Free Chasing Gold: The Incredible Story of How the Nazis Stole Europe's Bullion by George M. Taber Page A

the Metallurgische Forschungsgesellschaft (Metal Research Company), which soon became known as Mefo for short. In financial terms, it would issue promissory notes permitting the government to get around the law that limited central bank lending to 100 million Reichsmark. All the money went to rearmament. At the behest of the Berlin government, four major German companies, Siemens, Krupp, Rheinstahl, and Gutehoffnungshütte, started a dummy company that had no employees, but capital of one million Reichsmark. German businesses doing rearmament work would present their bills and be paid in Mefo currency, which they could either sell at a discount to a German bank or hold. In addition, the companies would get four percent interest on the Mefo bills. They were to have a total longevity of four years, after which repayment would begin. The Metallurgische Forschungsgesellschaft would raise 12 billion Reichsmark in capital over four years, and the Reichsbank would buy back the Mefo bills. In effect, the companies doing rearmament work were giving Berlin a loan that the government promised to start paying back in four years. The repayment date continued to lengthen, and at one point was pushed out to seventeen years. One of the best-kept secrets of the Mefo bills was that foreigners bought a majority of them from the Reichsbank without knowing how the money was being spent. In a memo to Hitler in May 1935, Schacht gleefully wrote, “Our armaments are, therefore, being financed partially with the assets of our political opponents.” 37
    Schacht came up with the target of 12 billion Reichsmark because he thought that was the most he could spend without setting off new inflation. He called it “an ingenious and well-adapted method of providing funds.” During his interrogation at the Nuremberg trials, Schacht proudly said, “The 12 billion Mefo bills were exclusively appropriated for armament, so I knew that money was not spent on dinners.” 38
    Another attraction of the Mefo bills was that they were hidden from the world. No reference to them appeared in the published statements of the Reichsbank or the German national budget. Even within the government, few officials knew about them. Hans Lammers, Hitler’s chief of staff, told interrogators after the war that he had seen the term in documents but had no idea what it meant. German defense spending between April 1935 and March 1940 totaled 20.5 billion Reichsmark, of which 12 billion came from the Reichsbank via Mefo financing. 39
    In early 1934, Schacht ran into unexpected balance of payments difficulties because rearmament spending almost wiped out the country’s holdings of gold and foreign currency. Secret reserves and official bullion reserves fell to just $55.5 million on June 30, 1934. Schacht’s reaction to that crisis was to put through his New Plan on September 24, which introduced state control over foreign trade. The name was in homage to Franklin Roosevelt’s New Deal. The German objective, though, was very different. According to Schacht’s plan, Germany should buy nothing that could not be paid for with exports. The program promoted bilateral trade and limited imports to essential products, in particular raw materials and agricultural products. This was to be done by reorienting Germany’s trade to just twenty-five states, with most of them in the Balkans and South America, where countries were still suffering from the lingering effects of the global depression and would accept almost any deal. Berlin thus began importing large quantities of goods from countries such as Romania, Spain, Argentina, and Turkey, which became the main supplier of chromium, the still coveted key resource in the making of certain products essential to the war effort.
    The policy achieved its goals. Germany’s balance of trade had a deficit of 284 million Reichsmark in 1934, but a 111 million surplus the following year. The benefits kept increasing. In a letter to Göring in August