Foreign Relations of the United States, 1977–1980, Volume XX, Eastern Europe

113. Telegram From the Department of State to the Embassy in Czechoslovakia¹

Washington, February 21, 1980, 1910Z

46720. Subject: Claims/Gold Proposal. Ref: (A) Prague 517; (B) 79 State 240364.²

1. (C-entire text)

2. Despite the generally inauspicious circumstances prevailing now, the Department is considering the desirability of moving on the Czechoslovak claims/gold question in the near future. We are contemplating tabling by next month in Prague the claims/gold proposal which has been under consideration with the following revisions:

—A 100 [percent] cash settlement of the remaining principal value of the claims ($66.5 million);

—Simultaneous delivery of the gold (now worth $420 million)

—Full cash settlement of the surplus property debt ($8 million). (If a concession became necessary during the course of the negotiations to obtain a high settlement for private claimants, we would be willing to consider accepting some or all of this government debt in crowns.)

3. In the changed conditions of 1980, raising the ante to this level may not be unreasonable. We believe there is at least a slight chance the GOC would agree to negotiate on such a proposal. We considered Deputy Foreign Minister Jablonsky’s reaction to the Ambassador’s suggestion (ref A)³ a positive sign in this direction. A further indication of possible GOC flexibility was reported by Paul Lyet of Sperry Rand. Lyet said that at a February 12 dinner with Ambassador Johanes and other Embassy officers, Johanes informed Lyet that several American lawyers had asked him why Czechoslovakia refused to settle the claims. Johanes said that he told them responsibility for making a proposal lay with the State Department. He asked Lyet rhetorically what the American claims were—$75 million? Then, with appropriately expansive gestures, he said, “we’ll settle for 100 cents on the dollar.” Even in the much more likely event they refuse, we would have at least attempted to carry out our responsibilities to the claimants and our mandate from Congress.

4. We believe the following factors argue for going ahead now:

—(1) The astronomical price of gold has unquestionably improved our bargaining position. Proposing a 100 [percent] cash settlement of the claims and having some reasonable expectation of achieving it is no longer unrealistic;

—(2) The prospect of having $385–500 million in ready hard currency should be very appealing to the GOC with its troubled economy and the imminent prospect of increased hard currency energy expenditures;

—(3) The half billion dollar gold prize is again sparking interest in the U.S. in vesting—for example, the Merrigan investment initiative—and we can reasonably expect this pressure to grow;

—(4) The British are continuing to press for our agreement to the delivery of the gold so that they can get on with their own claims settlement. Unless we are able to demonstrate some movement in the near future, they may seriously propose that the Commission order the delivery of the gold held by the Bank of England to enable HMG to bring into effect the 1964 UK-Czechoslovak agreed minute (ref B).

—(5) Although we have legitimate reasons for failing to make a new proposal after Congress repudiated the 1974 Agreement, our position is vulnerable to attack from the interested parties. The claimants say we have done nothing to advance their interests since 1974, and that inflation has seriously eroded the value of any settlement. Congress can point to the clear mandate it gave in 1974 to renegotiate the 40 agreement. And the Czechoslovaks can say that they have demonstrated their intention to fulfill their legal obligation to the owners of the nationalized property by twice agreeing to pay compensation. They can also point to our failure to return to the bargaining table despite our unilateral repudiation of both ad referendum agreements;

—(6) It would be more difficult to prevent Congress from mandating the vesting of the gold than it was to defeat the 1976 lawsuit. If vesting legislation were enacted, we would have considerable difficulties with the French and British Governments, and our relations with Czechoslovakia would be poisoned for years to come; and

—(7) Assuming that the GOC did not reject the proposal out of hand, we would be able to point to continuing negotiations to deflect congressional proposals to vest the gold, as well as “separate peace” proposals from the British.

5. We see the following objections to proceeding as recommended above, but we do not believe any of them to be overriding:

—(1) The chances of achieving a 100 [percent] cash settlement in the very near future are admittedly not great. Only Yugoslavia, among the Eastern European countries, paid anything approaching this amount. (It is interesting to note, however, that the primary reason for the high percentage of the Yugoslav settlement, which was reached in 1948, was the fact that we held Yugoslav monetary gold valued in excess of our claims against the GOY);

—(2) Reopening the negotiations with the Czechoslovaks at this time could be seen as a signal that we intend to proceed with “business as usual”, despite Czechoslovak support for the Soviet invasion of Afghanistan and continued repression of dissidents;

—(3) Tabling this proposal could raise unrealistic expectations among the claimants. If these expectations are not fulfilled, they could lead to increased pressures for Congress to vest the gold with the consequent adverse legal and political results; and

—(4) The Czechoslovaks could regard the proposal as insulting, and our already bad bilateral relations would become even worse.

6. Despite the problems and objections, we believe it prudent and desirable to move ahead at this time. If we are to do so, however, we need to get cracking now. We would appreciate the Embassy’s comments/counter proposals on the foregoing.⁴

Christopher

1. Source: National Archives, RG 59, Central Foreign Policy File, D800091–0872. Confidential; Priority; Exdis. Drafted by Johnson; cleared in draft by Crook and by Schmidt and Larrabee; approved by Barry.
2. Telegram 517 from Prague, February 11, is unrelated to the subject of this telegram. (National Archives, RG 59, Central Foreign Policy File, D800073–0665) Telegram 240364 to Prague, September 12, 1979, reported the U.K. Government position that Senator Long’s proposal of vesting and selling the Czechoslovak gold was illegal. The Department also reported that the United Kingdom had become impatient with the length of time the United States was taking to resolve the claim issue and was interested in proceeding with its own settlement. (National Archives, RG 59, Central Foreign Policy File, D790418–0244)
3. Ambassador Meehan met with Jablonsky on January 30 to discuss the state of U.S.-Czechoslovak relations. The Department cabled the Embassy with some informal suggestions as to how the Ambassador might probe Czechoslovak willingness to settle the claims/gold matter in light of the growing value of the Czechoslovak gold. (Telegram 25629 to Prague, January 29; National Archives, RG 59, Central Foreign Policy File, D800052–0743) Ambassador Meehan reported his conversation in telegram 400 from Prague, January 31. Jablonsky, Meehan reported, did not immediately reject the suggestion that Czechoslovakia might need to pay $64 million representing the full amount of claims, but rather he asked if MFN would be part of that package. (National Archives, RG 59, Central Foreign Policy File, D800059–0498)
4. In telegram 648 from Prague, February 22, the Embassy responded that it agreed fully with the Department’s assessment of the situation and proposed next moves. (National Archives, RG 59, Central Foreign Policy File, D800093–0016)