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The basic idea of this plan was that the three like-minded States should make such small adjustments between themselves as would eliminate all possible causes of friction, and then form a common front to realize their respective ambitions against the other world. According to Gombos' calculation, history proved that the status quo camp would not yield except to force. Making such an alliance, Hungary, as a third party, would keep the balance against Germany for Italy's sake.

The tragic fallacy in Gombos' ideas is that it never once occured to him that either Germany or even Italy might have ideas of their own about East-Central Europe. He believed that a common interest in overthrowing the Peace Treaties was all that was required for such an alliance.

When Gombos came into office, one member of the proposed Axis was in any case lacking, for Hitler was not yet in power in Germany. But Mussolini was there, and Gombos took the opportunity in the autumn of 1932 to visit Rome. But it did not bring the Axis nearer, for when Hitler did come into power, the only early move which he made in East-Central Europe was to start an agitation in Austria. As Mussolini by no means accepted Gombos' Axis doctrine but regarded Austrian idependence as a vital interest of Italy's, the first result of Gombos' policy was that Hungary was drawn into a bloc, composed of Italy, Hungary, and Austria, the chief reason for which was precisely to thwart Hitler's ambitions. If, in the negotiations which began at the end of 1934 between Italy and France, France had been able to persuade her allies of the Little Entente to make any concessions of substance to Hungary, Hungary might yet have found herself a member of a new European combination directed against Germany. The Franco Italian negotiations of 1934 failed, however, leaving behind them, as their first fruit, the Franco-Soviet and Czechoslovak-Soviet Pacts of Mutual Assistance, and were followed by Mussolini's


quarrel With the West and his announcement of the formation of the "Rome-Berlin Axis".

By this time Hitler had occupied the Rhineland and it was clear that Germany would soon be able, if she were willing, to perform the role which Gombos had assigned to her. But by now it was also clear that the situation created by Germany's emergence was nothing as simple as Gombos had imagined. Hitler made it clear that he had no intention of restoring Hungary's historic frontiers. He told Gombos, when Gombos visited the Fuhrer in June. 1933. that nothing should stop him from annexing Austria; sooner or later he meant to dismember Czechoslovakia; Hungary might, if she would, take her share in the partition of Czehoslovakia. That was all Hungary,- would get out of Germany. As regards Yugoslavia and Rumania, Hiter's instructions to Hungary were to keep her hands off


It seems that Gombos did not accept Hitler's plan in full. He said that Hungarian revisionist policy must aim at three objectives: the unification of all Magyars, the safeguarding of the nation's economic interests, and the strategic securlty. He showed Hitler a line on a map which took in all the preponderantly Magyar areas adjacent to the Trianon frontier, plus the Szekely districts (Hungarians in East Transylvania) with a corridor through Central Transylvania (16)

In spite of this, Gombos seems to have scored a considerable personal success with Hitler, who liked him as he liked few Hungarians and was prepared to help him where he could do so without detriment to his own plans. He promised him not to make his position difficult at home by stirring up the extreme Right Radicals or the German minorities, to supply him with arms, and to give favorable treatment to Hungarian exports.

Germany's trade with Hungary now rose rapidly. Germany began to take a high proportion of Hungary's agricultural produce, especially livestock and industrial plants, and almost monopolized the exports of the newly-developing bauxite industry of which she was taking 96 percent in 1937. She exported to Hungary chiefly finished products, but also coal, coke, and tar derivatives. It was not only quantitatively that Germany thus occupied a dominant position in Hungary's economy. She interlocked Hungary's economy with her own in such fashion that many Hungarian factories would simply have been unable to carry on production without German raw materials, machines, or machine tools. The Hungarian factories carried out certain processes which had to be either begun or finished in Germany.(17)

Germany's financial and economic relations with Hungary, as with other countries in East Europe, now added powerfully to her


influence, political as well as economic. But the Hungarians could not altogether reject this opportunity of trade relations which brought them many advantages. a regular and assured market for Hungary's most important exports and, in return, cheap goods of reasonable quality adapted to her needs. The decrease in unemployment and the revival of industrial production was related to the trade with Germany and increased the popularity of Germany among the workmen Germany was even more popular among the agricultural laborers, many of whom now began to go to Germany for seasonal work. They were well treated and well paid, and often returned ardent Nazis.(18)

Gombos certainly never gave up his aspiration to create a one party corporate State. Nevertheless, those who expected him to becomc a dictator were disappointed. His freedom of action was strongly limited and his time in office was too short to justify either the hopes or the fears which the news of his appointment evoked. First. Regent Horthy tied Gombos' hands on appointing him: Gombos was not to dissolve Parliament, which meant that he had to work with a body made by Bethlen, his conservative predecessor. The Regent also made Gombos promise not to introduce either a drastic land reform or anti-Semitic legislation. Besides this. the world depression, which had swept him into office and had seemed to him to call for revolutionaly action, turned out to make any such action impossible. For the crisis, as it affected Hungary, was one of credit. No Hungarian Government could have followed any policy to which its creditors objected strongly. And the financial powers to be placated were the City of London, Wall Street, and France. The pressures exerted by these various factors outside the country limited Hungary's freedom of action at home, since Hungary's creditors were not going to relax their claims against a Government which allowed itself to imitate Nazism. Furthermore, the Government was also indebted to the big


Hungarian banks, and the banks, which were almost purely under Jewish control, were not going to make things easy for anyone who played with anti-Semitism.

This situation placed the whole Hungarian internal develop ment on a path quite different from that expected by many of Gombos followers. After his appointment, Gombos started secret negotiations with the leaders of the Jewish community, and a protocol was signed between the leaders of that community and the Government, under which the Jews recognized and approved Gombos' progressive policy, while the Government promised to carry that policy through without violence and without detriment to the Jews' material interests. The agreement did not kill anti-Semitism in Hungary. But it should be recorded that both parties to the agreement kept it punctiliously. During his time in office Gombos abstained from any government measure injuring the Jews directly or indirectly. Even the Government press never wrote in an anti-Semitic vein. On the other hand, the Jewish community realized that the best way to kill the dangerous spread of Nazism was to introduce social reforms. The dignitaries of the Masonic Lodges, which had been officially dissolved in 1919, held the same opinion. (19 )

Having made these agreements, Gombos launched a far-reaching political and social program, recapitulating it in a statement of ninety-five points. Each point dealt with a different aspect of Hungary's problems..It was apparent that he wanted a gradual reform not only of the Hungarian political organization but also of the social and moral forces of the nation. Not only had he ignored the aristocracy in the formation of his cabinet (Gombos' cabinet was the first one of the entire Hungarian history, except Bela Kun's, which had not a single count among its members), but he appealed directly to the people of Hungary as a mass: "Nowadays


it is the worker who belong to the 'historic class' of the country".(20) His speeches, furthermore, made it plain that even though he believed in a strongly centralized government under firm guidance he was opposed to unnecessary political restrictions and favored giving the people power. He took up the cause of the working classes and orders were issued authorizing the introduction of the eight-hour day and forty-eight hour week and the establishment of a system of minimum wages in industry. Furthermore, the general improvement in the world situation did not exclude Hungary. Employment was better and production was improving. Agriculture was prosperous and the national income was rising again (21)

With respect to agricultural problems, the government advocated a greater diversification of crops and made specific suggestions with a view to facilitating this work by experiment stations and marketing organizations. The government accomplished, furthermore, a large amount of useful work in many other fields, including rural housing and health, reforestation and irrigation. In addition, the Land Settlement Bill provided for the settlement of 37,000 landless families on about 600,000 acres, to be taken from large estates.(22)

Gombos appeared to be democratizing the government by removal of some of the higher permanent officials in various government departments. These changes strengthened the impression that he wished to end the old system of government by the privileged classes in Hungary and planned instead to give power to representatives chosen from the people at large - particularly the small farmers and townsmen who heretofore had had but little voice in governmental affairs. He introduced three constitutional bills on the extension of the power of the Regent and the Upper House and a franchise reform claiming: "Parliamentarism must continue to live. I stand for the secret ballot. I consider my own


nation to be mature enough to be given rights which it may freely use because a right which is not freely used is no right at all".(23)

With regard to the German question Gombos stated that a nation of seventy million would always have a decisive influence upon the problems of the Danubian valley. He stated, furthermore, that Germany's internal policy was not Hungary's concern, but "should a similar regime or political tendency assert itself in Hungary, it is the duty of the government to oppose this tendency" (24)

No wonder such a program conquered many hearts at home and caused a leniency of policy toward Hungary in some foreign countries. Even the American Minister at Budapest enthusiastically reported to his government that "Hungary will in the not too distant future have a government that is truly representative in stead of as in the past a government of the nobles, by the nobles, and for the nobles".(25) The American press also showed a lively interest in Hungarian affairs. (26)

The opposition parties at home could hardly object to the reforms, as noted before, but they feared for the future. They strongly believed that Gombos was only playing for time and, when the moment came, would simply proclaim himself dictator and set up a Fascist State. They even suggested that if the Regent died, Gombos would proclaim himself Regent and Premier at once, with unlimited power. This moment did not come, however, even if Gombos had wanted it, for he left Hungary to go to a sanatorium in Munich in September, 1936, and a month later he was dead.


The Regent appointed as Gombos successor Koloman Daranyi, who was much more of a conservative than a radical. The opinion generally held both inside and outside Hungary was that his appointment represented an act of resistance to the increasing pressure of Germany in both the foreign and the domestic fields. The Germans chose to great Daranyi's appointment with open hostility and the German press attacked mercilessly every weakness of the Hungarian social and political system and her revisionist claims.(27) On the other hand, in spite of all discouraging experiences, Hungary continued, during this period, her pursuit of the friendship of Great Britain and her appeal to the justice of her cause. Repeated statements on these points were made by the Prime Minister and by the Minister for Foreign Affairs; and the Revision League and a newly founded Anglo-Hungarian Society made strenuous efforts to create in England good will towards Hungary and understanding for her cause. A new literature arose in Hungary, published in English, and a political periodical in English, the Hungarian Quarterly, was started for the cause of a better understanding of Hungary's problems by the English-speaking world. Even in the United States books appeared to capture more Americans' goodwill towards Hungarians: books like Edmund Vasvary's' Lincoln's Hungarian Heroes, dedicated to the President himself. (28)

Hungary at this time refused to leave the League of Nations (although requested by Italy to do so) and, while not pretending to renounce revision against either Czechoslovakia or Rumania, made almost passionate appeals to the United States through diplomatic channels to push England toward Hungary and to bring about an equitable settlement of the Danubian problem by peaceful


means.(29) Hungarian diplomats pointed out the central difficulty of Hungarian foreign policy: she had no contrepoints for Germany, and therefore had to submit ultimately to the latter in everything. (30)

Meantime, an increasing pressure was exercised by Germany in both the foreign and the domestic fields. The German Government officially took up the cause of the German minority and of the Right Radicals. Innumerable newspapers and brochures were produced in Germany and distributed in Hungary via newsvendors. Lecturers, students, commercial travelers, and an extraordinary number of tourists overran the country. It was whispered that the Arrow Cross planned to overthrow the Government. The Anschluss had further strengthened Germany's hold in Hungary. It had made the two countries contiguous, thus immensely facilitating German penetration of every kind. It had cut Hungary's direct line of communications to the West via Austria and Switzerland. It had put Germany in charge of the Austrian economy and


had even transferred to Germany's hands the Austrian economic and financial interests in Hungary. In the spring of 1938 Daranyi finally succumbed to the temptation of negotiating secretly with the Arrow Cross and introduced a measure of anti-Jewish legislation. The Regent dismissed him in favor of Bela Imredy.

Bela Imredy was avowedly appointed because he enjoyed the status of being a particular friend of the West, and especially to the City of London. He was named with the specific mission, on the one hand, to strengthen those links, and on the other to take drastic action against the Arrow Cross. Imredy began well enough. He dissolved the Arrow Cross and arrested its leader, Francis Szalasi, accusing him of conspiracy against the Government. During his term of office came the Munich crisis. While Hungary vehemently pressed her claim to ethnic revision at the expense of Czechoslovakia, she also made every effort, even at the risk of grievously affronting Hitler, to get her demands satisfied peacefully, with the assent and approval of the West. Unfortunately for the Western-minded Hungarian politicians, England and France showed little understanding for their cause, and although they eventually sanctioned in principle the settlement of Hungary's claims, they washed their hands of the details, leaving Germany and Italy to arbitrate when difficulties arose. This convinced Imredy that it was futile to appeal to the West against Germany, and when Hitler seemed inclined to take the Czechs' side, he rushed to bid for his favor by promising him international cooperation and a right wing program in Hungary; he promised Hungary's adherence to the Anti-Comintern pact and her resignation from the League of Nations. At home, Imredy introduced a new and more drastic anti Jewish law. Hungary slipped a stage rightward. This slide was quickly checked when the anti-Radical forces succeeded in bringing about Imredy's fall in February of 1939 and his replacement by Count Paul Teleki, who was an anti-Nazi and a convinced Westerner in international politics

During this period, as was mentioned before, the United States was nothing more than an observer on the political field of Europe


and, consequently, in Hungarian affairs too. The economic relations between the two countries, however, were beyond expectation. The Standard Electric Company of Budapest, for instance, was the largest of I.T.T.'s manufacturing subsidiaries in Eastern Europe. Standard Budapest emploved some 3,000 workers in the manufacture of telephone, telegraph, and radio equipment. In turn it controlled a company known as Telefongyar, which employed some 1,400 workers in the manufacture of cables, air brakes, railroad signals, and electrical components, and a small company known as Dial, which rented and maintained private telephone exchanges. (31)

Far more important was the discovery of oil in Hungary. The presence of oil and natural gas in western Hungary was known for many years before European Gas and Electric Company ( Eurogasco), an affiliate of Standard Oil Company (New Jersey), commenced exploration and development there in 1934. Surface seepages similar to those which led to the discovery of oil in Rumania were prevalent. However, the Anglo-Persian Oil Company had spent a good deal of money on surveys and borings in the 1920's but had never found petroleum in paying quantities and had retired from the field after serious financial losses, claiming that oil in worth while amounts did not exist in Hungary. American and Hungarian petroleum geologists did not agree with this view and their opinion was shared by experts of the European Gas and Electric Company, an American company incorporated in the state of Delaware.

Eurogasco's Hungarian concessions, as stipulated in the contract between it and the Hungarian Minister of Finance dated June 8, 1933, comprised about 8,000,000 acres and covered all of Hungary west and south of the Danube River (that part of the country known as Trans-Danubia ), an equal area in size to the states of Connecticut and Massachusetts combined. This contract covered exploration rights, and in addition provided that, in case oil was


discovered, Eurogasco would form a new company under Hungarian law to handle production, transportation, and marketing.(32)

The contract clearly stipulated the rate at which wells should be drilled and required drilling to be increased, in case of discovery, until the oil requirements of Hungary were met. Other clauses in the contract provided for the employment of Hungarian nationals and the payment to the Hungarian government of a 15 percent royalty on all crude oil, natural gasoline, butane, and propane, and a 12 percent royalty on all natural gas produced. The contract was to run for forty years, beginning with the formation of the new company, and it contained a provision for extension.(33)

Upon the conclusion of the contract negotiations Eurogasco began an energetic oil exploration program. In 1937 these efforts resulted in the discovery of Hungary's first commercial oil well at Lispe in the southwest section of the concession near the Yugoslav border. In accordance with the contract a new company was thereupon incorporated in Hungary to produce, transport, and market the production. This company, Magyar Amerikai Olajipari Reszvenytarsasag (Hungarian-American Oil Company, Limited), better known as "MAORT", was entirely owned by the Standard Oil Company of New Jersey.

With the incorporation of MAORT by Standard, a fullscale drilling program was inaugurated. A new and more promising producing field was discovered, and intensive exploration of the producing strata revealed an extremely important oil property. Between 1937 and December, 1941, MAORT produced 6,595,862 barrels (851, 720 tons) of crude. Production increased from 288,423 barrels (37,254 tons) in 1938 to 3,258,977 barrels (421,661 tons) in 1941. In those four years MAORT became one of the largest and most important industrial undertakings in Hungary. The MAORT-owned wells produced 5,117,155 barrels (665,201 tons) of crude oil in 1942; 6,425,718


barrels (837,711 tons) in 1943; and 6,204,065 barrels (809,969 tons) in 1944.(34)

The Standard Oil Company sought to obtain as much labor and machinery as possible from Hungary. In 1939, only nine of some seven hundred employees were Americans. Those Americans were specialists for whom Hungarian substitutes of sufficient experience were not available. However, the Company was constantly training Hungarians to do even the most technical work and two engineers were sent to the United States for training with the Standard Oil Company. (One of these was stated by Standard to be the best engineer who had ever been sent to them from any part of the world.) The Company also started a school, in order to im prove the theoretical and technical knowledge of its personnel. Wages of employees were higher than those paid generally in Hun gary. The Company ordered machinery from Hungarian concerns, several of which had benefitted extensively from this policy. The Company also paid about $250,000 for railroad transportation per month in 1939, and this figure grew with the production.

The Company. besides improving the country's economic standard, did a good deal for the social and cultural benefits of its employees. Many houses, a sports club, a swiming pool, and a sports field were built for the workers just before World War II started. The Company had also undertaken medical service for the employees and their families, transportation to and from the nearest town, the construction of schools for the children of employees, and other such services which one finds so often in large American works of this nature.(35)

The carbon dioxide well which was discovered by the Company near the Hungarian German border was used for the manufacture of dry ice; which was sold by the Company to a Hungarian


agricultural cooperative organization which had been developing the exportation of frozen agricultural products to England and other countries.

Up to World War II, there had been no difficulties with the Hungarian authorities, and the Company was well pleased with the cooperation which it received. When the war came in 1939 (Hungary was neutral until 1941), the question of protection of the oil fields was raised. As all wells were flowing wells, the derricks could be dismounted when the flow began. The wellhead was then placed underground in a bomb-proof cellar and nothing was visible from the surface or from the air. Bombing from airplanes was virtually impossible, as the pipelines and wells were invisible and were spread over a considerable area. When World War II broke out, the New York office of the Company was somewhat in the dark regarding the exact situation of MAORT. The uncertainty of the European situation made long time planning difficult. The discovery and large production of high grade oil in Hungary indicated to the United States that perhaps this discovery would be comparable to one of the most important American fields. Budapest became more than just a listening post of diplomacy, since Hungary was now one of the most important business-partners of the United States in Eastern Europe.

For Hungary, the acquisition of wealth afforded the economic prosperity essential to a successful Government. Possession of petroleum itself made possible the advance of industry, so assiduously developed since World War I, by providing cheaper industrial fuel, surfacing for much-needed roads, motive power for transportation by air, water, rail, and highway; exportation of oil and products permitted the purchase of essential raw materials. The resulting prosperity permitted the Government to draw the vitality necessary to surmount its insistent problem of accumulating capital and maintaining credit in order that she might gain economic solidity and to pay her national debt.

From an international point of view, the vision of possibility broadened. Hungary became a petroleum competitor of Poland


and Rumania, and she became of much greater interest to European countries which had little or no petroleum production. Furthermore, the Hungarian fields were nearer by rail to the great European Powers requiring oil for maritime and naval purposes than were the Eastern Galician and Rumanian fields. In general, the possession of petroleum made Hungary a vastly more important country both to its friends and its foes. The country's situation was rendered more dangerous with added treasure to defend. Next to possessing oil within its boundaries, a nation's best advantage is to obtain control of production elsewhere. During World War II, neither Hungary nor the United States were able to defend the Hungarian oil deposit, the first being too weak, the second being too far away to perform this job. First German, later Russian troops, occupied and controlled MAORT's oil fields.(36)


15 The failure of the Franco-Italian negotiations ruined the last hope of a Danubian unification. What Laval and Mussolini were after was an anti-German front on the Danube. It would be done by some frontier readjustment and some kind of a Habsburg restoration. The Little Entente, however, refused to hear any mention of the mention of the Versailles Treaties and was strongly against a Habsburg restoration. Instead of this, it demanded that both Italy and Hungary should join with it in a Pact of Mutual Assistance on the ststus quo of Versailles. Hungary rejected this plan. She was afterwards widely accused of having torpedoed the plan of the anti-German front. It may, however be remarked that if she sinned, she did not sin alone. Austria also would not accept an anti-German combination and in the next year negotiated her Pact with Germany based on Austria's acknowledging herself to be a "German State". Yugoslavia and Rumania also were taking steps toward Germany. They made it clear that while the Little Entente held against Hungary, it did not bind them to any action against Germany, with which they desired good relations.

The Franco-Soviet and the Czechoslovak-Soviet Pacts of Mutual Assistance were signed in May, 1935.

Mussolini annouced the formation of the "Berlin - Rome Axis", using the word, on November 1, l936, Gombos had died three weeks earlier.

16 See the map, U. S., For. Rel., Department ot State, 711.64119/73 GC. The line closely resembled that proposed by Lord Rothermere.

17 For details see Antonin Bach, The Danube Basin and the German Economic Sphere (New York: Columbia University Press, 1943).

18 See "Report on the Hungarian Arrow Cross Movement", U. S., For. Rel., Department ot State, 864.00/867.

19 See Legation's dispatch: "Conversation with Dr. Kiss, the foreign editor of Pester Lloyd, one ot the leading Jewish papers in Budapest," U. S., For. Rel., Department of State, 864.00/366.

20 Ibid., 864.00/320.

21 Ibid., 964.00/778.

22 Ibid.

23 Ibid., 884.00/803.

24 Ibid.

25 Ibid., 864.00/785.

26 See, for instance, New York Times, November 19, 1934; December 7, 1934; December 8,1934; and so on.

27 See Alfred Rosenberg, "Unterduckte Volker und Revision," Volkischer Beobachter (Berlin Daily), November 17,1936

28 See Appendix II

29 See the Hungarlan dlplomatic note to the Secretary of State. It says among otber things:

..."Unfortunately while generally admitted that Hungary received a "raw deal" at Trianon she had not received in her peaceful efforts to remedy it any encouragement by the Western Powers.

The latter seemed to have lost sight also of the fact that the ancient parlamentary form of Govermnent in Hungary has become of late a true modern democracy and is engaged in a life and death struggle for it survival.

If the Western democracies helped Hungary to obtain satisfaction of her reasonable and legitimate aspirations, Hungary would be indebted to England and France to which she is drawn also by her traditions and feelings.

If they fall to do so, they fail to lend a helping hand to this little country of Hungary struggling to maintain its independence and its popular form of Government as well as its legitimate rights, then it will be they who have thrown Hungary into the very current against which she has manfully struggled."

U.S., For. Rel., Document of State, Strictly Confidential File 864.00/920 I/2.

30 Ibid., 864.00/943.

31 Robert Vogeler, I Was Stalin's Prisoner (New York: Columbia Press, 1951), p. 23.

32 Standsrd OilCompany (New Jersey) and Oil Production in Hungary by MAORT (U.S.A.: European Gas & Electric Company, 1949) p. 1.

33 Ibid., p. 2.

34 Ibid., p. 3.

35 The standard of living of the MAORT workers was certainly higher than that of workers on similar large projects in Hungary. The author, born and raised in that part of Hungary, can state this from his own experience.

36 In 1948, the Russian controlled Hungarian Government seized the Standard Oil Company's whole property, the MAORT, bringing an accusation of sabotage against it. The book value of the MAORT properties, calculated at the time of seizure and including plant facilities and money owed by the Hungarian government, was approximately $20,000,000. This does not include the value of crude oil and other related products which MAORT had discovered but had not yet produced.

In the ten years 1937 - 1948, the Hungarian government received free of charge under the terms of the contract about 6,000,000 barrels of oil worth millions of dollars. During that time the governrnent also received about 56,000,000 in royalties, taxes, and direct charges from the American company. MAORTs payroll in 1947 was $3,041,000. In 1948 it employed 3,800 Hungarian nationals, whose jobs ranged from laborers to vice-president and general manager.

Although the Hungarian government received millions in revenue, MAORTs stockholders received dividends of only $206,000 All profits except the single dividend mentioned here were invested in the expansion of the properties, For details see MAORT, Standard Oil Company and Oil Production In Hungary.

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