Tower of Basel: The Shadowy History of the Secret Bank that Runs the World
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Once again the Dulles connection came to the fore. In late 1945 Schacht requested that Hans Bernd Gisevius be summoned as a defense witness to testify on his behalf. Gisevius, the wartime German consul in Zürich, was also an officer in the Abwehr, German military intelligence, a member of the anti-Hitler resistance, and one of Allen Dulles’s most important agents, known as OSS source 512. Declassified US intelligence documents show that Gisevius was expected to testify that Schacht had attempted to overthrow Hitler in 1938 and to talk about Schacht’s difficult relationship with the Nazi party, so that Schacht could present himself as a member of the resistance.
The documents reveal how much effort the State Department made to get Gisevius, who was living near Geneva in Switzerland, to Nuremberg to aid Schacht. A telegram from US diplomats in Berlin to the State Department, on December 10, 1945, requests that the “necessary arrangements be made to bring him to Nuremberg on ten days’ notice and that Tribunal be kept fully advised through this office.”25 Three days later, Leland Harrison, the US ambassador to Switzerland, cabled Washington that Gisevius was willing to appear as a defense witness for Schacht and could depart for Nuremberg any time in January on forty-eight hours’ notice. Harrison asked the State Department to alert him when Gisevius should arrive in Nuremberg.26 The US government, was, in effect, acting as an aide to Schacht’s defense lawyer, arranging for Gisevius’s transport and logistics, and coordinating his appearance with the Nuremberg Tribunal.
The US team at Nuremberg was split over Schacht. Robert Jackson, the chief US prosecutor, wanted to prosecute him. But his deputy, William Donovan, the former OSS chief, was opposed. Donovan argued that Schacht had been sympathetic to the Allies in the early years of the war. And there was the postwar German economy to consider, always a crucial factor in US policy calculations. A harsh cross-examination of Schacht would alienate the important German businessmen and financiers who favored good relations with the United States.27 There was consternation in Washington when Schacht’s lawyer told the press that Sam Woods, the US Consul General in Zürich, had offered the Reichsbank president a deal in 1939—that if he resigned from Hitler’s government, he would be returned to power after the war. Considering all we now know about the secret back channels between the United States and Nazi businessmen, this seems highly plausible. Woods had long been a conduit between the US government and the Axis powers. After Admiral Horthy, Hungary’s wartime leader who had permitted 430,000 of his own citizens to be deported to Auschwitz, was released from custody in 1946, Woods invited him to his wedding.28
The State Department’s efforts on Schacht’s behalf worked. He was initially found guilty but was then acquitted, to the fury of the Soviet judge. There were also suspicions that Montagu Norman had somehow managed to influence the proceedings through Sir Geoffrey Lawrence, the British judge. The British obsession with class seemed to play a part. Francis Biddle, the American judge, recorded in his diary that Lawrence had claimed Schacht was a “man of character” while other defendants were “ruffians.”29 Norman was immensely relieved when Schacht was not hanged at Nuremberg, recalled his stepson, the writer Peregrine Worsthorne. “He did not think Schacht was guilty for the crimes of the war, but obviously being on speaking terms with any prominent Nazi made you a pariah after the war. He had made his mind up about Schacht before the war and the horrors.” (In later years Priscilla Norman angrily denied that her husband had tried to influence the outcome of Schacht’s trial.)30
Intriguingly, Worsthorne believes that Norman and Schacht managed to stay in communication during the war—if they did, the BIS would have been the natural channel. “Norman kept up this strange relationship that he had with Schacht, even during the war. Both during the First and Second World Wars the capitalist world was not at war. The bankers kept the system in cold storage. I am sure that there would have been absolutely no record of their contacts and that Norman kept in touch with him without the government knowing.”31
After several more years of legal travails with the German authorities, Schacht was finally cleared of all charges. He started a lucrative second career as an investment adviser to countries in the developing world and set up his own bank, Schacht & Co. Schacht even visited Israel, albeit inadvertently when his airplane stopped briefly at Lydda airport in 1951. Schacht and his second wife, Manci, wanted to stay on board but were taken to the airport cafeteria to have breakfast. The Schachts handed their passports to the Israeli police and were photographed by reporters. His wife was too nervous to eat, so Schacht ate her breakfast as well. A waiter asked in German how “Herr President” had enjoyed his breakfast, using Schacht’s Reichsbank honorific. The waiter told Schacht that he was from Frankfurt and missed his hometown. He asked for Schacht’s autograph, which Schacht provided. The Schachts left Israel with no problems, although a furor erupted in the Knesset, the Israeli parliament, when the news broke that Hitler’s banker had passed through the Jewish state without being arrested.32
Four of the world’s most powerful central bankers gather in New York in 1927: Hjalmar Schacht (Reichsbank), Benjamin Strong (New York Federal Reserve), Montagu Norman (Bank of England), and Charles Rist (Bank of France). (Courtesy BIS)
The first informal meeting of the Board of Directors of the Bank for International Settlements, in April 1930. The gatherings were so secretive that the room remained closed to outsiders, even after the central bankers had departed. (Courtesy BIS)
The first headquarters of the BIS was a former hotel near the Basel central railway station. It was intended as a temporary site, but the bank remained there until 1977. (Courtesy BIS)
The Board of Directors meeting in May 1935. Those in attendance included Montagu Norman, Hjalmar Schacht, and Kurt Freiherr von Schröder, a powerful Nazi private banker. (Courtesy BIS)
Hjalmar Schacht (center) with Adolf Hitler. Schacht, the architect of the German war economy, once described himself as Hitler’s “most loyal co-worker.” (Süddeutsche Zeitung/Northfoto)
Donald MacLaren, a British intelligence agent, ran a sabotage operation against the American subsidiary of IG Farben, the giant Nazi industrial conglomerate. Hermann Schmitz, the CEO of IG Farben, sat on the board of the BIS. (Courtesy MacLaren family)
Allen Dulles, the American intelligence chief in Switzerland during the Second World War (right). Dulles was friends with Thomas McKittrick, the president of the BIS, who supplied him with information as codename 644. (Süddeutsche Zeitung/Northfoto)
Karl Blessing (left), the president of the Bundesbank and BIS board member from 1958–1969. Blessing, like many German bankers, was a loyal Nazi during the Third Reich. He oversaw an empire of concentration camps and slave laborers. (Süddeutsche Zeitung/Northfoto)
Thomas McKittrick, the American banker who served as BIS president from 1940–1946. The BIS acted as the foreign branch of the Reichsbank, accepted Nazi looted gold and was a back channel for secret contacts between the Allies and the Axis powers. (Courtesy BIS)
Roger Auboin, the general manager of the BIS from 1938–1958. The French banker embodied the continuity of transnational financial interests before, during, and after the Second World War. (Courtesy BIS)
Alexandre Lamfalussy, the Hungarian-born economist known as the “Father of the euro.” Lamfalussy served as BIS general manager from 1985–1993 before leaving to set up the European Monetary Institute, which became the European Central Bank. (Courtesy BIS)
Per Jacobssen, the bank’s influential economic adviser from 1931–1956. Jacobssen used his status as a neutral Swede to pass economic information from Washington, DC, to Berlin during the war. (Courtesy BIS)
Andrew Crockett, a well-regarded British economist, succeeded Lamfalussy as BIS general manager. Crockett oversaw the transformation of the BIS from a primarily European institution to a global one, thus ensuring its survival. (Courtesy BIS)
The 1980 Annual General Meeting. After fifty years of existence, the bank had made itself an essential pillar of the global economy. (Cou
rtesy BIS)
The Governing Council of the European Central Bank in January 2013. The ECB, like its parent bank the BIS, is protected by an international treaty, and remains opaque and unaccountable. (Courtesy ECB)
CHAPTER ELEVEN
THE GERMAN PHOENIX ARISES
“I say no permanent solution of the German problem seems possible without an effective European union.1”
— John McCloy, US High Commissioner for Germany, speaking in London in 1950
With the United States supplying the money through the Marshall Plan and the BIS providing the financial and technical expertise, the drive toward a united Europe was unstoppable. In October 1949, Paul Hoffman, the head of the ECA, which administered the plan, gave a definitive speech in Paris. He called for the expanding western European economies to integrate economically, set up a continent-wide free market, and to coordinate their “national, fiscal, and monetary policies.”2 This meant that governments should harmonize their spending and taxation as well as national interest rates: in other words, to move toward a United States of Europe.
Per Jacobssen, the BIS’s influential economic adviser, agreed. Jacobssen believed the new European economies should be based on the free market. The era of autarky, state controls, and price restrictions was over. The ideal mix was an economy with about 80 percent in the private sector. The priority should be financial reconstruction and rebuilding trade and payments systems. Political and economic freedom would ensure prosperity, and welfare provision had to be made compatible with the market economy.3
Jacobssen also favored a federal solution for postwar Europe. During the war he had often met with Allen Dulles and British diplomats to persuade them of the merits of supra-nationalism, albeit with a maximum of power left at state level. In 1946 he went public with his idea. Jacobssen gave a talk at Gettysburg College in Pennsylvania with the grandiose title of “The Re-Education of Europe.” The German problem could be solved only as part of the European problem. Postwar Europe would flourish through diversity, but a new loyalty was needed, one which superseded mere national fidelity.4 Just as in the 1930s, the technocrats believed they knew best, although their ambitions were far more grandiose: the imposition of a new transnational financial, economic, and political structure, whether the people of Europe wanted it or not.
Marshall aid came at a price: remodeling European societies on the American model of consumerism and consumption. Hoffman’s propaganda arm produced pamphlets, posters, leaflets, radio programs, and even traveling puppet shows that extolled the American lifestyle. The American dream—a house in the suburbs, a car, and numerous household appliances—was projected as a near-guaranteed benefit of American-style freedom.5 The key to this was increased productivity on American-style production lines in a transnational free market.
For that to happen, and for the money to flow freely, new mechanisms of international payment had to be constructed, with the BIS at the center. This had started in 1947, when France, Italy, Belgium, the Netherlands, and Luxembourg had signed the Paris accord on multilateral payments, which was managed by the BIS. That was followed a year later by the Agreement for Intra-European Payments and Compensation, signed by sixteen European governments, the representatives of the French and British-American occupation zones of Germany, and the short-lived Free Territory of Trieste, which soon became part of Italy. The United States wanted the process to be speeded up. Washington pushed the European central banks to construct a comprehensive, multilateral payments system, recalled Alexandre Lamfalussy, the BIS general manager between 1985 and 1993, demanding, “For the love of God stop being bilateral and start being multilateral.”6 Europe obeyed, swayed in part by a dedicated grant of $350 million of Marshall Plan funds to set up the European Payments Union. Established in 1950, at a single stroke the EPU removed the thicket of regulations governing European trade. EPU member states all agreed to accept each other’s currencies for export payments. Bilateral balances were offset against a central fund, so all debts and credits were owed or received from the EPU. Eighteen countries signed up: all of Western Europe (excluding Scandinavia), Greece, Iceland, Switzerland, Britain, and Turkey. The BIS was appointed agent to the EPU. It managed its banking, kept its accounts, and controlled its funds.7 The EPU “was the European Union of payments,” said Lamfalussy. (The EPU applied to non-residents. Currency controls remained in place for residents.)
During the early 1950s Richard Hall worked at the Bank of England, helping to compose the briefing documents for the governor on his regular visits to the BIS. In 1955 Hall was seconded to the BIS to work on the EPU’s monthly settlements and reports. There was no discussion about the BIS’s wartime record, he recalled. “One of the BIS’s finest achievements, for which it deserves no credit, was surviving the war. That was thanks to Maurice Frere, the Belgian banker who had lobbied hard for the BIS in Washington. He said that the BIS should not be got rid of because it might come in handy some time. Nobody in Basel was bothering their consciences about what the bank did during the war. It was the most sensible thing to do at the time. It was not a question of covering things up, it was really not high on anyone’s list of priorities. They were trying to get on with the business of reconstruction and restoring the conditions so that trade and payments could now take place.”8
The BIS itself remained ambiguous about the EPU. It regarded the multilateral payment mechanisms as slow and unwieldy.9 The bank preferred free trade and currency convertibility. But, politically, the EPU was invaluable for the BIS. Thanks in large part to the EPU, the bank’s future was assured. The BIS and the European integration project were locked into each other. The BIS was the only institution capable of handling the complicated technical processes demanded by economic integration. At each step on the road to a united Europe, the BIS would be there.
In 1951, France, West Germany, Italy, and the Benelux states signed the Treaty of Paris, establishing the European Coal and Steel Community (ECSC). The ECSC created a common market for coal and steel. This dry-sounding construct was, in fact, a profoundly significant development. The coal and steel market was now regulated by the ECSC’s governing authority, which meant that the ECSC was a supranational institution, with regulatory powers over its members. For Jean Monnet, the architect and president of the ECSC, the new institution had transcended the old idea of the nation-state. The establishment of the ECSC set a pattern that would be followed for decades, one which still continues today. The removal of national sovereignty was always presented as an economic or technical measure, rather than the profoundly political process that it actually was.
Monnet was an early adopter of the idea of rule by technocrats. The French economist and diplomat was a veteran of the era that had brought forth the BIS: the post-1918 settlement. Born in 1888 to a family of Cognac merchants, Monnet worked for a while for the family firm, spending time in the City of London. During the war he coordinated British and French shipping to maximize their efficiency. In 1919 Monnet attended the Paris Peace Conference as an assistant to the French commerce minister. The carnage of the First World War had turned Monnet, like many of his generation, into a convinced internationalist. Monnet helped found the League of Nations and was appointed deputy secretary-general. But the League’s slow and cumbersome decision making and the need to help his family business, which was in difficulties, pushed Monnet back to commerce.
Nowadays, Monnet is spoken of in reverential terms as the “Father of the Europe Union.” Monnet’s ideas, which for many in Europe are now regarded as near-holy, have shaped our world and look set to do so for generations. His memory endures in buildings, scholarships, awards, and fellowships, including the Jean Monnet Center for International and Regional Economic Law and Justice at the New York University School of Law. Monnet’s ideas have generated a whole new academic discipline: European integration studies. More than 785 universities in 72 countries offer the Jean Monnet Program, taught by 1,650 professors to 25,000 students a year.10 But who were the form
ative influences on Monnet’s thinking? The answer lies not in Paris, Brussels, or war-ravaged Europe, but in Wall Street, where Monnet worked during the 1920s and ’30s.
Monnet’s hidden history brings us back to some familiar and powerful names. Curiously—or perhaps not, considering the small world of the global financiers in the early twentieth century—Monnet was connected to John Foster Dulles and Sullivan and Cromwell; to John McCloy, then a partner in the Cravath law firm, which represented General Aniline and Film, IG Farben’s American subsidiary, and even to Ivar Kreuger, the Swedish match king and con man.
Monnet met John Foster Dulles at the 1919 Paris Peace Conference, and the two men became close friends. They shared a similarly elitist view of the world, a disdain for democratic accountability, and an enthusiasm for making money. Dulles’s extensive network of high-level contacts would prove extremely useful to Monnet over the next decades. During the 1920s, Monnet managed Blair & Company, an American finance house. Blair & Co. was represented by the Cravath law firm where John McCloy was a partner, and Monnet and McCloy became close friends. Blair & Co., like many investment houses of the time, was thoroughly corrupt and routinely carried out insider trading operations. Under Monnet’s leadership, it kept a preferred list of fifty-eight clients who were brought in on profitable deals.11 Monnet also worked with Dulles and several American banks, including Chase, on the stabilization of the Polish economy, which gave him an early understanding of the power of transitional finance to make or break a country’s economy. When Blair & Co. was incorporated into the Bank of America, Monnet moved to San Francisco to run the new subsidiary. The firm’s shares plummeted in the crash of 1929, and Monnet returned to Europe.12