Roger Moorhouse - The Devils' Alliance - Hitler's Pact with Stalin, 1939-1941

In foreign affairs, Hitler was no less ambitious. Oddly, he had drawn from the West’s efforts to resolve the Czech crisis at Munich in September 1938 the opposite conclusion to that arrived at by Stalin. Whereas the Soviet leader had seen a baleful foreshadowing of a German alliance with the West, Hitler had concluded that the Western powers were now his implacable opponents. Seeing the prospect of war with Britain and France as inevitable, Hitler started planning for conflict sooner rather than later—by 1940 or 1941 at the latest—while his perceived advantage in men and materiel still held good.

Such vast strategic plans required a rethinking of economic priorities. The German economy had already been transformed under the Nazis. From the postdepression doldrums of the early 1930s with 6 million unemployed, Nazi armaments and public works programs had produced near-full employment by 1938. Yet, by the autumn of that year, the breakneck economic growth was beginning to stall as an economy geared primarily toward rearmament and domestic consumption created huge inflationary pressures. The New York Times reported in September 1938 that “alarming” inflation was looming for the German economy, stating that the amount of money in circulation was 40 percent higher than it had been the previous year, which revealed that the Reichsbank had been managing the early stage of the crisis by simply printing money. By the end of the year—just as Hitler was announcing his intention to triple armaments production—the Reichsbank announced that it faced a cash flow deficit of 2 billion RM and advised a renewed concentration on exports as the urgent remedy.

Unappreciative of such interventions by the “dismal scientists” of the Reichsbank, Hitler sacked its director and the genius behind Nazi Germany’s economic recovery, Hjalmar Schacht. But he was nonetheless forced to make some concession to his critics. In a keynote speech on January 30, 1939, on the sixth anniversary of the Nazi seizure of power—a speech best known for his “prophesy” that a return to war would lead to the “annihilation of the Jewish race” in Europe—he gave his answer. After questioning the “sagacity” of the “world economic scholars,” whose diagnoses, he complained, never agreed, Hitler conceded that a shift to exports in the German economy was, after all, necessary: “We must export in order to be able to purchase food from abroad. Since these exported goods use up raw materials which we do not possess, this means we must export yet more goods to secure these raw materials for our economy.” Consequently, Hitler admitted, Germany was compelled “by dire necessity” to “export, or perish.” At the same time, a number of official studies concluding that Germany would be unable to wage a major war without access to Soviet resources highlighted the urgent need for imports. This, almost verbatim, was what the Easterners in the German Foreign Office had long argued. Perhaps now they would be given the chance to put their ideas into practice.

Of course, the decision had not yet been made; politics still held the whip hand over economics. Yet, behind the scenes, the economic conditions for a Nazi-Soviet deal were being worked out; indeed, they were already clear in their essentials by the end of 1938. What followed, then, was an elaborate dance, punctuated by procrastination, intransigence, and occasional spats, in which Soviet and German economic negotiators haggled and horse-traded, waiting for a favorable political wind. Only in mid-July 1939, as the clouds of war were already darkening over Europe—and when Karl Schnurre finally received his Soviet counterpart, Evgeny Babarin, for high-level discussions in Berlin—did the talks begin in earnest.

By this point, Hitler was in a hurry. In his haste to expand Germany’s frontiers—his occupation of the “rump” Czech lands and his saber rattling against Poland—he had painted himself into something of a strategic corner from which only an arrangement with the Soviets appeared to offer a coherent exit. The economic aspects of any possible deal were still secondary, of course, but they were rapidly gaining in significance. The old arguments about the benefits of access to Soviet raw material reserves were not only more relevant than ever but amplified by the acute awareness on the German side that any outbreak of war with Britain would see the use of the traditional weapon of the blockade, which had gravely hampered Germany’s war effort in World War I, severely undermined morale, and cost many thousands of civilian lives. Hitler knew that the supply of Soviet foodstuffs in the event of war would effectively circumvent the best efforts of the Royal Navy to starve Germany into submission.

For its part, the Soviet Union could benefit enormously from access to German technology. In its efforts to industrialize in the interwar years, it had often struggled to fund its own technological development or bring in the best innovations from abroad. An arrangement with Germany, it was thought, would help to solve those problems, providing not only vital military hardware but also precision engineering equipment, such as turbines and lathes, and the latest optical and metallurgical technology. It was testament to the importance of this economic aspect that a commercial agreement was made an essential precondition of any wider political pact with Hitler’s Germany. Yet, despite the potential benefits that the alignment with Berlin held for him, Stalin firmly believed he held the trump cards and consequently—through delays and procrastination—drove a very hard bargain. The agreement, when it came, would be largely on Soviet terms.

On August 20, 1939, three days before the Nazi-Soviet Pact, Berlin and Moscow finally signed a Commercial Agreement. The Soviet Union committed to supplying 180 million RM of raw materials to Germany in return for a German commitment to provide 120 million RM of industrial goods. In addition, a credit line of 200 million RM was extended to Moscow, backed by the German government, with an effective interest rate of 4.5 percent over seven years, to be repaid in raw material shipments from 1946. Little wonder that Molotov would laud the treaty as better than “all previous agreements,” adding, “We have never had any equally advantageous economic agreement with Great Britain, France, or any other country.” In principle at least, the economic treaty with Nazi Germany was as good as it got.

So while the world reeled in August 1939 from the revelation of the political pact between Moscow and Berlin, negotiators from the two sides began hammering out all those aspects of the Commercial Agreement that were unclear or unsatisfactory, endeavoring to turn the principle of economic collaboration into a practical reality. It was not an easy task. For all the bonhomie on show, mutual suspicions and bad faith persisted, not least due to the speed with which German forces overran Poland that September. Consequently, the wording of the agreement was pored over, analyzed, and reinterpreted, and figures and prices were proposed, rejected, and amended. All the while, the German side, having run the greater political and military risk, expected concessions from the Soviets, while Stalin’s negotiators, perceiving that they had the upper hand, steadfastly refused to compromise. If this was the honeymoon period, it did not augur well for the success of the marriage.

As the torturous negotiations dragged on into the winter, there were some moments of levity, at least in retrospect. On September 27, for instance, a bemused Schnurre was inadvertently given the red carpet treatment on arrival at Khodynka airfield in Moscow after Ribbentrop’s plane had been delayed. Although an accurate assessment of who was the “brains” on the German side, this certainly would not have pleased Ribbentrop, who was eternally sensitive to any perceived slight. Some weeks later, Schnurre’s return to Moscow proved similarly problematical, as he was incorrectly named in Soviet press reports as “Ambassador Baron von Schnurre,” despite the fact that he was neither an ambassador nor a baron and had been a regular visitor to Soviet government circles over the previous five years. It is unclear whether the Soviets were trying to flatter or ridicule him.