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After the Nazis rose to power in Germany in 1933, relations between Nazi Germany and the Soviet Union began to deteriorate rapidly. Trade between the two sides decreased. Following several years of high tension and rivalry, the two governments began to improve relations in 1939. In August of that year, the countries expanded their economic relationship by entering into a Trade and Credit agreement whereby the Soviet Union sent critical raw materials to Germany in exchange for weapons, military technology and civilian machinery. That deal accompanied the Molotov–Ribbentrop Pact, which contained secret protocols dividing central Europe between them, after which both Nazi forces and Soviet forces invaded territories listed within their "spheres of influence".
The countries later further expanded their economic relationship with a larger commercial agreement in February 1940. Thereafter, Germany received significant amounts of critical raw materials necessary for its future war efforts, such as petroleum, grain, rubber and manganese, while sending weapons, technology and manufacturing machinery to the Soviet Union. After unresolved negotiations regarding a potential Soviet entry into the Axis Pact, the two governments settled several disputes and further expanded their economic dealings with the January 1941 German–Soviet Border and Commercial Agreement.
Economic relations between the two countries were abruptly terminated when Germany invaded the Soviet Union in June 1941, in violation of the Molotov–Ribbentrop Pact.
Background
Traditional commerce, World War I and Russian Revolution
Germany did not lack natural resources, including the key raw materials needed for economic and military operations.[1][2]
[3] Before World War I, Germany had annually imported 1.5 billion Reichsmarks of raw materials and other goods from Russia.[3] However, the economies of the two countries differed greatly before World War I.[4] Germany had grown into the second-largest trading economy in the world, with a highly skilled workforce largely dominated by the private sector.[4] While Imperial Russia had rapidly modernized by tenfold in the fifty years before the war, its economy still relied heavily upon state orders and its industry was closely regulated by the Tsarist state.[5]
Russian exports to Germany fell sharply after World War I.[6] In addition, after the Russian Revolution of 1917, the young communist state assumed ownership of all heavy industry, banking and railways, while the 1921 New Economic Policy left almost all small-scale production and farming in the private sector.[5] The war-ravaged German economy struggled to return to pre-war levels, with inflation also taking its toll in 1923.[4]
In the Soviet Union, only by 1927 had industrial output achieved approximately the 1913 levels under the Tsarist regime,[5] but Soviet exports to Germany increased to 433 million Reichsmarks annually by 1927 after trade agreements were signed between the two countries in the mid-1920s.[6]
Economist Nikolai Kondratiev was asked to study the Soviet economy, and he advocated slow prudent growth that kept the residual market economy of the New Economic Policy.[7] In the late 1920s, Joseph Stalin took the economy in the opposite direction, beginning a successful period of full-scale socialist industrialization in his first five-year plan for a Soviet economy that was still over 80% composed by the private sector, with plans to shed all vestiges of the free market.[8] Kondratiev was accused of espousing a "counter-revolutionary" equilibrium theory, after which he was fired and jailed for being a "kulak-professor." Overy 2004, p. 406 Towards the end of his 8 year sentence he was put on trial again and executed at the Kommunarka shooting ground by firing squad on the same day his death sentence was issued.
Early 1930s
In the early 1930s, Soviet imports decreased as the Communist model achieved greater self sufficiency. The Soviet economic planning body, improved greatly in spite of hostile foreign powers.[9] What followed was a system which included the most adequate review of national accounts and economic measurements.[9][10] The subsequent changes to Gosplan improved its operation.[11]
Though Soviet industrial output had significantly increased over its prior levels,[5] Soviet exports to Germany fell to 223 million Reichsmarks in 1934 due to the Soviets distrust of the German regime.[12] Although the Soviet Union possessed almost double the population of Germany, its industrial output still lagged behind because of the backward nature of the former Tsarist regime and invasions of the Soviet Union by the Western powers and others that followed it inception. Its steel production almost caught up with Germany's in 1933 during the German economic collapse in the Great Depression.[13] Following are German imports from Imperial Russia and the Soviet Union from 1912 to 1933:[14]
Year Imports from
Russia/USSR*Year Imports from
Russia/USSR*1912 1,528 1928 379 1913 1,425 1929 426 1923 147 1930 436 1924 141 1931 304 1925 230 1932 271 1926 323 1933 194 1927 433 *millions of Reichsmarks
While Soviet exports into Germany were a small percentage of Germany's imports due to the large amount of trade the Nazi regime carried out with the USA and the UK.[15] At the time, the Soviets had little of interest to foreign buyers in general.[15]
Nazi era and relations deterioration
Nazis rise to power
The rise to power of the Nazi Party increased tensions between Germany and the Soviet Union, with Nazi racial ideology casting the Soviet Union as populated by ethnic Slav "untermenschen" ruled by their "Jewish Bolshevik" masters.[16][17] In 1934, Hitler spoke of an inescapable battle against "pan-Slav ideals", the victory in which would lead to "permanent mastery of the world", though he stated that they would "walk part of the road with the Russians, if that will help us."[18] The sentiment roughly echoed Hitler's 1925 Mein Kampf writings, in which he stated that Germany's destiny was to turn "to the East" as it did "six hundred years ago" and "the end of the Jewish domination in Russia will also be the end of Russia as a State."[19]
According to Joseph Stalin’s interpreter, Valentin Berezhkov, Stalin spoke highly of the Night of the Long Knives in 1934 and viewed Hitler as a “great man!” who had demonstrated “the way to deal with your political opponents”. Berezhkov also suggested parallels between Hitler’s inner party purge and Stalin's mass repressions of Old Bolsheviks, military commanders and intellectuals.[20]
Nazi ideology focused on a racial struggle, rather than the class struggle at the center of Marxist ideology.[21] While Nazi ideology opposed both the communism of the Soviet Union and capitalism, associating Jews with both systems,[22][23] Nazi criticism of capitalism shared similarities with that of Marxists in that they both focused upon excessive financial concentration, declining exports, shrinking markets and overproduction.[21] Hitler later boasted that the best means to beat inflation "was to be sought for in our concentration camps."[24] While Marxists saw revolution as the solution, Hitler saw the only solution as conquest—expropriating the resources, such as Lebensraum, through war that could not be won through failing capitalist systems.[21] However, survival of the private sector was not incompatible with extensive Nazi state economic planning.[25]
Both the Soviet and German economies had grown coming out of dire economic slumps in the late 1920s following World War I and the Russian Revolution.[13] The German economy experienced real growth of over 70% between 1933 and 1938, while the Soviet economy experienced roughly the same growth between 1928 and 1938.[13] However, with heavy state intervention, both economies also became more isolated and expanded under conditions of exceptional autarky.[13] Outside trade and outside capital investment declined considerably for both economies during the 1930s.[13]
In the mid-1930s, the Soviet Union made repeated efforts to reestablish closer contacts with Germany.[26] The Soviets chiefly sought to repay debts from earlier trade with raw materials, while Germany sought to rearm, and the countries signed a credit agreement in 1935.[27] In 1936, the Soviets attempted to seek closer political ties to Germany along with an additional credit agreement, which were rebuffed by Hitler, who wished to steer clear of such political ties.[27] In response to Stalin's hopes to complete an economic deal with Hitler, the foreign section of the NKVD warned him that "all Soviet attempts to appease and conciliate Hitler are doomed. The main obstacle to an understanding with Moscow is Hitler himself."[28] Stalin did not agree, responding to the NKVD "Well, now, how can Hitler make war on us when he has granted such loans? It's impossible. The business circles in Germany are too powerful, and they are in the saddle."[28]
Mid-1930s deterioration of relations
In 1936, Germany and Fascist Italy supported the Spanish Nationalists in the Spanish Civil War, while the Soviets supported the partially socialist-led Spanish Republic opposition.[29] That same year, Germany and Japan entered the Anti-Comintern Pact,[30] and were joined a year later by Italy.[31]
That year, Germany also faced a large food and raw material crisis that had developed out of the increasing difficulties state bodies experienced attempting to control prices and commodity supplies in the face of resistant market forces.[32] Much like Soviet economist Nikolai Kondratiev, lead German economist Hjalmar Schacht was fired and castigated.[33] The crisis resulted in Hitler writing one of the few documents of any length that he drafted in his 12 years as Reich leader—a six-page memorandum that focused upon building a military larger than all possible enemy combinations and forcing upon the economy its racial duty of eschewing all inessential tasks in favor of large-scale war making.[34] From this came Hitler's Four Year Plan for rearmament "without regard to costs", transforming the economy into a Wehrwirtschaft (defense-based economy).[25][35] His advisers had suggested a Five Year Plan, but Hitler declined in favor of the less Marxist sounding Four Year Plan.[34]
Soviet industrialization of the early 1930s required massive debt expansions.[36] To attempt to decrease this debt, grain was sold in large quantities in world markets.[36] German debt also soared with increased state spending.[37] Both countries turned more to economic isolation and autarky.[37] Germany brazenly refused to pay interest on its bonds, and then secretly directed third parties working for it to buy back those subsequently devalued bonds at rock bottom prices.[38] As a result, only 15% of German debt was held by foreign sources in the late 1930s.[38]
Soviet great purges in 1937 and 1938 made striking an agreement with Germany even less likely by disrupting the already confused Soviet administrative structure necessary for negotiations. In the portion of the purges involving the military in 1936 and 1937, over 34,000 officers were purged in a campaign against a "fascist-Trotskyite conspiracy", including 45% of the most senior officers.[39] While many officers were later reinstated, those that were convicted were shot[39] and political officers, 73 per cent of which had no military experience, were introduced into the Red Army.[40] The purges led Hitler to believe that the Soviets were militarily weak.[41] Castigated former lead economist Kondratiev was one of those executed in the purges.[7] His harangued German economist counterpart, Schacht, would face similar treatment many years later, winding up in a Nazi concentration camp after being accused of being part of the July 20 Plot to assassinate Hitler.[33]
Economic reconciliation was hampered even further by political tension after the Anschluss in mid-1938 and Hitler's increasing hesitance to deal with the Soviet Union.[42] Soviet exports to Germany fell to 47.4 million Reichsmarks in 1937 (approximately one fifth of the 1934 total) and 52.8 million Reichsmarks in 1938.[12] In short, the important trading relationship between the countries that existed in the 1920s essentially collapsed with Hitler's rise to power.[43] German northeastern European imports from 1934 to 1939 were as follows:[12]
Soviet
UnionPoland
and DanzigFinland Estonia Latvia Lithuania 1934 223.0 78.1 42.3 8.2 21.1 15.1 1935 201.7 75.5 41.4 13.0 31.1 2.0 1936 93.2 74.0 46.1 13.8 33.2 9.1 1937 63.1 80.7 70.1 23.7 45.7 17.2 1938 47.4 109.4 88.6 24.0 43.5 27.6 1939 52.8 140.8 88.9 24.3 43.6 27.8 *German Imports in millions of Reichsmarks
Even with vastly decreased trade between the countries, Germany was still among the top three importer nations for the Soviet Union and supplied between one third and two thirds of Soviet machine tool imports vital for industrialization.[44] Trade continued on the basis of short term clearing agreements.[44] Germany had supplied 54% of Soviet imports of machine tools from 1929 to 1933, and 53% of such imports even when relations became more tense from 1933 to 1937.[45]
Four and Five Year Plans
Both the German Four Year Plan and Soviet Second and Third Five Year Plans emphasized the construction of military installations, factories, canals, roads and cities that produced accumulating crises' of over-investment and supply failures in other non-emphasized economic areas.[46] Monopsony compromised both systems, with the Soviet state the principal purchaser for all goods in its economy, while the German state was the largest purchaser in its economy.[46] German cost-plus contracts and Soviet fraud and mismanagement caused inefficient contracting, resulting in the building of massive contract-monitoring bureaucratic structures that produced additional costs in both economies.[46]
In March 1939, the Soviet Union announced the new directives of the Third Five Year Plan, named "Five Year Plan of Special Steels and Chemicals."[47] The defense sector received the highest priority under the plan.[47] The pressure to fulfill Soviet Second and Third Five Year Plan goals was more keen where managers faced the risk that every failure might be interpreted as an act of economic sabotage.[46] In 1936, the head of the Soviet Gosbank was shot after he suggested a relaxation of economic controls.[48] To cope with state controls of supply systems, blat (informal black market) agreements were often made, which could not easily be tracked by Gosplan.[49][50]
Hitler's Four Year Plan called for a modernized expanded agricultural sector to free Germany from the fear of a blockade, a network of motorways, remodeled cities, a massive program of import-substitution to supply synthetic strategic material and military industries capable of out-producing the largest enemy economy.[51] The plan required a rigid structure of six main economic divisions: raw materials production, raw materials distribution, labor agriculture, price control and foreign exchange.[33] It made heavy demands on resources already in short supply because of high military spending, resulting in the delay or postponement of most programs while scrambling for raw materials, building workers and engineering equipment.[46] Pseudo markets were created to attempt to make the system work more efficiently.[48] In response to blat-like commerce arising, Germany passed laws labeling such unsanctioned commerce as "economic sabotage" punishable by death.[52] German regulation of private property and capital movement hardened, and property could be seized from political enemies such as ethnic Jews or communists.[53]
Huge German and Soviet military demand growth
German and Soviet demand for military supplies, already the subject of massive growth under their Four and Five Year Plans, increased even further after the Munich Agreement.[42] While both Stalin and Hitler had long spoken of an over-riding necessity to prepare for war, Hitler's outlook was for an offensive war, comporting with Nazi ideology, by a new community of Germans carving an empire across Europe, slaying the "Jewish Bolshevik" dragon and addressing punitive Treaty of Versailles provisions.[54]
The Treaty of Versailles restrictions had resulted in a very weak German military as late as the early 1930s,[55] though planning efforts had been underway since the late 1920s for military growth in preparation for the next European war.[56] German military spending remained restrained during this period:[a]
German Defense
(Bil. RM)Soviet Defence
(Bil. Rbls)German Defense
Inflation Adj*Soviet Defense
Inflation Adj*1928 0.75 0.88 NA NA 1929 0.69 1.05 0.69 1.05 1930 0.67 1.20 0.73 1.12 1931 0.61 1.79 0.75 1.43 1932 0.69 1.05 0.98 0.70 *Inflation adj. uses Wholesale Price Indices (1929 base) - Note: German deflation
To get around Versailles restrictions, Germany and the Soviet Union collaborated to allow Germany to establish experimental centers in the Soviet Union for tank, chemical weapons and aviation research, while Soviet officers traveled to Germany for military instruction.[56] However, this secret collaboration ended with Hitler's rise to the Chancellery in 1933.[56] Immediately thereafter, Hitler ordered a tripling of German military size in one year.[57] Germany instituted covert military increases, including ship production in excess of Versailles limits, while refusing to ever refer to its "General Staff" (which was prohibited by Versailles) and ceasing publication of its officer list.[57] On March 16, 1935, Hitler surprised world powers by passing a law openly requiring universal military service and further increasing military size to half a million men.[58] Countries including France and Britain protested, but did not act, effectively ending the pretense of military restrictions under Versailles.[58]
By 1939, three years into the Four Year Plan, over 20% of all German industrial workers worked for the armed forces, while nearly 33% of those in the manufacturing and building sectors worked there.[59] By comparison, in 1938, Britain and the United States produced just 13% of the quantity of weapons that Germany produced that year. German armament spending went from under 2% of gross national product in 1933 to over 23% in 1939.[60] German armament expenses under the Nazi regime increased rapidly, especially under the Four Year plan:[2][a]
German Defense
(Bil. RM)Soviet Defence
(Bil. Rbls)German Defense
Inflation Adj*Soviet Defense
Inflation Adj*1933 0.62 4.03 0.91 2.46 1934 4.09 5.40 5.7 2.82 1935 5.49 8.20 7.40 3.39 1936 10.27 14.80 13.53 5.05 1937 10.96 17.48 14.19 5.54 1938 17.25 22.37 27.04 7.66 1939 38.00 40.88 38.6 10.25 *Inflation adj. uses Wholesale Price Indices (1929 base) - Note: German deflation
Stalin viewed a coming war as occurring between imperialist powers, and in the late 1920s, had even predicted a massive war between the United States and Britain.[54] The Soviet military experienced almost proportionately identical massive increases nominally as that of Germany for military equipment and weapon designs to strengthen a Red Army and Red Navy weakened by purges.[61] While in the face of massive Soviet inflation in the 1930s, military spending increases were still enormous, the differences grow considerably when adjusted for inflation (Germany actually experienced deflation). From 1931 to 1934, the Soviet had purposefully published figures for military spending below actual levels.[62] Because of League of Nations publications requirements, the Soviets began more accurate defense spending publications by 1936.[62]
The Soviet Third Five Year Plan required massive new infusions of technology and industrial equipment.[63] After Stalin's shock at the poor performance of Soviet aircraft in the Spanish Civil War and the "backwardness" of the Soviet Air Force in 1938, emphasis was put on military production, including that of large naval ships.[47] By 1937, 17% of Soviet gross national product was spent on defense, while over 20% of industrial investment went to defense industries.[64] At the same time, military personnel increased from 562,000 in 1931 to just over 1.5 million in 1938.[65] Meanwhile, the Soviet transportation network was woefully underdeveloped, with roads approaching non-existence and rail lines already stretched to their limits.[61]
The ambitious objectives of the Third Five Year Plan hinged upon the Soviet economy's importing large amounts of technology from the United States, which then supplied over 60% of Soviet machines and equipment.[66]
Late 1930s German raw materials crunch
By the late 1930s, foreign trade became difficult because Germany lacked the gold or foreign exchange needed to finance any balance of payment deficit.[67] Further damaging foreign trade, Germany had already heavily regulated exports and imports, requiring licenses and approval for all trades so that it could favor the raw materials imports that it desperately need.[67] Additional trading difficulties were caused by a boycott of German goods following Kristallnacht in November 1938.[68]
Because an autarkic economic approach or an alliance with Britain were impossible, Germany needed to arrange closer relations with the Soviet Union, if not just for economic reasons alone.[1] Despite work on coal hydrogenisation,[69] Germany lacked oil and could only supply 25% of its own needs.[1] Since its main supplier, the United States, would be potentially cut off during a war, Germany had to look to Soviet Union and Romania.[1] Germany suffered from the same supply problems for metal ores such as chrome, tungsten, nickel, molybdenum, and manganese, all of which were needed for hardened steel used in tanks, ships and other war equipment.[1] For example, Germany was almost 100% reliant on imports for chrome, and the loss of South African and Turkish imports alone were a blockade to arise would eliminate 80% of imports.[70] Even for manganese, of which Germany supplied 40% of its needs, the expected British blockade would cut its link to its main outside supplier, South Africa.[1] Germany was 35% self-sufficient for iron ore, but would lose 36% of its previous imported supply on the outbreak of war.[70] Furthermore, Stalin's permission was needed to transit tungsten and molybdenum from China, which required Soviet-controlled rail lines.[1] Meanwhile, the Soviet Union was the world's largest source of manganese, the second largest for chrome and platinum and the third largest supplier of crude oil, iron ore and nickel.[70]
Rubber was particularly troublesome, with Germany requiring 80% of its rubber from imports.[69] Hitler required Soviet help to procure rubber from the Far East, the shortage of which had caused Germany problems in World War I.[1] Rubber production in Malaya and the East Indies was dominated by the British and the Dutch.[1] Cutting off these sources would leave Germany with stockpiles for only two months.[1] Although German synthetic materials plants could produce 50% of German rubber needs, Germany still required large amounts of natural rubber as raw material.[1] And just to achieve that synthetic production, Germany had invested a massive 1.9 billion Reichsmarks over three years—almost half of all investment in its capital goods industry.[71]
While Germany had decreased its dependence on imported food from 35% in 1927 to 13% in 1939,[72] 40% of its fat and oil food requirements had to be met by imports.[61][69][73] Moreover, Germany's food requirements would grow further if it conquered nations that were also net food importers.[61] Soviet imports of Ukrainian grains or Soviet trans-shipments of Manchurian soybeans could make up the shortfall.[61]
In 1936, Hermann Göring told several German industrialists that "obtaining raw materials from Soviet Union is so important that he shall raise this issue with Hitler himself—however much the latter might be ill-disposed to accept this."[74] By 1937, the vast gulf between raw material needs and supplies had taken over Hitler's thinking for conquest. German military industry desperately needed certain raw materials, such as manganese ore and petroleum, and these could be purchased on a regular basis only from the Soviet Union.[74] Goering had stated that Germany desired business ties with the Soviets "at any cost."[74]
After hearing the dire reports of German planners, in a November 5, 1937, Hitler told his generals that he would have to take over a neighbouring country to ensure the supply of agricultural land and raw materials, now equating this massive economic need with Lebensraum.[75] The German Anschluss and German occupation of Czechoslovakia were driven by economic as much as racial motives, with heavy industry in those locations being gobbled up by the Reichswehr rather than private industry.[75] The day German forces entered the Czech Sudetenland, Hermann Göring pored over figures with generals covering every item of Sudeten economic resources, from lignite to margarine, so that it could be allocated to the Four Year Plan.[75] In January 1939, the huge Four Year Plan goals combined with a shortage of foreign hard currencies needed to pay for raw materials forced Hitler to order major defense cuts, including a reduction by the Wehrmacht of its allocations by 30% of steel, 47% of aluminum, 25% of cement, 14% of rubber and 20% of copper.[76] On January 30, 1939, Hitler made his "Export or die" speech calling for a German economic offensive ("export battle", to use Hitler's term), to increase German foreign exchange holdings to pay for raw materials such as high-grade iron needed for military materials.[76]
1938–1939 deal discussions
Early discussions
Germany and the Soviet Union discussed entering into an economic deal throughout early 1939.[77] During spring and summer 1939, the Soviets negotiated a political and military pact with France and Britain, while at the same time talking with German officials about a potential political Soviet–German agreement.[78] Through economic discussion in April and May, Germany and the Soviet Union hinted of discussing a political agreement.[79][80][81][63][82][83][84][85][86][87]
Ensuing political discussions between the countries were channeled through the economic negotiation, because the economic needs of the two sides were substantial and because close military and diplomatic connections had been severed in the mid-1930s after the creation of the Anti-Comintern Pact and the Spanish Civil War, leaving these talks as the only means of communication.[88] German planners in April and May 1939 feared massive oil, food, rubber and metal ore shortages without Soviet help in the event of a war.[73][89]
Addressing past hostilities and finalizing the deals
In late July and early August, the Soviet Union and Germany were very close to finalizing the terms of a proposed economic deal and began to more concretely discuss the possibility of a political deal, which the Soviets insisted could only follow after an economic deal was reached.[90][91] They discussed prior hostilities between the countries in the 1930s and addressed their common ground of anti-capitalism, stating "there is one common element in the ideology of Germany, Italy and the Soviet Union: opposition to the capitalist democracies,"[92][93] "neither we nor Italy have anything in common with the capitalist west" and "it seems to us rather unnatural that a socialist state would stand on the side of the western democracies."[94] The Germans explained that their prior hostility toward Soviet Bolshevism had subsided with the changes in the Comintern and the Soviet renunciation of a world revolution.[94] The Soviet official at the meeting characterized the conversation as "extremely important."[94]
As Germany scheduled its invasion of Poland for August 25 and prepared for war with France, German war planners in August estimated that, because of massive oil, food and rubber shortfalls, in the face of an expected British blockade, the Soviet Union would become the only supplier for many items.[90] Every internal German military and economic study had argued that Germany was doomed to defeat without at least Soviet neutrality.[95] By August 10, the countries worked out the last minor technical details, but the Soviets delayed signing the economic agreement for almost ten days until they were sure that they had also reached a political agreement.[95]
1939 economic and political deals
Germany and the Soviet Union signed a commercial agreement, dated August 19, providing for the trade of certain German military and civilian equipment in exchange for Soviet raw materials.[96][97] The agreement provided for roughly 200 million in Soviet imports of raw materials (for which they would receive a seven-year line of credit), German exports of weapons, military technology and civilian machinery. "current" business, which entailed Soviet obligations to deliver 180 million Reichsmarks in raw materials and German commitment to provide the Soviets with 120 million Reichsmarks of German industrial goods.[97][98][99][100] German Foreign Ministry official Karl Schnurre noted at the time that "he movement of goods envisaged by the agreement might therefore reach a total of more than 1 billion Reichsmarks for the next few years."[101] Schnurre also wrote "part from the economic import of the treaty, its significance lies in the fact that the negotiations also served to renew political contacts with Russia and that the credit agreement was considered by both sides as the first decisive step in the reshaping of political relations."[101] Pravda published an article on August 21 declaring that the August 19 commercial agreement "may appear as a serious step in the cause of improving not only economic, but also political relations between the USSR and Germany."[102] Soviet foreign minister Vyacheslav Molotov wrote in Pravda that day that the deal was "better than all earlier treaties" and "we have never managed to reach such a favorable economic agreement with Britain, France or any other country."[98]
Early in the morning of August 24, the Soviet Union and Germany signed the political and military deal that accompanied the trade agreement, the Molotov–Ribbentrop Pact. The pact was an agreement of mutual non-aggression between the countries.[103] It contained secret protocols dividing the states of Northern and Eastern Europe into German and Soviet "spheres of influence."[103] At the time, Stalin considered the trade agreement to be more important than the non-aggression pact.[104]
At the signing, Ribbentrop and Stalin enjoyed warm conversations, exchanged toasts and further addressed the prior hostilities between the countries in the 1930s.[105] They characterized Britain as always attempting to disrupt Soviet-German relations, stated that the Anti-Comintern pact was not aimed at the Soviet Union, but actually aimed at Western democracies and "frightened principally the City of London and the English shopkeepers."[106]
Division of Central Europe
One week after the Molotov–Ribbentrop Pact, the partition of Poland commenced with the German invasion of western Poland.[107] The British Ministry of Economic Warfare immediately began an economic blockade of Germany.[108] At the outset, Britain realized that this blockade would be less effective than their blockade of Germany in World War I because of current German allies Italy and the Soviet Union.[108]
On September 17, the Red Army invaded eastern Poland and occupied the Polish territory assigned to it by the Molotov–Ribbentrop Pact, followed by co-ordination with German forces in Poland.[43] Three Baltic States described by the Molotov–Ribbentrop Pact, Estonia, Latvia, and Lithuania, were given no choice but to sign a so-called Pact of defense and mutual assistance which permitted the Soviet Union to station troops in them.[109]
Talks to expand the economic pact
German raw materials crisis and Soviet needs after Poland
Hitler's pressing for a German invasion of Poland in 1939 placed tremendous strain on the German war machine, which had been gradually gearing up after the Treaty of Versailles restrictions for "total war" ("totaler Krieg") in 1942 or 1943.[110] The German navy was also critically short of maritime and military assets and did not achieve full mobilization until 1942.[111] While the Soviet alliance provided a huge military benefit to Germany, which thereafter had to station only four regular and nine territorial divisions on its eastern border,[112] even the quick Germany victory in Poland strained its 1939 military resources, leaving it with only six weeks of munitions supplies and no considerable manpower reserve.[113] In the face of a British blockade, the only remaining state capable of supplying Germany with the oil, rubber, manganese, grains, fats and platinum it needed was the Soviet Union.[110]
In addition, Germany had imported 140.8 million Reichsmarks in Polish goods in 1938, and half of that territory was now held by the Soviet Union.[12] The Soviets now occupied fields amounting to seventy per cent of Poland's oil production.[114] Germany needed more of an economic alliance with the Soviet Union for raw materials than the economic partnership that the August 19, 1939, agreement provided.[115] At the same time, the Soviets' demands for manufactured goods, such as German machines, were increasing while its ability to import those goods from outside decreased when many countries ceased trading relations after the Soviet entry into the Molotov–Ribbentrop Pact.[116] The Soviet Union could offer precious little technology, while Germany possessed the technology the Soviet Union needed to build a blue-water fleet.[117] Accordingly, for the next six weeks, especially after the Soviet and German invasions of Poland, Germany pressed hard for an additional agreement.[115][118]
At the same time, the United States, supplied over 60% of Soviet machines and equipment, stopped armament shipments to the Soviet Union after the Molotov–Ribbentrop Pact.[66] It imposed a full embargo after the Soviets 1939 invasion of Finland.[66] Soviet quality controllers were expelled from the United States aircraft industry and already paid-for orders were suspended.[66] With similar trade with France and Britain ceased, Germany was the only alternative for many goods.[66]
Negotiations
After the division of Poland, the parties signed a September 28 German–Soviet Boundary and Friendship Treaty ceding Lithuania to the Soviets, the preamble of which stated the countries' intention "to develop economic relations and trade between Germany and the Soviet Union by all possible means."[66] It continued "for this purpose an economic programme is to be set up by both parties, according to which the Soviet Union is to deliver raw materials to Germany, who will balance these out by means of long-term industrial shipments."[66] The result of this would be that mutual trade would "once again reach the high level achieved in the past."[119] Thereafter, oil, foodstuffs and cattle produced in the Soviet-occupied area of Poland was sent to Germany in accordance with the economic cooperation clause of the September 28 treaty.[120] One week later, Ribbentrop gave the green light for a new round of talks.[119]
In early October, German officials proposed a deal that would have increased Soviet raw material exports (oil, iron ore, rubber, tin, etc.) to Germany by over 400%,[121] while the Soviets requested massive quantities of German weapons and technology,[122] including the delivery of German naval cruisers Lützow, Seydlitz and Prinz Eugen.[123] At the same time, Germany accepted an offer by the Soviet Union to provide Germany a naval base, Basis Nord, at then undeveloped Zapadnaya Litsa (120 kilometers from Murmansk) from which they could stage raiding operations.[124]
Stalin personally stepped in to intervene on deteriorating talks.[125] Further discussions took place in Moscow in early February regarding the specifics of German military equipment to be provided.[84] Germany agreed that the plans for the battleship Bismarck could be included in the war materials to be provided to the Soviet Union.[126]
1940 commercial agreement
On February 11, 1940, Germany and the Soviet Union entered into the German-Soviet Commercial Agreement, an intricate trade pact in which the Soviet Union would send Germany 650 million Reichsmark in raw materials in exchange for 650 million Reichsmark in machinery, manufactured goods and technology.[127][128] The trade pact helped Germany to surmount the British blockade of Germany.[96] The main raw materials specified in the agreement were one million tons of grain, 900,000 tons of oil and more than 500,000 tons of various metal ores (mostly iron ore) in exchange for synthetic material plants, ships, turrets, machine tools and coal.[127] The agreement also contained a "Confidential Protocol" providing the Soviet Union would undertake purchases from third party countries of "metals and other goods" on behalf of Germany.[129]
The Soviets were to receive the incomplete Admiral Hipper-class heavy cruiser Lützow, the plans to the battleship Bismarck, information on German naval testing, "complete machinery for a large destroyer", heavy naval guns, three 38.1 cm (15.0 in) twin turrets to defend ports, preliminary sketches for a 40.6 cm triple turret, working drawings for a 28 cm turret, other naval gear and samples of thirty of Germany's latest warplanes, including the Bf 109 fighter, Bf 110 fighter and Ju 88 bomber.[130][131] Stalin believed the Lutzow to be important because of its new 20.3 cm naval guns, along with their performance characteristics.[132] The Soviets would also receive oil and electric equipment, locomotives, turbines, generators, diesel engines, ships, machine tools and samples of German artillery, tanks, explosives, chemical-warfare equipment and other items.[96]
Expanded economic relationship
Soviet provision of raw materials and other help
Under the aegis of the economic agreements, Soviet-German exports and imports increased tenfold.[43] While some slowdowns and negotiations occurred, the Soviet Union met all of its requirements under the agreement.[133] It became a major supplier of vital materials to Germany, including petroleum, manganese, copper, nickel, chrome, platinum, lumber and grain.[134] During the first period of the agreement (February 11, 1940, to February 11, 1941), Germany received:[135][136]
- 139,500 tons of cotton
- 500,000 tons of iron ores
- 300,000 tons of scrap metal and pig iron
Soviet goods were freighted to Brest-Litovsk,[128] through occupied Polish territories and then shifted to European gauge track to Germany to circumvent the British naval blockade.[96] The Soviets also granted Germany the right to transit for German traffic to and from Romania, Iran, Afghanistan and other countries in the east, while reducing by 50 per cent freight rates to Manchukuo, which was under Japanese control.[128] Soviet exports to Germany, using German figures, which do not count products still in transit during Operation Barbarossa (which came in after June 1941), include:[137][b]
