Foreign Relations of the United States, 1949, Eastern Europe; The Soviet Union, Volume V

861.50/1–2749: Telegram

The Chargé in the Soviet Union (Kohler) to the Secretary of State

secret

Moscow, January 27, 1949—7 p. m.

212. Re Depcirtel December 3, 1948¹ and Embtel 179, January 25.² In our view, Kremlin’s program with regard satellites was probably elaborated at Sochi last summer³ and is designed to remake them as rapidly as possible (without over-incorporation) on exact pattern Soviet republics already within Union. This involves complete reconstruction and reorientation their political, economic, military, social and ideological life and institutions until they are for all practical purposes active parts of Soviet Union directed from Moscow like other nominal components, with actual incorporation only technical formality to accomplish at eventual appropriate time. For time being, speed this reorganization depends to some extent on foreign policy considerations, especially in economic field, but even in latter respect has already gone so far problems and relationships must be largely viewed and evaluated in terms usually applied domestic or intranational rather than international economics. (For example an “international loan” to Poland or Czechoslovakia is in effect either a capital investment, if for development production; or an internal allocation of funds for special purpose, as procurement of materials or equipment outside orbits.)

Thus we think it erroneous to consider Council Eastern Economic Mutual Aid (CEEMA) as a bona fide international economic agency, a “Molotov Plan” answering the “Marshall Plan”. It has doubtless been so portrayed deliberately, with emphasis on trade discrimination of west in order make east appear injured party on defensive, mislead public as to what actually goes on in east and make it forget who is responsible for economic and political division Europe. It will also serve to exercise some pull on Finland, possibly even Sweden and post treaty Austria. Omission Albania probably calculated in order provide convenient “first customer” and emphasis on “technical assistance” feature provides answer to President’s inaugural message. Within Soviet orbit CEEMA provides one further binding tie, helping prevent recurrence Tito defections. However, insofar as it is effective operating organ, it will serve only as instrument to facilitate implementation major policies on economic organization and integration reached at Soviet Politburo level and transmitted through Communist Party apparatus.

In Embassy’s opinion Soviet politico-economic policy vis-à-vis satellites conducted over three postwar years has attained majority its phase one aims, i.e. achieved absolute control over political leaders and parties, severed basic ties these countries with western world, destroyed bourgeoisie and landowners by nationalization and land reform and effected reduction of living standards to conform those prevailing USSR, avoiding to maximum possible, onus attaching to direct association these states during reduced consumption phase.

With Soviet effectuation wholesale price reform January 1, USSR’s economic structure and price cost relationships now reestablished on more rational lines and we expect Moscow will move swiftly and ruthlessly to phase two—in direction tightening yoke eastern bloc and speedy attainment reorganization these systems in manner providing most rational contribution this area to Soviet long-range military potential. Plans for this were doubtless made at Sochi and have been developed in detail during protracted Moscow visits satellite finance and trade delegations. While deference to certain propaganda values and necessary political fence reinforcements may occasion some delays carrying out accelerated timetable in phase two, Embassy doubts that any such bourgeois concepts as “economic complimentarity”, unbalanced “debtor-creditor relationships” or other considerations with meaning for economic systems orientated toward ultimate consumption ends will figure seriously in calculations of men whose ideas of economic assets encompass simple and basic elements, material, territorial and human, which will contribute to ultimate end—creation military potential equalling or surpassing that of west.

Embassy doubts that Soviet fixation on task creation world’s firmest currency, so far manifested in only its most harmless form, i.e. conversion dollar into ruble values, has in this initial stage even begun to salve Soviet sensitivity on question of preeminence of dollar in international arena. We rate highly Soviet ability utilize monetary and financial weapons, which within tightly-controlled system, pose far less formidable problems and provide vastly superior levers of control than available or common to experience of western world. We thus inclined regard monetary implements as probable Soviet first choice for effecting further penetration and control necessary in phase two, but primarily to stimulate realignment and readjustment of economic interrelationships and investment policy these countries towards Soviet ends. As to form financial arrangements most suitable these Soviet purposes among those projected in OIR’s excellent treatment this question (4800, January 2, 1949⁴) we favor “ruble bloc” pattern as offering best control mechanism. All-important integral feature any system chosen, however, would seem to be firm lever enabling Soviet direction basic capital investments.

In addition, recent Soviet flirtations with gold standard ideas suggest necessity further investigation possible significance gold overlays to “ruble bloc” system, e.g., where announced establishment inconvertible (naturally highly-controlled) ruble gold standard by Soviets would stimulate “mutual assistance” partners to line up for opportunity base their remodeled currencies on new proletarian model gold ruble. Finally, general assessment of potential value, propaganda, tactical, or real, possibly accruing to USSR through such a system or through other conceivable international valuta operations in present stable or some future hypothetical period of disturbance in international monetary arena seems necessary. Soviet Union as advertised haven for foreign capital may even be vision of Russian minds for coming stage capitalist crisis.

In Embassy’s thinking, eastern bloc states were definitely lost to west more than year ago and serious ideas on our part re methods returning these states peacefully to western camp constitute essentially wishful thinking. In making overtures and expressing contrary views satellite representatives who certainly have no real power and probably little information, are either seriously deceiving themselves or attempting mislead western representatives.

West’s answer to eastern union in our opinion should be confident, immediate and strong, involving:

(a) Clear exposure of background of formation this “independent cooperative venture” and fable of “sovereignty” with attendant ridicule for these “leaders [”] of formerly independent peoples;

(b) Review of current US gold policy with view its modification to reduce utilization by Soviet bloc for a circumvention export controls and interference functioning ERP;

(c) Tightened checks on communication lines from western Germany and other sources illegal shipments particularly to Czechoslovakia, Soviet Zone and Poland;

(d) Establishment import controls luxury and other non essential exchange earning items from all bloc countries;

(e) Offering of all aid and comfort to technical and scientific fugitives from east European countries;

(f) Review licenses for export US machinery to Soviet bloc countries intended ensure increased deliveries to west. We believe primary improvement likely to be in deliveries to east unless transaction tied in with specific delivery contracts.

Copies by pouch to Belgrade, Bucharest, Budapest, Geneva for Porter, Helsinki, London, Praha, Sofia, Warsaw, Paris for Harriman.⁵

Department pass Defense [and other?] Departments.

Kohler

1. Not printed.
2. Not printed; it reported upon the communiqué issued in Moscow on January 25 regarding the establishment of the Council of Mutual Economic Aid (see infra).
3. Telegram 2649, November 15, 1948, from Moscow ( Foreign Relations, 1948, vol. iv, p. 933), speculated that meetings and rumors of meetings between Soviet and satellite leaders at Sochi in the Caucasus were related to planning for future closer economic cooperation between the USSR and the eastern European satellites.
4. Not printed.
5. In his telegram Repto 2587, February 8, from Paris, not printed, William C. Foster, Deputy Special Representative in Europe for the Economic Cooperation Administration, informed W. Averell Harriman, Special Representative in Europe for the Economic Cooperation Administration, in Washington for consultation, that the presentation and reasoning of this message had impressed him, and he urged Harriman to read it (Moscow Embassy Files, 500 Eastern Union). For the Department of State’s response to this telegram, see telegram 108, February 25, to Moscow, p. 86.