German–Soviet Credit Agreement (1939)

The German–Soviet Credit Agreement was an economic deal made in 1939 between Nazi Germany and the Soviet Union. Through this agreement, the Soviet Union received a credit of 200 million ℛ︁ℳ︁[/w/1] over seven years to buy goods like factory equipment, machines, ships, and vehicles from Germany. The Soviet Union planned to pay back this credit with resources like grain and oil starting in 1946.

This agreement was an important step in improving relations between the Soviet Union and Germany. It happened just before some big events, including a military campaign by the Soviet Union against Japan and the signing of the Nazi-Soviet Pact. Later agreements in 1940 and 1941 expanded these economic ties.

However, when Germany invaded the Soviet Union in June 1941, all these agreements ended. Before the invasion, the Soviet Union had been sending many important resources to Germany, which helped the Germans prepare for the attack.

Background

Main article: German–Soviet economic relations (1934–1941)

Traditional commerce and pre-Nazi trade

Germany did not have many natural resources, like important raw materials, that it needed for its economy and military. In the past, it got these from Russia. Before World War I, Germany bought a lot of things from Russia every year. But after the war, this trade dropped a lot. In the 1930s, trade between the two countries went down even more because of changes in how the Soviet Union was ruled and because Germany was not following some rules anymore.

Deteriorating relations

When the Nazi Party took control in Germany, relations between Germany and the Soviet Union got worse. The Nazis had ideas that made them see people from the Soviet Union in a bad way. Even so, in the middle of the 1930s, the Soviet Union tried to talk more with Germany, but Hitler did not want to make any political ties with them.

Things got even worse in 1936 when Germany helped a group in Spain fight against another group that the Soviet Union supported. The same year, Germany and Japan made an agreement against a group called the Comintern. Also, changes in how the Soviet Union was run made it harder for them to talk to other countries.

Late 1930s economic needs

By the late 1930s, Germany really needed to get closer to the Soviet Union because it did not have enough of things like oil, food, metal, and rubber. Germany depended on the Soviet Union or other places to get these. The Soviet Union, on the other hand, needed military equipment and weapon designs to make its army and navy stronger. The Soviet Union's roads and railways were not very good, which made moving things hard.

After Germany took over a place called Austria in 1938, it was hard to fix economic problems because of political problems and Hitler not wanting to deal with the Soviet Union much. But both countries still needed each other for supplies and military stuff, especially after an agreement in 1938 called the Munich Agreement.

Negotiations

Further information: Molotov–Ribbentrop Pact negotiations

Preliminary discussions

In October 1938, Germany wanted to grow its economic ties with the Soviet Union and shared a plan with them on December 1, 1938. However, Stalin wasn’t ready to accept the small offer Hitler made. The Soviets were open to talks about a new German offer in February and March 1939 in Moscow. Germany paused the talks in mid-March. Just after, Germany occupied Czechoslovakia and took the Klaipėda Region (Memel), making war with Poland much more likely.

Germany and the Soviet Union talked about an economic deal through early 1939. During spring and summer 1939, the Soviets also talked with France and Britain about a political and military agreement, while still discussing a possible agreement with Germany. On April 7, a Soviet diplomat told German officials that there was no reason to keep fighting each other and that the two countries could make an agreement. Ten days later, another Soviet diplomat met with a German official and asked to speed up removing obstacles for military contracts signed between Czechoslovakia and the USSR before Germany took over Czechoslovakia. After the meeting, the Soviet diplomat was sent back to Moscow and never returned to Germany.

With the chance of war growing, both Germany and the Soviet Union increased their military production. The Soviets needed new technology and industrial equipment for their Third Five Year Plan. Germany increased its military spending to 23% of its total economy in 1939. German planners worried that losing Swedish trade could cut important iron ore supplies. Without Soviet supplies, Germany would need to find replacements for about 165,000 tons of manganese and almost 2 million tons of oil each year. Germany also had severe rubber shortages because Britain and the Netherlands wouldn’t trade with them. Germany had oil reserves for only 3.1 months.

Mixed signals

After that, the Soviets sent mixed messages. On May 31, a speech by Molotov seemed positive, but on June 2, a Soviet official told a German that Moscow had lost interest in the economic talks because of Germany’s delays. On June 15, the Soviet ambassador talked with the Bulgarian ambassador in Berlin, who acted as an unofficial go-between for the negotiations. The Soviet ambassador explained that a deal with Germany would better meet Soviet needs than a deal with Britain and France. The Bulgarian ambassador told the German Foreign Ministry about the conversation. The Soviets had agreed that a high-ranking German official would come to Moscow to continue the talks, which happened on July 3. Official talks then began in Berlin on July 22.

Meanwhile, in July, Britain talked with Germany about a plan to help Germany’s struggling economy in exchange for ending its weapons program. The British press reported the story, and Germany turned down the offer.

Addressing past hostilities and finalizing the deals

On July 25, the Soviet Union and Germany were very close to finishing the terms of a proposed economic deal. On July 26, during dinner, the Soviets agreed to a three-step plan that started with the economic agreement and included “a new arrangement that considered the important political interests of both sides.” On August 1, the Soviets said two things were needed before political talks could start: a new economic treaty and an end to anti-Soviet attacks by German media. The Germans agreed right away. Two days later, German Foreign Minister Joachim von Ribbentrop suggested that the countries agree not to interfere in each other’s affairs and give up actions against each other’s important interests. He said there were no problems between the Baltic and the Black Sea that couldn’t be solved together.

The Germans talked about past problems between the countries in the 1930s. They mentioned their shared opposition to capitalist democracies, saying “there is one common element in the ideology of Germany, Italy and the Soviet Union: opposition to the capitalist democracies.” They said it seemed unnatural for a socialist state to stand with the western democracies. The Germans said their earlier hostility toward Soviet ideas had lessened with changes in an international group and the Soviet decision to stop trying to start a world revolution. A Soviet diplomat called the conversation “extremely important.”

As Germany prepared to invade Poland on August 25 and get ready for war with France, German planners in August said that, with a possible British naval blockade and a hostile Soviet Union, Germany would miss out on 9.9 million tons of oil and 260,000 tons of manganese. At that time, Germany imported 20% of its food, 66% of its oil, and 80% of its rubber. It only had two to three months of rubber and three to six months of oil supplies. Because of the expected naval blockade, the Soviet Union would become the main supplier for many items.

On August 5, Soviet officials said finishing the trading credit agreement was key for more political talks. Hitler himself called to push for a settlement. By August 10, the countries settled the last small details, but the Soviets waited almost ten days to sign the economic agreement until they were sure they had also reached a political agreement. The Soviet ambassador explained that the Soviets had started talks with Britain “without much enthusiasm” when they thought Germany wouldn’t agree, and they couldn’t just stop the British talks after starting them. Meanwhile, every internal German military and economic study said Germany would fail without at least Soviet neutrality. The German military high command said Germany could only be safe from a blockade with close economic ties to the Soviet Union.

German–Soviet deal

Economic deal

Germany and the Soviet Union signed an important trade agreement on August 19, 1939. This deal allowed them to trade German machinery and equipment for Soviet raw materials like oil and grain. Germany also gave the Soviet Union a loan of 200 million Reichsmarks over seven years to buy more goods from Germany, including machines and tools. The Soviet Union would start paying this loan back with raw materials in 1946.

Political deal and secret protocol

Main article: Molotov–Ribbentrop Pact

This trade agreement helped improve political ties between Germany and the Soviet Union. Just a few days later, on August 24, 1939, the two countries signed the Molotov–Ribbentrop Pact, a promise not to fight each other. This pact also had secret parts that divided some countries in Europe into areas where Germany or the Soviet Union could make decisions. Both leaders saw this agreement as a big step toward better relations between their nations.

Later events and total trade

Further information: Molotov–Ribbentrop Pact, Invasion of Poland, Nazi–Soviet economic relations (1934–1941), German–Soviet Commercial Agreement (1940), and Operation Barbarossa

After the German invasion of Poland, Britain set up a group to manage the economic blockade of Germany. However, the blockade was not very effective because of goods slipping through neutral countries.

The Red Army also entered eastern Poland and took control of areas that produced much of Poland's oil.

Germany and the Soviet Union kept talking about trade and other matters during the rest of 1939. This led to a bigger trade deal being signed on February 11, 1940. After this, the Soviet Union sent Germany many important materials such as oil, metals, and food.

The trade between the two countries stopped when Germany invaded the Soviet Union on June 22, 1941.