Krueger's Men Page 2
Despite the intense secrecy, word of the counterfeiting plan soon reached London. The Berlin meeting was outlined comprehensively in a letter from Michael Palairet, chief of the British legation in Athens and the very model of an English aristocrat representing his class and country. (His daughter married into the ennobled family of Britain’s World War I prime minister, Herbert Asquith.) Palairet’s letter to London was marked “Very Confidential” and dated November 21 — just two months after the September 18 meeting — and contained material from the notebook of a Russian émigré named Paul Chourapine. Exactly how Chourapine had come by the information was not explained, nor were his sources named. He had been tossed out of Greece by the police in October and deported to France, where he could not be further interrogated. But his report was startling in both its detail and the level of its political and financial sophistication.
During a conference of experts in monetary matters held on the 18th September of this year at the German Ministry of Finance, the following plan was discussed:
“Offensive against Sterling and Destruction of its Position as World Currency”
This plan, which was unanimously approved, contemplates in the first place the necessity of careful preparation and perfect execution of the work enabling the proposed aims to be realised in all the countries of the Near East as well as in North Africa, in the British Colonies and in South America.
It was decided to proceed with the printing in the printing works of the Reichsbank of 30 milliards [billions] of forged bank notes of £1 and of 2 milliards of various other notes. The transfer of these forged notes to foreign countries would be effected through the diplomatic bags of the Ministry of the Navy.
The consular representatives of Germany of the abovementioned countries would be charged with the disposal of this original merchandise in the most prudent manner. They have received instructions to try to obtain at first as much profit as possible until they receive the order to distribute the bank notes at a ridiculous price and even gratuitously, the main object being to flood the money markets with an enormous quantity of forged pounds.
The plan contemplates the moment when these forged notes in spite of their perfect get-up will be discovered. This moment will be the one when the coup which is already being prepared will be executed in the largest exchanges of the world, in those of New York, Amsterdam, The Hague, Lisbon, Rome, Naples, etc. and which is to lead to the collapse of sterling or to its serious depreciation. To make the success of this coup possible, the Ministry of Propaganda is to start an accusation against the Bank of England of having itself put the forged currency into circulation with the object of ensuring the support of the “pays états” [nation-states] and of concealing from the world its own bankruptcy.
The Navy and the Air Force of the Reich will be called upon to perform certain great exploits, if possible spectacular, which should coincide with the execution of the coup explained above.
Confidence in the British currency having been destroyed, the [German] mark will be able to overrun the world market.
This document is the only known contemporaneous description of the Germans’ original plan. Although the scheme was modified by the exigencies of war — and what battle plan is not? — Chourapine had captured its essence.
British diplomats shared the Athens memo with the Americans in February 1940. Herschel Johnson, the highly respected senior career diplomat at the American embassy in London, quickly passed a summary to Washington, where the State Department then warned the Treasury. Washington was watching apprehensively lest the dollar also become a counter in a game that many Americans hoped to stay out of, considering it Europe’s war and the Nazis as Europe’s problem.
The directors of the Bank of England, anachronistically known as “the Court,” were soon alerted, along with Sir Montagu Norman, the Bank’s governor. Norman ran the place with an iron hand, and the Bank’s inner circle kept the information so close that for many years the staff did not know Palairet’s letter had been its principal tip. Instead, they believed it had come via a dubious character dealing with the British embassy in Paris. This kind of obfuscation characterized the Bank’s smug, pusillanimous behavior from then on. And indeed, for years the Bank of England was unable and, until recently, unwilling to tell the full story because its officials insisted that many of their own records had been transferred to the British secret services or lost. After the war, officials of the Bank even destroyed some records on their own.
If viewed merely as an espionage caper, the plot is one of the more benign in the nefarious history of this gangster regime. But the story touches a deeper nerve and still prompts inquiries to the Bank of England in a perverse tribute to the continuing fascination with Nazi totalitarianism, which stimulates the darkest infantile fantasies of absolute power and stolen wealth. Allied technical experts judged it “the most successful counterfeiting enterprise of all time,” and in sheer quantity it was certainly the largest. But Allied strategists quickly recognized their own vulnerability and backed off. While its initial tactical success embarrassed London, the plot was a strategic failure. Nevertheless, the Nazis, their aggressive ideology only loosely fettered to reality, literally forged ahead. Only a small proportion of the bills were put into circulation to buy raw materials from neutrals and guns from dispirited partisans. Some helped finance espionage and unconventional warfare of only marginal military utility but great propaganda value. The Nazis’ best spy ended up in the movies even though Berlin ignored his information. Their most daring commando won a place in history books, where he hardly deserved a mention. So the bizarre plot succeeded, but certainly not as intended. The story demonstrates how easily authoritarian command can degenerate into self-destruction. The fundamental lesson is applicable whenever new kinds of warfare appear: even a clever and imaginative idea can spin out of control if untested by the critical questioning essential to democratic government.
A criminal subculture of counterfeiting coalesced early in the twentieth century as gold coins began giving way to printed banknotes. Between the wars, counterfeit currency circulated in the streets, shops, and back rooms of Europe. Some of the most notorious counterfeiters were failed artists like Hitler himself.
But in some countries, false bills were far less a danger than the threat posed by real ones. Every German had suffered the damage done by printing presses’ spewing out billions of banknotes on the orders of the democratic Weimar Republic. Determining the first cause of that historic hyperinflation of 1923 is more than a theoretical debate of interest only to economists and their allied ideologues. Was it a deliberate move to cheapen Germany’s currency in order to promote the exports that would pay Germany’s punitive war debts? Was it designed to save workers’ jobs? Or to enrich the great corporations and property owners by liquidating their debts? Perhaps all of these. Currencies had also collapsed in the new states of Austria, Hungary, and Poland following the demise of the Austro-Hungarian Empire in World War I. During the ensuing panic, stable currency — even when it was false — was in frantic demand. In port cities, sailors coming off ships were mobbed with offers to buy their foreign currency. With each passing minute the local scrip was worth dramatically more or less, depending on violent monetary fluctuations that undermined society and trust in authority.
In the interwar years, money therefore was rarely valued as a dependable standard of wealth as it had been throughout the rise of the bourgeoisie during the hundred-year peace that was shattered in 1914. Thereafter, no country stepped forward to serve as what economists call a hegemon, a conductor of the international orchestra, providing financial and physical security. Britain had filled that role during the Victorian age with its pound sterling and the Royal Navy, as America later would during the Cold War with the almighty dollar and the atomic bomb. But between the wars, money became a weapon. Trade could be manipulated by raising tariffs and devaluing currency to favor local products, thus seizing jobs and profits from other nations. Everybody
accused everybody else, usually justifiably, of policies known as “beggar thy neighbor.”
The Germans were only the first to flout the old rules with a competitive devaluation that would have been impossible under the prewar gold standard. They were followed by the French, who allowed their currency to cheapen against the dollar in the 1920s (incidentally attracting Jazz Age spenders to France and gold into French mattresses). America and Britain also engaged in a battle of wits, each trying to cheapen or strengthen its currency against the other’s. The odds were stacked in favor of America, which sat on a hoard of gold earned by the wartime sale of raw materials and arms to Europe, who had borrowed from Wall Street to pay for the war.
Nevertheless, the British sought a richer pound as the lifeblood of their empire. In 1925 they went back on the gold standard, restoring the dollar value of the pound to $4.86 in order to maintain London as a financial center with a trusted currency that, in theory at least, could be exchanged for gold. As a result, British workers suffered while their counterparts in France and America thrived. In 1931, at the start of the Great Depression, the pound was finally knocked off gold and sank to $4.05. Even at that rate, British goods were too expensive. And a strong pound, easily exchanged with other currencies, made it the obvious target for counterfeiters. Why bother to print fake marks, francs, or even dollars when their value was so uncertain? British schoolboys, twisting the familiar mnemonic of volume and weight, chanted the almost mythological rhyme, “The pound’s a pound, the world around.” And for the wicked, the pound’s stability was a magnet.
Hitler’s Germany, short of gold and foreign currency even before he took power in 1933, shrewdly managed trade under a financial genius with the curious name of Hjalmar Horace Greeley Schacht. (He dropped his two American names; perhaps his parents had been influenced by Goethe’s prophetic remark, “Amerika, du hast es besser.”) Schacht’s was no free-market solution. Between 1934 and 1938, Germany had concluded two-way treaties with twenty-seven countries, tying up its traditional trading partners in the Balkans, southeastern Europe, and Latin America. They essentially bartered their raw materials for whatever industrial goods Germany wanted to send them. With all foreign trade controlled by the Reich and Germany’s currency kept at an artificially strong 40 U.S. cents to the mark by controls on all foreign transactions, Germany was able to pay less for imported raw materials to rearm. In exchange, it sent back goods like Agfa film and Bayer aspirin, which were hardly essential for Hitler’s nascent Panzer divisions. Profits built up in the Reichsbank and were loaned to German companies, prices and wages were controlled, and full employment returned by 1937. Once the high-collared, schoolmasterish Schacht had done his job, he was dismissed in favor of the more tractable Funk.
Hitler soon realized that the construction of autobahns and financial subsidies for industry were not enough to keep Germans at work. The Moloch of modern war has an insatiable appetite for raw materials. Although German industry was the world’s most technically advanced, its capacity was smaller than that of Britain’s vast empire, which delivered cheap food and captive markets. On November 5, 1937, Hitler called his military chiefs into secret conclave and told them they were to be the instrument for expanding Germany’s Lebensraum. There were too many Germans on too little land to feed themselves, and Germany, a workshop of Europe with few natural resources, could not live on international trade during a global depression. Its choice lay between participating in the liberal capitalist system (and that had failed), or conquering other countries to supply food, raw materials, and gold. Hitler had already thumbed his nose at the victors of World War I by marching into the occupied Rhineland in 1936. Next he bullied the British and French into selling out Czechoslovakia to him in 1938 for the false promise of peace, and in the same year sent his elite troops into Vienna for millions of Austrians to cheer their own conquest as a liberation. These sudden strikes took place on weekends so Hitler would catch Britain’s languorous, appeasing leadership napping at house parties on their country estates.
When Britain and France actually declared war in September 1939 to support Poland’s independence, a surprised Hitler is said to have exclaimed to his inner circle, “What now?” But using his pioneering tactic of the blitzkrieg — literally, lightning war — the Germans captured rich Polish farmland quickly, then invaded Norway to ensure passage of Swedish iron ore through the northern port of Narvik. Outflanked and overrun, Denmark gave Hitler control of the Baltic Sea. By the same swift maneuvers he would seize the colonial and trading riches of the Low Countries. Then the corrupt Third French Republic fell into his hands like an overripe fruit, after which he assumed London would sue for peace and leave the Continent to him. Riding high on these conquests, Hitler and his followers did not foresee five and a half years of total war. Quite the contrary. German military strategy depended on subduing an isolated and starving Britain into a vassal of the Thousand-Year Reich, ideally by negotiation with those who had at first tried to appease Hitler, but by force if necessary. But the British refused to cooperate. So on another summer Sunday, in June 1941, Hitler finally overreached and attacked his unprepared ally, the Soviet Union.
The Allies reckoned Hitler would run out of credit to carry on his lightning attacks and they would stall into another round of trench warfare on the Western front. This was a wild miscalculation. Most of Germany’s war-making power was squeezed from its conquered territories: Belgium, Holland, and France sent millions in daily “occupation costs.” Approximately $3 billion more came from German Jews, bled of their riches as they fled or were chased from Nazi Germany during the 1930s. Unlike many Jews in the United States and Britain, who became rich in finance, Jews in Germany were prominent industrialists. Jewish scientists had been in the forefront of Germany’s belated industrialization. Emil Rathenau, for example, founded AEG, the giant utility company that brought electricity to Berlin, in 1887. (His son Walther organized and ran Germany’s foreign purchases of raw materials during World War I, served as a liberal foreign minister in the Weimar Republic, and was assassinated in 1922 by nationalist fanatics.) Perhaps another $6 billion was squeezed or stolen from Jews in conquered nations. Billions more, of course, would be wrung from slave labor and outright looting of wealth, especially the gold reserves in the central banks of conquered nations. Counterfeit currency would be just one more financial tactic.
For the Nazis, it was totally in character to try to undermine British finance even as they had hoped to persuade London to join in some kind of political partnership (in practice, it would have been that of a British horse with a German rider). Hitler had believed London would be open to a deal. Hadn’t many highborn Tories been hoping he would turn east against the Bolsheviks, knock them out, and then, as Hitler himself hoped, arrange for the two major Aryan powers of Europe to dominate its lesser races? To him the British had seemed logical allies, and until 1937, Hitler even prohibited German espionage to operate inside Britain.
Like many Englishmen, and even influential Americans right up to Joseph P. Kennedy, the U.S. ambassador in London and father of a future president, the Germans could not imagine the historic resistance that would be inspired by Winston Churchill when he became prime minister. Like any Englishman of his class, he fully understood the political significance of the pound. Serving as chancellor of the exchequer in 1926, Churchill had been willing to provoke a general strike to restore its value and argued publicly for a strong pound “which everyone knows and can trust.” Undermining the pound was therefore a serious stratagem to the Nazi officials meeting at the Finance Ministry that 18th day of September in 1939. They had already taken on so much, with such incredible success, and now they decided they might deliver the final blow.
Chapter 2
OPERATION ANDREAS
Reinhard Heydrich had always been fascinated by counterfeiting schemes. His first and most important encounter involved the Soviet purges of 1937. The year before, Heydrich had heard through an emigré that Marshal Mikhail
Tukhachevsky, a Bolshevik hero of the Russian civil war, was plotting against Stalin. Heydrich immediately decided to feed forged documents to Moscow that might help Stalin destroy the military leadership of the Reich’s Soviet enemies. In April 1937, Heydrich gave orders to his forgery factory in Berlin to produce documents that would incriminate Stalin’s generals. They were printed within four days with the aid of real Soviet army documents in RSHA files, documents dating from Weimar days, when the Germans had rearmed clandestinely with the help of the Bolsheviks. Supposedly attracted by the bait of these forged documents, the Russians paid Heydrich’s men 3 million rubles. But the Soviet currency was marked money, and when it was cycled through German spies in the Soviet Union, they were quickly arrested. Marked money with a face value in the millions had to be destroyed personally by Walter Schellenberg, who would later become Heydrich’s foreign intelligence chief.
In fact, Heydrich should have smelled a rat from the start. Stalin himself had already signaled Tukhachevsky’s liquidation two months earlier in a speech that foreshadowed the Great Purge of the Bolshevik old guard. The Nazis had ignored all that, even after the fact. Heydrich nevertheless believed it was his forgeries and not Stalin’s paranoia that had been instrumental in destroying the Red Army’s leadership — as did his colleagues in Nazi espionage who wrote their memoirs, and even Churchill on the other side. So Heydrich, acting on the false lessons of the affair, pressed ahead with the scheme to counterfeit sterling.
Heydrich was the son of a provincial opera singer, and his enemies continually spread false rumors that he had a Jewish grandmother. His barbarity against the Jews may have been one way to demonstrate his racial purity. More likely he was simply a brutal technologist for whom human life was of no importance when ranged against the imperatives of the state. In that sense he was a principal pivot and puppet master of the Nazi regime, supplying his boss Himmler with ideas for its most heinous crimes and then managing them pitilessly. Such was the considered view of Schellenberg, who described his first, unsettling impression of Heydrich as “a tall, impressive figure with a broad, unusually high forehead, small restless eyes as crafty as an animal’s and of uncanny power, a long, predatory nose, and a wide full-lipped mouth. His hands were slender and rather too long — they made one think of the legs of a spider.” Heydrich had entered the Navy after World War I and rose as a communications specialist to the rank of lieutenant, only to be cashiered in 1931. Investigated by a naval court of honor about a pregnant former girlfriend, he accused her of lying about their affair. The court, insulted by his arrogance, convicted him of insubordination rather than the lesser offense of simple fornication. Heydrich was thrown onto the heap of unemployed millions in the depths of the Depression, his military background and his desperation making him a natural candidate for the SS. There his communications experience led him to code work and intelligence.