Since time immemorial, small nations have been physically surrounded or otherwise importuned by larger ones at war with one another. Thucydides’ magisterial Peloponnesian War describes a dozen instances of negotiations that have occurred innumerable times in history. The small, would-be neutrals hear from both overwhelming armies: We have nothing against you. We really like you. We are fighting for our lives against our mortal enemies. If you really think about it, they are your mortal enemies, too. So we are really fighting your fight. You should be grateful. In these desperate days, we must have your help. It would be nice if you could make war on our enemy directly. If you cannot, we ask you at least to give us access to your economy, and above all not to trade with the enemy. We would like to pay you for the goods we want from you. But just now, for a variety of reasons that you must understand, we can’t come up with the cash, and you must accept our IOU. You trust us, don’t you? If you do as we say, you prove your real neutrality. If you insist on trading with the enemy, we will be immediately compelled to isolate you economically from our side, and to cut off the flow of so many products on which your livelihood depends. We might even devastate your crops. After we win, we will treat you like an enemy. So, regardless of what happens in the long run, woe to you if you don’t help us now. And mega woes to you if you bet wrong on the eventual winner.
To this, the small would-be neutrals reply: We sympathize with you, trust you, agree that your enemies are dastardly, and would like nothing better than to take your IOUs in exchange for uninterrupted commerce and being left alone (that is, to pay you ransom). But we have a problem. Your enemies are making the same demands on us that you are making. If we accede to your demands, they will hurt us. We fear them, and you cannot protect us against them. Also, despite your declarations of friendship, your threats are fearsome, too. We cannot satisfy you both. So we propose to both you and your enemies that our economic dealings with you both be equally free and friendly.
“No dice!” both sides always answer. Both sides cite the enemy’s repugnance. Both say that the necessity to defeat the enemy makes it necessary to hurt those who won’t cooperate.
Therefore, Thucydides shows, comparative fear—which side can do most harm—overrides the small neutrals’ other calculations. But since the great power that can do us most harm now may not be the one that can do it later, there is an inherent conflict between short- and long-term fears. And even if we judge correctly that the side to be feared least now is to be feared most in the long term, we must still somehow survive the short term. And so Thucydides gives us the little Sicilian city of Camarina as an example of prudence. Beset by both Syracuse and Athens, Camarina decided to appease them both as best it could, but to lean to Syracuse—the power it liked least, but that could do Camarina the most harm because it was physically closest. It helped Camarina’s reputation for good judgment that Athens lost the war.
The lesson for the major powers who want economic favors from small neutrals (and for the neutrals themselves) is then twofold. For the great power: First, squeeze the goose that lays the eggs you want, but neither kill it nor drive it to the enemy. Your demands at any given time must be such that the small power’s compliance with them will not impair its capacity to meet future demands, nor be so onerous that its immediate interest will be to work even more closely with the enemy. Second, unless forced by dire need, keep foremost in mind what you want from the small neutral after the war. For the small neutral, the rules are reversed: First, do just enough to avoid invasion or sanctions. Manage the appeasement of both sides’ demands to do as little damage as possible to the domestic economy. Second, do not let national policy sway to either side for the sake of domestic interest groups that have ties to either side, and make sure that everyone in the country understands the balance between the economic actions forced on you at any given time and your political preferences.
In the present case, both the Reich and the Allies squeezed Switzerland as hard as the balance of power allowed. As for the Swiss Federal Council, its response to the pressures of both sides was about as proportionate to the balance of power as possible—but only ex post facto, and not as a result of conscious planning. Moreover, it managed this double appeasement while safeguarding the structural integrity of economy and currency—a solid technical feat. But the economic management was swayed by interest groups whose prosperity depended on the warring powers, and certainly did not reflect a coherent understanding of the balance between fears of present harm and hopes for the future.
To begin with, consider the meaning of economic warfare in World War II for both the Reich and the Anglo-American Allies. Then glance at Switzerland’s international economic situation before the war, and how that was affected by the Anglo-American blockade and the German counterblockade. And finally look at three economic battlefields: the competition for Swiss merchandise and credit, the struggle for the use of the Swiss franc, and the questions surrounding the use of Swiss economic institutions as a “safe haven” for the assets of innocents and Nazis. Regarding each of these struggles, did each side do the best for itself that circumstances allowed?
The economics of Switzerland are covered by a thick blanket of conspiracy literature. Some of it—Werner Rings’s Nazi Gold—has become very influential.
Economic Warfare and the Neutrals, 1939–1945
In the European theater, both sides deemed the economic factor decisive. Though economic warfare turned out to be less important than expected, both waged it doggedly. Both sides believed that the Great War had been decided by an imbalance in industrial production, and that the Allied blockade had hurt Germany more than any battle had. British and American experts believed that Germany lacked the resources to fight another major war. Of the thirty-four materials then judged essential to modern war, Germany had only one aplenty, coal. Germany has almost no iron and no petroleum. How could anyone fight a war without them? Never mind the ferrous alloys, rubber, bauxite, fats, nitrates, and so on. That explains in part the West’s disbelief that Hitler’s bluster meant war.
The Germans, meanwhile, were so aware of their economic deficiencies that they stockpiled strategic materials, developed ersatz products, and planned lightning-short military campaigns, the Blitzkrieg. They also planned to conquer the European continent, to exploit its resources fully, and to deny them to the enemy. Britain, joined by the United States, necessarily countered with the classic sea-power strategy: Sweep enemy commerce from the seas. Bring to bear the resources of the world, the oil of the Middle East and Texas, the rubber of the Indies, the alloys of South Africa, and all the rest, to build navies and air forces that would isolate the continent, pound it, wait for continental conflicts to weaken it, and eventually allow seaborne armies to defeat those of the land powers.
In short, the Germans sought to exploit the continent economically, while the Allies blockaded and bombed to diminish it.
As for neutral countries, the Germans planned straightforward plunder and exploitation, limited only by the realization that it makes no sense to overextend armies to get things that may be had less expensively. Thus Germany never invaded Romania, and instead got all it wanted from it—precious petrol—through a combination of military intimidation, money, and ideological affinity. Money and intimidation were enough to get Swedish iron ore and timber. But from Spain, the Reich got only trade goods at competitive prices, despite presumed ideological affinity, and the Wehrmacht at the border. If Hitler was going to get Spain’s strategic prize, access to Gibraltar, Nazi Germany must either defeat Spanish as well as British troops or submit to intentionally impossible Spanish demands.
The Allies’ approach to the European neutrals was to assume that the Reich had great influence over their economies and therefore that any shipload of anything they allowed to land on the continent could get to the Germans or could free up resources that would help the Germans. Already in 1917 the Allies had thrown out the centuries-old international law, most recently refined by the Hague C
onvention of 1907, by which belligerents could blockade only enemies and could prevent neutrals from delivering to them only “absolute contraband”—namely, weapons of war. Restrictions on neutral trade of each and every item that might or might not help a belligerent, “conditional contraband,” would have to be justified to international courts. Trade in purely civilian goods was to be unrestricted. But by 1917 the Allies had become convinced that the fungibility of resources in modern war made contraband of everything that might be useful to the enemy, including children’s toys. So the United States, which in the eighteenth and nineteenth centuries had been primarily responsible for expanding the international law concept of neutral rights to trade, joined Great Britain in a new blockade system that started from the assumption that there was no such thing as a neutral right to trade: Nothing whatsoever would be allowed to cross the seas to any country on the European continent unless the shipment had been previously approved by the American and British offices of economic warfare. These offices determined just what the European neutrals would be allowed to receive from the world, and authorized each shipment with a navigation certificate, or “navicert.” Allied agents in every port made sure that no unauthorized ship sailed. If any tried, the Allied agents would report it to the Allied navies for sinking or seizure. Allied economic warfare offices would also judge how much of what the neutrals shipped to the world might ultimately produce revenue for the enemy. Hence the Allies allowed each European neutral country to export only its quota of “enemy content.”
The Germans, for their part, imposed a counterblockade. The Reich’s economic warriors granted Geleitscheine to the neutrals whose access to the sea they controlled—certificates for exports that Germans judged would not help the Allies.
Note the circular justification for such extremism: In both World Wars, all the belligerent governments worked hard to eliminate domestic production, as well as imports from neutral countries, of anything that was not militarily useful. Since the protagonists in the world wars were the biggest and richest countries, the world market for nonmilitary goods well nigh collapsed. Even without the blockades and counterblockades, the neutrals found that all of the belligerents canceled contracts for delivery of purely civilian goods, except of course food, medicine, and other civilian supplies that were also useful for military purposes. Consequently, the neutrals had either to become war suppliers or to get largely out of the international merchandise trade.
There were five European neutrals, practically divided into two-and-a-half categories. Portugal, Spain, and Turkey were not surrounded by the Axis, and were more or less freely accessible to the Allies by sea. Switzerland was an inland island surrounded by the Axis. Sweden was in between; it had access to the seas, but for most of the war those seas were dominated by German aircraft and minefields.
With respect to Portugal, Spain, and Turkey, the Axis’s and the Allies’ power was balanced. The Germans and the Allies could pressure these three countries in roughly the same economic ways, by denying them shipments from, or market access to, the areas the great powers controlled. But while the Germans could deny them access only to Occupied Europe’s products, the Allies could cut them off from the world. Nor had the Germans any monopoly on anything these neutrals needed. So, because the broad, non-European world had more goods and more markets to offer than did German-controlled Europe, the Allies always had more strictly economic influence in these three countries. As a result, the Germans offered the Spanish, Portuguese, and Turks competitive prices for their tungsten, chrome, dried fruits, and oils. But these neutrals knew that if they were to buy something to eat or to burn with that money, they would have to do it overseas—and for that they would need navicerts from the Anglo-American economic warriors. In addition to money, the Germans initially offered a place in the New Europe, and of course lots of fear. But the image of the former faded within a year, and the latter was gone by 1943. The Allies would urge these neutrals to curtail their trade with the Axis and would emphasize the point by restricting their navicerts . When the Allies began to add fear to their mix of economic incentives, these neutrals’ neutrality disappeared. In 1944 Turkey declared war on Germany after long collaboration with the Allies, Portugal gave the Allies base rights in the Azores (finis to Germany’s chances in the Battle of the Atlantic), and maligned Spain reminded the Allies that they had been able to use the Mediterranean only because Spain had protected Gibraltar’s northern approach. All three nations had a claim for having been on the Allied side all along!
But Sweden, and above all Switzerland, were within the German counterblockade. Because they could receive nothing of which the Germans did not approve, the Germans had a monopoly on every import they needed, even on overseas imports. Even if the Allies granted unlimited navicerts, the Germans would still allow in only what they wanted the Swedes or Swiss to have. Hence for the Germans, putting the Swiss economy to work for the Reich was child’s play. Just cut off the coal and Swiss industry would stop. People would be out of work. They would freeze. Delay food imports, and they would go hungry. Don’t give them contracts and Geleitscheine, and their exports would stop and they would run out of money. Want to play with the Swiss currency? Sell gold on the Swiss domestic market to foreigners. This would drive down the price of the metal backing the franc, forcing the government to issue gold-convertible francs to buy gold to keep up its value. Meanwhile the holders of these francs will be trading them in for Swiss government gold. Since you would not allow the Swiss to export what the rest of the world wanted, the Swiss would have to choose between producing what you wanted for you, or nothing at all.
Next to this array, the Allies’ economic weapons were few and could easily become counterproductive. The Allies could no more help Switzerland economically than they could militarily. Prior to the war Great Britain had sold Switzerland some 300,000 tons of coal per year, as against Germany’s 1.8 million. The British would have been delighted to make up any quantity of coal that the Germans might refuse to sell—provided they could buy what they wanted on the Swiss market. But once the German counterblockade was in place, the Allies could neither supply coal to Switzerland nor count on any Swiss deliveries. Consequently, when the Allies made requests of the Swiss, they were not necessarily dealing with people capable of fulfilling them. The Allies and the Swiss might make a deal for quantities of jewel bearings, but the Germans would not allow the trade to pass. Allied threats against the Swiss failed for the same reason: When the Allies asked the Swiss not to produce so many arms for the Reich, or asked the Swedes not to send the Reich so much iron ore, and made their point by restricting navicerts, these neutrals expressed genuine sorrow but noted that they couldn’t live without German coal and steel deliveries. That is why Allied economic warriors did not press their points too far with the Swedes, and especially with the Swiss.
Through the war the Reich got about 1.35 billion Swiss francs’ worth of war goods from Switzerland (out of some 2.5 billion in total deliveries). This included machine tools especially useful for producing tanks and airplanes, timing devices, and more. Yet this war materiel amounted to only about 0.6 percent of the Reich’s total military procurement of 210 billion reichsmarks—not a lot. But then again, the Reich “paid” for most of this merchandise with reichsmarks credits in Berlin’s Reichsbank, which no rational person expected would ever be redeemed.
Meanwhile, the Allies, and the “dollar zone” of Latin America, absorbed a total of about 1.6 billion francs’ worth of Swiss exports. Some of these exports were the high-tech jewel bearings for aircraft navigation, on which the Swiss had something of a world monopoly. After 1941 the jewel bearings had to be smuggled through German-controlled territory. But about three-fourths of Swiss wartime exports to the Allies were watches. These went exclusively to the military, freeing Allied watch factories for other war production. This amounted to a smaller percentage of Anglo-American military procurement, but it too was paid for with a kind of credit—gold that could not be remo
ved from the New York Federal Reserve Bank until after postwar negotiations.
All told, Swiss merchandise made no real difference to the outcome of the war. But both the Axis and the Allies wanted Swiss francs, and wound up with roughly 3 billion of them. The Germans paid for them in gold, delivered in Bern. The Allies paid for them in gold, locked up in New York. For the Allies, the francs were very useful. For the Reich, they were a vital means of obtaining specialty metals and oil.
Merchandise Trade Before and During the Blockades
Before the war international merchandise trade directly accounted for fully 20 percent of the Swiss economy. (By comparison, the figure was under 3 percent for the United States.) That trade was spread widely. In 1938, 15.7 percent of Swiss exports went to Germany, while 17.1 percent went to France and the border countries Belgium, the Netherlands, and Luxembourg. Britain took 11.2 percent, the United States and Canada 8.1 percent, and such places as Argentina, Japan, and India about 3 percent each. The rest was spread evenly throughout the world.1 Roughly the same was true of imports. Switzerland, however, ran a perpetual, large merchandise trade deficit. This was more than made up for by income from Swiss investments around the world, notably in the U.S., from tourism, and from the sale to foreigners of patents and services such as banking and insurance. The Swiss economy was also perhaps the world’s most open, having resisted some of the global trends of the 1930s toward exchange controls and blatant import quotas. Its currency was formally convertible to gold by central banks, and informally by private parties, since the Swiss gold market was free and the National Bank was statutorily required to maintain the value of the franc between 190 and 215 grains of gold. Hence, of all the world’s economies, Switzerland’s was perhaps the most vulnerable to disruption by war.
Between the Alps and a Hard Place Page 13
