Neutrality in wartime is the ultimate assertion of national sovereignty, but it is much less clear what neutrality means in peacetime. However, in the Cold War confrontation, the United States saw neutral countries as potential loopholes through which the Soviet bloc might obtain advanced Western technology. As a consequence, American economic warfare against the Soviet bloc represented a challenge to the governments of small neutral countries such as Ireland. During the Second World War, Ireland had come under considerable pressure from both Britain and the United States to abandon its neutrality which those countries maintained favoured the Axis powers. However, the Irish government remained steadfastly committed to neutrality, because of the highly symbolic nature of this policy as an expression of the country's struggle to achieve full sovereignty from Britain in the inter-war period. At the same time, Irish neutrality was primarily pragmatic. In contrast to other wartime neutrals, Ireland was virtually defenceless owing to a lack of strong armed forces and air defences, but a different policy might have divided the country, potentially leading to a renewal of the civil strife of the 1920s. As a consequence, Ireland relied on the government's able diplomacy to maintain neutrality by placating both sides of the conflict.

While other small Western European countries such as Belgium, Denmark, the Netherlands and Norway decided to abandon their traditional neutrality in favour of Western economic co-operation and integration in the immediate post-war period, Ireland continued to pursue an isolationist economic policy regime.

Because of Poland's membership in the Council for Mutual Economic Assistance (CMEA), commercial exchange with neutral states during the Cold War period was of particular importance for the economy of the country. Austria, Switzerland, Sweden and Finland played an important role in this co-operation. Poland's commercial contacts with the four states had quite a long history, as they commenced with the ending of the First World War, that is, the moment Poland regained its independence after an almost century-long period of oppression.

Economic relations with the four countries listed above were re-established immediately after the end of the Second World War, but beginning in the 1950s the mutual commercial exchange weakened. The Cold War, autarchic tendencies in the foreign policies of communist states, as well as embargoes imposed by capitalist countries on a growing group of goods hit Polish commercial exchange with capitalist states. Consequently, during the years 1950–70 imports from these countries decreased on average by approximately 10 per cent. During this time imports from neutral states diminished as well.

On the other hand, from the early to the mid-1970s commercial exchange with neutral states, as well as with the members of the European Economic Community (EEC) and the United States, grew steadily. This was the result of the particular foreign policy pursued by the group of technocrats who achaved leadership positions in the communist party. They tried to boost Poland's economic growth by forcing the import of goods from the so-called ‘second financial area’, that is from outside the communist bloc.

Austro-Hungarian economic relations go back many centuries. Geographical proximity, long historical coexistence and differences in natural resources could account for close economic ties. Austria had been the most important partner in Hungarian foreign trade at least from the nineteen century until the 1930s. About 75 per cent of Hungarian trade was conducted with the western part of the Austro-Hungarian Monarchy before 1918. Even in the inter-war years Austria absorbed a significant portion of Hungarian exports. Only the expansion of Nazi Germany pushed Austria back to second place in Hungarian foreign trade from 1934 on. Economic ties, however, become insignificant in the years following the Second World War. Centuries-old relations were reduced to a minimal level, to simple barter. From the 1950s to the 1980s Austria's share in Hungarian foreign trade hardly exceeded 3–5 per cent, while Hungary's share in Austrian commerce was even smaller: it stagnated around 1.2–1.5 per cent (see table 9.1).

This chapter describes the most important stages of improving political, commercial and financial relations after 1945. In the 1950s and 1960s foreign trade became subordinated to the needs of forced industrialization of the planned economy. Imports from the capitalist countries had to supply the missing resources, advanced technology and investment goods that were not to be obtained trough CMEA co-operation. From the 1970s increasing liquidity problems made Hungary more dependent on Austria as a credit and investment source.

The reconstruction of bilateral relations, 1945–64

The scope of action in Hungarian foreign policy was broadened only very slowly in the first years after the Second World War, with the country having diplomatic relations only with thirty-two states even in 1954.

Introduction

After the Second World War, Yugoslavia had a particular political and economic position in the relations between the East and the West, a specific situation which stemmed from the revelant historical circumstances and only later from the actual measures taken by the Yugoslav authorities. This intermediate position had very diverse manifestations, in particular in the area of international economic co-operation.

Looking from today's perspective, two specific events have to be considered when dealing with Yugoslavia's position in the international environment. They were milestones in the country's internal political development and therefore set out the general features of Yugoslavia's integration in the European economic area. The first was the conflict with the Soviet Union and the resulting political and economic reorientation of Yugoslavia. Consequently, it was also the beginning of Yugoslavia's efforts to change the rigid centrally planned economic system, and abolish state monopoly in foreign trade, etc. The second milestone occurred in the mid-1960s, when the economic reforms led to a major liberalization of foreign trade.

In this chapter I wish to present only selected elements of the Yugoslav foreign trade system. At the end, I will outline some final conclusions about Yugoslavia's position in the European economic area from the point of view of foreign trade flows.

The consequences of the conflict with the Soviet Union

After 1945 Yugoslavia embarked on a path of radical social and economic transformation incorporated under the term ‘socialist revolution’. This inevitably led also to a changed economic position for the country internationally compared with the pre-war situation. It became a centrally planned economy with an autarchic tendency.

After the Second World War the Communist Party of Austria (CPA) was the only communist party in Western Europe to build up a network of successful business enterprises. These companies utilized the position of Austria, which found itself at the intersection of two opposing world systems, to conduct profitable trade with Eastern Europe. Between 1945 and 1955, when Austria was occupied by the forces of the Soviet Union and the Western Allies, the business of these companies flourished. Also after the conclusion of the State Treaty by which Austria achieved neutrality status the companies continued to be successful despite the fact that Austria had been integrated into the Western economy. It is extremely difficult to ascertain or even to uncover the activities of this ‘CPA business Empire’ or to gauge the extent of its position in Austria's trade with Eastern Europe.

The CPA was and still is tight lipped about its business empire. Political opponents argued and still argue controversially against the party's business practices. Attacks against the companies became more fervent with their continuing success. However, these strongly ideologically tainted criticisms fail objectively to assess the role these party-associated companies played.

During the Cold War the political opposition claimed that the CPA-run companies used their trading success with the Eastern bloc to undermine the Austrian economy by trying to make it dependent and thus destabilize the political system. In later years newspaper articles repeatedly tried to prove the existence of not inconsiderable fortunes possesed by a party which by then had lost all political significance.

Introduction

Even now, the foreign economic relations and foreign trade of the East Central European countries have not been sufficiently researched. The literature review for my doctoral thesis on the Polish, Czechoslovakian and East German economies revealed a tendency to neglect foreign trade. This is especially true for foreign trade between East and West, as the contemporary view ‘for both sides’ in the Cold War was that this was a delicate subject, for political reasons. In particular, quantitative data on this sector are seldom to be found. It was only towards the end of the 1980s that foreign trade and economic relations between the socialist and the capitalist economic blocs slowly gained interest for researchers. Even today, only very few research centres deal intensively with this subject. In most cases the results of this research have not yet been published. This stems from four reasons:

1. Previous literature, particularly Western, assumed that, as a result of Poland and Czechoslovakia's rejection of the Marshall Plan in July 1947, the economic embargo by the West from March 1948, and the beginning of the Korean War in the summer of 1950, the value of trade and the intensity of economic contacts between the East Central European countries and the countries the other side of the Iron Curtain was negligible compared with similar relationships with other parts of the world.

2. To date there have been only very few research results pertaining to the question of the foreign economies of the socialist countries in general.

This volume explores economic relations between socialist planned economies of Central and East European countries and capitalist market economies of neutral states in Europe during the Cold War. It focuses on the significant role of neutral countries as path-breakers in building East–West contacts.

Economic historians have mainly studied relations between the leading Western states and the Soviet Union during the Cold War era, but have so far paid scarce attention to the significance of neutrality in the European context during the second half of the twentieth century. For instance, although affected by the ‘Iron Curtain’, economic relations continued between socialist countries and neutral Austria, the only state in East Central Europe with a functioning market economy during the Cold War. This is of special significance for Austria since three of the socialist planned economies had been successor states of the same Habsburg Monarchy from which the Republic of Austria had also emerged. Thus Austrian neutrality, nourished by geographical closeness and the long common history of Central and South-East European countries, was of considerable importance in making the ‘Iron Curtain’ more permeable than is generally assumed. In a similar way neutral Finland's proximity to the Soviet Union and the socialist countries of Eastern Europe engendered trade and financial relations between its market economy and the planned economic systems in spite of restrictions imposed by the Cold War. For comparison, we have also included in our studies the economic relations of neutral Sweden, Switzerland and Ireland with socialist planned economies under Cold War conditions, thus encompassing all European countries with neutrality status.

Introduction

Lying at the junction between East and West, Austria played a special role in establishing contacts and mediating between the two blocs in the years from 1945 to 1989. In this context, the ‘Iron Curtain’ is seen not only in the narrower sense of the technical closed border, erected by the Soviet Union and its satellite states, but as a parcel of demarcatory measures taken equally by the Western side (withholding support and loans for Eastern Europe 1945–7, exclusion from the Marshall Plan 1948–52, the COCOM embargo) and by the Eastern side (active strategy of delinking under socialist auspices).

The precise demands on and possibilities of the Austrian intermediary role were brought about by the political and economic backdrop. From an Austrian perspective, the State Treaty (1955) and the country's ensuing neutrality set a crucial political course for forming relations with the Eastern bloc. From the perspective of the eastern neighbouring states, breaks and ruptures stood to the fore, dominated by the respective domestic events such as the communist seizure of power (1945–8); the reforms and uprisings, respectively, after Stalin's death (1953); the Prague Spring and its suppression (1968); and martial law in Poland (1981). Furthermore, bilateral relations were overshadowed by the relations between the world powers which developed from the co-operative phase immediately after the Second World War (1945–6/7), via Cold War (1947/8–62), détente (1962–80) and the Second Cold War (1980–90), until the collapse of the Soviet Union and the break-up of the Council for Mutual Economic Assistance (CMEA) and the War-saw Pact in 1991 put an end to the bipolar phase.

Foreign trade as a means of division of labour in a modern, globalized world has irreplaceable significance for every economy. This of course is particular by the case for small states with relatively advanced industry but a limited internal market, such as the Czech Republic and the former Czechoslovakia. The stability of the Czechoslovak economy always depended directly on the effectiveness and success of foreign trade, since the above-mentioned factors amplified the problems of a limited raw material base for extensive industry (Czechoslovakia was self-sufficient only in fuel). Industry, which became established during the Dual Monarchy, was geared to service the more than 50 million-strong market of the Austro-Hungarian Empire. Small Czechoslovakia was forced to export a substantial part of its production and traditionally used exports to pay not only for imported goods, especially necessary raw materials, but also for food and various services (the so-called invisible trade, that is patents and licences, import of capital, tourism, transport, etc.). As the overall balance of services was always passive for Czechoslovakia, a trade surplus became indispensable.

Czechoslovak foreign trade after the end of the Second World War continued the tradition of its pre-war development. The economy, which up to 1948 functioned as a market economy in principle, naturally had to overcome the problems of the altered balance of power in Europe and the economic status of its traditional trade partners. The two biggest, Germany and Austria, temporarily lost their pivotal Central European economic positions and Czechoslovakia was forced to look for a replacement.

Introduction

The aim of this chapter is to give an analytical overview of the foreign trade between Austria and East Central Europe from the 1940s to the 1980s. The study presents aspects of stability and aspects of change. The first section is devoted to structural features which show considerate persistence over time. Three important characteristics are highlighted: a high degree of economic interdependence between Austria and other East Central European states, persistent patterns of trade, and specific relations of economic growth with export supply and import demand in the socialist economies. The following section analyses structural changes, which reflect three phases of different trade regimes. In the first part of that section, a general survey is presented, with respect to relevant political and economic aspects, and the development of contractual relations is addressed. Statistical features of trade development and estimates of trade functions are discussed in the second part. The chapter concludes with a summary of the findings.

The term ‘Eastern trade’ is used for trade relations between Austria and the seven most important trade partners within the Council for Mutual Economic Assistance (CMEA). To provide clarity, this group is named CMEA7 in the text. In some econometric estimates data for the GDR are omitted. The reason for this lies in the lack of valid GDP data and in the specific nature of economic relations between the GDR and the Federal Republic. The Eastern group without the GDR is referred to as CMEA6.

Introduction

This chapter analyses the relationship of the largest Czechoslovak automobile company, Škoda Auto, with its dealers in the neutral countries in the years from 1948 to 1964.

The takeover by the Czechoslovak Communist Party in February 1948 and the rising tensions of the emerging Cold War isolated the Czechoslovak manufacturer from the other European and global producers. This translated into a wholesale shift of the commercial, financial and technical relationships that Škoda had originally established, resulting in a redirection of the export of its motor vehicles towards the Soviet Union and the CMEA countries.

Nonetheless, behind the Iron Curtain, Škoda technicians continued jealously to preserve their own technological ‘know-how’, acquired before 1949 and for the most part foreign to the Soviet industrial paradigm. In the light of this, this chapter argues that the technical and commercial relationships maintained by Škoda with its dealers in the neutral countries – in particular Finland, Switzerland, Austria and Sweden – during the first and second five-year plans, played an important role in stimulating and directing the modernization of Czechoslovak automobile production.

From this perspective, the letters of grievance received by Škoda and Motokov – the state monopoly in charge of exporting automotive products – from their Austrian, Scandinavian and Finnish partners are examined. In the late 1950s, these letters, pointing out defects and bottlenecks of both Škoda production processes and products, seem to have been used by the technicians responsible for the Czechoslovak motor vehicle industry as a valid learning tool.

Introduction

Trade with the Soviet Union during the Cold War was of no major importance for the Swiss economy as a whole, although it was considered vital for some export-oriented firms, especially of the machine industry. Between 1945 and 1970 it remained less than one per cent of the total volume of foreign trade. For the Swiss authorities economic relations with the Soviet Union were primarily a means of demonstrating the time-honoured principle of neutrality.

Swiss neutrality looks back on an extremely long tradition. After the defeat at Marignano (1515) the Confederacy had definitively withdrawn from European wars and politics, in which until then it had played a not unimportant role. The new strategy of ‘stille sitzen’ (keeping quiet) was not yet a policy of active neutrality. Nevertheless it proved extremely successful: Switzerland managed to keep out of the innumerable European wars and was not invaded by foreign armies until 1798, when revolutionary France conquered the country. After the Napoleonic wars Swiss neutrality was re-established and recognized by international law at the Congress of Vienna (1814/15). Thus, a strategy that had originally been a simple guideline for foreign policy resulted in an important part of Swiss national identity.

Strictly speaking and from the point of view of international law, the principle of neutrality applies only in times of war, and means that neutrals must not take part in military actions on either side. They are, however, free in their trade relations with the belligerents.