The issue of national reparations to individuals was actually something that was unprecedented in 1951 when Israel made its claim on behalf of Holocaust survivors in the country. Reparations and indemnities were usually a state-to-state affair and typically involved victors setting the pace and scale of reparations on a losing side. Israel was neither a victorious power over Germany nor did it exist during the Holocaust. Naturally, the lack of precedents would have made this a controversial issue for many countries, but the issue of Holocaust reparations had special resonance in the nascent FRG. The Adenauer government had to navigate a tricky minefield of memory politics and international opinion to get the Luxembourg Agreement passed through the Bundestag.

The Adenauer government had multiple rationales for countenancing what would become a precedent in international relations. One of the foremost concerns for Bonn was international prestige. The Israeli request was timed incredibly well for Bonn to accede to it. The FRG was on the diplomatic path to receive sovereignty and although the Israeli request was directed at the four powers occupying Germany, Adenauer recognized that taking a proactive stance would be an assertion that (West) Germany had rejoined the family of nations. The scale and gravity of Nazi crimes necessitated a response by Germans, but the danger was also that if Bonn did not act, then it would lose control over the reparations issue. Thus there was a strong element of Realpolitik in Adenauer's support for reparations. Making a sacrifice of money towards victims would pay dividends in the form of greater recognition of the FRG as a sovereign and normal state while ensuring that Bonn controlled the issue.

The FRG's own diplomatic position was somewhat precarious in the early 1950s. Although Bonn had American support as an emerging Cold War ally, the rest of the continent was not so confident with a reemerging FRG. Negotiations with Israel ran parallel to negotiations in London over the status of Germany's debts incurred by the Versailles Treaty. Even in American circles, there was some doubt as to the veracity of German democracy. The late 1940s and early 1950s had led to what some historians term "amnesty fever" in Bonn as the government reduced sentences from the IMT and NMT as well as engaging in the restoration of pension rights for various Nazi figures. A good portion of Adenauer's government consisted of former members of the NSDAP or other individuals directly associated with the Third Reich. The American Jewish community was quite active in complaining about the lax denazification and the prominence of figures like Hans Globke, who was Adenauer's right-hand man as well as one of the authors of the Nuremberg Codes. The limited gains of the neo-nazi Socialist Reich Party in local elections as well as the periodic exposes of former Nazis in high places by journalists made reparations a means to counteract these charges. German negotiators in London were able to use the reparations issue as well as the larger Cold War climate to gain more favorable terms and the Luxembourg Agreement did lead to a slackening of pressure by American Jewish groups.

There was also a domestic component of Adenauer's turn towards reparations. Adenauer's approach towards the Nazi past was characterized by pragmatic acknowledgement of misdeeds coupled with an evasive attitude towards Germany's deeper culpability. This paradoxical approach, termed by historians like Norbert Frei as Vergangenheitspolitik (politics of the past), was embedded in the very language Adenauer used to justify the restitutions. Adenauer described them as Wiedergutmachung, which means something to the effect of "making things right again." Another phrase Adenauer liked to use in this period was Schlußstrich which means drawing a final line (an American equivalent would be "a line in the sand"). The idea behind the Schlußstrich was that the FRG had set a division and Nazism now had no place. Adenauer directly stated that the reparations were a financial Schlußstrich. The embedded message in Bonn's language over the Nazi past mixed a measure of guilt, but also a sense that Germany was returning to a period of normalcy after madness.

Here is where Adenauer ran into trouble, especially with his own party of the CDU/CSU. The type Vergangenheitspolitik Adenauer championed in the nascent years of the FRG often stressed that Germans were victims of Nazism and foisted off responsibility for Nazi crimes on a few individuals. One of the dominant Leitmotifs of conservative politics in the postwar period was German victimization, whether at the hands of victor's justice in the NMTs or from the refugees from communism. The presence of German expellees as an important electoral component of the CDU/CSU bloc also made it difficult to claim Germans were perpetrators. Moreover, memory strategies like Schlußstrich encouraged a very selective amnesia about the past. Contemporaries both within the FRG and without were already commentating that by the 1950s, both the Kaiserreich and Weimar periods seemed to be of more immediate relevance to Germans while the period of 1933-45 seemed to have have disappeared from collective memory. Attempts at reeducation and making Germans aware of Nazi crimes during the occupation period often fell flat and heightened a sense of victimization, and the CDU/CSU was more than willing to use these sentiments for electoral success. There already was griping on the local level at immediate restitution to KZ victims, especially since many expellees were living in temporary housing, which in some cases were refurbished KZs.

This amalgamation of victimization and willful amnesia made it much harder for CDU/CSU deputies to defend their Chancellor's move towards his financial Schlußstrich. These concerns coupled with more pragmatic rationales against setting the precedent for state reparations to individuals. For conservatives within the Foreign Ministry, there was concern that supporting Israel would harm the Hallstein Doctrine which held that the FRG was the sole legitimate German government in the world and that the GDR needed to be isolated. There was a palpable fear that Luxembourg would lead to greater diplomatic contact with Israel and a commiserate response by the Arab League that could involve sanctions as well as recognition of the GDR. Fiscal conservatives also disliked the precedent as it threatened to undo the gains made Erhard's reforms of 1948. Although the Wirtschaftswunder was underway, things were less than certain in 1951/52. Economic gains had yet to filter down to Germans on the lower socioeconomic strata even as various companies were doing quite well from Erhard's pro-business policies. Austerity and caution acted to reinforce CDU/CSU foot-dragging over the issue.

The salvation for the Luxembourg agreement came from the CDU/CSU's opposition, especially the SPD, as well as the Federal President Theodor Heuss. In contrast to Adenauer's more conventional Vergangenheitspolitik, which drew a cordon around the Nazi past, both Heuss and the SPD hewed towards a more proactive engagement with Nazism. Heuss would soon become famous in the early decades of the FRG as the public face of Germany's guilty conscience and his speeches often emphasized that accepting responsibility for Nazi crimes meant engaging with an ongoing process of soul-searching and reconciliation. The SPD, some of whose leaders were emigres or victims during the Third Reich, saw restitution as part of a larger process of German normalization. SPD back-benchers were insistent on the FRG extending formal recognition to Israel. Of course, the SPD's own Vergangenheitspolitik had a domestic edge to it; attacking Adenauer on this issue highlighted CDU/CSU hypocrisy and it also did not hurt that Adenauer needed the opposition to his own party to accomplish what the Chancellor proclaimed was a moral duty.

Did East Germany have a position on the agreement?

This necessitates a somewhat separate answer as GDR reparations, or more precisely, lack of them, was a different matter than the FRG's evolution on the matter.

When Israel approached the four-powers, and by extension the two Germanys, with a call for restitution in 1950, it did not leave the GDR out of the picture. The Israeli's initial call for $1.5 billion in compensation split between $1 billion for the FRG and $.5 billion from the GDR. The split was predicated upon the idea that it was a proportional share of population and resources between the two states, but the lesser share also was to make such a concession more palatable to Berlin and Moscow. Of the two parties, the Israelis realized that it was the Kremlin that had the power to countenance GDR reparation and the Israeli's tailored their request to suit the USSR's Soviet agenda. This hope proved fruitless as neither Moscow nor Berlin was willing to part with compensation money.

Moscow's reluctance to engage with the Israeli offer partly stemmed from the fact that it was continuing to extract reparations itself from the GDR. Adding to this burden would only stress the GDR's ruling SED party which was having trouble not only making these repayments, but also with imposing its own brand of socialism. Israeli diplomats tried to use the Soviet's self-identification as the guardian against the victims of fascism and framed their notes to the Foreign Ministry in those terms, but this elicited only a boilerplate rejection from Moscow. The 1953 Revolt in East Berlin gave further proof that the GDR could not be asked to give up more treasure and resources towards Israel as restitution.

Although rejection of compensation claims did damage Soviet public relations image, rejection fit in with the wider Soviet and GDR stances on German division and the Cold War. The Soviet position was that the Potsdam Agreement meant that there needed to be a final peace treaty between the Allied powers and a united, single German government. The Israeli demand was thus premature in that there was no single German government yet and the separate nature of it gave de facto recognition that there were two German states. Moreover, the disparity between the claims signified that of the two, the Soviet client state was the poorer Germany despite scientific socialist management of the economy. Accepting the Israeli claim would have undermined this position which was common both in Moscow and Berlin during the 1950s.

The SED itself was arguably even more amnesiac about the Nazi past than the FRG. Although the state media kept Nazi atrocities in the public focus, especially those against Soviet and Eastern European nationalities, it was careful to cite blame for these actions not on the German people, but upon monopoly capital and its fascist allies. State media obsessively reported on former Nazis regaining their position in the FRG such as Globke and the prominence of former Wehrmacht officers in FRG rearmament debates. The Nazism became an ideological "other" inside the GDR, even though a good many SED leaders were skeptical of its population's commitment to building socialism. Far more so than the FRG, the GDR posited that it was a fundamentally different entity than the Third Reich. As such, there was little pressure for the state to acknowledge Nazi crime. The GDR had already in 1951 adapted a law confiscating all foreign-owned property inside the state, which made it even harder for German Jews to reclaim stolen property or demand restitution. Israel's negotiators recognized that there was little hope on achieving restitution from this avenue and maintained them after the Luxembourg Agreement only as a gamble in case they paid off or as a latent threat to Bonn lest they back out of their commitments.

The GDR media's condemnation of the Luxembourg Agreement was a signal that reparations would not emanate from this quarter. The official stance of the GDR on the Luxembourg was a highly charged ideological attack in which the FRG's capitalist leaders made an agreement with Israeli capitalists to support Israeli expansionism under the guise of pretending to make amends for the Nazi period. It bears mentioning that the GDR was not completely wrong on this account. The negotiations for the Luxembourg agreement also included secret military aid from the FRG to Israel, a fact that Adenauer kept secret and would come to light in the 1960s and create a mini-scandal for his successor Ludwig Erhard. But this was just an additional bonus for the GDR and the main imperative behind the invective was to increase the GDR, and by extension, the Eastern bloc's standing in the Middle East.

Just as some within the FRG Foreign Ministry and Bundestag feared that the Luxembourg Agreement would harm the Hallstein Doctrine, a number of SED figures counted on this to occur. Although the Soviets had toyed around with sponsorship of Israel at its inception, by 1950 it was becoming clear that Middle East countries held more promise for international communism. The SED banked that closer FRG-Israel ties would lead to states like Egypt and Syria to reject the Hallstein Doctrine and give full acceptance towards the GDR. Such recognition would not only give luster to the GDR's status as the better Germany, but also give it trading partners with the Third World. But these hopes proved only half-fulfilled in the period 1951-1966 as many Middle Eastern states still valued German engineering and expertise and would not court an open break with Bonn lest they lose this connection. It was only after the Bonn's formal recognition of Israel in 1965 that this stratagem began to bear fruit, but by this time the Hallstein Doctrine itself was increasingly in tatters. By the mid-1960s, the GDR had become one of non-Soviet arms suppliers for the Middle East, but such MiG diplomacy accrued few direct benefits for the GDR economy.

The GDR's stance on Israel was thus something akin to a photo negative of the FRG's approach towards the Jewish state. Adenauer and his successors recognized that good relations with Israel meant it could act as a placeholder for the worldwide Jewish community. Restitution and other forms of recognition were thus a sign that this Germany was coming to terms with what it had done to the Jews in the past. In contrast, the GDR disassociated Jewry from Israel and the Holocaust did not factor in its non-relationship with Israel. Thus while the SED did acknowledge Nazi crimes against Jews (although as with other communist countries, Jewish suffering could not displace communist suffering), it contended that Israel's existence had little connection to the Holocaust. Instead state media presented Israeli military actions as imperialistic and framed in much the same terms as it described Nazi aggression or American actions in Korea and Vietnam. Antizionist campaigns were common both in the GDR as well as throughout the Eastern bloc, especially as the Arab-Israeli Wars reached their peak in the late 1960s and 70s. It was only in the mid-1980s that the SED moderated its tone, but by then the SED was on borrowed time.

In hindsight, the Israeli overture towards Moscow and Berlin likely was doomed to failure. Giving into Israeli demands for restitution offered neither party anything that they could conceivably want. Israeli could not broker either a final settlement of the German question or a favorable peace treaty. Israel's parallel diplomacy with the FRG also meant that it would preserve some aspects of the Hallstein Doctrine, so that was a non-starter for the SED. This stood in stark contrast to Israel's successes in gaining reparations from the West. Austria, for example, was able to pay Israel a lump sum in exchange for Israel's affirmation of Vienna's line that it was among the first victims of Hitler and Austrians bore no responsibility for Nazi crimes. The FRG could not be excused so easily, but the exculpatory elements of reparations was something Bonn wanted out of such an arrangement. The GDR felt no such imperative to wash away the guilt of Nazism and saw no immediate geopolitical benefit from paying for the crimes of the Third Reich.