860F.515/6–2547: Telegram

The Ambassador in Czechoslovakia (Steinhardt) to the Secretary of State


788. Re Dept’s 617, June 13,1 and supplementing my 707, June 16,2 I invite earnest attention of State and War Depts to following:

The confused and increasingly complicated financial relations between War Dept and Czechoslovak Govt have continued for period of nearly 2 years. For over 20 months of this period negotiations were carried on between War Dept and Czechoslovak authorities without result other than to irritate relations between the two govts. I am not in a position to appraise extent to which failure to reach satisfactory settlement for 20 months was occasioned by repeated changes in War Dept personnel caused by demobilization and to what extent it may have resulted from resentment of Czechoslovak Govt at being called upon to redeem so-called black market crowns. At time of my visit to Dept last February the deadlock had reached point at which both War and State Depts deemed it imperative that Embassy intervene with object of working out mutually satisfactory settlement between War Dept and Czechoslovak Govt as soon as possible. In line with this decision I undertook necessary discussions with representatives of War and State Depts in Washington and there was subsequently transmitted to me as the desiderata of War Dept figures on basis of which I was requested to effect a settlement on my return to Praha. On returning to Praha I entered into prolonged negotiations with Czechoslovak Govt. These negotiations called for certain additional but reasonable concessions by both War Dept and the Czechoslovak authorities [Page 217] and ultimately resulted in acceptance by Czechoslovak Govt of War Dept’s “final” proposal. On basis of this acceptance War Dept transmitted necessary documents to Embassy, presumably for purpose closing settlement. It was only with utmost difficulty that Embassy succeeded in having agreement approved by Czechoslovak Cabinet. The day after agreement was approved Colonel Barry of EUCOM telephoned me from Frankfurt to effect that War Dept had inquired of EUCOM as to whether there were any additional “claims” that should be incorporated in agreement and that after a thorough investigation he was reporting to War Dept two such possible claims: (A) Compensation for signal equipment left in Czechoslovakia by 22nd US Army Corps and (B) Rental for use locomotives. As to “A” I informed Colonel Barry that to my personal knowledge Major General Harmon, in command of 22nd Corps, had made gift of this signal equipment to Czechoslovak Govt and that Czechoslovak authorities held documents signed by General Harmon evidencing the gift. As to “B” Colonel Barry stated to me that the locomotives had subsequently been sold to Czechoslovak Govt and that it might be unjust to demand rental in addition to high purchase price. In this connection I subsequently learned that locomotives were sold to Czechoslovak Govt for $35,000 each although current value for similar locomotives was fixed at $10,000 each. At close of our telephonic conversation I informed Colonel Barry I considered we were morally committed to closing the settlement on terms agreed upon but in view of his phone call I would not sign any documents pending further instructions from State and War Departments.

It now appears War Dept desires advance a new item for Allied Military marks advanced to Czechoslovak liaison officers in amount of approximately 500,000 marks and of which no mention has ever been made heretofore. If this relatively minor item is only additional claim that War Dept has been able to uncover after an exhaustive search of its records, I urgently recommend that settlement already agreed upon and which represents substantial concessions by Czechoslovak Govt should not be jeopardized by pressing for inclusion this item. I am obliged to point out that as more than offsetting this item Czechoslovak Govt would be entitled to claim interest on the several million dollars admittedly due it from War Dept for over 1 year and payment of which has been withheld pending settlement of the other items in dispute.

While I am prepared, if War and State Depts so desire, to reopen negotiations and insist that one or more of above new items be included in settlement on such terms as War Dept may request me to seek I should feel somewhat embarrassed in so doing. Furthermore, matter [Page 218] would have to be renegotiated through all of interested ministries of Czechoslovak Govt involving very considerable delay and would then have to be resubmitted to Cabinet. I am not prepared to hazard a guess as to outcome of a resubmission to Cabinet other than that Communist members will take fullest advantage of situation.

As I have said nothing as yet to Czechoslovak authorities concerning possibility of reopening negotiations and as they have been expecting the documents to be signed by me from day to day, I would appreciate immediate instructions.3

  1. Not printed; it suggested that Ambassador Steinhardt defer further discussions with Czechoslovak authorities regarding the negotiation of the settlement of U.S. Army indebtedness to Czechoslovakia until additional points raised by the War Department could be clarified (860F.515/6–1347).
  2. Not printed; it reported that the Czechoslovak Cabinet had formally approved on June 13 the most recent U.S. proposal for the settlement of U.S. Army indebtedness. Ambassador Steinhardt considered the presentation of any additional U.S. claims precluded by the formal Czechoslovak acceptance of the already proposed settlement (860F.515/6–1647).
  3. Telegram 973, July 25, from Praha, not printed, reported that the matter of U.S. Army indebtedness to the Czechoslovak Government was formally closed on July 25 with the signing of an agreement and the exchange of letters. At the same time, various financial transactions called for by the terms of the agreement were carried out by both parties. The final terms had been approved by Lt. Gen. Lucius D. Clay, Commanding General, European Command, U.S. Army, whose representatives were present at the closing meeting of American and Czechoslovak officials (860F.515/7–2547). Regarding this agreement, see the editorial note, p. 226.