Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

208. Despatch From the Embassy in Finland to the Department of State⁰

No. 34

Helsinki, July 17, 1959.

REF

• Embtel 31, July 13, 1959¹

SUBJECT

• Emergency Economic Assistance to Finland

In view of Prime Minister Sukselainen’s recent public announcements of Finnish intention to consider affiliation with the “Outer Seven”² and the possibility of an adverse Soviet reaction, I recommended in the reference telegram that the United States be prepared to offer emergency assistance along the lines promised last November if Soviet pressures do materialize and President Kekkonen shows a will to stand firm. An immediate standby decision and authorization was recommended, with actual assurances to be given only if and when circumstances warrant. The Embassy had recommended earlier in D–806 of June 4,³ which discussed the basic NSC paper on Finland and the current OCB Progress Report, that the U.S. should continue, or adopt, as definite policy a quiet readiness, as during the autumn 1958 crisis, to provide adequate emergency assistance to enable Finland to withstand a partial or complete break in trade relations with the USSR.

In November–December 1958, pursuant to authority given in the Department’s telegram 228 of November 25,⁴ the Embassy informed selected Finnish leaders that the U.S. was prepared to offer Finland economic assistance if such assistance were necessary and desired by the Finnish authorities to enable Finland to withstand Soviet economic pressure. It was stated that the exact nature and dimensions of assistance we might offer had not been determined, but that it might consist of a combination of the following elements:

1. Sale of surplus agricultural commodities for local currency under P.L. 480 to replace certain imports from the Soviet Union.

2. Loan of the Finnmark proceeds of these sales.

3. Loan of other U.S.-owned foreign currencies for purchases in third countries of other essential commodities normally imported from the USSR.

4. Credit from U.S. oil companies to cover crude and refined petroleum requirements.

5. Limited dollar loan assistance.

This offer followed closely the information that consideration was being given to declaring Finland eligible for assistance on a continuing basis (which was accomplished in December) and a commitment in principle to a loan for the shipbuilding industry which had been urgently requested by the Finnish Government.

The Fagerholm Government fell—we had considered its fall inevitable before the assurance was given—but the Embassy is convinced that there was a major strengthening as a result of the U.S. action in the position of Finnish political elements determined to resist Soviet domination. Their stronger position had favorable effects in the period of nearly six weeks between the fall of the Fagerholm Government and the appointment of its successor under the present Prime Minister, minimizing the damage by forcing the President to limit the extent of his retreat before Soviet pressure to less than that which he was first prepared to make, thereby avoiding, e.g., Communist participation in the new Government. Therefore, the assurance may be said to have accomplished the limited objective which was possible of attainment, considering the domestic political angles involved and the novelty of our assurance in Finnish circumstances.

The situation today and in the immediately foreseeable future is somewhat different, but has many elements similar to that last year. The Finnish economic situation is better and foreign exchange reserves are in a better position. Both of these factors would improve Finland’s ability to resist Soviet economic sanctions to a limited degree. The loss or postponement of export orders or uncertainty regarding their continuation is less serious, at least less immediately serious, in a reviving economy with low unemployment than in a stagnant one with unemployment high. However, present reserves of some Fmk 63 billion (nearly $200 million) are still equivalent only to some 3–4 months normal import requirements, and leaving out Fmk 11 billion in Eastern Bloc currencies, which might not be usable in a crisis, they are still less. A small increase in exchange reserves with the main export season still ahead also would be helpful, though in this case only in postponing difficulties.

The Russians are at present in a somewhat less good position to exert quiet pressure through inaction on trade matters. In the fall of 1958 there were no contracts for 1959 deliveries and the failure to proceed with trade negotiations meant potentially substantial unemployment almost at once during the coming winter. Now contracts for 1959 have been concluded. Talks for 1960 would not normally begin for several months and the five-year trade agreement talks now on (recessed until late this month) do not directly affect trade until 1961. However, stalling on the five-year trade talks would quite quickly be seen as a sign of displeasure, and stalling on trade talks for 1960 could be an effective Soviet weapon later this year if the matter has not progressed too far before they become due. A more rapidly effective means of Soviet action would be stalling on acceptance of deliveries, and this is a form of action for which they have a successful precedent in December last year. The Soviets could again do this under the guise of balancing the bilateral account. They also have available, of course, the usual means of presenting their views through the press or through direct diplomatic action.

On the political side the situation is also more favorable than last year in that the present Government has not been subjected to accusations of unfriendliness to the USSR and that there would be no political advantage to President Kekkonen in not supporting it, rather the reverse. The Government could doubtless rely on solid support from most of the parties making up last year’s coalition if it stands firm. On the other hand, the Soviets, having had one recent experience with Finnish appeasement, might be more strongly inclined to persist in any pressure campaign they may undertake.

The Embassy of course does not know what the Soviet reaction to Finland’s step toward the Outer Seven will be, or what the Finnish reaction will be if the Russians indicate objection. There have been certain preliminary indications that the Soviets will not object and there also have been statements by very high authorities in Finland that they regard the matter as strictly Finland’s business. The Soviets have strongly condemned the Community of Six on the basis of its political objectives, and steps to work out arrangements between the Seven or Eight and the Six therefore may present additional risks of Soviet disfavor. Finnish officials naturally are concerned about this.

As we have noted in the reference telegram and G–1 of July 3,⁵ there is a compelling economic reason for Finland to persist: Finland cannot afford to stay out of an Outer Seven free trade area, if it is formed, because of the competitive disadvantage to her exports. On the other hand an adverse Soviet reaction seems likely at some point in direct proportion to the degree of success accompanying Finland’s desire to affiliate.

The next week or two, with an Outer Seven meeting scheduled for July 20–21, probably are critical. The Soviets are now under clear notice that Finland may join the “Outer Seven”—will join, it might be said, if the Seven are agreeable and necessary conditions can be met; a stronger initial statement could hardly have been expected—and the lack of any reaction now will certainly be construed in Finland as tacit assent.

If the Soviets object, they may show their position in any of a number of ways; direct diplomatic action, economic actions, and press attacks are among the possibilities. Whatever the initial action, economic measures are likely to follow or be threatened within a short time if the Finns persist in their course or take any line short of capitulation. In this case, assurances that economic assistance, if needed, will be forthcoming could be of prime importance. They might be needed within a very few weeks, or at latest when Khrushchev visits Finland August 26–30.

In last year’s crisis we estimated that needs would not exceed $60–70 million for a transitional period. Probably the same might be said today, except that with both foreign exchange reserves and commodity stockpiles somewhat larger, need for actual use of funds (as opposed to assurances) might not begin quite so soon. However, it would not be necessary to decide amounts in the first instance or to say anything about amounts in giving assurances. A general assurance of the type given last year would serve the immediate purpose.

The importance of the Seven plan to Finland, whether Finland joins or is forced to back away, can scarcely be overemphasized. If Finland moves forward, with or without Soviet objection, it will be a major step toward real independence and the establishment of further long-term and binding economic ties with the West; if Finland should back down in the face of Soviet pressure, it will be another major step toward greater dependence, political and economic, on the USSR. In the circumstances, and with the critical period potentially very near at hand, I urge the earliest possible authorization for the necessary assurances should appropriate circumstances arise.

In speaking of appropriate circumstances, I have in mind not only the threat of Soviet economic pressure, but evidence of Finnish will to resist which would be benefited by quiet American support. There may be already a widespread assumption that we would be prepared to help. However, should the question arise and should we be asked by the President or the Prime Minister, for example, or should we learn that they had doubts of western support, the authority to answer or volunteer assurances promptly could be crucial. I would not, however, volunteer assurances in circumstances where they evidently would not be effective in combating Soviet pressure.

I would appreciate special efforts to avoid any leak to the press regarding this recommendation or subsequent assurances. President Kekkonen evidently felt the leak last December to “Newsweek” was embarrassing to his position and he may even have felt that we sought to bring public pressure on him in this way. In such circumstances I believe that publicity is definitely harmful.

John D. Hickerson
American Ambassador

0. Source: Department of State, Central Files, 611.60E/7–1759. Secret.
1. Not printed. (Ibid., 440.002/7–1759)
2. The “Outer Seven” refers to the seven European nations, Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom, whose Foreign Ministers met July 20–21 to establish a European Free Trade Association (EFTA). The EFTA agreement was formally initialed on November 11, 1959.
3. Document 206.
4. Document 196.
5. Not printed. (Department of State, Central Files, 440.002/7–359)