48. Telegram From the Embassy in Czechoslovakia to the Department of State1

1642. For EURJohn Leddy.

It is quite obvious Czechs believe with some justification that ball is in US court on return of monetary gold and settlement economic/financial issues. For number of reasons, not least of which is strong desire to spur foreign trade and constructive economic reform, Czechs intend press both diplomatically and by propaganda means for return of gold. Closely related if not especially decisive factors are Czech prestige and fact UK and France ready to release gold.
Conversely I personally believe that should Czechs be offered the prospect of early release of gold, say within next two months,2 they could be persuaded to promise a higher figure on nationalization claims. The problem would be to establish this as a sine qua non commitment in the context of the FonOff suggestion that gold and claims be settled “separately or semi-separately” (Prague’s 1596).3 Tactically we could endeavor to work out a linked understanding or advance agreement [Page 173] through which we could obtain an indication whether increase on claims would be within negotiating range. My own view is this is worth trying.
One method would be to accept principle of FonOff Feb 24 note (Prague’s 1393)4 of gold return and immediate payment to US of $2 million balance on claims with added proviso Czechs would agree to negotiate immediately thereafter higher claims settlement. Incentives we could offer would include (a) ten-year or longer stretch-out on payment of increment; (b) removal of Czechoslovakia from Treasury Circular 655; (c) US export licenses for miscellaneous goods purchased by Czech firms in 1948; and (d) release of blocked Czech assets (to be offset by Czech release of US Army crown account and special crown “film account”).
More practicable approach would probably be to advise Czechs informally we desire to release gold at an early date and have certain suggestions for settling claims at same time. They by now must understand our domestic political problem and we are prepared to take theirs into account by proposing modalities which would make an upward claims settlement easier for them. These would include incentives (a) through (b) above plus a willingness to fund their present offer of $2 million into an enlarged total within the stretch-out period. We could then ask Czechs to consider giving us early indication how much such suggestions would be worth to them in terms of an increase which would produce a final settlement and remove major long-standing irritant in bilateral relationship.
I do not think potential benefits of East/West Trade Act should be introduced into claims picture at this stage. We can nevertheless argue that payment of a higher figure will be facilitated by a likely increase in trade during a ten-year stretch-out. I do believe, however, eventual resumption for debt service on bonds will depend directly and decisively on restoration of MFN and accrual of hard currency.
The UK experience with the Czechs in above general regard is illuminating although not entirely satisfactory and we can telegraph a brief summary furnished us by UK Embassy if information unavailable in Washington.
  1. Source: Department of State, Central Files, FN 19 CZECH. Confidential; Limdis.
  2. In telegram 1653 from Prague, April 6, Beam amplified: “Mention of ‘two months’ in Para 2 intended to apply to period during which negotiations would be undertaken rather than to actual release date for gold which probably not feasible.” (Ibid.)
  3. Telegram 1596, March 25, reported on discussions with Czech officials at the time of the March 24 delivery of a U.S. note on the gold issue. (Ibid.)
  4. See footnote 2, Document 47.