måndag 4 mars 2013

War reparations

Jouko Sere

Finland's war reparations deliveries to the Soviet Union 1944-1952

Written by Jouko Sere, councilor

The war indemnity practice is based on the old principle: "The victor has the right to the loser's body and possessions". The heavy indemnity payments facing Germany after the First World War was regarded as one of the factors which brought about the economic recession at the end of the 1920s. After the outbreak of the Second World War, the Atlanta Declaration also considered the use of war reparations repayments as part of peace agreement conditions.

At the Teheran Conference in 1943 however, the allies agreed amongst themselves that as a condition for peace, sufficient war reparations repayments should be recieved from the losing parties. When the war finally ended, indemnities - similar in content and scope were demanded from Finland, Hungary and Romania. In practice, repayments were very different. It must be concluded that when a comparison is made between war reparation costs facing Finland, Hungary and Romania, the respective levels per capita were as follows:
  • Finland 80 $/person
  • Hungary 30 $/person
  • Rumania 15 $/person

When the first peace talks were held during a visit to Moscow by a delegation headed by Paasikivi in February-March 1944, Finland was faced with a demand for $600 million to be paid within five years.
When these peace conditions were announced in parliament by the government, it was concluded that a sum of this size could not possibly be paid and that this demand, aside from the other conditions, constituted such a high threshold that it was thrown out. The War continued. The government had asked for an expert opinion on how Finland would cover compensation costs in the light of the conditions established. An expert select committee, which included Professor Bruno E. Suviranta and Councillor Bernd Grönblom, concluded that paying such levels of compensation would be impossible for the national economy to bear. It equated to about 500,000 Mondays at eight hours for 300 days per year during this five-year period.

Since this matter would inevitably form part of future peace talks, the government agreed to have a study carried out, during War operations, on the national economy’s ability to meet the demands most likely to be imposed.

19 September to 17 December 1944

After the battles and the successful defence during the summer, a ceasefire agreement was finalised on 19 September 1944 between the Soviet Union, Finland and Great Britain & Ireland.

The undersigned ceasefire agreement included one sentence referring to war reparations; the same matter was mentioned in two sentences in the agreement appendix. Article 11 of the agreement reads as follows: “Finland is bound, as result of the damages she inflicted on the Soviet Union through war operations and occupation of Soviet territory, to make amends to the Soviet Union with damages worth $300 million to be payable over a period of six years in the form of goods (wooden materials, paper, pulp, seagoing and river vessels, various types of machinery)”. The appendix to article 11 contained the following two sentences: “Both governments confirm through a special agreement a detailed specification of goods which Finland must deliver to the Soviet Union according to article 11, and also the exact delivery times for each year’s deliveries. As a basis for calculating war reparations stipulated in article 11, the American Dollar will apply due to its parity with the gold standard the day before the signing of the agreement or alternatively $35 per ounce of gold.

The ceasefire agreement does not specify the exact material quotas to be covered by this $300 million amount. When the summarised calculation in article 11 initially mentioned materials traditional for the Finnish export market, it was assumed and believed that the lion’s share of war reparations should be paid in the form of products from the wood processing industry. What had not been determined were the bases for pricing.

The law about introducing the ceasefire was passed four days later in Finland on 23rd September 1944. The Foreign Ministry was responsible for proposing an investigation into materials requested by the Soviet Union in the war reparations package while the duty of the Trade and Industry Ministry was to organise activities for the dispatch of these materials.

Allied Controls Commission representative, Mr. Gerasimov, who had visited Finland in October - unofficially, as he put it - on an exploratory basis, made contact with the Chairman of the Metal Industry Federation, Gunnar von Wright, to establish the types of dispatch available to the Finnish metal industry. It was emphasised that the performing capacity of the Finnish metal industry was largely dependent on acquiring goods and raw materials from abroad which were not produced by the national industry itself; in the light of the continuing war in Europe opportunities were sought after for acquiring raw materials from the Soviet Union. No reply was ever given. Gerasimov held similar informal talks with J.O. Söderhjelm, representing the Federation of Wood Processing Industries in Finland. When Minister Carl Enckell and Foreign Ministry Advisor Johan Nykopp had concluded preparations for war reparations, an auxiliary committee was appointed with Councillor Valter Gräsbäck, MD for Finncell, chosen as its chairman along with other councillors Aarno Solin and Wilhelm Wahlforss and also Gunnar Jaatinen of the trade council. The committee convened for the first time on 10th October, the day on which Gerasimov received the tasks he had been seeking. The Finnish delegation proposed that the focus of war reparations be on wood processing products.

When the Soviet delegation for war reparations arrived in Finland on 17th October – headed by its chairman Borisov, an inspector of the highest rank – and the Finnish side demanded an official list concerning the delivery of war reparations before 19th October, time was short. The Finnish government commissioned this select committee to serve as the nation’s official delegation in war reparations talks. The committee was updated by the appointment of Councillor Lauri Kivinen as deputy to chairman Gräsbäck. During talks on 20th October the delegation submitted Finland’s list of materials, though without any indication of quantity or price, since discussions were not held about such matters and it was emphasised that these lists should not be regarded as any type of deal but rather as a condition for future talks. On this occasion, Borisov unexpectedly handed over a list of vessels demanded by the Soviet Union. Their demand was that a large part of the Finnish merchant fleet be handed over immediately; this would have meant the shedding of the best part of the nation’s merchant fleet. Meanwhile the demands for newly built vessels exceeded the combined capacity of all Finland’s shipyards.

The surprises did not end there. Borisov also announced that the Soviet Union’s official position was that war reparations would be set at price levels equating to 1938 rates. These demands made by Borisov meant two things: firstly, that the capacity of Finland’s merchant fleet would be reduced to a third of its prewar size resulting in severe difficulties for both import and export activities; and secondly, this situation presupposed a considerable expansion of our shipyard industry.

This principle of using 1938 figures as the basis for price settings almost doubled the original war reparations figure. The Finnish delegation naturally protested against both the handing over of trade vessels and, in particular, the interpretation of price settings. Minister Enckell, who had been present at both March and September negotiations, knew that 1938 price levels had never been mentioned during talks with Minister Molotov, but that current prices had been discussed, which the Finns had naturally understood to be 1944 levels. By the concept ‘1938 price levels’ the Soviet Union wished merely to be reassured of receiving those material quantities set down in the list of materials. The differences in costs between 1938 and 1944 would be added to the value of war reparations deliveries and there was also a risk of Finland facing higher cost levels throughout the six-year delivery period.

Borisov went on to announce consumption necessities. Products from the wood processing industry would not exceed $50 million; metal industry products, by contrast, would represent up to $250 million. All this did not bode well for the nation’s industrial structure. The Finnish delegation had assumed $150 million to be the unconditional upper limit for metal industry products.

With the benefit of hindsight one naturally wonders how vital factors - a detailed list of materials and a basis for setting prices - had been left undecided during the September talks. It should be remembered, however, that former enemies were sitting on either side of the negotiating table; each had very little knowledge of the other’s negotiating methods. Mutual suspicion was all too obvious. The first month after the ceasefire had been very trying.

The Controls Commission, headed by Chairman Colonel General Zdjanov who had signed the ceasefire agreement, arrived in Helsinki. Relations between the commission and Prime Minister Castrén’s government were strained. A new government was appointed led by Paasikivi on 17th October 1944. Issues concerning war reparations now entered a new phase.

Andrei Zdjanov was among Stalin’s closest allies. He carried out orders directly from Stalin. In March 1939 he had opposed the peace treaty with Finland. During the Winter War he had been a member of the war council for the northwestern Soviet army, on the tip of Carelia. He was present when finalising the agreement to form the “Terijoki government”. He had also led the defence of Leningrad when the War continued.

On 25th November the Commission Chairman informed Paasikivi, the new Prime Minister, of the Soviet Union’s definitive position. Certain concessions had been made. The principle of 1938 price levels did come into force, in such a way that the price of capital could be increased by 15% and materials for consumption by 10%. Metal industry products should be delivered for $175 million and consumption materials for $125 million. The victor had established her terms and conditions. These conditions had been ratified by Stalin who had given Zdjanov full authority to take control of Finnish industry if things did not get underway as planned. Zdjanov acknowledged that the programme would inevitably mean a radical expansion of Finland’s metal industry, but announced that the Soviet Union would place commercial orders with the expanded metal industry, after war reparations had been delivered. When the Soviet delegation then produced the list of materials required, as a result of the reduced price level, it was considerably more extensive than their Finnish counterparts had proposed. During the preparatory phase commission delegates had travelled far and wide to gain a clear impression of the Finnish industry. In this way they were able to set down requirements which equated exactly to her maximum production capacity.

After non-stop rounds of talks lasting three weeks, which had been on-going day and night, led on our side by Walter Gräsbäck, all documents were finally signed and sealed.

The (‘basic’) war reparations agreement was signed on 17th December along with the specific list of materials as shown in appendix 3 below. Appendix 2 indicates the bleak outlook for deliveries of war reparations with regard to industrial production in the years leading up to the war. Production capacity of the metal industry in particular was clearly inadequate even though at this stage it was impossible to survey the full extent. The specific content of product titles had not yet been defined. As for the vessels, only designated types were known; there were no specific details regarding the scope of deliveries and the nature of vessels. Fortunately, it was agreed that for most of the first two years deliveries could comprise wood processing products. There is an appendix to the agreement stipulating fines for delivery delays. Consignments arriving more than a month late or containing defects would result in Finland paying fines corresponding to 5% of the value of goods delivered. Similarly, one-year delays would lead to fines equating to 55% of each trade value. The penalty clause was unreasonable; force majeure conditions which normally form part of delivery terms and conditions did not apply here. Delays in the arrival of goods from abroad did not bring about any exemption of penalty levies. Great efforts had been made to amend these conditions, but without success. The only concession was a promise regarding detailed specifications of materials obtained before 15th February 1945 for certain goods whose production took over a year and had previously been manufactured in Finland. However, the Soviet Union never respected this promise, concerning some delayed consignments.

So began Finland’s payment of war reparations, at a time when evacuated people were being re-housed and the War was still continuing in Lapland. Apart from war reparations, Finland had to return or compensate for property which had moved to Finland during the War, hand over to the Soviet Union any German property existing in Finland and pay to the Soviet Union, partly in the form of goods, any German debts incurred in Finland; all of which would affect deliveries from shipyards. I will return to this later. The demand in the war reparations list for the transfer of 119 merchant vessels in December 1944 placed all shipping vessels under extreme pressure, including those required for the delivery of war reparations. The transfer of two ice breakers also caused great inconvenience. As the tonnage was poor at the end of the war, heavy sacrifices had to be made to restore shipping equipment, spare parts and the very ships themselves to operational order ahead of their eventual transfer. This was the task of a commission headed by Professor Jaakko Rahola.

Action taken by ship owner Gustav Thorden is worth mentioning briefly here. He had transferred the most modern section of his fleet to Stockholm and off the Finnish register. Some of these vessels had been specifically required by the Soviet Union leading to friction and mistrust during liaising sessions with the Controls Commission. TASS, the Soviet press agency went as far as to accuse the Finnish government of conspiracy. To some extent, they managed to reduce the transfer demands; the final list comprised 82 registered and 22 unregistered vessels, with a combined gross tonnage of 82520 GRT. This amount equated to $14 million or 4.6% of Finnish war reparations to the Soviet Union.

As a result Finland lost 25% of her merchant fleet - her best and most modern section - at the end of the war. The national shipping fleet was reduced in size by 65% due to war operations and vessel transfers to the Soviet Union. With the remaining 35% Finland had to fulfil all transportation requirements for export purposes and import activities in order to meet industrial needs, especially for the war reparations industry.

Appendix 2
Vega Seminar
7.2.2000

Breakdown of Finland’s exports for war reparations (1944-1952)
and commercial exports (1929-1938)

  • Other products
  • Vessels from commercial fleet
  • Products for wood processing
  • Products for the metal industry
  • War reparations exports 1929-1938
Source: Jaakko Auer
Finland's war reparations


Appendix 3
FINLAND'S WAR REPARATIONS 1944-1952

BASIC AGREEMENT
17th DECEMBER 1944

For a period of six years from 19th September 1944 Finland delivered war reparations worth $300 millions, an average of $50 millions per year.

CategoryValue
1000 $ *)
%
Machines, apparatus, factory machinery
New vessels
Paper products
Timber products
Cable products
Vessels from the merchant fleet
100,876

60,172
59,000
41,000
25,000
13,952
33.6

20.1
19.7
13.7
8.6
4.6
TOTAL300,000100

* Equating to 1938 price levels


Organising business


The basic agreement on war reparations signed on 17th December 1944 constituted the basis for operations. For three months a plan had been formulated and worked on which would shape Finland’s industrial operations for the next ten years. It was clear that the ideas gleaned when the ceasefire agreement was signed had been very optimistic. Only now was it clear that the extent of war reparations would increase by at least 100 per cent, to the same level demanded during the March-April talks, which had been dismissed as preposterous. The products had now been clearly defined as well as the prices they were expected to correspond to when compensating for war damages. The actual quality and scope of delivery of these products would not be revealed until the following round of talks along with the final invoicing amount, which would be made known only when the task was completed and specific cost levels defined. The Soviet Union knew only too well what she wanted. By contrast, Finland had no idea what all this would finally cost.

It was now a question of getting on with the tasks required and organising operations accordingly. On 13th October the Prime Minister appointed a delegation for the war reparations industry which would be chaired by the MD for Veitsiluoto Oy, Councillor Lauri Kivinen. During the War he had served with distinction as head of employment and as leader of evacuation operations from Lapland. Within the Trade and Industry Ministry, temporary head of department Uolevi Raade had carried out a memorandum concerning the organisation of war reparations production and the bodies which would be formed along with their respective powers. On the basis of Raade’s memorandum these rather exceptional requisite powers were approved along with an opportunity for the annexation of industry. Raade’s proposal reveals that the executive authorities would form part of the Trade and Industry Ministry, although in this respect it differed from his proposal. Instead an agency was established called Soteva (which in Finnish stands for Sotakorvausteollisuuden valtuuskunta) answerable to the delegation for the war reparations industry. The delegation chairman also headed the Soteva agency. In this way the whole business operation fell into the secure hands of experienced industrialists. The solution chosen proved justified, enabling a flexible, versatile business process. This delegation of experienced industrialists also included Sakari Tuomioja, a cabinet minister appointed spokesperson for the Trade and Industry Ministry. Senior engineer Ilmari Harki of Outokumpu Oy became vice chairman of the delegation which also welcomed Baron G. Wrede, former MD for Petsamo Nickel and Juuso Walden, MD for United Paper Mills. Very significantly, Yrjö Rantala, chairman of the Metal Workers Federation, was also appointed to the delegation.

The Soteva agency was housed on the sixth floor of the new Sokos building where in time it would occupy up to four complete floors. Over the next few years Soteva would open several contact offices - mainly for the procurement of raw materials and matters relating to finance - in key European countries as well as in the USA.

As for the Soviets, matters were handled by the Soviet Union’s agency for war reparations headed from the very outset by Mr. V. Gerasimov. Their offices were located in the Carelia Hotel on Kajsaniemigatan. This agency’s initial personnel of 40 would mushroom to 200 members. In daily parlance these two agencies were known respectively as SOTEVA and CARELIA.

To work


It was now up to Soteva to find suppliers for the long, detailed list of materials, and reach an agreement on terms and conditions of delivery and price setting methods. This was relatively simple for the wood processing industry where companies set about tasks in accordance with their product lines. Soteva would pay the current going rates. By contrast, it was much harder for the metal industry where suppliers were available for only certain products. The product list was discussed with companies which in turn announced those products they felt able to dispatch. This “from-the-top-down” method facilitated a brisk start and a full exploitation of skills and resources available but resulted in all sorts of problems “at the bottom of the basket” to be addressed at a later stage.

Soteva had to create a system whereby dispatch schedules could be monitored and costs followed up at the various factories. It was a success. Even during the 1960s one could see evidence of how Soteva influenced the metal industry in terms of monitoring production and cost follow-ups. For the dispatches to Soteva, some were carried out by mutual agreement while others were agreed upon by fixed index-linked pricing.

The situation for shipbuilding (appendix 4) was beginning to take shape. Councillor Wilhelm Wahlforss, also MD for Oy Wärtsilä Ab, had dismissively announced that he would have nothing to do with the construction of “wooden ships” on the list, selecting only those vessel types which would be suited to the Wärtsilä shipyard. The list featured plenty of such vessels which at the time of the agreement had been very popular and built by Wärtsilä earlier. In fact, some of these vessels happened to be under construction. This led to the fixed quota being exceeded during the first few years. It looked as if the toughest nut to crack on the list of dispatches would be the wooden vessels, the 1000-tonne composite barges, the 300-tonne seagoing schooners and the seagoing steel fishing trawlers. There was no alternative but to create a new shipbuilding industry. A large number of smaller tugboats could still be accommodated at small shipyards by inland lakes or along the coast.

The wooden vessels had been expected to resemble the steam ships and barges on the Saimaa canal. When, though, delivery specifications were received, a very different set of demands were revealed. At that time Finland had neither the trained constructors and other personnel or shipyards to be able to handle the tasks required. Problem number one would obviously be the construction of these vessels. We shall hear more about these 300-tonne schooners in another chapter. As for the construction of composite barges we can establish that this matter was resolved when the company Rauma-Raahe Oy in Helsinki opened a construction agency headed by Professor K. Albin Jansson. This agency would subsequently carry out the construction work of all composite barges at this shipyard as required by Soteva. The term ‘composite’ implied that the base and sides of these vessels were made of wood while all other components were made of steel. The construction of these vessels meant that brand new shipyards would have to be established e.g. Valkon Laiva Oy in Pernå and Teljän Tehtaat Oy in Pori. Other shipyards were also involved - namely, the Rauma-Raahe shipyard in Rauma, the Nystad shipyard, Reposaaren Telakka ja Konepaja at Räfsö and the Pansio shipyard in Turku, owned by Valtion Metallitehdas (later Valmet). In order to solve the problem of schooners it was decided that the latter mentioned shipyard should be the site for establishing the company Oy Laiveteollisuus Ab which would operate the most up-to-date production process yet. However, the construction timetable for this shipyard was not observed and production did not start up on time. As a result, permission was granted for a schooner ‘talko’ (a group of voluntary workers) to transfer parts from Hollming Oy in Rauma, Aug. Eklöf in Porvoo, and a small contribution which included a few schooners from Valkon Laiva Oy. The question of seagoing trawlers was resolved by commissioning the state-owned shipyard at Katajanokka to build them.

Appendix 4
FINLAND'S WAR REPARATIONS 1944-1952
NEW VESSELS

Basic Agreement
17/12/1944
Final Agreement
Seagoing tugboats, 800hp
Seagoing tugboats, 600hp
Inland lake tugboats, 500hp
Lake/river tugboats, 400hp
Seagoing barges, 3000t
Inland lake barges, 2000t
Seagoing motor vessels (GL)
Seagoing motor vessels (MR)
Seagoing steam vessels, 3200t
Seagoing steam vessels (GL) 3200t
Seagoing steam vessels, 800hp
Composite barges, 1000t
Seagoing schooners, 300t
Marine docking facilities
River tugboats, 150hp
30
20
12
27
30
25
3
5
-
2
2
10
200
90
4
-
30
20
12
27
30
25
3
5
7
2
2
10
205
91
4
50

On the face of it, it is easy to think that there had been an unfair distribution of vessel orders; the largest constructor, Wärtsilä, appeared to be exempt from the heavy exploitation other shipyards seemed to be experiencing. That was true to some extent, but we have to remember that this allocation of work was carried out rationally, in terms of expertise and resources available at the time – here I consider Wärtsilä’s production capacity – which could be put to immediate and effective use, and thus war reparation deliveries could begin by handing over vessels already under construction at the Wärtsilä shipyard. In some contexts, it looks as if war reparations from the shipyard industry were relatively modest and comprised old familiar vessel types.

As for the construction of wooden vessels, entrepreneurs – all private – had fortunately been found who would be willing to build the required production plants fully aware of risks which that would entail; the prospects for shipyards building wooden vessels did not look bright once war reparations had been dispatched. There was also the problem of finding technical staff, engineering teams, constructors, foremen and workers. At the same time, permission had been granted to design the production plants and the products to be constructed there. The number of berths for vessels increased from ten in 1944 to 66 in 1952. One such example was Valkon Laiva Oy in Pernå built on virgin soil which also comprised the living quarters, all located near the Valkon harbour. The same was true for Oy Laivateollisuus Ab whose harbour was built by Hollming, although the workers were accommodated in the town. This was also the case for Teljän Tehtaat and the shipyards by Nystad, Pansio and Räfsö.

I will comment briefly here on the metal industry (appendix 5). It may be concluded that the same basic principle was observed for allocating products: enterprises were asked to select products and dispatches which best suited them. Other matters had to be resolved by “other means”. In general, this meant groveling to the state-owned industries to take on the rest. It was undesirable and unnecessary to establish new mechanical workshops while existing workshops were being expanded and modernized resulting in an increase in production capacity. The industry’s machine park grew by 80% between 1944 and 1948. The shortage of constructors was virtually resolved when the state-owned aeronautical factory discontinued operations enabling 300 experienced and highly skilled constructors to serve in the war reparations industry.

Appendix 5

FINLAND'S WAR REPARATIONS 1944-1952

EXAMPLES OF WORKSHOP PRODUCTS INCLUDED IN COMPEMSATIONS

Provisional amounts
17/12/1944
Dispatched amounts
Narrow-gauge steam locomotives
Narrow-gauge engine locomotives
Narrow-gauge goods cars
Steam engines, 175hp
Frame saws
Machinery for timber mills
Machinery and power plands for plywood mills
Machinery for wood flour mills
Electric motors
(up to 100KW)
500

200

5500
300
360
11 mills
6 mills

2 mills
34420
589

97

6185
300
259
17 mills
9 mills

2 mills
27431


In total: 230 positions

The series of 800hp steam driven tugboats built by Crichton-Vulcan became a record unequalled in Finnish history. When the War continued, 16 tugboats were built for the Germans and later 30 as part of war reparations. The Soviet Union also ordered another 89 tugboats through a trade agreement, of which the last one was only ready for dispatch in 1959. MOSALJSK (above) in 1956. Photograph: Kvaerner Masa Yards Ab historical archive.

The "extra" war reparations


Finland was ordered by the Soviet Union to deliver a considerable number of products for industry in addition to the items stipulated on the war reparations list. This was triggered by the handing over of German property and payment of German debts to the Soviet Union. Instances of these include military barracks used by Germans in Finland, which were to be dismantled and the prefabricated materials dispatched to the Soviet Union, and also the dismantling of German maintenance tracks in northern Finland whose rails and sleepers were to be sent over the Soviet border. However, brand new barracks were delivered instead of the dismantled ones.

Handing over the payment of German debts to the Soviet Union proved to be a far more complicated operation. The Soviets wanted about half the amount to be invested in Finnish company shares. Because private company shares proved difficult to move, Prime Minister Mauno Pekkala offered shares on a fifty-fifty basis in state-owned companies, namely Outokumpu, Enso-Gutzeit, Veitsiluoto, Oulu, Imatran Voima and Valtion Metallitehtaat (Valmet). However, President Paasikivi intervened and managed to prevent this from occurring. The proposal tabled by Pekkala was withdrawn. The multi-faceted process resulted in the armoured vessel Väinämöinen being transferred and the shipyards were commissioned to build a further 67 wooden trawlers. This additional dispatch was hardly going to lighten the excessive load already being felt by the shipyards.

The shipping wharf at Sandvik (of the Wärtsilä Group) built 25 ice-breaking tugboats (600hp) for the Soviet Union – based on drawings of the harbour ice-breaker Turso which formed part of war reparations. In the photograph, VIHRJ ready to leave Sandvik for Odessa. Photograph: Indav OY picture archive.

The shiping wharf at Sandvik built 25 parges (2000 dwt) with steel hulls as war reparations for the Soviet Union. Photograph: Indav Oy picture archive


Concessions granted

As mentioned above, Stalin was heavily involved in Finland's war reparations to the Soviet Union.

As a major concession, the strict penalties for delays would no longer apply after the fourth year. In fact, no more delays occured as a general rule.

The very welcome surprise came in October 1945 when the Finnish-Soviet Delegation for Culture led by Minister Johan Helo, incidentally a communist, was summoned to a reception at the Kremlin. The guests were welcomed by both Stalin and Molotov. War reparations formed part of the discussions. Stalin granted Finland an extension in the delivery timetable – two years’ respite – which Johan Helo, Mauri Ryömä and Hertta Kuusinen acknowledged as a generous gift to the Finnish people. This matter had actually been discussed in previous talks. This “gift” could only be offered to the “appropriate people”.

A second concession came in 1948 once the VSB Pact had come to an end. Ministers Murto, Janhunen and Leino - once again communists – submitted a paper to the cabinet where they proposed that the government, in the light of improved relations between the two countries, would request war reparations concessions. Before the Finnish government even had time to consider the paper, it had already been published in the Moscow newspapers. This prompted Savonenkov, the Soviet envoy, to announce that his government had decided to assist Finland by writing off 50% of all remaining war reparations as of 1st July of the following year. By that stage, Finland had paid $153 million in war reparations – in other words, over half the total amount demanded; this concession thus represented about 25% of the total amount. It should be noted that when Finland had proposed a reduction of $100 million at the Paris peace talks in the spring of 1947, it was looked upon with disdain by Chairman Molotov. When the war reparation list was reviewed later, it is clear that this concession did not apply in any way to vessel dispatches, but to a considerable extent to deliveries of products from the workshop industry. Skilful handling of negotiations enabled the exclusion of some significant factory complex dispatches which would very likely have caused serious problems.

Closing the books


When the peace treaty was signed in Paris, the last war reparations train had crossed the border point at Vainikkala in August 1952 and the last war reparations vessel had left the shipyard in September of that year, one could at last conclude that wartime was finally over in Finland and life could once again return to normal. The territorial concomitant waivers and re-housing of the evacuated population had caused radical upheavals in the country; but, the war reparation deliveries had left equally profound scars. As a result, the structure of Finland’s trade and industry was very different from that of 1939. War reparations would play a significant role in transforming Finland in terms of its industrialised status; financed through indemnities. War reparations constituted 16.3 % of state outgoings in 1945 which fell steadily over the years to 5 % by 1952. Since war reparations emphasis – clearly against the wishes of Finns – was on the metal industry, the industrial structure became considerably versatile. The strict delivery terms and conditions and quality demands resulted in our metal industry becoming “quality conscious and customer orientated” – as we would probably say nowadays.

It would be interesting to speculate about what might have happened if war reparations had comprised mainly wood processing products, which had been the original preference of the Finns. If war reparations had comprised solely wood processing products, it is estimated that 80% of Finland’s industrial capacity would have been engaged. Since, however, war reparations focused on the metal industry, the problem of unemployment did not arise. This contributed greatly to maintaining peace in society during these times of great austerity. The wood processing industry had already secured channels for marketing its products abroad since prewar times; this made a start-up of its exports and subsequent turnover in free currencies far easier to achieve, than had ever been the case for the metal industry.

Had the pledges for orders to the metal industry not been honoured after war reparations, Finland would certainly have been confronted with a serious situation of unemployment. In 1950 the very first five-year trade agreement was established with the Soviet Union (1951-1955); such agreements continued until the 1990s. These export agreements also focused on metal products which would make this branch of Finnish industry highly versatile with excellent prospects on the international market. Inevitably though, the risks one had feared would materialise also. These trade agreements did not require dispatches from all production plants and suppliers. For instance, it was necessary to reduce by about two thirds all timber production activities. One drastic change occurred when concluding the 1961-1965 trade agreement: 1000-tonne barges would no longer feature in agreements. This brought about radical changes to lines of production at several shipyards. By contrast, most of the metal producing companies involved in war reparation deliveries were particularly successful up until the 1990s, mainly as a result of business deals with the Soviet Union. We may reasonably conclude that we obtained compensation for war reparations during these years.

These war reparations from Finland to the Soviet Union would prove more significant than we could possibly have imagined. During the War industry had been transformed into an industry ‘of necessity’ and a considerable amount of production and transportation resources were devastated. The austerities of war did not relent until the summer of 1945. The Finnish people were forced to start rebuilding the Soviet Union as early as 1944. Yet, the national industry proved to be fast, flexible and effective. The products dispatched from Finland’s industries were high in quality and their levels of efficiency optimised to solve problems which could not have been managed in the Soviet Union. It is unlikely that such deliveries could have been envisaged in the subsequent five-year Soviet plan. One may well ask whether securing war reparations was one of the reasons for the communists’ failure to gain support from the east for their dealings in the dark days of spring in 1947, as had been expected.

After the war reparations period the Soviet Union was able to purchase the industrial products it needed from Finland in exchange for raw materials delivered at the former’s convenience. In many respects, Finland was seen as a far more accommodating trade partner compared with many industrialised countries from central Europe, particularly during the Cold War.

The war reparations deliveries from Finland to the Soviet Union (1944-1952) would be a fascinating topic for research. Let us hope that this area of study still attracts researchers when Soviet archives become available.

The restoration of the Vega schooner stands as a monument to commemorate the breakthrough of Finland’s metal industry and as a mark of honour to the men and women who, after five years of war and eight years of sacrifice for war reparations and austere conditions, laid the foundations of modern-day Finland.


SOURCES FOR THE ORIGINAL VERSION IN FINNISH
  • Jaakko Auer - Suomen sotakorvaustoimitukset Neuvostoliitolle, WSOY 1956
  • Ilmari Harki - Sotakorvausten aika, Gummerus 1971
  • Bruno Suviranta - Suomen sotakorvaus ja sen taloudelliset seuraukset, Suomen Pankki 1945 11
  • Bruno Suviranta - Sotakorvaustavaran hintasuhteet, Suomen Pankki 1948
  • Johan Nykopp - Paasikiven mukana Moskovassa, 1975
  • J-0. Söderhjelm - Kolme matkaa Moskovaan, 1970
  • Lauri Hyvämäki - Vaaran vuodet 1944-1948, Otava 1957
  • Hannu Rautkallio - Suomen suunta 1945-1948, W & G 1979