Foreign Relations of the United States, 1950, Central and Eastern Europe; The Soviet Union, Volume IV

762B.00/7–650: Telegram

The Director of the Eastern Element, HICOG Berlin (Morgan) to the Office of the United States High Commissioner for Germany, at Frankfort¹

confidential

Berlin, July 6, 1950—6 p. m.

35. Re ourtels Frankfort 1107, repeated Department 904, June 10; Frankfort 1199, repeated Department 972, June 26; Berlin’s despatch 133 June 29.² Following preliminary comments on political economic implications GDR agreements with satellite countries.³

1. Agreements between GDR and Poland, Czechoslovakia and Hungary consisting of joint declarations supplemented by trade, financial, technical-scientific and cultural agreements, signed in respective satellite capitals by German delegation headed by Ulbricht, followed by ratification by GDR Government and letters of Pieck and Grotewohl to satellite Presidents and Minister-President confirming agreements. Outstanding implications of agreements are integration of GDR in orbit’s political, economic and possibly security system, and further preparation for conclusion of peace treaty or virtual equivalent.

2. Notable above agreements are type so far made by GDR with only three satellites. No public indication as yet that similar agreements contemplated Rumania or Albania, and Bulgarian agreement (signed by Bulgarian Foreign Trade Minister Daskaloff and Secretary State Ganter-Gilmans June 19 in Berlin) apparently belongs more modest category, limited to expansion trade and technical-scientific field. GDR Trade Delegation reported at present in China to be joined early July by Minister of Trade Handke; this indicates early China agreement sure to be given great publicity, but whether like Polish et al or merely trade-technical remains be seen. In any case, most distinctive feature on Polish type seems settlement of hitherto “unresolved question,” since emphasis was on border and population resettlement problems. This reminiscent of recent moves by USSR to settle outstanding issues such as PWs, concentration camps, reparations, return SAG’s, transfer property control; suggests major satellite agreements are part of same series of events, pointing toward early conclusion peace treaties.

3. Rapid succession these moves suggests accelerated timetable, perhaps desire announce completion phase of settling old scores at SED Congress July 20. Date announcement actual end of state of war, of course, remains conjectural but worth keeping eye on GDR calendar for possible occasions, such as SED Congress and completion two-year plan July 20, elections October 15, possible National Front Congress between July 24 and October 15, conclusion five-year trade agreements with orbit countries in September, beginning orbit-integrated five-year plan January 1, all-German Congress fighters for peace September 20. Among these, elections now seem best bet, since peace declaration might very logically hinge on formation of non-provisional “German” government. Most symbolic occasion for offer by USSR this direction would be October 13 anniversary Stalin message to Pieck. This would come on eve of elections, and date October 15 possibly chosen with some such dramatic sequence in mind.

4. Speed of agreements may also mean clearing of decks to react to West German developments. Concluded agreements labeled answer to West German entry into Council of Europe. Discussion of revision of occupation statute and possible peace treaty with West Germany may stimulate preparation for counter-moves in East.⁴ These are merely tactical considerations, however. Soviet drive is self-propelled.

5. Integration into orbit security system, of course, indicated only indirectly for most part thru closer political and economic ties; but technical-scientific agreements and reference in Ulbricht’s Praha speech to “common training” of youth groups have direct military implications.

6. Agreements are abundantly exploited for propaganda as success of GDR foreign policy and in peace campaign. “Debate” over agreements Volkskammer brought forth definite statement against German “neutrality” by Huebener (East LDP). In line with National Front bid for West Germany, East emphasizes agreements concluded in name and for all Germany, holding up some benefits as bait.

7. Scanty information foreign economic clauses generally confirms previous statements on expansion of trade over previous year. Similarly, however, to trade agreement with USSR,⁵ announced percentage increases over 1949 (USSR 35 percent, Poland 60 percent, Hungary 70 percent, Czechoslovakia 80 percent) remain below planned 90–100 percent increase in 1950 trade volume. Planned five-fold increase in Bulgarian trade relatively insignificant due to small volume of trade heretofore.

Combined USSR, Polish, Czechoslovak, Hungarian, Bulgarian planned trade increase in 1950 amounts to about 50 percent increase over 1949, GDR trade with these countries constituted 77 percent of 1949 trade (foreign trade excluding inter-zonal trade, reparations, et cetera). Imports in 1949 amounted to only about 3 percent of GDR gross national product. (West German imports 1949 about 10 percent of GNP.) Assuming 50 percent increase in trade volume and 10 percent increase in GNP in 1950 trade will amount to only about 4 percent of GNP which believed still insufficient utilization of industrial capacity. (Aside from still continuing Soviet takings in form of reparations et cetera.)

(Note: Above calculations based on 1949 foreign trade figures of GDR expressed in DM (east) at 1944 prices.

In recent Soviet-licensed press only few dollar figures given, e.g. volume of Polish trade 1948: $84 million, 1949: $152 million; planned 1949 Czechoslovak trade 44 million. These figures would indicate rather high value for mark (1 DM—$0.49–0.51) against previous estimates of about 1 DM—$0.35–0.40. In the Polish trade, such high value for DM can be explained since bulk of imports from Poland consist of coal accounted for at rather low price in DM (hard coal 33 DM, brown coal 3.20 DM, coke 45 DM per ton). In case of Czechoslovak trade likely that dollar figure represents unreached plan figure.)

8. On basis of overt information pattern of trade will remain the same as 1949. With expansion over-all trade volume, imports may become more diversified. Also food imports may increase. On export side a relative decrease of share of potash and steel scrap exports can be expected, whereas light machinery, optics and possibly chemical exports may increase. Lumber exports will probably remain at present level.

9. Some improvement consumer supply expected as result of trade agreements. Furthermore, separate short-term credit arrangements concluded allegedly over and above trade agreements serve purpose of financing consumer good imports in immediate future. Sketchy information given on credit arrangements implies these short-term credits will be used primarily for food and shoe imports. The announced 1.4 million leather shoe imports from Czechoslovakia during 1950 constitute nearly 20 percent of expected leather shoe production of GDR, but even these imports will increase leather shoe availability only to about 48 percent of pre-war availability. While credit arrangements may be bona fide instruments facilitating factors, they may also be interim consolidation hitherto unfavorable payments balances. Particularly vis-à-vis Poland and Hungary GDR has run up substantial debit accounts. Most likely credit agreements served purpose both settlement these obligations as well providing new credits for increased supply consumer goods to enable GDR fulfil its plans substantially derationing economy by end of year and probably before elections.

10. Agreements foresee the preparation of five year trade agreements to be concluded in September and exchange of information on various five year plans to be put into effect January 1, 1950. This indicates efforts to synchronize production planning in all orbit countries. On basis of present information it appears preparatory work on economic integration proceeds along broad outlines rather than giving detailed programs. Noteworthy that even under existing severe central controls foreign trade planning has been least effective and fulfillment constantly remained behind targets. Failure probably largely due to continued nationalistic approach and although present efforts imply departure toward supra-national planning, establishment of permanent planning may become necessary to fulfil task.

11. Aside from playing up economic integration against “failure of Marshall Plan,” the GDR may increasingly be used as intermediary to procure needed equipment from west.

Department pass Moscow, sent Frankfort 35, repeated Department 23, Moscow 2, Paris 5, London 1, pouched Warsaw, Praha, Budapest, Bucharest.

Morgan

1. The source text was sent as 23 to the Department of State.
2. Neither printed.
3. For the texts of the agreements with Czechoslovakia (June 23) and Hungary (June 24), see Dokumente zur Aussenpolitik der Regierung der Deutschen Demokratischen Republik (Ruetten & Loening, Berlin, 1954), Band 1, pp. 379–381 and 430–432; an extract from a similar agreement with Bulgaria (June 19) is printed ibid., pp. 460–461; regarding the agreements with Poland, see editorial note, supra.
4. For documentation on the revision of the occupation statute and the termination of the state of war with the Federal Republic, see pp. 737 ff. and 590 ff., respectively.
5. Regarding the trade and payments agreement with the Soviet Union, signed on April 12, 1950 at Moscow, see Vneshniaia politika Sovetskogo Soiuza, dokumenty i materialy, 1950 god (Moscow, Gospolitizdat, 1953), p. 142.