864.516–Export Import Bank/5–946
Memorandum by the Economic Counselor at the Embassy in France ( Merchant ) to the Director of the Office of European Affairs ( Matthews )
In accordance with your request of yesterday that I communicate formally to Mr. Gordon, the Hungarian Finance Minister, the decision contained in the Department’s 2154 of May 7, 6 pm regarding the non-existent prospect of an Ex-Im Bank loan to Hungary at this time, I arranged for Mr. Gordon and Mr. Makai, his advisor and interpreter, to come to my office at noon today.
Upon their arrival I informed them that a telegram had been received from the Department stating that there would be no purpose in Mr. Gordon proceeding to Washington at this time since there was little if any possibility that a loan could be extended to Hungary. I pointed out that our foreign loan policy was determined by the National Advisory Council which had established a clear policy against the extension of credit to the countries which are paying reparations and still under occupation. I said that you had listened with sympathy to the Minister’s exposition when he saw you and that you were naturally sorry that the decision in Washington was disappointing to him.
The Minister through his interpreter immediately stated that this had not come to him as a surprise since he had been warned by Mr Karasz, Manager of the National Bank of Hungary, who had talked to a member of the Secretary’s delegation, that Washington’s decision was adverse. I was then read a prepared statement which expressed the Minister’s surprise and disappointment at the decision. This statement emphasized the political capital which would be made of the failure of his mission on this negotiation and expressed the hope that the decision could be reconsidered. The statement went on to say that coming on top of the decision yesterday on the Transylvanian border, the rejection of a request for a loan negotiation would be widely interpreted as complete lack of interest on the part of the United States in the fate of Hungary.
I was then shown a passage from an article in the London Times of May 8 in which Mr. Byrnes, in reply to Mr. Molotov, was alleged to have stated “There was certainly gold to the value of $32,000,0000 in Frankfurt held in trust; his government would not touch a dollar of it and would see it was returned to the rightful owners”. The Minister then asked whether in view of this statement and on the basis of a commitment which he was prepared to give it would not be possible for the Ex-Im Bank to loan Hungary $10,000,000 with this $32,000,000 [Page 297] of Hungarian gold as collateral. I replied that I knew nothing of this matter of Hungarian gold or the Secretary’s alleged statements with regard to it. I said I assumed however that this aspect of the problem had been taken into account in Washington’s decision and that my personal view was that there was little possiblity of a reversal of the decision. I promised however to report to you in full for any discussion you might have of the matter with the Secretary, Mr. Gordon’s plea. Mr. Gordon then said if the matter could not be reopened he would leave for Hungary on the evening of May 13 with the knowledge that he had failed and fully aware of the political consequences in his country. He asked that some time prior to Monday he be informed whether or not there was sufficient possibility of a reopening of this matter to justify postponing his departure. I repeated that personally I could hold out no hope but that I would undertake to see that a message from you either directly or through me would reach him at the Grand Hotel prior to Monday and regardless of whether or not the reply was negative.
From the tone of Washington’s telegram under reference and in the light of Schoenfeld’s relative message2 it does not seem to me worth reopening the question with Washington. If you so decide I should be glad to transmit to Mr. Gordon a confirmatory negative reply.
I might add that immediately following this session I was one of five at a small luncheon arranged last week attended by both Mr. Gordon and Mr. Makai. The atmosphere was funereal.