The German–Soviet Credit Agreement (also referred to as the German–Soviet Trade and Credit Agreement)Documents on German Foreign Policy, 1918-1945. Series D (1937–1945) Washington, D.C.: U.S. Gov. Printing Office, 1949-64 vol. v. VI The last months of peace, March-Aug. 1939.--v. VII The last days of peace, Aug. 9-Sept. 3, 1939, signed on August 19, 1939 was an economic arrangement between Nazi Germany and the Soviet Union whereby the latter received an acceptance credit of over seven years with an effective interest rate of 4.5 percent. The credit line was to be used during the next two years for purchase of capital goods (factory equipment, installations, machinery and machine tools, ships, vehicles, and other means of transport) in Germany and was to be paid off by means of Soviet material shipment from 1946 onwards. The economic agreement was the first step toward improvement in relations between the Soviet Union and Germany.

On 11 May 1939, the day after the Credit Agreement, the Soviet Union went to war against Japan in a successful four-week military campaign in the Far East.Timothy Snyder, Bloodlands, 2010 The Nazi-Soviet Pact(also called the Molotov- Ribbentrop Pact) was signed four days after the Credit Agreement. The 1939 German–Soviet Commercial Agreement renewed declined German–Soviet economic relations and was adjusted and expanded with the larger German–Soviet Commercial Agreement in February 1940 and January 1941 German–Soviet Border and Commercial Agreement. German shipments to the Soviets became tardy and failed to provide all that was promised the closer the date of Barbarossa came. The Soviets fulfilled their obligations to the letter right up until the invasion, wanting to avoid provoking Germany. All these agreements were terminated when Germany invaded the Soviet Union in June 1941, in violation of the treaties between the two countries. Soviet trade with Germany in the pre-invasion period ended up providing the Germans with much of the resources they needed for their invasion of the Soviet Union, including raw materials such as grain and oil.

Background

Traditional commerce and pre-Nazi trade Germany lacks natural resources, including several key raw materials needed for economic and military operations. Since the late 19th century, it had relied heavily upon Russian imports of such materials. Before World War I, Germany imported 1.5 billion Reichsmarks of raw materials and other goods per year from Russia. Such imports fell sharply after World War I. In the early 1930s, Soviet imports decreased as the more isolationist Stalinist regime asserted power and dwindling adherence to the disarmament requirements of the Treaty of Versailles decreased Germany's reliance on Soviet imports.

Deteriorating relations 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 "untermenschen" ethnic Slavs ruled by their "Jewish Bolshevik" masters.Bendersky, Joseph W., A History of Nazi Germany: 1919-1945, Rowman & Littlefield, 2000, , page 177Müller, Rolf-Dieter, Gerd R. Ueberschär, Hitler's War in the East, 1941–1945: A Critical Assessment, Berghahn Books, 2002, , page 244 Even with rising tensions, in the mid-1930s, the Soviet Union made repeated efforts to reestablish closer contacts with Germany., which were rebuffed by Hitler, who wished to steer clear of such political ties.

Relations further declined in 1936, when Germany supported the Fascist Spanish Nationalists in the Spanish Civil War, while the Soviets supported the partially socialist-led Spanish Republic opposition.Jurado, Carlos Caballero and Ramiro Bujeiro, The Condor Legion: German Troops in the Spanish Civil War, Osprey Publishing, 2006, , page 5-6 The same year, Germany and Japan entered the Anti-Comintern Pact.Gerhard Weinberg: The Foreign Policy of Hitler's Germany Diplomatic Revolution in Europe 1933-36, Chicago: University of Chicago Press, 1970, pages 346. Stalinist purges also disrupted Soviet diplomacy.

Late 1930s economic needs By the late 1930s, 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. Germany lacked key supplies, such as oil and food, metal ores and rubber, for which it relied upon Soviet supply or transit, and had to look to Russia and Romania. Moreover, Germany's food requirements would grow further if it conquered nations that were also net food importers. Soviet imports of Ukrainian grains or Soviet transshipments of Manchurian soybeans could make up the shortfall. Meanwhile, the Soviet Union required, in the short term, military equipment and weapon designs to strengthen the weakened Red Army and Red Navy. The Soviet transportation network was woefully underdeveloped, with roads approaching non-existence and rail lines already stretched to their limits.

After the Anschluss in mid-1938, economic reconciliation was hampered by political tension and Hitler's increasing hesitance to deal with the Soviet Union. However, German needs for military supplies and Soviet needs for military machinery increased after the Munich Agreement.

Negotiations

Preliminary discussions In October 1938, Germany started pushing for expansion of economic ties between the two countries and presented a plan to the Soviets on December 1, 1938. Stalin, however, was not willing to sell his increasingly strong economic bargaining position for the small price that Hitler was then willing to offer. The Soviets were willing to engage in talks discussing a new German offer in February and March 1939 in Moscow. Germany put the talks on hold in mid-March. A few days thereafter, Germany occupied Czechoslovakia and then the Klaipėda Region (Memel), making a German war with Poland far more likely.

Germany and the Soviet Union discussed entering into an economic deal throughout early 1939. 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. On April 7, Soviet diplomat Georgii Astakhov stated to the German Foreign Ministry that there was no point in continuing the German–Soviet ideological struggle and that the two countries could come to an agreement. Ten days later, Soviet ambassador Alexei Merekalov met with German State Secretary Ernst Weizsacker and presented him a note requesting speedy removal of any obstacles for fulfillment of military contracts signed between Czechoslovakia and the USSR before the former was occupied by Germany.Geoffrey Roberts. Infamous Encounter? The Merekalov–Weizsacker Meeting of 17 April 1939. The Historical Journal, Vol. 35, No. 4 (Dec., 1992), pp. 921–926. Stable URL: https://www.jstor.org/stable/2639445 According to German accounts, at the end of the discussion the ambassador stated "there exists for Russia no reason why she should not live with us on a normal footing. And from normal the relations might become better and better." Other sources claim that it could be an exaggeration or inaccurate recounting of the ambassador's words.Biskupski, Mieczysław B. and Piotr Stefan Wandycz, Ideology, Politics, and Diplomacy in East Central Europe, Boydell & Brewer, 2003, , pages 171–172 Immediately after the meeting, the Soviet ambassador had been withdrawn to Moscow and never returned to Germany.

Likelihood of war increased military production in both Germany and the Soviet Union. The Soviets' Third Five Year Plan would require massive new infusions of technology and industrial equipment. Meanwhile, German military spending increased to 23% of gross national product in 1939. German planners in April and May 1939 feared that a cessation of Swedish trade would cut key iron ore supplies. Without Soviet supplies, it was estimated that Germany would need to find substitutes for approximately 165,000 tons of manganese and almost 2 million tons of oil per year. Germany already faced severe rubber shortages because of British and Dutch refusals to trade. In addition to domestic food fat and oil importation reliance, other food problems arose from labor shortages in the agricultural sector that required the work of schoolchildren and students. On May 8, German officials estimated that Germany had oil reserves for only 3.1 months.

In the context of further economic discussions, on May 17, Astakhov told a German official that he wanted to restate "in detail that there were no conflicts in foreign policy between Germany and Soviet Russia and that therefore there was no reason for any enmity between the two countries." Three days later, on May 20, Molotov told the German ambassador in Moscow that he no longer wanted to discuss only economic matters, and that it was necessary to establish a "political basis", which German officials saw an "implicit invitation" and a "virtual summoning us to a political dialogue." On May 26, German officials feared a potential positive result to come from the Soviets talks regarding proposals by Britain and France. On May 30, Germany directed its diplomats in Moscow that "we have now decided to undertake definite negotiations with the Soviet Union."Ulam, Adam Bruno,Stalin: The Man and His Era, Beacon Press, 1989, , page 508 The ensuing discussions 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.

Mixed signals

The Soviets sent mixed signals thereafter. On May 31, Molotov's speech appeared to be positive, while on June 2 Soviet Commissar for Foreign Trade Mikoyan told a German official that Moscow "had lost all interest in these [economic] negotiations as a result of earlier German procrastination." On June 15, the Soviet ambassador held a discussion with the Bulgarian ambassador in Berlin, Purvan Draganov, who served as an unofficial intermediary for negotiations with the Germans. The Soviet ambassador explained that a deal with Germany better suited Soviet needs than a deal with Britain and France or inconclusive negotiations resulting in no deal. Draganov promptly informed the German Foreign Ministry of the conversation. Seven days earlier, the Soviets had agreed that a high ranking German official would come to Moscow to continue the negotiations, which occurred in Moscow on July 3. Thereafter, official talks were started in Berlin on July 22.

Meanwhile, hoping to stop the German war machine, in July, Britain conducted talks with Germany regarding a potential plan to bail out the debt-ridden German economy at the cost of one billion pounds in exchange for Germany ending its armaments program. The British press broke the story and Germany eventually rejected the offer.

Addressing past hostilities and finalizing the deals