DIPLOMACY IN A WHIRLPOOL

TEXT OF A LETTER TRANSMITTED ON JULY 12 TO THE REPRESENTATIVES OF THE U. S. AND U. K. GOVERNMENTS ON THE ALLIED CONTROL GOMMISSION IN HUNGARY.

In view of the changed situation in connection with the termination of the war against Germany, the Soviet Government finds it necessary to establish the following order of work for the Allied Control Commission in Hungary.

1. During the period up to the conclusion of peace with Hungary the President (or Vice-President) of the ACC will regularly call conferences with the British and American representatives for the purpose of discussing the most important questions relating to the work of the ACC. The conferences will be called once in 10 days, or more frequently in case of need.

Directives of the ACC on questions of principle will be issued to the Hungarian authorities by the President of the Allied Control Commission after agreement on these directives with the English and American representatives.

2. The British and American representatives in the ACC will take part in general conferences of heads of divisions and delegates of the ACC, convoked by the President of the ACC, which meetings will be regular in nature. The British and American representatives will also participate personally or through their representatives in appropriate instances in mixed commissions created by the President of the ACC for questions connected with the execution by the ACC of its functions.

3. Free movement by the American and British representatives in the country will be permitted provided that the ACC is previously informed of the time and route of the journeys.

4. All questions connected with permission for the entrance and exit of members of the staff of the British and American representatives in Hungary will be decided on the spot by the President of the ACC within a time limit of not more than one week.

--------- 1 A Decade of American Foreign Policy, Basic Documents, l941-49 (Washington, 1950), pp. 47-48.

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5. The bringing in and sending out by plane of mail, cargoes and diplomatic couriers will be carried out by the British and American representatives on the ACC under arrangements and within time limits established by the ACC, or in special cases by previous coordination with the President of the ACC.

I consider it necessary to add to the above that in all other points the existing Statutes regarding the ACC in Hungary, which was confirmed on January 20, 1945, shall remain in force in the future.

DOCUMENT 1O

NOTE OF THE HUNGARIAN GOVERNMENT TO THE BRITISH, SOVIET AND UNITED STATES GOVERNMENTS CONCERNING THE EXPULSION OF THE GERMANS FROM HUNGARY.

Hungarian Ministry for Foreign Affairs 1 301/res. Be. 1945

Sir,

Certain news items published in the Press indicate that those competent to settle the problems of Central-Europe are misinformed about the number of Germans in Hungary and, what is more, about the number of Germans who may be expatriated from Hungary under the principles adopted by the victorious Great Powers. For this reason the Hungarian Government consider it as their obligation to inform His Britannic Majesty's Government about the following:

Census figures of 1941 indicate that the number of people of German vernacular on the territory of Hungary amounted to 477,057, while those of German nationality amounted to 303,419.

The difference between the two figures is considerable and due to the fact that amongst those of German vernacular were numerous elements of Jewish or non-German descents; moreover many of German descent and German vernacular entered their name on the census sheets as being of Hungarian nationality. This latter attitude meant their definitive rupture with Germanism and open confession on the side of Hungary in 1941, the heyday of German victories, just in the period of increasing German pressure and terror. Indeed, there is a considerable number of people of German descent and German vernacular who were willing to share the fate of Hungarians even in the period of the severest German oppression, many of them having participated also in the resistance movement of the democratic parties. And, indeed, while the special procedure undertaken in order to investigate the political reliability of Germans was under way, it was proven that in most cases only those can be penalized who gave confession of their being of German nationality.

Investigation of the German population as to their national loyalty takes place by means of district committees formed especially for that purpose under decree no. 3820/1945. M.E.

These district committees, after having taken into consideration the local conditions, and after a thorough and scrupulous pondering of all available data relating to the general attitude and individual status of persons under investigation, may ascertain the following facts:

1. They may ascertain that the person under investigation played a leading part in some Hitlerite organization, or by his own will joined an SS formation (par. 1., art. 4.).

2. They may ascertain that the person under investigation was a simple member

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DlPLOMACY IN A WHIRLPOOL

of a Hitlerite organization (par. 2., art. 3.).

3. They may ascertain that the person under investigation, although not being a member of any Hitlerite organization, still supported its aims (par. 3., art. 4.).

4. They may ascertain that the person under investigation was neither a leader, nor a member or supporter of any Hitlerite organization (par. 4., art. 4.).

Besides that, they may establish under art. 6 of the decree that certain persons of German nationality gave testimony of their patriotism and democratic spirit in spite of Hitlerite terror.

30,000 out of the total 303,000 persons of German nationality are living in towns, so that the investigation undertaken by the district committees affects 273.000 persons living in villages. Investigation returns from 96 communities indicate that 10% of the village population of German nationality were Volksbund leaders or SS soldiers, 28% members of the Volksbund or the Hitler Jugend, 32% supporters of the Volksbund, and 30% had no connection whatsoever with the Volksbund. Estimates in accordance with these data make it probable that 38% of the Swabian nationality, that is 103,000 persons, are to be punished by confiscation of their property under decree no. 3820/1945. M. E. As it is well known, this number comprises the members and leaders of Hitlerite organizations. Even adding to this figure the Germans having supported the Volksbund, the number of Germans to be expatriated will hardly exceed 200,000. Considering the fact that the most compromised Germans, and especially a considerable part of the German male population, left the territory of the country together with the beaten German army, it seems to be probable that 200,000 to 250,000 will prove to be a realistic estimate of the German population to be expatriated, as it has been intimated in the note of the 26th May, 1945 addressed by the Hungarian Government to the Government of the Soviet Union.

The Government of democratic Hungary avail themselves of this opportunity to state that it would be contrary to their conviction that Hungarian citizens should be expatriated solely on account of their ethnic origin. They are averse to this as well as to any kind of collective punishment. For this reason they consider it desirable that only those Germans should be expatriated who were manifest traitors to the cause of Hungary by their attitude of having served Hitlerism. The expatriation of these people is, however, considered to be absolutely necessary by the Hungarian Government, and they have the honour to request it, since this would be one of the pledges that German spirit and German oppression shall never be able to dominate this country again.

I avail myself of this opportunity to express to You, Sir, the assurance of my high consideration.

Budapest, December 1st, 1945. (signed) Gyongyosi.1

--------- 1 Identical notes were sent to the United States and Soviet Political Representatives.

DOCUMENT 11

NOTE VERBALE OF THE HUNGARIAN FOREIGN MINISTRY TO THE BRITISH AND UNITED STATES POLITICAL MISSIONS IN BUDAPEST CONCERNING THE EXPULSION OF THE GERMANS FROM HUNGARY.

139/res.Be. Budapest, December 15th, 1945. 1945.

N o t e V e r b a l e.

The Hungarian Government present their compliments to His Britannic Majesty's Government and have the honour to communicate the following:

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According to the point of view expressed repeatedly by the Hungarian Government up to the present, only those Germans were to be transferred to Germany who had joined the Volksbund or the SS, or who committed in the course of the war, an act of disloyalty against Hungary. The Government never planned, however. a transfer based on the mere fact of German origin, or speaking German as the mother tongue, which would mean a removal equalling collective punishment.

Considering, however, that from certain news items published in the press one could draw the conclusion that the Allied Powers are planning to oblige Hungary to remove 500,000 Germans, the Hungarian Government have the honour to request the kind communication of His Britannic Majesty's Goverment's ultimate position concerning this question.

Note No 130/res/Be of the Hungarian Ministry for Foreign Affairs dated December 1st 1945, contains detailed particulars regarding the number of Germans in Hungary. L.S. 1 ---------1. An identical note was sent to the American Political Mission in Budapest.

DOCUMENT 12 MEMORANDUM OF THE UNITED STATES MISSION IN BUDAPEST CONCERNING THE TRANSFER OF NATIONAL MINORITIES IN CZECHOSLOVAKIA. 1

In a note to the Government of that Republic in January of the current year the preliminary views held by the Government of the United States regarding the expulsion of Germans from the Czechoslovak Republic were expressed along the following lines:

1. Not only the needs of Czechoslovakia but also considerations of a general nature affecting future European peace and security, especially including the problems with which the occupation authorities of the Allies are faced in Germany, must be taken into account in solving this problem.

2. Minorities should only be transferred under the principles of international justice and in pursuance of international arrangements appropriate to that end.

3. In order to facilitate the settlement of transferred persons in an orderly way, they should be transferred by gradual processes.

4. No one nation should take action to effect the transfer of large groups of human beings pending the conclusion of international arrangements as above advocated.

The principles set forth in the note above mentioned to the Government of the Czechoslovak Republic are considered by the United States as being no less applicable with regard to the expulsion of minorities of Hungarian-speaking people from Rumania or Yugoslavia as well as Czechoslovakia.

The Governments of those states are primarily concerned with the matter of responsibility of these Hungarians for crimes against the state of which such Hungarians are citizens. The United States, however, would not consider it justified to deal with all members of an ethnic group who constitute a minority as criminals against the state and as subject to expulsion from its territory, only because of their ethnic origin.

It will be recalled that in the matter of the proposed organization of an international military court which will try major war criminals in Europe, the

--------- 1 Hungary and the Conference of Paris, Vol. II, pp. 4-5.

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Government of the United States proposed that a procedure be adopted which would make certain both a speedy and a just trial of important individuals and organizations who stand accused of war crimes and atrocities in European countries. The Government of the United States is not disposed to consider as included among such organizations entire minority groups of a single racial origin. On May 21, 1945, the Minister for Foreign Affairs of the Czechoslovak Republic who was then at San Francisco, California, said that punishment would be imposed only upon Hungarians who had conspired against the Czechoslovak Republic and who had fought on the side of the Nazis, but that those Hungarians who had shown friendliness to the cause of Czechoslovakia might remain in that country with the full rights of citizens of that Republic.

It may be added, that when reference is made in the foregoing to the Hungarian minorities it is not intended to include recent immigrants and displaced persons but only permanent residents of the countries mentioned belonging to the Hungarian-speaking group.

Budapest, June 12th, 1945.

DOCUMENT 13

REPLY OF THE UNITED STATES GOVERNMENT TO VARIOUS HUNGARIAN PROPOSALS CONCERNING THE PROBLEMS OF THE HUNGARIANS IN CZECHOSLOVAKIA. 1 Legation of the United States Budapest, Hungary, February 9, 1946 of America.

Mr. Minister,

I have the honor to refer to Your Excellency's Notes No. 120/res.-Be. of November 20, 1945 and No. 133/res.-Be., of December 11, 1945, in the matter of the Hungarian-Czechoslovak minority question and to inform Your Excellency, by instruction of my Government, in reply to those Notes as follows:

1. In present circumstances the Government of the United States does not consider feasible the formation of an international commission to examine the Hungarian-Czechoslovak minority problem or to supervise any exchange of population.

2. The Government of the United States cannot support a request for the establishment of international control of the districts inhabited by Hungarians in Slovakia.

3. The Government of the United States will recognize and support a humane settlement freely agreed to between the Governments of Hungary and the Czechoslovak Republic.

I take this opportunity to renew to Your Excellency the assurance of my highest consideration.

(Signed) H. F. Arthur Schoenfeld.

His Excellency M. Janos Gyongyosi, Minister for Foreign Affairs.

--------- 1 Hungary and the Conference of Paris, Vol. II, pp. 53-54.

DOCUMENT 14

REPLY OF THE BRITISH GOVERNMENT TO THE VARIOUS HUNGARIAN PROPOSALS CONCERNING THE PROBLEMS OF THE HUNGARIANS IN CZECHOSLOVAKlA 1

British Political Mission in Hungary. Budapest, March 19, 1946. No. 45 (4/73/46).

Your Excellency,

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I have the honour to refer to your communications No. 61/res.-Be. dated 14 September, No. 120/res.-Be. dated 20 November and No. 133/res.-Be. dated 11 December, 1945, regarding the Magyar minorities in Slovakia in which Your Excellency put forward a proposal that an international commission should be appointed to investigate the problems under dispute between the Hungarian and Czechoslovakian Governments and that, pending the appointment of such a Commission, the districts of Slovakia inhabited by Hungarians should be placed under international control. In the above communications it was also suggested that should exchanges of population be impossible, the transfer of Hungarians from Czechoslovakia to Hungary should be effected by the cession of the Czechoslovak territory in which the Hungarian minority resides.

2. The views expressed by Your Excellency on behalf of the Hungarian Government have been carefully considered by His Majesty's Government and I now have the honour, by direction from His Majesty's Principal Secretary of State for Foreign Affairs, to inform you that His Majesty's Government would be unwilling to participate in any international commission for the examination of the problem of Hungarian minorities in Czechoslovakia or for the supervision of any Czechoslovak-Hungarian exchange of population on the lines proprosed by the Hungarian Government. His Majesty's Government are of the opinion that this question should be settled on a bilateral basis between the two Governments concerned. Further, they would not be prepared to try to persuade the Czechoslovakian Government to agree to any frontier rectification in favour of Hungary though they would not withhold recognition of any changes freely agreed to between the two countries concerned.

3. His Majesty's Government have taken note of the agreement recently negotiated in Prague for the exchange of population and I am instructed to inform Your Excellency that this development confirms His Majesty's Government in their view that the best method of making progress in this problem is by direct negotiation between the two interested parties.

I have the honour to avail myself of this opportunity to renew to Your Excellency the assurance of my high consideration.

(Signed) W. Mitchel Carse

Acting British Political Representative

His Excellency Gyongyosi,

Hungarian Minister for Foreign Affairs.

--------- 1 Hungary and the Conference of Paris, Vol. II, pp. 54-55.

DOCUMENT 15

THE SPIRIT OF HUNGARY. 1

LEADERS' EFFORTS TO ESTABLISH DEMOCRATIC STATE.

A REAL IF UNEASY COALITION.

Any British visitor's estimate of the present state of Hungary must depend on the direction from which he arrives in the country. If he comes straight from London to Budapest he will be depressed by the war damage, the economic hardships, and the general uncertainty. But if (like your Correspondent) he comes from Rumania he will have just the contrary impression. He will note the energy with which the people of Budapest are rebuilding their city. He can buy newspapers and periodicals expressing widely different opinions on controversial subjects. Above all he will be surprised by the vigorous intellectual

---------1 Excerpts from an article published in London Times, October 31, 1946.

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activity displayed both in print and in conversation. In comparison with the mental sterility and haunting fear prevalent in the Balkans, Hungary seems an oasis of culture and liberty.

This comparison is essential for an understanding of the Danubian situation as a whole. It should not, however, be taken to mean that Hungary has not her troubles. In fact she is faced with grave problems in internal politics, in economic life, and in foreign policy.

The Hungarian Government is a coalition, and, unlike Rumania and Bulgaria, a real coalition. ...

It cannot be said that the coalition is working smoothly. There is constant friction in big and small matters. ... The Communists and Small Farmers exchange accusations and insults in public. It is frequently said that "this cannot last" and yet somehow it has lasted, and may well last a long time yet. Neither the left block nor the Small Farmers are confident of their ability to rule alone. Reconstruction needs the united efforts of all. In the last resort almost every one prefers the present situation to a breach.

... The parties of the left, though feared by many Hungarians as aggressors, consider themselves on the defensive. ...

In contrast to Rumania and the Southern Slav countries, it can be said of Hungary that, in spite of difficulties and mistakes, a real attempt is being made to build a democracy capable of maintaining friendship with both the Soviet Union and the Anglo-Saxon Powers. Whether it will succeed will depend, at least in part, on the west.

DOCUMENT 16

MEMORANDUM OF THE HUNGARIAN NATIONAL BANK ON HUNGARY'S REPARATIONS, PREPARED FOR THE CONFIDENTIAL INFORMATION OF THE BRITISH AND UNITED STATES MISSIONS IN BUDAPEST.

The pengo equivalent of the 300 million United States dollars of reparations to be paid by Hungary over a period of six years is equal to 1,400 million pengos on the basis of the 1938 parity, with small adjustments for price variations in the meantime. Of this, the reparations to the Soviet Union account for 933 million 1938 pengos (in the following pages, "pengos', are, in every case, to be taken as 1938 pengos). In estimating the actual burden which this represents, however, the following facts must be taken into consideration:

1. In valuing the goods to be delivered as reparations, the Soviet commission took world prices as the basis, and not Hungarian prices, which were much higher. In consequence of this the cost of producing or purchasing the goods to be delivered is in fact 2,000 million 1938 pengos.

2. The difficult conditions of delivery increase this sum by 15% to 20%.

3. The burden is greatly increased by the very heavy interest payable in goods in the event of deliveries being delayed a possibility which must be taken into consideration in the present state of the country's productive capacity. This interest is five per cent per month.

With the additional charges which these factors represent the total value of the deliveries to be made to the Soviet Union may well be in the neighborhood of 2,500 million pengos. If the same calculation is applied to those for Czechoslovakia and Yugoslavia, the total reparations payable by Hungary must be taken as between 3,000 and 3,500 million pengos, or 500 to 584 millions a year, which represents between 19 and 22 per cent of the present national income.

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In addition to this however there are the other services laid down in the Armistice Agreement. Under Clause 11 Hungary has to make payments and render services to the Soviet army and pay for the expenses of the Allied Control Commission, which are calculated at 238 million pengos a year. Under paragraph 2 of Clause 12 there is also compensation for the other Allied states and their nationals. Clause 13 provides that the legal rights and interests of the United Nations and their nationals on Hungarian territory are to be restored and their property returned in complete good order. It is at present impossible to express the value of this obligation in figures. There are, further, the country's pre-war foreign debts, which may be estimated today at about 2,300 million Swiss francs.

If Hungary is to make these payments and also effect any measure of reconstruction, the standard of living, which is already low, will be reduced to a disastrous level. The national income, wshich has already shrunk from the 1938/39 figure of 572 pengos to 289 pengos per head, would be further reduced by another 89 pengos. And the very heavy requirements of reconstruction would have to be met out of this national income of 200 pengos per head.

Even if these reparations, payments, and services did not have to be made the present agricu]tural production of the country is insufficient to feed the population properly. The bread-cereals harvest was exceptionally poor, as a result of which we have only 6.2 million quintals of grain available instead of the normal requirements of 17.2 millions, and even if 6 million quintals of maize are used to replace it, there is still a clear deficit of 5 million quintals. There has been a very severe decline in animal products as well, owing to 60 to 70 per cent of the country's livestock having been lost. Even if the comparatively low requirements of the population are taken as the basis, there is a deficiency of 35.8% in calories, 16.4% in proteins, 64.9% in fats and 28% in carbohydrates. It is however, inevitable that the agrarian population will retain rather more than the average quota, so that the daily calory ration of the urban population will probably average 1,478 instead of 1,766, whereas the League of Nations puts the standard at 3,080. This situation would suffer a further serious deterioration if fats and cereals have also to be delivered as reparations or for the supplies of the Red Army. It further entails a dangerous diminution in output per worker and will to work, and if carried further may well end in the complete crippling of economic life.

The industrial goods to be delivered as reparations, the industrial exports necessary to obtain the raw materials for their manufacture, and the investments needed to get reparations production started up, if taken all together amount to very nearly the total value of the production of industry, 525 million pengos (without the foodstuffs industry). At the present level, reparations would mean that there is hardly anything left for home demand. Yet the latter cannot be left unsatisfied, if only 20 per cent of the pre-war figure is applied to the population's requirement of industrial goods, 200 million pengos' worth of the latter are required. It must be noted that if the farmers cannot be supplied with certain industrial goods, it is almost impossible to get them to part with their produce. There are, however, two other forms of demand which cannot be neglected in industrial production: reconstruction and exports. Unless the farmers can be provided with the agricultural implements and machinery that they require, unless transport and communications can

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be restored, and unless the industrial equipment which has been destroyed can be replaced, there is the danger of a further fall in production. If there are no exports of industrial products, it is impossible to obtain the foreign raw materials which are needed for production and reconstruction, because this is very largely a task for industry now that agricultural exports have necessarily fallen off. Our factory production is today barely 35 per cent of what it was before the war, and not even the surviving proportion of industrial capacity can be utilized to the full. The decline is caused by the exhaustion of stocks of raw materials the difficulties of obtaining supplies, an insufficiency of labour and a fall in output per worker. If the causes of these difficulties are examined, it will be found that in most cases the food situation, transport and the inflation are at the back of the trouble.

The effect of reparations on the finances of the country may best be illustrated by the fact that reparations would absorb between 19 and 22 per cent of the national income, or if the expenditure for supplies for the Red Army is included, 31 per cent of it. The fact that budget revenue in the years before the war did not take even 20 per cent of the national income will show that the above-mentioned burdens alone claim a higher proportion of the national income than the State could obtain before the war through taxation and the receipts of the various ministries. At the same time it should be noted that as a result of various causes the State is at present unable to cover more than a very small proportion of its own requirements by means of revenue. Whatever may be effected, however, in the way of improving the budget situation, until production can be increased very substantially, reparations and the other services due from Hungary can only be covered by the use of the bank note printing press.

Although it cannot be expected that the country would be freed at one stroke from its economic and financial troubles by a mere relief from reparations, there can be no doubt that if a temporary moratorium were given there would be the possibility, if every endeavour were made, for the country to attend to the economic and financial situation on the basis of a well-thoughtout plan.

In view of the foregoing, it would seem unconditionally necessary for a reparations moratorium of at least two or three years, and further for an assurance that the country will be relieved of the duty of providing for the supplies of the army of occupation, which is at present estimated at one million men.

In addition to reparations, the other obligations of the country (service of pre-war foreign debts and restitution of Allied assets in the country) should be established jointly and after consideration of the country's economic capacity. If this principle were put into practice the probable result would be that there would be no foreign payments for a temporary period of two or three years; but during that time a degree of reconstruction could be achieved which would enable Hungary to begin the service of her foreign obligations without undue strain on the means of production.

(signed) Arthur Karasz President of the Hungarian National Bank

Budapest, November 24th, 1945.

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DOCUMENT 17

EXCERPTS FROM THE MINUTES OF THE MEETING (No. 599 OF THE COUNCIL OF MINISTERS

HELD ON OCTOBER 12, 1945,

UNDER THE CHAIRMANSHIP OF

PRIME MINISTER BELA DALNOKI MIKLOS. 1

Present were: Dr. Ferenc Erdei, Minister of Interior Dr. Imre Oltvanyi, Minister of Finance was represented by Secretary of State, Lorand Dabasi-Schweng Janos Gyongyosi, Minister of Foreign Affairs Janos Voros, Minister of Defense Count Geza Teleki, Minister of Religion and Public Instruction Imre Nagy, Minister of Agriculture Erno Gero, Minister of Commerce and Transportation Antal Ban, Minister of Industry Ferenc Nagy, Minister of Reconstruction Dr. Eric Molnar. Minister of Public Welfare Dr. Sandor Ronai, Minister of Food Provisions Dr. Istvan Ries, Minister of Justice Dr. Istvan Balogh, Political Secretary of State to the Prime Minister Dr. Gyula Kallay, Political Secretary of State to the Prime Minister Dr. Erno Bojta, Administrative Secretary of State to the Prime Minister, and recorder of the meetings of the Council of Ministers

The Prime Minister opens the meeting of the Council and asks Dr. Istvan Balogh, Secretary of State, to make a declaration on his behalf.

Dr. Istvan Balogh explains that the topic of this special session of the Council of Ministers is the Soviet-Hungarian agreement on economic cooperation. He recalls that the Council of Ministers authorized the Minister of Commerce and Transportation and the Minister of Industry to negotiate a trade agreement with the Soviet Government. The majority of the Council of Ministers was of the opinion that the named ministers were not authorized to sign any agreement other than the trade agreement. The standpoint of the Prime Minister was that the Provisional National Government could not assume responsibilities committing the country's economy for five years or more. Since the Prime Minister felt that the Provisional National Government had power only for temporary solutions and not for such far-reaching basic agreements, the Minister of Commerce and Transportation submitted the text of the Economic Cooperation Agreement to the members of the Cabinet and to the coalition parties. Thus all interested authorities are familiar with the text. The Prime Minister, on his part, recommends ratification of the Agreement on economic cooperation signed by the two aforementioned ministers.

He is making this recommendation because the Soviet Union respects the political independence of Hungary and does not intend to exert political influence. Besides, we are compelled to accept the Agreement due to overwhelming circumstances. According to our experience the Soviet Union shows great understanding towards us and gives help wherever we need it, and never used political pressure to impair our independence. If this were not the case the Soviet Union could simply dismantle and remove all German properties which were turned over to her by the Potsdam Agreement. According to the terms of the economic cooperation

--------- 1 Count Geza Teleki gave the Hungarian text of these minutes to General William Key, American representative in the ACC and to A.D.F. Gascoigne, British political representative, on October 13, 1945.

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agreement the Soviet Union would supply Hungary with badly needed raw materials. So far Hungary has not received any such promise from the Western powers. The agreement is helpful in connection with reparations. On the other hand if we would refuse ratification this would be an expression of mistrust towards the Soviet Union, and we would receive no favors from her. If we take into consideration the economic situation in the country a revolution would very probably be forthcoming in the spring. Therefore, he proposes ratification of the Economic Cooperation Agreement by the appropriate authorities and the ex-post facto vindication of the two ministers who signed the agreement in Moscow.

Nevertheless, the two following reservations are to be included in the covering letter in order to dispell the anxiety of the Hungarian public:

(1) The Contracting Parties declare that the Economic Cooperation Agreement is not exclusive in character towards the United States or any other countries.

(2) The Contracting Parties declare that the present Agreement concerns primarily those German properties which could be seized in Hungary by the Soviet Union in accordance with the Potsdam Agreement.

He wishes to note, however, that the Agreement could not be limited exclusively to German goods since the Soviet Union has a free hand as far as these properties are concerned; but the term "primarily" might give some comfort to the public.

Prime Minister: The essential thing is that the rights of the other nations notably those of the United Nations are not affected by the agreement.

Secretary Balogh: This is expressed sufficiently in the covering letter.

Prime Hinister: The representatives of the political parties should make a statement concerning their stand on the matter.

Minister of Interior: He accepts the agreement in his own name, but he does not know the stand of the Peasant Party.

Minister of Reconstruction: Accepts the agreement in the name of the Smallholder's Party with the reservations included in the covering letter.

Prime Minister: He thinks it necessary that the Minister of Commerce and Transportation give detailed information about the Agreement.

Minister of Commerce and Transportation: He thinks that he gave detailed information when he submitted the Agreement to the Council of Ministers for the first time. He is convinced that he and the Minister of Industry were fully authorized to sign the Agreement. He points out that this is not a special Hungarian matter because Rumania and Bulgaria already have concluded such agreements with the Soviet Union. Thus it seems to be advantageous for Hungary to attain the same position. Moreover, when he signed the Agreement he was greatly influenced by the information concerning the Potsdam Agreement which had transformed German property into Soviet property. It is also important to consider that our economic position is very bad and obviously will be worse in winter. We are getting important material for the welfare of the public within the framework of the trade agreement, but it is not everything that we need. We can get certain material only through economic cooperation. For example, materials necessary for the production of aluminum can be obtained only from the Soviet Union. We have to consider that we can obtain certain favors through economic cooperation. We hardly have any rolling stock and means of transportation. These problems can be solved only through close cooperation. Another consideration was that a general world economic crisis is imminent. In this event we cannot remain without a secure market. It is a well-known fact that the great economic crisis of fifteen years ago was delayed in Germany for one year

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due to a Soviet order of 900 million marks. Later when political conditions changed in Germany and the Soviet cancelled their German orders and gave them to England, the result was that the economic crisis did not reach such depths in Britain as elsewhere. If we safeguard our economy against such a crisis we can overcome the difficulties. We must do exerything not to weaken still further our capacity to produce. The Agreement is not of an exclusive nature. If we receive similar offers from other countries there is no obstacle to our accepting them. Therefore, it was the right thing to conclude the Agreement. The Council of Ministers in its decision should consider the interests of the country.

Minister of Industry: The political committee of the Social Democratic Party accepted the agreement, and, he himself, shares their views.

Minister of Foreign Affairs: Declares that he accepts the agreement in his own name as well as in the name of the Minister of Finance. He emphasizes this, because it is important that the agreement be accepted by all members of the Government. He shares the views of Secretary Balogh concerning the non-exclusive character of the agreement. Therefore, the first reservation of the covering letter is superfluous but it is still useful to dispel apprehensions. The essential thing is to give a proper political meaning to the agreement. As to the second reservation, he heard it now for the first time, and thus he could not discuss it with Envoy Pushkin. In his opinion it has no practical meaning. The Soviet Union wishes to make financial investments and to cooperate on a 50-50% basis at the most but by no means as a major partner.

This proportion means the establishment of common enterprises. This is a favor in the case of enterprises which were German properties and this favor leads us to conclude that the maximum Soviet ownership will be 50%, and possibly be even less.

Minister of Reconstruction: States that the Foreign Minister is not well informed because the Smallholders Party considers the second reservation important. A few members of the Cabinet negotiated directly with Marshal Voroshilov and Envoy Pushkin and both reservations were discussed with them. Thus they are not uninformed. One has to take into consideration the apprehension of the public, and this is expressed in the two reservations.

Minister of Foreign Affairs: Does not intend to raise difficulties and submits himself to the decision of the Smallholder Party. But he had to mention that he heard the second reservation for the first time.

Minister of Reconstruction: We gratefully and kindly accept the Agreement, but we have to clearly dispel the anxiety of the people.

Minister of Foreign Affairs: The covering letter is unimportant. The essential thing is the ratification of the agreement.

Minister of National Defense: His standpoint is that some provisions of the agreement are urgent and are to be executed immediately. Other provisions clearly fall under the jurisdiction of the government to be duly elected. The Provisional Government should not assume obligations for future governments, and should decide only urgent questions such as the liquidation of the German properties. The other problems should be left to the succeeding government which will have the responsibility for the execution of the agreement.

Secretary Balogh: Such apprehensions would be justified only if we would sign a detailed agreement binding for decades. But, the agreement is only a framework, a gesture, the expression of a trend. Its conclusion is definitely within the jurisdiction of the Provisional Government. A treaty to be concluded with the Soviet Union could make us an equal partner before the peace negotiations. We

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would have had similar desires towards other Governments as well, but we must accept such a helping hand in the interest of Hungary. Besides, he was informed that the negotiations on details would take place in Budapest. Thus, the entire government will have the opportunity to look into the matter.

Prime Minister: It should be left to us as to what extent we execute the agreements.

Minister of Commerce and Transportation: The agreement contains only principles, it is not binding for details.

Prime Minister: Thus, we can accept it with the reservations included in the covering letter.

Minister of Foreign Atfairs: The agreement will make it possible that part of the goods to be removed from Germany, as properties of the Soviet Union, could be used in Hungary.

Minister of Defense: Recognizes the loyalty of the Soviet Union, but he still thinks that there is a difference between the questions to be executed by the Provisional Government and those to be executed by the new duly-elected Government. The liquidation of the German properties is clearly within the jurisdiction of the Provisional Government, and this is an important question for Hungarian industry. Other problems should be dealt with later. All governments are criticized later and usually the previous governments are blamed.

Minister of Foreign Affairs: This is a highly exaggerated view; after all, we may rightly consider ourselves better than the government of Szalasi.

Minister of National Defense: If this is considered as a joke I am obliged to leave the session of the council.

(The Minister of Defense walks out and his place is taken by the secretary of state in the Ministry of Defense, Istv_n B. Szabo.)

Minister of Religion and Public Instruction: He is not versed enough in economic questions to fully appreciate the implications and repercussions of the problem, however, he wishes to state his own opinion in the light of his recent experiences in economics and constitutional law. He considers that the conclusion and ratification of such an Agreement is not within the jurisdiction of the Provisional National Government. A National Assembly which was not duly elected, and a government formed under the known circumstances would give the impression that the Government wants to bind the interests of the Nation in one direction. In view of the fact that an ACC has been functioning in Hungary he raises the question as to whether the two other members of the ACC consider the conclusion of the Agreement appropriate and as to whether they have made a declaration to this effect. The fate of a nation does not depend on a winter; economic survival is not the primary question; political existence and independence are vital. He wonders whether we asked for the opinion of the two other members of the ACC, in order to get a negative or a positive answer. If we fail to do this, we may encounter poiitical difficulties endangering Hungary's interests. He is neither an economist nor a party man, and thus considers the whole problem objectively. He came to the conclusion that we must ask for the opinions of the United States and the United Kingdom. He emphasizes that according to his knowledge their point of view is negative. One sided commitments, such as were those toward Germany, may be dangerous for the interests of the country.

Secretary of State Schweng: Shares the views of the Minister of Public Instruction. The ACC also interferes in much smaller matters. It would seem natural therefore, that the opinion and comment of the ACC should be solicited before the ratification of this very important agreement.

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Minister of Commerce and Transportation: The Minister of Religion and Public Instruction is worried about the independence of the country and at the same time he wishes to ask questions which would touch upon the independent acts of the country. There is only one ACC in Hungary, and its Chairman is Marshal Voroshilov. Consultation with him is sufficient.

Minister of Religion and Public Instruction: The points of view of the members of the ACC may differ. Hungary has not yet concluded peace. She faces not only the Soviet Union but all those states with whom she concluded the armistice. In case of commitments she is obliged to protect equally the rights and interests of all those countries. Therefore, we have to know the standpoint of the two other governments. If, however, this has already been taken care of, he does not wish to continue the debate.

Secretary Balogh: The ACC was duly informed through Marshal Voroshilov. It is not up to the Provisional Government of Hungary to interfere with the solution of the problems_within the ACC. This is an internal affair within the ACC and it is not our business to direct their attention to such problems.

Minister of Religion cnd Public Instruction: He does not wish to comment on economic matters, but he thinks that the official standpoint of the two other governments has not been clarified at least this point is not clear to the members of the Provisional National Government.

Secretary Balogh: We shall be envied because of this agreement, especially by the satellite countries. For the time being it means only economic benefits and political sacrifices are not involved. Besides, it would be too hazardous to raise the suspicions of the Soviet Union by delaying the ratification. As far as he is concerned, he carefully pondered all the details, and according to his best conscience, he recommends ratification.

Minister of Interior: Accepts the agreement with the reservations to be included in the covering letter.

Minister of Foreign Affeirs: He would formulate this in the sense that the Provisional National Government interprets the agreement according to the covering letter.

Secretary Schweng: Referring to his previous remarks, mentions that the ACC had to be consulted in connection with the release of new currency notes and the regulation concerning foreign exchange. In this much more important case, it would seem absolutely necessary to ask for the opinion of the ACC, and this is not a mere forma]ity.

Minister of Religion and Public Instruction: Proposes that the government submit the question to the Chairman of the ACC, and ask for an official reply from the ACC concerning the conclusion of the agreement.

Secretary Balogh: States again that Marshal Voroshilov knows of the agreement, and through his person all members of the ACC are to be considered as informed.

Minister of Foreign Affairs: Confirms the statement of Secretary Balogh.

Minister of Religion and Public Instruction: If both the Prime Minister and the Foreign Minister would state that the Marshal negotiated about the conclusion of the Soviet-Hungarian Economic Cooperation Agreement in his capacity as Chairman of the ACC, and thus the representatives of the two other great powers were informed of the Agreement and gave their consent to it, he would for his part accept the Agreement.

Secretary Balogh: Declares for the satisfaction of the Minister of Religion and Public Instruction that Marshal Voroshilov as a matter of course negotiated

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on the matter of the Agreement as the Chairman of the ACC.

Minister of Foreign Affairs: This is only natural.

Minister of Religion and Public Instruction: Takes note of the declarations made in the name of the Prime Minister by Secretary Balogh and by the Foreign Minister.

Prime Minister: Declares the Agreement to have been accepted by the Council of Ministers with the reservations to be included in the covering letter. He wishes to add that we will have free hands in the forthcoming negotiations on details concerning the nature and value of the agreements to be concluded.

Minister of Commerce and Transportation: This latter statement is unnecessary because it is included in the Agreement and is a logical consequence of it.

Secretary Balogh: Does not think it necessary either, because we are concluding only an Agreement on principle.

The Council of Ministers accepts the Soviet-Hungarian Economic Cooperation Agreement with the following statement to be included in the covering letter:

(1) The Contracting Parties declare that the Soviet-Hungarian Agreement on Economic Cooperation is not exclusive in character towards the United States or any other countries.

(2) The Contracting Parties declare that the present agreement concerns primarily those German properties which could be seized in Hungary by the Soviet Union under the provisions of the Potsdam Agreement.