Foreign Relations of the United States: Diplomatic Papers, 1944, The British Commonwealth and Europe, Volume III

740.00119 EW/12–3044: Telegram

The Ambassador in the Soviet Union (Harriman) to the Secretary of State

Moscow, December 30, 1944—8 p.m.
[Received December 31—noon.]

5075. ReEmbs 5074, December 30, 7 p.m. The aide-mémoire on the subject of Hungarian reparations received from Molotov yesterday afternoon contained after the introductory sentence seven numbered paragraphs. The text with paragraphs juxtaposed for purposes of security reads as follows:^98a

Moscow, December 30, 1944.

1. The Soviet Union as a European power is of course interested in the rapid reestablishment of stability in Europe and consequently there exists agreement between the Soviet Government and the Government of the United States on this important question. The Soviet Government however cannot recognize as correct the statement regarding the necessity with respect to Hungary to accept a method of regulating the reparation question different than that which was applied in regard to Rumania under agreement of the USSR, the USA and Great Britain and in respect to Finland by agreement between the USSR and Great Britain.

2. As is well known to the Government of the USA, the amounts of reparations established for the former satellites of Germany are several times less than the actual losses sustained by the Soviet Union as a result of their activities. The absolute size of these amounts is so insignificant that they can neither create any insurmountable difficulties for the economies of the respondent countries or have any noticeable influence in any way on the general economic situation in Europe. The Soviet Government therefore maintains the opinion that the Hungarian reparations, fixed at the more than modest figure of 300 million dollars (of which 200 million dollars will go to the USSR and 100 million dollars to Czechoslovakia and Yugoslavia), give no basis for concern that they (that is the reparations) would unduly impede general rehabilitation or would reflect on the stability of Europe.

3. The best illustration of the moderation of the amount of reparational demands from the former satellites of Germany is indeed the case of Hungary. The 300 million dollars which Hungary should pay in merchandise to the USSR, Czechoslovakia and Yugoslavia during the period of 6 years (as is foreseen in the Soviet draft armistice with Hungary) means payments of 50 million dollars per year. The relative meaning of this figure may be measured by the two following comparisons: Firstly, Hungarian average yearly exports during the last 5 years before the war (1934–1938) amounted to about 500 million pengo or according to the official rate of exchange at that time (20 cents per pengo) to about 143 million dollars. The amount of reparations claimed by the Soviet Government therefore equals about one third of the prewar exports of the country. Two-thirds of the exports remain at the disposal of Hungary for commercial purposes. Secondly, according to the calculations of the most authoritative Hungarian economist, Henrich Fellner, who during more than 30 years has been issuing yearly figures on the national income of the country, the national income of Hungary in 1938 amounted to 4.8 billion pengo or 1.4 billion dollars. Reparations in the amount of 50 million dollars amount therefore to only 3½ percent of the prewar national income of the country (postwar Hungary in point of territory and population will evidently be approximately equal to Hungary at the beginning of 1938). If it is admitted that as a result of the war that national income of Hungary during the first postwar years is somewhat lower in comparison with the national income of 1938, even then the percentage of reparations to the national income in no case will be able to reach a level which would be dangerous for the economic development of the country. From the aforementioned it is absolutely clear that reparations of such a scale will not present any threat either to the economy of Hungary itself or to the economy of Europe. From this it also follows that there is necessity to establish any limitations on the use by the recipient countries of the merchandise delivered to them as reparation since the sum total of the reparation is absolutely negligible in comparison with the general European trade turnover.

4. The agreement of the Soviet Government to be satisfied with the modest amounts of reparations from Hungary as well as from other former satellites of Germany is an expression of its goodwill and also of its desire to facilitate the countries in question to return rapidly to normal conditions of economic life. Nevertheless attempts have been and are being observed actually to reduce to naught even these minimal reparation amounts which were already included in the armistice agreements or are to be included in the armistice agreement with Hungary. The proposal to accept as a basis of reparation deliveries prices effective “at the present time on world markets”, that is, prices which reflect the abnormal conditions of war times or the first postwar years would have precisely this result. It is natural that the Soviet Government cannot agree to this.

5. Proceeding from the above the Soviet Government both in relation to Hungary as in relation to Rumania and Finland proposed as a basis for figuring indemnity payments the American dollar at a definite firm gold parity which did not meet with objection on any side and also to fix a stable price level which would conform to the firm prices of the prewar period (1938). Meeting the wishes of the Governments of Rumania and Finland the Soviet Government agreed to increase by 10 percent the 1938 prices with respect to manufactured goods and 15 percent in respect to heavy equipment. The Soviet Government is prepared to make similar increases for Hungary. Only the above mentioned procedure may create firm relations with countries which are paying reparations without making these relations dependent on transient and large sized price fluctuations which are unavoidable in the war period and in the years of transition from war to peace. Indeed an additional argument in favor of such a method of pricing of reparational deliveries is the consideration that since the treacherous attack of Germany and its satellites lead to the destruction or elimination of values which can be defined only in prewar prices there is very [every] reason for appraising also merchandise received on reparation accounts at prewar prices.

6. From the conversations which preceded the conclusion of the armistice with Rumania the Government of the United States became well acquainted with the motives why the Soviet Government did not consider it possible to refrain from fixing in the armistice treaties a definite reparation amount. The Soviet Government therefore considers it necessary in the Hungarian armistice, as was agreed upon at the time of the visit in Moscow of Prime Minister Churchill and Minister of Foreign Affairs Eden to fix precisely the reparations figure at 300 million dollars of which 200 million dollars goes to the USSR and the remaining 100 million dollars to Yugoslavia and Czechoslovakia. The Soviet Government advanced a proposal that the entire amount of the reparations which would be due would be paid off during a period of 6 years and article XIII of the Hungarian armistice, handed by the Soviet side to the Governments of the United States of America and Great Britain, contains this condition.

7. With respect to the proposals of the American aide-mémoire concerning the establishment in the Allied Control Commission for Hungary of a special “reparations division made up of representatives of the three Allied Powers signatory to the armistice agreement”, the Soviet Government, taking into consideration the experience with Rumania and Finland, sees no necessity in this. On the other hand the Soviet Government is prepared jointly with Czechoslovakia and Yugoslavia to whom Hungary will also pay reparations on the basis of the present agreement to examine the question regarding the participation of their representatives in the work of the Allied Control Commission connected with the collecting of reparations in Hungary.”

The British Chargé d’ Affaires has requested that the above text be made available immediately to the British Embassy in Washington.

Harriman

1. Order of items restored in the text as here printed.