary aim was to avoid German occupation and to retain as much independence as possible. But how could this be secured
militarily
? If Germany had wanted to occupy Switzerland, the Swiss army could not have stopped it. The Swiss military could only have
raised the cost of a German military invasion.
How high that cost had to be to avoid invasion depended largely on the claims on Germany's forces elsewhere. It also depended on the extent to which Germany could achieve some of its goals in Switzerland through political-economic pressure backed by the threat of force. Managing the effective height of the threshold would thus depend only in part on the Swiss army's military capacity.

Some historians have argued that there was no real threat of a German invasion because in fact Germany never decided to invade. For instance, revisionist historian Hans Ulrich Jost argues: “Neither the High Command of the
Wehrmacht
nor the political leadership ever envisaged a conquest of Switzerland. On the contrary, in economic and military circles the operation was generally discouraged.”
³
According to this logic, Swiss
military planning was a kind of vain self-indulgence. Yet this argument is based on the
post hoc
fallacy; one may not argue that an event could not have happened only because in fact it did not happen. Why
did
responsible German military and economic leaders advise against an invasion of Switzerland? Could their judgment have had anything to do with the comparison between the cost and benefit of such an invasion? When human beings desire anything, they invariably find that it will cost some effort to obtain it. Therefore you cannot assume that when human beings do not reach for something they really do not want it, any more than you can believe the proverbial fox who called “sour” a bunch of grapes that were out of easy reach. Moreover, since Germany had invaded any number of small countries, it was hardly unreasonable for the Swiss to assume that they might be next.