Eugen Varga Advising on German Reparation Payments and the Marshall Plan (1941-1947)

8/9/2019 Eugen Varga Advising on German Reparation Payments and the Marshall Plan (1941-1947)

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EUGEN VARGA

ADVISING ON GERMAN REPARATION PAYMENTS AND THE MARSHALLPLAN

(1941-1947)

ANDRÉ MOMMEN

CEPS

MAARSSEN

APRIL 2010



During and just after the Second World War Eugen Varga would become a close adviser tothe Ministry of Foreign Affairs on German reparation payments and the Marshall Plan.Meanwhile, the Comintern had ceased to exist and its institutes integrated into those of theCentral Committee of the CPSU. As a member of the Academy of Soviet Science Vargasince 1939 and a well-respected economist being in touch with Stalin Varga belonged to thehigher echelons of the Soviet regime. However, growing anti-Semitism and Russiannationalism were constantly threatening his position and survival.

The First War Years

Until the Hitler-Stalin Pact, the official strategy of the Comintern was centered on three mainissues: 1) full support for the Soviet Union’s foreign policy; 2) fighting fascism; 3) support

for the military measures taken by the French and British governments. The Pact of Stalinwith Hitler was believed to have stopped Hitler and to have prepared the ground for a general peace agreement.1 However, the Pact had a negative impact on the position of the communist parties in several countries. The media identified the Communists easily as Moscowdefeatists backing Hitler’s aggressive behavior vis-à-vis his neighbors placing them ‘in direstraits’.2 Under Stalin’s pressure, the Comintern adopted an ambiguous pose of neutrality thatresembled Lenin’s “revolutionary defeatism” and that practically renounced the line of theSeventh Congress. Over the period from September 1939 to June 1941, the word “Fascism”as applied to Nazi Germany disappeared from Comintern publications. The war was definedas an imperialist one between two imperialist blocs. Meanwhile, the Comintern starteddiscoursing about imperialism ‘in general’.3

After the Seventh Congress the existence of the Comintern was reduced to a mere formality because of the insistence on the defense of democratic liberties, as well as the search for electoral alliances. Meanwhile, Stalin wanted to get rid of this organization which historyread like the story of successive failure. Conceived by Lenin in military terms to fight by allmeans, including armed struggle, for the overthrow of international bourgeois rule, theComintern had suffered heavy defeats in Europe, China and Latin America. 4 The Molotov-Ribbentrop Agreement or Hitler-Stalin Pact of August 1939 and the outbreak of the SecondWorld War II in September 1939 had a devastating effect on the Communist Partiesoperating legally in the European democratic countries. The PCF split on this issue. Partyleaders had to go underground. The anti-fascist strategy defined at the Seventh Congress of

the Comintern in 1935 had to be revised. The war between the Germany on the one hand andFrance and Great Britain on the other hand was redefined in a Leninist sense as a clash between two rivalizing imperialist blocs for world domination in a false analogy to the FirstWorld War.5 On 9 September 1939, the thesis of the Comintern was tha the war had anunjustified character and that the bourgeoisie of the countries involved in the war had to be

1 Dimitar Sirkov, ‘On the policy of the Communist International on the eve and at the beginning of World War II’, in Jahrbuch für Historische Kommunismusforschung , 1995, pp. 55-56.2 Already on 26 August 1939, the French government banned L’Humanité .3 Fridrikh Firsov, ‘Stalin and the Comintern’, in New Times, No. 18, 1989, p. 41.4 Manuel Caballero, Latin America and the Comintern 1919-1943 , Cambridge: Cambridge University Press,

1986, pp. 147-155.5 Klaus Kinner , Der deutsche Kommunismus. Selbstverständnis und Realität , Band 3, Im Krieg (1939 bis 1945),Berlin: Karl Dietz Verlag, 2009, pp. 15-51.



blamed. As a consequence none of these countries should be supported. Could one a countrylike Great Britain be considered on her way to fascism? In autumn 1939, Jürgen Kuczynskidiscussing the declining purchasing power of British wages, gave a partial answer to thatquestion. ‘It would be wrong to say that Fascism is reigning today in Britain, he argued, butthe British economic system is showing more and more signs characteristic of Fascism. The

tendency towards a dictatorship of the trusts and monopolies is becoming more and morevisible and finds more and more expression, especially in the policy towards the working

people.’6

Meanwhile, any activities organized by the Comintern abroad had to be stopped or reorganized. Publication of the Comintern journal Rundschau in Basel (Switzerland) washalted and replaced by Die Kommunistische Internationale7 published in Paris and later inStockholm (Sweden). Two new weeklies Die Welt 8 printed in Stockholm and Le Monde9

published in Brussels (later in Paris) popularized Moscow’s view on world events. On this period Varga commented in World News and Views (London), Die Welt and Die Kommunistische Internationale on intra-imperialist rivalries and war aims.10 In the beginning

of 1940 he even pointed to growing contradictions between British and US imperialisms

11

and he predicted food shortages12 in continental Europe. In addition, he analyzed Lenin’stheory of imperialism13 in connection to the outbreak of the Second World War. 14

However, disarray and confusion increased after Poland’s defeat and French-Britishattentism. After the Polish defeat, Stalin dispatched military missions to Berlin. Russia was tosupply Germany with grain and raw materials and to receive German machinery and machinetools. The Russo-Finnish war broke out on 30 November 1939 and on 14 December 1939,Russia was expelled from the League of Nations. Stalin had become de facto an ally of Hitler.

In June 1940, Stalin must have been stupefied by Hitler’s overwhelming victory over France.

Subsequently, he dropped all further pretence of respect for the sovereignty of the BalticStates in the last fortnight of June 1940. The Soviet-Rumanian conflict over Bessarabia wassettled. However, doubts remained about Germany’s total victory in the West. Molotov’sSupreme Soviet speech of August 1, 1940, commented on all the spectacular and tragicevents of the last few months, but meanwhile ‘Great Britain does not wish to give up her colonies and wants to go on fighting for world domination’15, he predicted. The chief ideological journal Bolshevik of July 15, 1940, concluded its survey by saying that Britainwas ‘far from finished’.16 A similar line had already been taken by Varga in Mirovoye

6 John Knight, ‘Wages, prices and unemployment’, in Labour Monthly, Vol. 21, No. 12, 1939, p. 725.7 A Russian edition was published in Moscow: Kommunisticheskiy internatsional .8 Die Welt. Zeitschrift für Politik, Wirtschaft und Arbeiterbewegung . Its first issue dated on 18 September 1939.

Almost all articles were unsigned. Helmut Müssener, Exil in Schweden. Politische und kulturelle Emigrationnach 1933, Munich: Carl Hanser Verlag, 1974, pp. 161-162.9 Publication started on 15 September 1939. Responsible publisher was Alphonse Bonenfant, ut Gyula Alpáriwas in charge of the weekly’s daily management. Later on, Alpári moved with Le Monde to Paris. Die Welt and Le Monde were destined to a general readers public.10 Some of his contributions in the Soviet press were also printed in The Daily Worker (New York) or in Labour

Monthly (London).11 Varga, ‘Englisch-amerikanische Gegensätze im zweiten imperialistischen Krieg’, in Die Kommunistische

Internationale, 1940, No. 9, pp. 606-613; also in Die Welt , 1940, No. 7, pp. 160.12 Varga, ‘Der Hunger in Europa’, in Die Kommunistische Internationale, 1940, No. 9, pp. 606-613.13 Varga, ‘Der Kampf der Imperialisten um die neuaufteilung der Welt’, in Die Kommunistische Internationale,1940, No. 6, pp. 377-388.14 Varga, ‘Uchenye Lenina ob imperalizmu i vtoraja imperialisticheskogo mira v 1939 godu, Mirovoye koziaisvo

i mirovaia politika, 1940, No. 3, pp. 53-83.15 Alexander Werth, Russia at War 1941-1945, London: Pan Books, 1965, p. 107.16 Werth, 1965, p. 107.



Khoziaistvo i Mirovaya Politika early in June 1940, when the collapse of France was alreadyimminent.17 But Varga readjusted that perception of the changing international situation atthe end of the summer of 1940. ‘Never has human history been so rich in events, nor thesuccession of social formations so rapid as in the last century’, 18 he lyrically exclaimed after Hitler’s Wehrmacht had crushed France. Varga was, nonetheless, shocked by the recent

military events and the recent redivision of the world. Starting from figures on the colonial possessions of the great powers, he drew the conclusion that Great Britain’s superiority in thecolonial world had become even greater since the First World War.

According to Varga, the importance of colonies to monopoly capital had increased becauseduring the general crisis of capitalism ‘the contradiction between the tendency of capital toextend production, on the one hand, and the relative restriction of the markets, on the other,has grown more acute.’19 Increased trade with the colonial territories was achieved by theabandonment of the principle of most favored nation and the introduction of custom walls.Social democracy in the “rich” countries was represented in the bourgeois coalitiongovernments and ‘continues to be the main social buttress of the bourgeoisie’. 20 Fortunately,

growing resistance of the working class because of the activities of the Communists could besignalized. In the “poor” countries, the bourgeoisie had driven the weak social-democratic parties underground.21 Varga situated the origins of the world war in the struggle of monopoly capital to bring foreign countries under its political sway. But there was also asecond reason:

‘The high super-profits accumulate in the hands of the monopolistic combines in the form of money. This newly accumulated capital cannot find a fruitful field of investment in one or another branch of production in the home country, for if it did the production and supply of goods would exceed the capacity of the market (in view of the high prices imposed by themonopolies), which would lead to a fall in prices. Hence the tendency to export capital tocountries capitalistically still undeveloped, “which are usually high, for capital is scarce, the

price of land is relatively low, wages are low, raw materials are cheap”’22. In the mean time,Great Britain had been industrially surpassed by Germany and the United States in theimportant “new” branches. Varga argued that that ‘this war was similarly paved by all theimperialist countries. The financial oligarchies of all the imperialist countries bear an equalresponsibility for it.’23 Meanwhile, the inherent laws of capitalism were driving theimperialist powers to launch a struggle for a redivision of the world. Fortunately, the SovietUnion and the strength of the Red Army combined with Stalin’s ‘wise peace policy’ hadfrustrated the ‘Munich policy of a united front of imperialist powers against the SovietUnion. The antagonisms among the imperialist powers over the division of the world havetemporarily proved to be stronger than the fundamental antagonism between capitalism andsocialism.’24 Varga noted that the war was weakening the ‘entire capitalist system’25 and thatthe conditions for a successful proletarian revolution and anti-colonial upheavals wereripening in a number of countries.

17 Eugen Varga, ‘Mezhdunarodnoe polozhenie (na konets yunya’, in Mirovoye Khoziaistvo i Mirovaya Politika,1940, Vol. 21, No. 6, pp. 11-18.18 Eugen Varga, ‘The imperialist struggle for a new redivision of the world’, in Labour Monthly, 1940, Vol. 22, No. 11, p. 578.19 Ibidem, p. 585.20 Ibidem, p. 587.21 Varga did not refer to the past experience with the Popular Front and joint-resistance to fascism.22 Ibidem, p. 580. Varga quoted Lenin’s Imperialism, chapter 6.23 Ibidem, p.588.24 Ibidem, p. 588.25 Ibidem, p. 588.



The analysis of wartime social democracy was left to József Révai26 who tried to dissect the behavior and ideas of the ‘reactionary leaders’ of the Second International who considered itnecessary to produce new ideas about the possibility of creating a condition of generalwelfare and permanent peace. Révai explained the military collapse of France by referring tothe ‘national betrayal of the French bourgeoisie’.27 Révai criticized the Social-Democratic

leaders that were changing from the support of British and French imperialism to supportGerman imperialism. Plans for a European federation by G. D. H. Cole in England couldform the “nucleus” for a new order in Europe under German leadership. But Révai also notedthat individual leaders like De Man had chosen for that new order. ‘One may reproach DeMan, the President of the Belgian Labour Party, who, in a manifesto which will for ever remain a monument of the cowardly and contemptible desertion and capitulation of a certainsort of Social-Democratic leaders, had appealed to his party to become the mainstay of themonarchist “unity party” of the Belgian bourgeoisie in formation – one may reproach this DeMan with having betrayed his country, sold his people, left the nation in the lurch, but hecannot be reproached with having betrayed the Social-Democratic idea of “the organizationof peace in Europe.” On the contrary, he gives as his reason for joining the victors, the need

for the “organization of Europe.”’28 The plans for a “continental economy” directed by themonopolies would ‘inevitably lead, precisely because of the enormous strengthening of monopoly domination, to “autarky”, to economic warfare with the other powers, and toincreased stagnation.’29 Meanwhile, the rise and strengthening of the Soviet Union and theliberation movement of the proletariat and the oppressed peoples had given rise to the idea of a union of all reactionary forces under the leadership of the most powerful imperialism.Révai stressed that ‘struggle and struggle alone’ could defeat the plan of an imperialist newEurope. Révai’s core idea was the defense of national self-determination of peoples, whichwas ‘by no means antiquated’ and the idea that only Socialism’ could build ‘a world of universal prosperity, progress and peace based on the fraternal collaboration of peoples andnations.’30

However, Stalin was aware of the fact that the war could drag on for a longer span of time.Great Britain was now backed by the United States, which meant that British imperialismunder Churchill had chosen for resistance to Hitler’s ambition to dominate continentalEurope. In December 1940, Roosevelt called upon the American people to make the US thegreat arsenal for democracy, after which the Congress proceeded to endorse the President’sLend-Lease Plan. Stalin immediately called Varga for advice.31

On 22 June 1941, the German attack confronted Stalin with a new international situation.Stalin himself assumed the supreme command. On 3 July 1941, Stalin at last broke silence in26 Révai (1898-1959) had risen to importance in the Hungarian Communist Party and in the Comintern. His

origins are similar to Varga’s. Born into a lower middle-class family in Budapest, Révai went from commercialsecondary school to university in Vienna and Berlin. He was a member of the Galilei Circle. At the first congressof the Hungarian Communist Party, held in 1925 in Vienna, Révai was elected head of the Secretariat and took part in drafting the congress resolutions. He set up the illegal paper Kommunista in Budapest in 1928. Hisfriendship with György Lukács deteriorated in 1929, when he criticized the Blum Theses. Révai was arrested inHungary on December 31, 1930 and sentenced in 1931 to three-and-a-half years' imprisonment. On his release inJanuary 1934, he left for Prague and then for Moscow. There he became a member of the Comintern Executiveand taught at the Lenin School. In early 1937, he began to take part in the work of the Hungarian CommunistParty Central Committee in Czechoslovakia, but had to flee from the German occupation through Poland andSweden to the Soviet Union. During the war, he ran the Hungarian-language Radio Kossuth in Moscow andedited the paper Igaz Szó (True Word).27 József Révai, ‘A “New Order” in Europe?’, in Labour Monthly, 1940, Vol. 32, No. 12, p. 62628 Ibidem, p. 630.29 Ibidem, p. 634.30 Ibidem, pp. 633-634.31 Piotr Cherbakov, IMEMO. Portret na fone epoki, Moscow: Izd. Ves Mir, 2004, p. 33.



a broadcast address to the nation predicting that the enemy would be ‘cruel and implacable.He is out to seize our lands.’32 In the autumn, when German troops were approachingMoscow, Stalin envisaged the possibility that the Red Army would have to withdraw fromthe whole territory west of the Volga. More than 1,300 plants and factories were moved fromwestern Russia and the Ukraine to the Volga, the Urals, and Siberia, an evacuation involving

the resettlement of millions of workers and their families. Things looked so hopeless thatStalin decided to evacuate his government and his archives to Kuibyshev, six hundred milesaway. However, Stalin had not left the Kremlin. On 7 November 1941 Stalin stood with hisPolitburo at the top of the Lenin Mausoleum to take the military parade of troops marchingstraight from the Red Square to the front.

In October 1941, Varga and his family had been evacuated via Kazan by rail to Kuibyshev.His son András, at that time a postgraduate at the Dmitry Mendeleev Institute of ChemicalTechnology33, had joined the Red Army at the age of 28, but was soon reported havingdisappeared during the battle of Smolensk. Already in January 1942 Varga returned for thefirst time34 to Moscow, where he occupied a room35 at Hotel Lux.36 There, he would write his

pamphlet Victory will be ours.

37

In this pamphlet he repeated

38

that, Germany stood on theverge of economic and financial collapse, a thesis that would cause him some problems with people like Andrey Vyshinsky39 and Alexander Shcherbakov.40 Given the terrible damagessuffered by the Wehrmacht in 1941 and the absence of manpower reserves, nobody expectedHitler to win the war with a single blow. In Germany, food rationing had been reintroduced.Until 1943 he symptoms of inflationary pressure were relatively under control. Tax increases,war loans, and the growing contributions from the occupied territories permitted to financethe war effort. From the summer of 1943 onwards this fragile system progressivelycollapsed. Cash circulation ballooned as the government tried to finance war expenditures by

printing money.

32 Isaac Deutscher, Stalin. A Political Biography. London, New York and Toronto: Oxford University Press,1949, p. 463.33 Varga’s son had been working there at a new explosive. Moscow News, No. 15, 1985.34 His daughter Mária, however, attested that her father had returned in March 1942 and that he occupied a roomat the fourth floor of Hotel Lux. Interviews on 30 and 31 October 2002. This is confirmed by a NKVD document( propusk ) No. 3395 rubberstamped in Kuybichev on 5 March 1942 permitting Varga’s move to Moscow wherehe had to occupy a director’s function at the Academy. Party Archives, Budapest, Varga Files. 783.f.16.ő.e,document 12.35 He went back to Hotel Lux, Gorki Street, 10, where he occupied room 155/I until at least the end of 1942.Party Archives, Budapest, Varga files, 783.f.16.ő.e, lap 10. According to a letter sent by the Moscow oblastwhich was dated on 1 December 1942, Varga’s address in Moscow was Hotel Lux, Ulitsa Gorkogo, 10, room154/I. Party Archives, Budapest, Varga Files. 783.f.16.ő. e. document 13.36

Maybe that he had traveled in January 1941 to Moscow. A form (“ propusk ”) rubberstamped on 12 February1941 by the NKVD Kuibyshev testifies that he was allowed to travel to Moscow before 5 March 1942. PartyArchives, Budapest, Varga files, 783.f.16.ő.e, lap 12.37 Varga, Victory will be ours, Sydney 1942 [issued by Legal Rights (For Victory) Committee].38 Varga would repeat his thesis of Germany’s impoverishment in many articles. In Pravda of 15 May 1942 heargued that Germany was running out of its raw materials’ stock. In Pravda of 22 September 1942, he foresaw asever crisis in Germany’s heavy industry and in Pravda of 24 October 1942 he described the breakdown of theGerman railroad system. In addition, he mentioned the exhaustion of Germany’s human resources in Pravda of 24 April 1942. He paid attention to Germany’s inflation and hunger in Pravda of 24 January 1941. Obviously,Varga was hoping for the same scenario as in the First World War when he discussed how the German war economy had collapsed after four years of total war in his Pravda article of 29 July 1942.39 The positions he held included those of vice-premier (1939-1944), deputy Commissar for Foreign Affairs(1940-1949), Minister for Foreign Affairs (1949-1953), Academician of the Soviet Academy of Sciences from

1939.40 Shcherbakov, who thought that too many Jews were not fighting but hiding in offices, was the political chief of the Red Army.



In Russia, similar problems had arisen. Food rationing had been reintroduced. In addition,consumers had to resort to the private market where food was offered at much higher prices.The farmers were free to sell their produce to any buyer in the city. In several cities so-called“commercial” stores were set up by the Government where food was sold without puttingany restrictions on sales to individual consumers and charging prices many times higher than

those fixed for food distributed on ration cards. The intention was to put a break on inflation by draining the market of “surplus” money. Only a few wage and salary earners could affordto buy in the private market, but public eating-places had been installed in the city. Varga,now lodged at Hotel Lux, room 155, at Gorki Street, enjoyed better living conditions. He wasmonthly paid 1,000 rubles, which was not an extraordinary salary, but additional earningsranging from 100 to 500 rubles a month made of him a “privileged” man given the fact thatan average annual wage of 5,000 rubles was “normal” for a worker.41

After having defeated the Sixth German army corps at Stalingrad in January 1943, Moscow prepared with the help of Walter Ulbricht and the German Communists for the post-war era.Varga was invited to talk to German prisoners of war, especially higher-ranking conservative

officers, wanting to collaborate with the Communists. In July 1943, National Committee Freies Deutschland (NKFD)42 was founded at Krasnogorsk as a “provisional government”for a liberated and democratic Germany. In addition, a friendly society of German officers43

was formed recruiting imprisoned generals captured at Stalingrad.44 The NKFD invitedVarga to lecture in the prisoners’ camp on Germany’s future. There, Varga should haveestablished friendly relations with general Otto Korfes.45

Reparation Payments

The issue of reparation payments was subject of Allied discussions during the Second WorldWar. In August 1943, Varga’s role in the reparation payments debate became more prominent after Ambassador Ivan Maisky’s return from London to chair the ReparationsCommission as Deputy People’s Commissar for Foreign Affairs. He invited Varga to take

part in it. Hence, he frequently met with Varga in ‘his crowded little flat in the former LuxHotel’, discussing with him the question of the size of the reparations.46 Varga would becomeone of the leading Soviet experts in this matter.47 The problem, however, was that reparation

payments to be demanded from Germany were, however, clearly in contradiction withVarga’s “impoverishment thesis”. A poor and exhausted Germany could not meet the Allieddemands sufficiently within a relatively short span of time. Reparation payments in cash or inkind would have as effect a considerable decrease in Germany’s wealth and an

41 That was the pay he received from the Academy of Science. Receipts dated on 15 May 1945; 13 July 1942; 7October 1942; 13 March 1943. Varga Files, Party Archives Budapest, 783.f.16.ő.e, lap 2, 4, 6, 8, 9.42 In July 1943, Radio Moscow announced the founding of Freies Deutschland . Bergmann, 1974, p. 23.43 Four German generals established on 11 and 12 September 1943 the Bund Deutscher Offiziere. General OttoKorfes (1889-1964) became a member of NKFD. Sigrid Wegner-Korfes, Weimar-Stalingrad-Berlin. Das Leben

des deutschen Generals Otto Korfes, Biographie, [Berlin]: Verlag der Nation, 1994, pp. 123-127.44 Bodo Scheurig, (ed.), Verrat hinter Stacheldraht? Das Nationalkomitee “Freies Deutschland” und der Bund

Deutscher Offiziere in der Sowjetunion 1943-1945, Munich: Deutscher Taschenbuch Verlag, 1965, pp. 94-100.45 His daughter Sigrid Korfes reported that Varga had shown up at Lunovo for a lecture on German-Russian traderelations. According to Sigrid Korfes, Varga had spoken in ‘perfect German with a very good sounding and pretty Austrian accent’. (‘…in einem einwandfreien Deutsch, dazu in dem ungemein wohlklingenden wieansprechenden östterreischen Akzent.’) Wegner-Korfes, o. c., 1994, p. 123.46 Ivan Maisky, Memoirs of a Soviet Ambassador. The War 1939-43, London: Hutchinson, 1967, p. 380.47 Klaus Schroeder, Der SED-Staat. Partei, Staat und Gesellschaft 1949-1990 , Munich: Carl Hanser Verlag,1998, p. 48.



impoverishment of its population. On 31 August 1943, Varga held a speech in Moscow onthe problem of reparations payments after Germany’s defeat. Its text was widely diffused inthe Soviet press. It marked also a turning point in thinking about Moscow’s war aims. It wasnow convened that the defeated fascist countries would pay for all war costs anddestructions.48 The western Allies paid attention to Varga’s speech49 that had given the

impression that Varga had spoken in Stalin’s name. In Britain, “Keynesians” like Hungarian- born Nicholas Káldor 50 and M. F. W. Joseph were also working out reconstruction scenarios51

as planning of Germany’s economic decay was not England’s preferred war aim. Therefore,Lord Keynes thought that Varga’s idea could have dangerous consequences. 52

In a newsletter 53 for the information of Social Democratic refugees from Germany inEngland, rumors about Varga’s proposals caused some troubles. In Germany, the Nazi

propaganda machine tried to intimidate the population with the consequences of a militarydefeat in order to strengthen German popular resistance. Based on a wide collection of statements and speculations from the Allied side about what to do with Germany, it presentedGermans with the claim that they would be wiped out anyway if they lost the war, so they

might as well go down fighting. In an essay Germany Must Perish

54

(1941), Theodore“Nathan” Kaufman55 had indeed argued that Germans should be sterilized and their landapportioned to neighboring states. Later, in the Nazi pamflet in Niemals! (1944)56, HeinrichGoitsch mentioned Varga as Stalin’s executioner of a plan for the enslavement of Germanworkers. ‘The oft-mentioned figure of five to six million Germans to be transported to theSoviet paradise of misery for slave labor surfaces regularly in official Soviet statements aswell. The previously mentioned Moscow Professor Eugen Varga, one of Stalin's leadingscientific colleagues and something of a Kremlin spokesman, has said that after the war fivemillion German men should be sent to the Soviet Union. Later Varga increased the figure. Hemade the following statement to the USA magazine Newsweek : ‘The Soviet Union willdemand that ten million skilled workers perform forced labor in Russia for ten years.’ So

exiling five to six million Germans is only a beginning! That at least is what a Soviet major captured in Lithuania said. He was well informed, and said: ‘We Bolshevists are no spoiled48 Varga’s article was published in Agitator, Propagandist Krasnay Armii, 1943, No. 13, pp. 16-22, No. 20, pp.29-34, No. 21, pp. 19-26; in Voyna i Rabochiy Klass, 1943, No. 4, pp. 14-22.49 The text of his speech of 31 August 1943 in Moscow published in Agitator 1943, No. 21, pp. 19-26, Trud 24July 1943, Voyni... No. 10, pp. 4-10.50 The British experience would become for the Hungarian Social Democrats in the immediate post-war period asource of inspiration. Káldor, who had joined the British Labour Party, would travel back to Hungary in 1946and set up a planning commission in order to counterbalance Communist planning proposals. In Közgazdáság of 29 September 1948 Káldor gave an interview in which he dealt with war economic planning and the Beveridgereforms.51 N. Kaldor and M. F. W. Joseph, Economic Reconstruction After the War , London: English University Press,

1943.52 Keynes to Ronald, 2 December 1943. Foreign Office Records, FO 371-35309.53 Sozialistische Mitteilungen (News for German Socialists in England), 1943, December, No. 57, was reportedthat an official commission was installed in Moscow in order to make an inventory of war destructions in Russia.It was reported that ‘ideological considerations’ formerly based on a rejection of the Versailles Treaty, weredisappearing. The Newsletter : ‘Jetzt schreibt Varga, daß Deutschland seine finanziellen Verpflichtungen nachdem vorigen Kriege habe leicht tragen können, und daß die “Last der Reparationen” ein Märchen gewesen sei.Varga hat die Reparationsfrage nicht nur für Russland, sondern für alle von den Deutschen okkupierten Nationenzur Erörterung gestellt.’ Isaac Deutscher would after the war remember Varga’s changing attitude in his Stalin biography. ‘Les opinions de Staline étaient assez proches de ces conceptions et, en septembre 1943, sonconseiller économique, le professeur Varga, qui, dans les années 20, avait critiqué si sévèrement les clauses duTraité de Versailles, se prononça publiquement pour des réparations lourde sà infliger à l’Allemagne.’54 Theodore N. Kaufman, Germany Must Perish, Newark : Argyle Press, 1941.55 Kaufman was a Manhatten-born Jew. Nazi propaganda denounced the book as an "orgy of Jewish hatred"against Germany.56 Heinrich Goitsch, Niemals!, Munich: Zentralverlag der NSDAP, 1944.



parrots. If blood is necessary, blood there will be. He who believes that the world revolutioncan be carried out peacefully does not know the history of Bolshevism.’57

Free French politician Pierre Cot staying for four months (March-July 1944) in the SovietUnion, reported on Varga’s plan as well.58 Negotiations on reparation payments carried outwould lead to annual payments in kind (industrial equipment) worth between US1 and US2

billion. In addition, the Soviet Union could expect obtaining between four and five millionGerman workers.59

As Stalin’s adviser in matters of reparation payments, Varga’s international prestige hadincreased considerably. Unfortunately, his predicted breakdown of the Nazi economy had notyet come out.60 Instead, the Nazi war economy could prosper because of Hitler’s policy of

plundering and looting of the occupied countries. Without any doubt, Varga had based his‘breakdown theory’ on observations made during the First World War and its aftermath andhad been influenced by his believe in the in the “revolutionary attitude” of the German

proletariat. However, notwithstanding heavy military losses, massive bombings andshortages, the German war economy could easily reorganize its production lines. Until the

bitter end, the German war industry kept on investing and producing. Destructions caused bymassive bombing operations were much less deep than expected. 'May 1945 was notArmageddon.’61

Later, J.-P. Nettl would argue that the German war economy had been planned for anoffensive and a victorious struggle, not for a defensive war of attrition. Hence, plans and factsdiverged more and more as the war changed its character for the Reich. Nettl: ‘A last-minutechange-over from one type of war economy to another is impossible at short notice,especially when the initiative of strategy is in the hands of the enemy. As German conquestincreased, she depended more and more on the support of the enchained economies of theoccupied countries for the support of her own overburdened war economy. The reverse

process did not take place; the retreat of German arms was not accompanied by a contractionand concentration of her widely expanded economy.’62

In Moscow, three post-war politics commissions were created in late 1943 and headed byVoroshilov, Maisky, and Litvinov.63 The Voroshilov Commission, comprising mainlymilitary experts presented the most cooperative approach. Litvinov’s counterpart seemed tofavor a traditional balance-of-powers approach to international relations, i.e. “territorialsecurity” for one’s own country and “organization of rivalries” in the outside world. Maisky,hoped to use England as a counterweight to the USA, envisioning something like a revival of the 19th century multi-polar power game. Stalin wanted, however, to keep all options open.

57 Quoted from www.calvin.edu/academic/cas/gpa/niemals.htm 58

He probably had visited Varga at Hotel Lux in Moscow.59 Cot: ‘Étant donné les négociations en cours, on peut estimer que l‘Union Soviétique recevra entre un et deuxmilliards de dollards de marchandies diverses (équipement industriel notamment) par an. Quant aux réparationsque les Alliés pourront prélever sur l’économie allemande en partie détruite par les bombardements et quant à la partie qui sera attribuée à l’Union Soviétique, c’est un élément beaucoup plus incertain; il est possible quel‘U.R.S.S. obtienne surtout quatre ou cinq millions de travailleurs, plus l’outillage qui pourra être pris dans lesusines allemandes et envoyé vers l’Est, plus des réparations en marchandises assez maigres si on les compareaux destructions.’ Pierre Cot, ‘Compte rendu de mission en URSS (mars-juillet 1944)’, in Cahiers d’Histoire de

l’Institut Maurice Thorez , 1974, Vol. 8, No. 6, p. 260. 60 At the 18th Party Congress, Stalin had used Varga’s impoverishment concept in order to predict an imminent break down of the fascist war economies.61 J. P. Nettl, The Eastern Zone and Soviet Policy in Germany 1945-50, New York: Octagon Books, 1977, p. 34.62 Nettl, o. c., 1977, p. 33.63 Aleksey Filitov, ‘Soviet security concepts in historical retrospective’, in Kurt R. Spillmann and AndreasWegner (eds) with the assistance of Derek Müller and Jeronim Perovic, Russia’s Place in Europe: A Security Debate, Bern: Peter Lang, 1999.

http://www.calvin.edu/academic/cas/gpa/niemals.htm

http://www.calvin.edu/academic/cas/gpa/niemals.htm



The idea that 19th century standards of Western-type liberal democracy might not have beenreasonably applied in the situation of post-war social and emotional upheavals, found widecirculation.

Violent disagreement over the extent to which Germany should be weakened and punished64

still existed. As a result of the Moscow Conference of Foreign Ministers in October 1943, theTripartite European Advisory Commission was set up in London. Its purpose was torecommend terms of surrender and the means of enforcing Allied policy in Germany to thegovernments of the U.S., Great Britain, and Russia. Hence, allied policy was outside itsscope, it was to study and recommend methods of execution. The terms of reference werecontained in a memorandum presented by Hull to Eden and Molotov at the conference, andthis was based on the assumption of joint responsibility for policy in Germany and jointoccupation. This principle, which at bottom presupposes the continuance of a single unitedGermany, was thus almost casually accepted for the future, without critical examination or conscious realization of the fact that only very close allied accord could make it work. Thearea of the future Soviet zone of occupation was suggested by the British representative on

15 January 1944 and accepted by the Russians on 18 February 1944. At the same time the joint occupation of Berlin was accepted, with the principle of free and independent access totheir sectors for the two Western powers. Zones of occupation had been agreed upon onSeptember 12, 1944, at the European Advisory Commission, meeting in London. It was thendecided to give France an area that would be carved out of the American zone. Stalin, whonever had evinced a very high opinion of the French, did not think they had any right to azone, but said he would go along, provided the previously agreed-upon Soviet zone wouldnot be affected.65 At the Moscow Conference of Foreign Ministers in November 1943 it had

been decided that Germany should be completely disarmed and should pay reparations for the physical damage she had inflicted on the Soviet Union and other Allied countries. Then,at Teheran, the question of partitioning Germany had been debated without any conclusions

being reached, but it had been assumed that in any case the three powers would occupy thecountry, and by November 1944 they had agreed upon the actual zones of occupation andupon their joint responsibility for Berlin. The Soviet view was that there should be only threeoccupying powers and that Germany should be deprived of eighty percent of her heavyindustry and should pay reparations in kind to the value of twenty billion dollars, half of which should go to the Soviet Union.

At Yalta the ‘Big Three’ confirmed their determination to demand the unconditionalsurrender of Germany. On the question of post-war Germany, however, there was no suchunanimity. At Yalta, with Stalin at the round table were Commissar for Foreign AffairsMolotov and his Deputy Commissar for Foreign Affairs Andrei Y. Vyshinski, Ivan M.Maisky, who acted as interpreter, A. A. Gromyko, Russian Ambassador to the United States,and the Soviet Chiefs of Staff.66 At Yalta it became clear that, while the Western powersappeared to have advanced further than the Russians had formulated a more precise policywith regard to reparation demands than either Great Britain or the U.S., whereas Stalinappears mostly to have contributed the Russian point of view himself at the meetings of the

64 The Morgenthau Plan was first propounded to Roosevelt and Churchill by Secretary of the Treasury, HenryMorgenthau, Jun., at Quebec in September 1944. It was first accepted by both leaders but rejected after strong protest by Hull and Stimson on one hand and Eden in the other. E. R. Stettinius, Lend-Lease. Weapon for

Victory, Harmondsworth: Penguin Books, 1944, pp. 45-46.65 William D. Leahy , I Was There. The Personal Story of the Chief of Staff to Presidents Roosevelt and Truman

Based on his Notes and Diaries Made at the Time, London: Victor Gollancz, 1951, p. 35466 Admiral Kuznetsov, vice-admiral Kucherov, general Slavin, general Antonov, general Grizlov, air marshallKhudyakov, air marshall Fallalev, commander Kostrinski, ambassador (London) F.T. Gusev, and Stalin’sinterpreter Pavlov. Leahy, o. c., 1951, p. 351.



three leaders, he called on Maisky to explain the Soviet reparations plan at the meeting on thesecond day. The Russian proposal stated:

Based on this plan two kinds of reparations were envisaged: A part of German property wasto be withdrawn (consisting of) territory, factories, machines, railways, and foreign assets.For the next ten years a certain quantity of goods must be delivered. By withdrawal Maiskymeant to confiscate and carry away physically for reparation payment.67 It was later proposed

by Maisky that 80 per cent of the German industrial potential was to be handed over, chieflyfrom the iron and steel industries, the building industry, and the chemical industry andremoved in a period of two years after the surrender. The production capacity for syntheticoil and petrol, planes, and all armaments works were to be dismantled and handed over completely. Russia demanded at least 10 billion dollars out of capital goods and current

production reparations. Reparations from German labor 68 were deliberately left out of thediscussion.

The chief objection to the proposed total value of reparations came from Churchill,69 whodoubted both the German ability to pay and the Allied benefit from reparations, in view of

the experiences of the victor after the First World War. President Truman also counseledmoderation. Maisky then made the very important point that the fiasco of the previousexperience was due, not to quantity, but to the concentration of the victors on financialreparations. This pitfall would now be avoided, he said.70 However, before the conferencewas closed, disagreement between Russia and Britain subsisted with regard to Germany’scapacity to pay.71

The Soviets were above all interested in the positive gain which reparations wouldautomatically be taken care of. At the pre-ultimo plenary session, Stalin spoke with greatemotion of the vast and wanton destruction which the Germans had caused in Russia and

pleaded for due compensation. Churchill read a telegram from the British War Cabinet

protesting that reparations to 20 billion dollars were far more than Germany could afford.Thereupon Roosevelt suggested that the whole problem should be left to the ReparationsCommission in Moscow. Churchill and Stalin agreed. Stalin tackled Churchill that night at adinner, saying that he did not like to have to go back to Moscow and tell the Soviet peoplethat owing to British opposition they would not receive adequate reparations. The effect wasthat when the Protocol was signed next morning it contained the statement that the Sovietand American delegations agreed that the total sum should be 20 billion dollars and that 50

percent if it should go to the USSR. The British view that no figure should be mentioned wasalso recorded, but this was of little account.72

67

Quoted in Nettl, o. c., 1975, p. 39. Allied control should be established over German industry, and all Germanindustry that could be used in the production of war material should be under international control for a long period.68 Leahy witnessed that ‘Stalin then brought up the question of reparations in kind and in manpower, but said hewas not ready to discuss the manpower question. The latter, of course, referred to forced labor. Since theRussians were using many thousands of prisoners in what was reported to be virtual slave camps, they had littleto gain by discussing the matter. Stalin then had Deputy Foreign Commissar Maisky elaborate on the Russianview of the reparations question.’ Leahy , o. c., 1951, p. 354.69 Churchill objected to the 10 billion-dollar figure, and he and Roosevelt agreed that a reparations committeeshould be appointed to study the issue. Roosevelt made it clear that the United States would not make thefinancial mistakes that followed the First World War. He added that America would not want any manpower,any factories, or any machinery. He might want to seize German property in the United States, which at that timewas estimated not to exceed 200 million dollars. Leahy, o. c., 1951, pp. 354-355.70 Nettl, o. c., 1975, p. 40.71 Nettl, o. c., 1975, p. 40.72 Chester Wilmot, The Struggle for Europe, London: Collins 1953, pp. 643-659.



On January 8, 1945, Molotov had presented to Harriman a request for 6 billion dollars in postwar credits over thirty years at an interest rate of 2.5 percent. Harriman and Morgenthauhad proposed that, in view of the economic devastation of the Soviet Union, a large long-term loan on easy terms should be offered by the US Government to the U.S.S.R. This wouldcement U.S.-Soviet relations and might also help to take the acrimony out of the Russian

attitude on reparations. For some reasons the loan question was not discussed at Yalta. TheSoviet Union brought the loan request up again in August 1945 at Potsdam. In September 1945 Stalin told a delegation of congressmen that the Soviet Union wanted to borrow 6

billion dollar in order to repair war damages and raise living standards. Nothing happened.73

Since this loan finally came to nothing, Nettle questioned ‘whether the difficulties over reparations, which later became the chief wedge in American-Soviet relations in Germany,might have been avoided.’74 Nettl found that ‘except for their reparation demands, theRussians apparently did not go to a conference with a firm and final program; indeed,Molotov stated that the United States and Britain seemed to be further advanced in their studies on the German question. Nor was final Russian policy evident in the first weeks after the conference.’75 At Yalta the general principles of the reparation payments had nonetheless

been arrested: Germany must pay in kind for the losses caused by her to the Allied Nations inthe course of the war. Also reparations in kind could be exacted from Germany in threefollowing forms:

Removals within two years from the surrender of Germany or the cessation of organizedresistance from the national wealth of Germany located on the territory of Germany itself ‘aswell as outside her territory (...) these removals to be carried out chiefly for the purpose of destroying the war potential of Germany.’ Other items were: Annual deliveries of goods fromcurrent production, for a period to be fixed and use of German labor.

For the working out on the above principles of a detailed plan for exaction of reparation fromGermany, an Allied Repartition Commission would be set up in Moscow. With regard to the

fixing of the total sum of the reparation as well as the distribution of it among the countrieswhich suffered from the German aggression the Soviet and American delegations agreed asfollows: The Moscow Reparation Commission should take in its initial studies as a basis for discussion the suggestion of the Soviet Government that the total sum of the reparation inaccordance with the points (a) and (b) of the paragraph (2) should be 20 billion dollars andthat 50 per cent of it should go tot the Union of Soviet Socialist Republics. The Britishdelegation was of the opinion that pending consideration of the reparation question by theMoscow Reparation commission no figures of reparation should be mentioned. The aboveSoviet-American proposal has been passed to the Moscow Reparation Commission as one of the proposals to be considered by the Commission.76 Later, Nettl remarked that the US didnot consider itself tied to this figure as a definite target. Soviet claims, that the figure had

been confirmed by the Americans, could not be based on the text of the protocol.

The Potsdam Conference

On 7 May 1945 the German Government surrendered. In his ‘Proclamation to the People’Stalin specifically repudiated the dismemberment of Germany and its destruction. Had it not

73 Susan Butler (ed.), My Dear Mr. Stalin. The Complete Correspondence Between Franklin and Joseph V.

Stalin, New Haven and London: Yale University Press, 2003, pp. 325-326.74 Nettl, o. c., 1975, pp. 40-41.75 Nettl, o. c., 1975, p. 41.76 Nettl, o. c., 1975, pp. 43-44.



been for the lengthy negotiations on this question, this statement might have been taken as ameaningless phrase of victorious generosity; as it was, the Russian Government had clearlycome to a decision, and a unilateral one at that, as to what their policy in Germany would be.Accordingly, the commanders-in-chief’s proclamation made no mention of dismembermenteither.

The Conference of Potsdam convening in July and August 1945 had to decide on the post-war fate of Germany. The delegations were much larger than at the conferences of Tehranand Yalta. One of Stalin’s principal demands was to break the deadlock over reparations. Atthe Conference of Potsdam the primary assumption was that the level of production in basicindustry of 1936 was almost twice as large as that required by Germany to subsist withoutexternal assistance, and to assure the maintenance in Germany of average living standardsnot exceeding the average of the standard of living of European countries, excepting GreatBritain and the USSR.77 The reparations, along with the Polish boundary, took up a lot of time at the conference. Particularly in the field of reparations the specter of 1918 was ever

present. The discussions on reparations were endless, tortuous, complicated, and confused.

Financial reparations were barred. The Allied leaders now approached the question moreform the point of view ‘What can Germany pay?’78 Instead of this it was decided that nofigure should be announced until the technical experts had declared the maximum; hence thedelay of eight months between the Potsdam Conference and the announcement of the futurelevel of industry. If direct reparation deliveries of industrial plant were limited and unable bythemselves to repair the damage done to the Soviet Union, then reparations out of current

production, indirect reparations through exports, and invisible reparations through localexploitation were to be obtained. The latter attitude of the Soviet Union seems to show that ithad already then been decided to obtain the greatest possible amount from Germany. She wasto pay for the damage as far as possible, and not necessarily with de jure reparations only.79

In regard to reparations, Molotov expressed general approval of an exchange of reparations

between zones, but insisted that the details must be worked out. The Soviet Union expectedto receive 50 per cent of all the reparations collected from Germany, which they insistedshould include two billion dollars’ worth taken from the British and American zones of occupation.80

US Secretary Byrnes presented papers on reparations, Polish frontiers, and satellite stateswhich he said the US was prepared to accept if the three papers were approved together, each

being dependent upon the others. Byrnes proposed that capital equipment in the Ruhr notneeded for Germany’s peacetime economy be exchanged with the Soviet for material needed

by the Western zones. Stalin wanted 500 million dollars, one-third of the stock of Germanforeign assets, and one-third of the gold captured by the Anglo-American armies. This wasdisapproved. The final agreement on percentages of reparations to be taken from all westernzones for Russia was 15 per cent. Equipment to be removed was to be determined within six

77 Nettl, o. c., 1975, p. 48.78 Charles Bohlen reported that ‘the Soviets, while understandably demanding payment for the havoc wrought bythe Nazi army, had not proved their claims that $20 billion in reparations could be extracted from Germany. Thiswas the sum that Roosevelt and Stalin-but not Churchill- had agreed at Yalta would be the basis for “discussion”.After thirty-seven meetings with the British and Soviet representatives in Moscow, the American governmenthad concluded that there was no basis for the Soviet claim. The Americans and British were determined not toget trapped, as in World War I, in paying for Germany’s reparations to other countries. While the conferees weredebating general principles, evidence was accumulating that the Soviets had already started stripping Germanindustry of machines and equipment in their zone. (…) The material was not military booty; it was industrialequipment’. Charles E. Bohlen, Witness to History 1929-1969, New York: W. W. Norton & Company, 1973, p.

23279 Nettl, o. c., 1975, p. 51.80 Leahy, o. c., 1951, p. 492.



months. The Big Three approved of France having a representative on the ReparationsCommission.81

At Potsdam in July and August 1945, Maisky and Saburov were in charge of reparation talks.Maisky argued on 24 July 1945 that Varga had estimated that in the Soviet Zone of Germanyabout 30 percent of total German capital was located. On July 25, 1945, Stalin, Churchill andTruman discussed reparations and movement of populations. According to Truman,Churchill argued that Maisky had so ‘defined war booty as to include the German fleet andMerchant Marine’82. Though Varga was present at the Potsdam Conference, he did notappear in public.83 There, in bombed-out Berlin, he had enough time to visit t Hitler’sChancellery.84

After the Potsdam Conference, Soviet policies took a more ominous look. During thePotsdam Conference Churchill had used for the first time the imagery “iron curtain” whendepicting on the 24th of July the situation in the Soviet occupied countries. That was well

before his famous Fulton speech of 5 March 1946.85 Did the Cold War start at Potsdam? Atthat moment Stalin already knew about the atom bomb the Americans had tested on 16 July

1945.86 On September 16, 1945, during the London session of the Council of ForeignMinisters, US Secretary of State James Byrnes met Molotov to discuss privately the situationin Romania and Bulgaria.87 The idea of Soviet-British collaboration against American“dynamic imperialism”, as suggested by Litvinov, turned out to be a chimera. Theorganization of rivalries could be nothing but an empty phrase for a situation in which the USmilitary and economic preponderance was unchallenged.

The Potsdam agreement made no mention of reparations in their literal sense as a primaryreason for occupation, but significantly the declaration of the Soviet Foreign Minister on 9July 1946 gave the three Soviet reasons why Allied and Soviet troops were present inGermany: (1) To ensure and conclude the military and economic disarmament of Germany;

(2) To ensure that the regime in Germany will become democratic; (3) To ensure reparationdeliveries.88 After Potsdam, the Control Council debated on reparations with no morefelicitous results. In the mean time, the Soviet Union had started with industrial dismantlingin its own occupation zone. In Potsdam was set up the Council of Foreign Ministers to drawup peace treaties for Italy, Rumania, Bulgaria, Hungary, and Finland. Later, the Councilshould also prepare a treaty for Germany.

Stalin’s foreign policy contained nonetheless several contradictions. In his famous ‘electionspeech’ of February 1946 Stalin declared believing in capitalism’s instability and inter-imperialist rivalries, but in the man time he was impressed by America’s role in therehabilitation of post-war capitalism and geopolitical stabilization. In addition, hisrepresentatives took part in informal talks on post-war currency plans laid in Washington and

81 Leahy, o. c., 1951, p. 493.82 Robert H. Ferrell (ed.), Off the Record. The Private Papers of Harry S. Truman, Harmondsworth: PenguinBooks, 1982, p. 56.83 Georg Göncöl, ‘Lebensweg und Lebenswerk von Eugen Varga (1878-1964)’, in E. Varga. Wirtschaft und

Wirtsschaftspolitik. Vierteljahresberichte 1922-1939, Herausgegeben von Jörg Goldberg, Vol. 1, Berlin: Daseuropäische Buch, 1976, p. 6.84 Jürgen Kuczynski, Dialog mit meinem Urenkel. Neunzehn Briefe und ein Tagebuch, Berlin and Weimar:Aufbau-Verlag, 1987, p. 114.85 Rainer Karlsch, ‘Stalin, der Bluff und die Bombe. Verwirrspiel um den ersten sowjetischen Atomtest’, inOsteuropa, 2007, Vol. 57, No. 12, p. 117.86 Karlsch, o. c., 2007, p. 119.87 Foreign Policy Archives of the Russian Federation, Ministry of Foreign Affairs (AFR RF) 06/7/43/678, II, 54-58. Quoted in Firsov, o. c., 1999.88 Nettl, o. c., 1975, p. 51.



London. They dutifully attended the July 1945 conference at Bretton Woods that establishedthe World Bank and the International Monetary Fund and that set the principles of pricestability through fixed exchange rates, reductions of trade barriers and market integration.However, until December 1945, Soviet trade and foreign ministers were recommendingratification on the grounds that this might yield reconstruction credits. 89

Varga commented on these plans in the periodical War and the Working Class in which hedeclared being impressed by the plans of an international bank or stabilization fund proposed

by Lord Keynes and Harry Dexter White.90 However, Varga preferred a return to the goldstandard. In this he followed a commentary published in The Economist in which was arguedthat the ruble had ‘at no time maintained a close relation to its internal purchasing power.The problem of maintaining equilibrium with international cost and price structures hardlyarises in a wholly planned an socialized economy, where the State undertakes the whole of foreign trade.’91 In that commentary The Economist pointed out that the Keynes plan would

be suspected by Moscow because it envisaged the possibility of changing the unites price of gold, and thus endangering the world-price on which Russia depends for her output of the

metal, while the White plan, ‘with its stress on freedom from exchange controls’.

92

Varga’s commentary was also inspired by past Soviet attitudes to the role of the goldstandard. The Soviet Union was not really interested to back the project of a post-war currency plan drafted in Washington and London as the country’s gold reserves fed by Sovietgold mines were built up to maintain a fund out of which temporary disequilibria in the

balance of external payments could be met. However, other considerations were guidingMoscow’s interest in the new international financial system under US leadership. HarryDexter White desiring to make Bretton Woods work in a truly global sense, had proposed inearly 1944 a large credit to the USSR in exchange for needed strategic materials as a sound

basis for continued collaboration between the two governments in the post-war period. Fromthe perspective of the Soviet Union, the continuation of the Lend-Lease93 was, however,

more important than these projects concocted at Washington. Thus, already at the end of 1945 Stalin had lost any interest in the IMF project. 94

The Browder Affair

Communist Parties in the west had to adopt their strategies to Stalin’s foreign policy. TheCPUSA had backed the Roosevelt Administration in his war effort. By 1944 party leader Earl Browder decided to dissolute the party. As long as the war was dragging on, Stalinrefrained from a direct intervention in this sensitive affair now that CPUSA militants had

conquered positions of responsibility in several unions and had attracted sympathy in

89 John Lewis Gaddis, We Now Know. Rethinking Cold War History, Oxford: Clarendon Press, 1997, pp. 187-220.90 Robert Skidelsky, John Maynard Keynes. Fighting for Britain 1937-1946 , London, Basingstoke and Oxford:Macmillan, 2000, pp. 300-336; D. E. Moggridge, Maynard Keynes. An Economist’s Biography, London and New York: Routledge, 1992, pp. 721-753.91 ‘Business notes’, in The Economist , 1943, Vol. 145, No. 5233, December 11, p. 785.92 The Economist , 1943, Vol. 145, No. 5233, December, 11, p. 785.93 The Soviet Union had paid for the first American supplies by the sale of gold and by treasury bonds. Butalmost immediately the Soviet Union found it impossible to continue funding the American armaments supplies.

On October 1941 the US Congress voted to include the USSR in the Lend-Lease program.94 Harold James, International Monetary Cooperation Since Bretton Woods, Washington D.C.: InternationalMonetary Fund/Oxford OUP, pp. 68-70, 1996, p. 69.



intellectual and artistic circles. French Communist leader Jacques Duclos95 reacted in theCahiers du Communism,96 in which he presented a lengthy review of the events having led tothe dissolution of the Party in 1944 and the subsequent organization of the Communist

Political Association. He charged that under Browder’s the American Party had completelyabandoned the Marxist theory of class conflict, substituting the mild reformism of the Social

Democrats.The effect of the Duclos article initiated a purge in de CPUSA and Browder became thewhipping boy for those who required some evil influence to explain their past conduct. TheCommunist Political Association called an emergency convention in late July 1945, that

promptly reconstituted itself as the CPUSA97 and expelled Browder, who had overestimatedthe power of American capital and believed that, through planning, America could overcomefor some time its economic problems. ‘Browderism’ had adhered to Hilferding’s theory of organized capitalism, weakened the communist movement, and betrayed the future of socialism. The CPUSA returned under William Z. Foster into a new period of loyalty to theSoviet Union. In an editorial published in Political Affairs in 1946, the author admitted that

at the end of the war it was ‘revealed that, while common interests exist between the SovietUnion and the peoples of Britain and the United States, as well as the entire world, therewere fundamental differences between the outlook and aims of Anglo-American imperialismand the Socialist Soviet Union. (…) The end of the war has revealed that Anglo-Americanfinance capitalism is attempting to return to the old, to wipe out the progress made during thewar in the direction of democracy and national freedom, of the unfettering of the forces of the people (…) and to rebuild the old place d’armes against the Soviet Union. It is, in short,taking advantage of its military and economic might to assert its will to world domination.98

Varga on American foreign policy

On March 12, 1947, President Harry Truman solicited in a dramatic speech to a joint sessionof Congress support for Greece and Turkey while announcing American readiness to defend

principles of freedom wherever they were menaced by totalitarianism. Without naming theadversary, he spoke of a conflict between two ways of life, one based on self-choseninstitutions, the other on the exercise of power by minority. The so-called Truman Doctrinesignaled not only the end of America’s intentions to demobilize its armed forces and leaveEurope, but also America’s commitment to confront Communism everywhere.99

Varga reacted immediately in an article published in New Times of May 1947 in which hecriticized ‘the premeditated pessimism of (…) reactionary Anglo-Saxon circles, who are

disposed to talk of success only when they succeeded in dictating their will to their partnersin negotiations.’ He nonetheless called for a ‘more realistic approach’ to the settlement of theGerman question in the interests and views of the European countries ‘that are mostconcerned in the prevention of fresh German aggression’.100 Varga referred to the recently

published record of the conversation between Stalin and Harold Stassen on 9 April 1947 in95 The Duclos article was framed in Moscow. Alexander Dallin and F. I. Firsov (eds), Dimitrov and Stalin 1934-

1943. Letters from the Soviet Archives, New Haven and London: Yale University Press, 2000, p. 258.96 Jacques Duclos, ‘À propos de la dissolution du P.C.A.’, in Cahiers du Communisme, nouvelle série, No. 6(April 1945), English translation in Daily Worker , New York, May 24, 1945.97 Record, 1971, pp. 227-231.98 ‘The imperialist threat to world peace’, in Political Affairs, 1946, Vol. 25, No. 4, pp. 294-295.99 Dan Diner, Cataclysms. A History of the Twentieth Century from Europe’s Edge, Madison: University of Wisconsin Press, 2007, p. 203.100 E. Varga, ‘The prospects for international co-operation’, in New Times, 16 May, 1947, p. 1.



which Stalin had expressed his conviction that cooperation between the two economicsystems was possible.101 Why should the two different economic systems not cooperate in

peacetime as in wartime? ‘Sincere international co-operation precludes interference in theinternal affairs of other countries’, Varga declared when referring to America’s ‘assistance’to Greece and Turkey or the role of American ‘advisers’ on internal affairs in Paris and

Rome.102

‘World War II demonstrated how strong and invincible is the desire of the nationsfor liberty and independence (…). The growth of the forces of democracy all over the worldis a supreme pledge of the ultimate triumph of the principles of sincere international co-operation over the machinations of its foes’.103 Varga’s peaceful views on internationalcooperation were, without any doubt, at that moment conform to Molotov’s diplomaticstrategy vis-à-vis the Anglo-Americans, but also destined to influence his foreign readers.

The Soviet Union had refused to participate in the Geneva trade talks104 on international freetrade issues. On this event Varga published a lengthy article in which he hammered out hiswell-known crisis theory. Referring to the Genoa and The Hague Conferences of 1922 andthe international economic conference of 1927 in Geneva or the 1933 London Conference,

Varga warned his readers for excessive optimism. None of the earlier internationalconference had led to ‘any practical results’.105 According to Varga, the Geneva talks on tariff reductions were, making little headway, because America’s monopolists’ strategy consistedof taking advantage of their monopoly position when penetrating into all capitalist countries.In addition, American manufacturers were not intending to renounce their system of high

protective tariffs. ‘They are prepared to sell abroad at dumping prices, even at a loss’, Vargaargued.106 As long as Britain did not renounce her system her system of imperial preferences,the talks on tariff redactions were making little headway, Varga argued. In addition, Vargastill believed in a persisting Anglo-American rivalry. The not taking part of the Soviet Unionat the conference in Geneva had to be explained by ‘its government monopoly of foreigntrade, which is one of the immutable elements of its economic systems’.107

In an article on ‘Anglo-American Rivalry and Partnership’ published in the July 1947 issueof Foreign Affairs108 Varga, defended the same points of view.109 The readers of Foreign

Affairs were confronted with a rather ‘moderate’ Varga who had omitted writing about thecoming ‘proletarian revolution’. Stalin and Lenin were not quoted. In his contribution, Varga

preferred pointing to high American tariffs impeding the import of British manufactures, theBritish system of imperial preferences established at the Ottawa Conference in 1931, higher British war casualties, the absence of hostilities on US territories, lower British industrial

productivity rates, a lower British living standard, etc. Again, he mentioned the problem that

101 Ibidem, p. 2.102

Ibidem, pp. 2-3.103 Ibidem, p. 3.104 Seventeen of the major capitalist countries had started with trade talks at a conference in Geneva, whereWilliam Clayton (USA), Stafford Cripps (Great Britain) and André Philip (France) had shown up with the purpose to prepare a UN world trade conference.105 E. Varga, ‘The Geneva trade talks’, in New Times, 16 May, 1947, No. 20, p. 4.106 Ibidem, p. 6.107 Ibidem, p. 8.108 Varga, ‘Anglo-American Rivalry’, in Foreign Affairs, 1947.109 This article had been written at the end of March or in the beginning of April 1947. Editor of Foreign Affairswas Hamilton Fish Armstrong of the Council of Foreign Relations, in New York. The same issue contained the‘X-Article’, ‘The Sources of Soviet Conduct’, in which George F. Kennan predicted that Soviet policy wouldreally be dominated by the pursuit of autarchy and be subjected, by virtue of recent territorial expansions, to a

series of additional strains which once proved a severe tax on Tsarism. This article was inspired by the text of his‘long telegram’ of 22 February 1946 from Moscow. George F. Kennan, Memoirs 1925-1950, Boston andToronto: Little, Brown and Company, 1967, pp. 271-297; 354-367.



the European Continent could ‘buy American goods only on credit’110 and that the US wantedto break up the institutions of the British Empire. Though the British government wasopposing American ambitions during the framing of the Atlantic Charter, Varga insisted onthe fact that the US was now assuming the leading position in the world economy. Vargaconcluded that the US was pursuing ‘a world policy of imperialism in the fullest sense of the

term’ and that the US was ‘the land in which militarism is most in vogue. Big business is bent on using the country’s military power for the economic subjugation of the world.’111

Varga called Roosevelt ‘a great statesman’ who had understood that it was ‘in the interests of the American bourgeoisie itself to blunt the edge of the class struggle between the

bourgeoisie and the proletariat by timely concessions which did not imperil the existingsystem.’ After Roosevelt’s death, ‘the forces of social reaction’ had, however, gained theupper hand and he saw a growing danger of Fascism. The Republicans won the last Congresselections, while President Truman ordered the removal of ‘all persons suspected of Communist sympathies’ from the civil services.112 Varga thought that the British Labour Government was moving into the opposite direction with its program of nationalizations and

‘peaceful transition to Socialism’, and with the British bourgeoisie displaying ‘flexibility inavoiding a showdown fight with the working class’.113

Meanwhile, both countries were nonetheless forming a bloc in the sphere of foreign policy.114 Varga explained this contradiction by referring to their joint fight to maintain ‘the systemof society existing outside the USSR and to counter the influence of the Soviet Union inworld affairs’.115 Hence, the Truman doctrine was nothing more than ‘a turning point inAmerican foreign policy’ and as ‘a clear departure from Roosevelt’s policies’. AlthoughBevin continued Churchill’s foreign policy, Varga looked hopeful to the Labour Party rebelswho were contesting Bevin’s foreign policy, and for the same reason he acclaimed HenryWallace opposing Truman’s policy of amassing US troops at the Soviet Union’s frontiers.116

The Marshall Plan

On June 5, 1947, American Secretary of State George Marshall announced at HarvardUniversity the offer of cheap credits to any European country in order to speed up economicrecovery. Despite increasing tensions with the Soviet Union the offer of aid was not restrictedto any particular set of countries. Marshall welcomed the participation of ‘any country that iswilling to assist in the task of recovery.’ The Marshall Plan was a decisive first step inestablishing a new political and economic balance in Europe. The European Recovery Programme (ERP), or Marshall Plan as it became known, had been crafted by George F.

Kennan and his Planning Staff to help re-stabilize the European economy, encourageEuropean postwar integration, and, ultimately, stave off the spread of Communist influence.117

ERP’s economic dimensions were massive - in four years, the US gave some US$13 billion inaid - but its political dimensions were even more consequential.

110 E. Varga, ‘Anglo-American rivalry’, in Foreign Affairs, 1947, p. 591.111 Ibidem, pp. 592-593.112 Ibidem, pp. 593-594.113 Ibidem, p. 594.114 Varga referred to Molotov. Ibidem, p. 594.115 Ibidem, p. 594.116 Ibidem, p. 595.117 Michael Cox and Caroline Kennedy Pipe, ‘The Tragedy of American Diplomacy? Rethinking the MarshallPlan’, in Journal of Cold War Studies, 2005, Vol. 7, No. 1, pp. 97-134.



The Marshall Plan, however, would alter Stalin’s strategy thoroughgoing. 118 In his firsttelegram to Moscow on the subject, dated June 9, 1947, Soviet Ambassador to the UnitedStates Nikolai V. Novikov suggested that Marshall’s speech was aimed to formulate a aWestern European bloc directed against the Soviet Union. On 15 June 1947, Pravda

denounced the plan. However, after Bevin and Bidault had met in Paris on 17-18 June 1947

and had invited a day later the Soviet Union to an Anglo-French-Soviet conference thatwould discuss the elaboration of a ERP, the Politburo’s attitude changed nonetheless andendorsed a positive reaction to the American aid program.119

Two aspects of Marshall's declaration interested Molotov. First of all, he underlined several passages emphasizing the seriousness of the economic crisis in Europe and the implicationsfor the United States if the European economic decline could not be arrested. Second,Molotov circled the passage in which Marshall declared American willingness to cooperatewith any country that desired to help in reconstruction, but also promised that ‘governments .. . which seek to perpetuate human misery in order to profit there from politically or otherwise will meet the opposition of the United States.’ Molotov undoubtedly recognized

this particular phrase as possibly directed against the Soviet Union. But his marking of Marshall's concluding passage, which outlined the general conditions of such aid, suggeststhat the Soviet foreign minister also saw the possibility that Moscow might be able to gainsome much-needed reconstruction credits from the United States through this program.

As evidenced in Novikov's June 9, 1947, telegram, the Soviet leaders suspected that theBritish, French, and Americans were already planning a unified approach to designing thenew aid program, aimed at excluding the Soviet Union. These suspicions were not

baseless.120 After Marshall's speech, British foreign minister Ernest Bevin met with hisFrench counterpart Georges Bidault in Paris shortly where they agreed on a joint response toMarshall's initiative and invited Molotov to Paris in the week of June 23, 1947, for a jointconference to formulate an all-European response to Marshall’s proposal. Both felt that the

need for American assistance was urgent. Endless haggling with Moscow had to be avoided.At that moment, Stalin and Molotov did not rule out further economic cooperation with theUS in order to preserve the wartime coalition against a resurgent Germany. Against this

background and looking forward to an agreement with the United States on a new system of international economic cooperation, Molotov asked Varga to assess America’s intentions.121

Immediately, Varga submitted a confidential report to Molotov122 in which he argued that the primary purpose of the Plan was to forestall, or at least mitigate, the worst effects of thecoming crisis within the American economy by seeking out new markets in Europe—aclassic restatement of the standard Soviet theory of capitalist crises. Economic self-interest,

118

Before the Marshall Plan, cooperation with the West on acceptable terms appeared possible, if difficult torealize. After the Marshall Plan, Stalin apparently became convinced that even limited cooperation with the Westwas impossible. Scott D. Parrish, ‘Soviet reaction to the Marshall Plan: Opportunity or Threat?’ in Problems of

Post-Communism, 1995, Vol. 42, No. 5, September/October.119 Geoffrey Roberts, ‘Moscow and the Marshall Plan: politics, ideology and the onset of the Cold War’, inEurope-Asia Studies, 1994, Vol. 46, No. 8, p. 1373.120 Mikhail Narinski, ‘Le Plan Marshall et l’URSS’, in René Girault et Maurice Lévy-Leboyer (eds) Le PlanMarshall et le relèvement économique de l’Europe, Paris: Ministère de l’Économie, des Finances et du Budget,1993, pp. 119-123. Vladislav Zubok and Constantine Pleshakov Inside the Kremlin’s Cold War: From Stalin to

Khrushchev, Cambridge, MA and London: Harvard University Press, 1996, pp. 102–103. For recent disclosuresabout Molotov, see Alexander O. Chubaryan and Vladimir O. Pechatnov, ‘Molotov, ‘The Liberal’: Stalin’s 1945Criticism of His Deputy,’ in Cold War History, 2000, Vol. 1, No. 1 (August), pp. 129–140.

121122 Report of Academician Varga to Foreign Minister Molotov, 24 June 1947, Arkhiv vneshnei politikiRossiiskoi Federatsii (AVP RF), F. 6, Op. 9, D. 213, Ll. 215, cited in Narinski, o. c., 1993, p. 121.



rather than enlightenment, lay at the heart of the Plan, according to Varga. But he alsocontended that the Plan had multiple political purposes along with its economic rationale.The three most significant political aims, in his view, were to demonstrate U.S. hegemonyover Europe, to induce the West Europeans to form an anti-Soviet bloc if the USSR refusedto participate, and to hold the USSR responsible if the Plan did not achieve its specified

objectives. He noted that the Plan also had a fairly obvious subversive purpose—to placemaximum pressure on the East Europeans and thereby draw them away from Moscow back into the larger capitalist fold. But he claimed there was no reason to be alarmed at this stage.After all, the United States was unlikely to get everything it wanted. Furthermore, if the Planwas driven largely by economic necessity, as Varga and others assumed, 123 it was possible for the USSR to exploit this need for its own ends. Varga thus implied that the Plan was anopportunity as much as a threat, and that the aim of Soviet diplomacy therefore should be todisconnect the issue of aid from the political conditions the United States would inevitablyseek to attach to it. In this way the Soviet Union could derive maximum advantage. As oneanalyst has cogently observed, although Varga’s analysis ‘reelected a strong degree of caution and suspicion’ one could still infer ‘that with astute bargaining the Soviet Union’

would be able to ‘gain from participation in [the Plan].’124

On 21 June 1947, the Soviet Politburo125 endorsed Molotov’s idea of at least discussing theaid program with the British and the French. The assembled officials hoped that the MarshallPlan might offer a useful opportunity to establish a framework for receiving substantialcredits from Washington. Accordingly, Molotov suggested to the British and the French thatthey should meet in Paris to discuss the program. The Soviet authorities also transmittedinstructions to the other East European states to ensure their participation in the Plan. 126 Atthis stage, Soviet leaders wanted to ensure that the countries that had suffered most fromGerman aggression would be given priority for the receipt of U.S. credits. This stance,though self-serving, was in line with Moscow’s long-standing position that any economic aid

should be distributed according to efforts made in defeating Nazi Germany. For the time being, Soviet leaders remained serious in pursuing the aid initiative. In a cable on 22 June,the Politburo instructed the Soviet ambassadors in Warsaw, Prague, and Belgrade to tell theleaders of those countries—Bolesław Bierut, Klement Gottwald and Josip Broz Titorespectively—to ‘take the initiative in securing their participation in working out theeconomic measures in question, and ensure that they lodge their claims.’127 Soviet leaders didnot discount the need for vigilance, as reflected in the 24 June memorandum from SovietAmbassador Nikolai Novikov.128 But at this stage in the proceedings, the Soviet leaders stillhoped that under the auspices of the Marshall Plan there would be ample room for a zone of economic exchange.

Stalin highlighted three key issues in the official instructions he gave to the Soviet officialstraveling to Paris for the meeting. Although the three guidelines were cautious in tone, theydid not preclude Soviet agreement if the West was prepared to enter into serious negotiationsthat might lead to a compromise. The first issue was Germany, the resolution of which Stalin

123 Novikov to Molotov, cited in Scott D. Parrish, The Turn Towards Confrontation: The Soviet Reaction to the

Marshall Plan, 1947 . Washington DC: Cold War International History Project, Woodrow Wilson InternationalCenter for Scholars, Working Paper No. 9, March, p. 19.124 Mikhail Narinski, ‘Soviet foreign policy and the origins of the Cold War. A Retrospective’, in GabrielGorodetsky (ed.), Soviet Foreign Policy 1917-1991, London: Routledge, 1994, pp. 105–110.125 Stalin, Zhdanov, Beria, Mikoyan, Malenkov, and Voznesensky and vice-ministers Vyshinski and JakovMalik. Narinski, o. c., 1993, p. 121.126 ‘Molotov to Bodrov, 22 June 1947’, in Galina A. Takhnenko, ‘Anatomiya odnogo politicheskogo resheniya:

K 45-letiyu plana Marshalla’, in Mezdunarodnaya zhizn (Moscow), 1992, No. 5 (May), pp. 113–127.127 Ibidem.128 Novikov to Molotov, 24 June 1947, AVP RF, F. 18, Op. 39, D. 250, Ll. 314–320. Quoted in idem.



hoped to keep separate from the issue of economic aid. The Soviet delegation for the ParisConference was thus instructed not to discuss the German question during the meeting. Thesecond issue was economic aid. Stalin instructed the delegates to ensure that this questionwas discussed in terms of specific country needs rather than an all-European basis that wouldenable U.S. officials to design their own program of reform. The final issue was the status of

Eastern Europe. Once again, the instructions were clear, and the Soviet delegates were left inno doubt that they should ‘object’—and presumably object strongly—to any ‘aid terms’ that‘threatened interference in the internal affairs’ of the ‘recipient’ countries. As Stalinenvisaged it, the United States could provide aid, but it would have to be aid without anyconditions, especially conditions that ‘might infringe on the European countries’ sovereigntyor encroach on their economic independence.’129

Molotov traveled with a delegation of more than 100 advisers, including Varga, on June 26,1947, to Paris. This indicates that Stalin was interested in the Marshall Plan. 130 In Paris,Molotov was confronted with Anglo-French proposals calling for economic modernization

programs under the auspices of a central European organization that would oversee the

distribution of U.S. aid. The French proposed an audit of the resources of participatingmembers. Molotov attacked both ideas on the grounds that they infringed on the sovereigntyand independence of the European states. As an alternative, he proposed that individualcountries should make their own assessments of national needs and that these analyses woulddetermine the amount of total credit required from the United States. Bevin and Bidaultinsisted, however, that disclosure of resources was a prerequisite for participation in the aid

program. Molotov realized that if these proposals were adopted, the East Europeangovernments would have to alter their internal policies in a way that would make themdependent on Western Europe, and thus ultimately on the United States. On 2 July, after having consulted Stalin, Molotov refused to accept the terms of the Marshall Plan. At ameeting on 3 July, Molotov predicted that Western actions would result not in the unification

or reconstruction of Europe, but in the division of Europe. The same day, Bevin and Bidaultissued a joint communiqué inviting the twenty-two other European countries to sendrepresentatives to Paris to consider the ERP. The ‘Western bloc,’ as Bevin observed, wasabout to be born. But Molotov ended negotiations and left for Moscow. The EasternEuropean governments were forbidden to start negotiations on the Marshall Plan andencouraged to trust on their own strength in order to rebuild up their economies.

In a lecture given on 27 August 1947 in Moscow131 and in an article In New Times, Varga published his views on this Marshall Plan that was meant to serve the imperial interests of America. ‘The Marshall plan met its first reverse (…) when the countries of Eastern Europerefused to be drawn by the dollar bait into the orbit of American influence. The sponsors of the Marshall Plan thereupon retreated to a second line of battle – the creation of a Western

bloc, this time under the aegis not of Great Britain but under the United States. The backboneof this bloc is to be Western Germany’. 132 The Marshall Plan, Varga argued, served for therestoration of Germany’s heavy industry at the expense of the other European countries andhe predicted not only the outbreak of periodical crises of overproduction arising from theinternal laws of capitalism, but also the coming crisis in the United States where an unlimiteddemand for war goods had largely determined the country’s economic structure. America’s

129 On fears of what would happen if the USSR opened up to the west, see Anna Di Biagio, Le origini

dell’isolazionismo sovietico. L’Unione Sovietica e l’Europa dal 1918 al 1928, Milan: Feltrinelli, 1990, p. 131.130 Vojtech Mastny, The Cold War and Soviet Insecurity: The Stalin Years, New York: Oxford University Press,1996, p. 28.131 E. Varga, ”Plan Marshalla” i ekonomika Anglii i SSHA, [Stenogram of a lecture given on 27 August 1947]Moscow: Izd. Pravda, 1947.132 E. Varga, ‘The Marshall Plan’, in New Times, 1947, No. 39, p. 5.



industrial output during the war had more than doubled. This had been made possible because the US had not been an arena of military operations. At the end of the war, a veryconsiderable unsatisfied demand for consumer goods subsisted. However, a large part of thesaving bank deposits and accumulated war profits was in the hands of the middle classes,while the majority of the workers had been unable to accumulate savings during the war .133

Meanwhile, inflation had hollowed out the workers’ purchasing power, while the pent-updemand of the war years had not had the expected influence on the market. The crisis would break out when ‘a sharp price decline’ would set in. This helped explaining why themonopolies had discovered the Marshall Plan in order to sell ‘American goods ongovernment credits’.134

In a second article published in New Times Varga explored the consequences of the MarshallPlan for the British economy. Again, Varga stressed the fact that the economic crisis inBritain was of a distinct character. ‘It is not a crisis of overproduction’, Varga admitted,

because there was ‘a lack of goods.’135 The British crisis was neither a crisis of underproduction, as was the case in Germany, Italy, and Japan, but one of national finances.

‘It is mainly and fundamentally a crisis of balance of payments, a reflection of the fact thatBritain is unable to secure from her export trade sufficient funds to purchase abroad the foodand raw materials she needs.’136 A second problem was that British imports were paid out of invisible exports.137 The war had dealt a serious blow to this system. Overseas expenses werethe major cause of the deficit of the balance of payments. This situation was aggravated bythe fact that the US and South America were importing less goods from Britain. The criticalstate of Britain’s balance of payments was a consequence primarily of the fact that the British‘ruling classes, and the Labour Government that represents their interests, are determined,notwithstanding the fact that her economic basis has been weakened, to continue the oldimperialist policy, playing the part of junior partner of the American claimants to worlddomination.’138 Varga noted that Britain had an armed force of 1,300,000 troops costing

about 11 per cent of Britain’s national income. Meanwhile, the lend-lease agreement had been stopped, which had condemned the British government to apply for a loan. ‘It was inthis state of affairs that Bevin and his colleagues jumped at the Marshall plan’ 139, Vargaconcluded.

Conclusions

Between 1943 and 1945 Varga had been one of the major advisors to the Ministry of ForeignAffairs in matters of reparation payments. When the Cold War developed Zhdanov and hisfollowers succeeded in pressing for a policy of vigilance and Marxist-Leninist orthodoxy, achoice Stalin supported. In the mean time, the “new democracies” in Central Europe brokewith parliamentary forms of government and capitalism and established the dictatorship of the proletariat.

133 Ibidem, p. 6.134 Ibidem, p. 7.135 E. Varga, ‘The Marshall Plan’, in New Times, No. 42, 1947, p. 3.136 Ibidem, p.3.137 Ibidem, pp. 3-4.138 Ibidem, p. 4.139 Ibidem, p. 5.

Eugen Varga Advising on German Reparation Payments and the Marshall Plan (1941-1947)

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