Foreign Relations of the United States, Diplomatic Papers, 1945, Europe, Volume IV

864.50/12–545: Telegram

The Representative in Hungary (Schoenfeld) to the Secretary of State

Budapest, December 5, 1945—5 p.m.
[Received December 8—3:23 a.m.]

1028. Minister Finance Gordon gave us account of his meeting yesterday with Sova, Soviet ACC Economic Adviser, reported my 1004, December 3.⁸⁵ Naumenka, who carried Sova’s invitation to Gordon, was present together with Stewart of British Mission and another British officer.

Gordon thanked Sova for ACC’s concern with Hungary’s economic problems and explained that following Sova’s request that he report on inflationary situation he collated relevant information and discussion summarized his findings in writing. Gordon then handed Russian version of memo dealing with Hungary’s financial and economic situation to Sova and English version to Stewart. Sova interrupted to say that purpose of meeting had nothing to do with inflation; that he had called meeting to consider proposal British wished to make to Hungarian Government. Sova then returned Gordon’s memo and Stewart followed suit.

Sova may have learned that Finance Minister’s memo, mytel 1029, December 5,⁸⁶ concludes with request that Allied Powers appoint commission to examine Hungary’s financial and economic situation and prepare economic program to enable Hungary to meet its obligations for reparations, other armistice obligations, the pre-war foreign debts.

After considering British proposal which related to establishment of Hungarian Govt account in London finance forthcoming Hungarian mission, Gordon reverted to question of inflation saying that continuation of present situation will bring complete collapse within few weeks for which he could not accept responsibility and therefore he had to request early ACC consideration of Hungary’s economic problems. Sova made noncommital reply saying he would discuss problem with him soon. Gordon calls this maneuvering to avoid consideration of problem in presence of Anglo-Americans.

Gordon had hoped this meeting would enable him on behalf of govt to raise question of Hungary’s economic situation with three powers and assumed responsibility for doing so without specific govt authorization because in view of Soviet attitude on reparations (my 945, November 22⁸⁷) reference to Hungary’s inability to pay reparations would have embarrassed Prime Minister.

Gordon told us he still expected to find opportunity to transmit his memo officially to three powers but hoped that since his request for ACC consideration was made in presence of British representative, Anglo-Americans would force consideration of Hungary’s economic rehabilitation by three govts represented on ACC. Finance Minister spoke critically about continued passive role of English and Americans, saying there could no longer be doubt as to course of events if Anglo-Americans did not act soon. After observing developments to date, he could only conclude that Soviet was deliberately engineering complete economic collapse knowing that it would be followed by revolution. USSR with use of its occupying forces “would then come out on top while Hungary and Anglo-Saxons would be losers.” This parallels suggestion last paragraph my 989, November 28.⁸⁸ Similar views have been expressed by other Hungarian officials but never so bluntly. Szalai recently told us he attributed Soviet’s attitude on Hungarian economy to their determination to punish Hungarians for sympathy with Western democracies.

Supply Minister⁸⁹ called on me yesterday described country’s economic condition and likewise appealed for US assistance. He explained that food distributed to Budapest population through rationing system provides only 560 calories per day, less than that distributed in any other European city and less than half of Berlin ration. Baranyos laid more stress on need for evacuating large army of occupation to enable Hungarian economy to function than he did on imports.

Govt business and financial circles are growing daily more panicky about economic situation and appeals for help now appear regularly in Hungarian press.

I believe present trends will lead to economic chaos, large-scale starvation and civil unrest by end of January or latest mid-February. (My 1019, December 4,⁹⁰ 945, November 22 and Ecker Racz report no. 5 November 5⁹¹). Such developments would liquidate present govt and recent progress of democracy in Hungary. Voters who may be said to have exhibited courage in national elections notwithstanding divers intimidations will be easy prey of forces opposed to western democracy. Say world public opinion may then incline to place partial responsibility for this course of events on lack of aggressive American policy pointing to America’s responsibility as signatory to Yalta and Hungarian Armistice agreements.

In view of above and Soviet’s silence re US proposal for tripartite consideration of Hungarian rehabilitation and notwithstanding view expressed in my 893, November 9 favoring Hungarian initiative I recommend that Dept instruct General Key to request that consideration of Hungary’s economic rehabilitation be placed on agenda for next ACC meeting. Key (?) thinks Voroshilov might be willing to discuss matter at least informally if presented by Key with a view to issuing directive to Hungarian Govt to submit its proposals for rehabilitation to ACC. Matter of curbing currency inflation has already been subject of informal discussion by Key with Voroshilov and Edgcumbe but no effective action has resulted.

I recommend further that policy of economic assistance to Hungary stated urtel 757 [752?], November 30 be accelerated and broadened despite risk that part of such assistance might also benefit a third power.

Sent Dept, repeated to Moscow as No. 117.

Schoenfeld

85. Not printed; it reported that the Hungarian Finance Minister had been requested by the Soviet representation on the Allied Control Commission to confer on currency inflation and related problems; neither the American political mission nor the military mission was asked to participate in the conference (864.51/12–345).
86. Not printed; it transmitted a summary of Finance Minister Gordon’s report. The concluding paragraphs of the report are quoted in the Department of State Bulletin, August 4, 1946, p. 231.
87. Not printed.
88. Apparent reference to telegram 989–A, November 26, 1945, 6 p.m., from Budapest. The final paragraph of this telegram stated that the Soviet sensitivity on the reparations matter suggested the possibiliy that “… Voroshilov does not countenance discussion of Soviet policies which are throttling Hungarian goose that lays the eggs because those policies are deliberate.” (740.00119 EW/11–2645)
89. Karoly Baranyos, Hungarian Minister of Supply.
90. Not printed; it reported that two-thirds of the Hungarian budget estimates for the month of December went for armistice obligations although amounting to only one-third of the amount due to the USSR; the Finance Minister lived in fear of a breakdown of the currency printing press which financed 95 percent of the budget; informed economic circles took for granted the complete Hungarian financial collapse within a few weeks (864.51/12–445).
91. Report No. 5 of November 5 by L. Laszlo Ecker-Racz, senior economic analyst of the American Mission in Hungary, not printed.