The Economic War and Irish Foreign Trade Policy: Irish-German Commerce 1932-9

The Economic War and Irish Foreign Trade Policy: Irish-German Commerce 1932-9Author(s): Mervyn O'DriscollSource: Irish Studies in International Affairs, Vol. 10 (1999), pp. 71-89Published by: Royal Irish AcademyStable URL: http://www.jstor.org/stable/30001892 .

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The Economic War and Irish Foreign Trade Policy: Irish-German Commerce 1932-9

Mervyn O'Driscoll*

Department of Modern History, National University of Ireland, Cork

INTRODUCTION

Irish-German trade in the 1 930s is the missing dimension of the economic war. The role of Siemens-Schuckert in the building of the prestigious Ardnacrusha hydroelectric plant in the 1920s has long been noted, but little is known about subsequent Irish- German commerce. This neglect of the Irish-German trading relationship is most surprising considering the opportunities that the economic war presented for increased Irish-German trade and the delicate political questions raised by Irish interaction with Nazi Germany. This paper contends that the Irish relationship with Germany was heavily influenced by the 'British question' in Irish and German inter- war diplomacy. As in Irish-German political relations, Anglo-Irish considerations played an important indirect role in Irish-German trade.

Deirdre McMahon intimates that British fear of German competition in the Irish market was one of the reasons underlying Neville Chamberlain's salving of Anglo- Irish discord in 1938.1 However, owing to the Anglo-Irish focus of McMahon's considerations, the Irish-German side of the diplomatic and commercial triangle is unexplored. Filling this gap in the literature is the main motivation for the current study. This research affirms that the outbreak of the economic war had a profound effect upon Irish-German economic relations in the short and medium term. While one of the oft-noted general effects of the economic war was to reinforce Fianna Fiil's policy of self-sufficiency, its stimulation of Ireland's search for 'alternative markets' to that of England was another effect. The economic war presented Ireland with a market diversification opportunity. The successful Irish-German partnership on Ardnacrushahad already cultivated close bilateral trade and diplomatic connections between the Irish Free State and the troubled late Weimar Republic. Irish-German

'Deirdre McMahon, Republicans and imperialists: Anglo-Irish relations in the 1930s (London, 1984), passim.

*Formerly of the University of Wolverhampton.

Irish Studies in International Affairs, Vol. 10(1999)

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commerce benefited from the fact that Berlin was one of the few Continental centres in which Ireland had a minister extraordinary and plenipotentiary in the 1930s. Charles Bewley, the Irish minster in Berlin from 1933 to 1939, was an avowed Anglo-sceptic and German enthusiast who actively promoted the expansion of Irish- German trade. Germany was the first state with which the Irish Free State signed a commercial treaty2 and it was also the first Continental state with which Ireland exchanged diplomatic representatives, to the consternation of France.

The Irish-German Treaty of Commerce and Navigation of 12 May 1930 laid the basis for annual commercial treaty negotiations between the two states during the decade. The trade compensation aspect of these annual treaties signified the increasingly autarkic character of global trade after the Wall Street crash. Thus the post-1932 protectionist policies of the economically nationalistic Fianna Fail reflected the prevailing international trend as much as the earlier Hungary-inspired self- sufficiency arguments of Arthur Griffith's Sinn Fein ethos. The global economic environment of the 1930s was ideal for the implementation of Eamon de Valera's economic policies. Universal disenchantment with economic liberalism conveniently sanctioned Fianna Fiil's protectionism.

The following analysis begins with an overview of Irish foreign trade policy during the economic war. Protective tariffs and trade agreements accomplished the dual policy objectives of Fianna Fail's foreign trade policy, namely trade diversification away from hazardous overdependence on Ireland's former colonial master and the encouragement of Irish agricultural and industrial self-sufficiency. The trade compensation method of Irish foreign trade policy in the 1930s permitted controlled importation of industrial plants and machinery to develop the state and semi-state companies in return for Irish agricultural exports. Germany, as the leading Continental industrial nation and a major food importer, was an obvious destination for Irish agricultural produce. Germany was a large net importer of food because its agricultural sector lacked the capacity for self-sufficiency. Although the 'battle for production' under the Nazi four-year plan in 1936 was relatively successful, Germany was still only 83% self-sufficient in foodstuffs by 1938-9.3 As a market leader in several manufacturing fields Germany held out the possibility of a mutually beneficial trading relationship in Irish official eyes. Consequently, German industrial interests made a significant, though a relatively small, inroad into the Irish market during the decade. They contributed substantially to the modernisation of the Irish economy, winning substantial contracts to mechanise the embryonic Electricity Supply Board (ESB) and the Turf Development Board. German firms were also successful in winning contracts to equip Irish sugar factories and a 'national' oil refinery. Initially the Fianna Fail government's foreign trade responses to the disorientating of the depression and the economic war were ad hoc in nature, but by 1937 the policies of bargaining in trade compensation negotiations to maximise exports and minimise imports were fully developed and rationalised at the top levels in the Department of Foreign Affairs, the Department of Agriculture and the Department of Industry and Commerce.

2Priscilla B. O'Connor, 'France and the Free State: Franco-Irish diplomacy, 1922-31' (unpublished MA thesis, St Patrick's College, Maynooth (NUI), 1991), 121-43.

3Roger Munting and B.A. Holderness, Crisis, recovery and war: an economic history of continental Europe, 1918-1945 (London, 1991), 143.

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Nonetheless, as the following examination of Irish trade relations with Nazi Germany illustrates, this Irish foreign trade policy encountered several difficulties. The Irish Free State was not a natural trading partner for the Third Reich. As an export-oriented producer of primary products and a small neighbour of Britain its bargaining power to alter drastically its prevailing trade flows was limited. The Irish Free State, a member of the British Commonwealth, was to a large degree a satellite economy supplying British industrial society with unprocessed agricultural products. Politically, Hitler, the Anglophile Nazi dictator, feared provoking British resentment and shied away from penetration of the tiny British-dominated Irish market in the interests of maintaining a conciliatory British attitude towards his nationalist policies. In any case the evidence presented below points to a pervasive German belief that the economic war was a temporary affair and that in the long term Britain would retain its mastery of the Irish economy once the land annuity and constitutional issues were settled. Geographical proximity, the traditional pattern of trade, the lack of an Irish entrepreneurial spirit, and a common language would be deciding factors in the persistence of British hegemony in the Irish market. Instead, using the concept of Grossraumwirtschaft, or the theory of the relative advantage of large economic blocs, German trading policy after 1933 was committed to the creation of a German- dominated trading bloc on the European continent, particularly in Eastern and Central Europe.4 Nevertheless, in the limited trading relationship that Germany had with the Irish Free State, its policy was dedicated to the maximisation of industrial exports and the minimisation of imports. This was fully in line with German foreign trade policy. After a foreign currency crisis the minister of economics, Hjalmar Schacht, strictly curbed imports using bilateral trade agreements and currency clearing arrangements to ease the shortage of foreign currency.5 Therefore, under the Machtiibernahme, or bilateral trade treaty system, which detailed the quantity and value of goods to be exchanged as well as a notional exchange rate,6 the Irish Free State was tied into a rigid and frequent pattern of negotiations with Nazi Germany.

This investigation shows that the key period in the transformation in German willingness to be more forthcoming with their Irish counterparts was the winter of 1934/5, when the first signs of a thaw in the economic war threatened the few gains that Germany had made in the Irish market. With the prospective return to normality in Anglo-Irish relations, there was little opportunity for Germany to be accused of taking commercial advantage of Britain's 'little local difficulties' with the Irish Free State. Consequently, after 1935 there was a relative shift in bargaining power to the Irish Free State as access to its traditional market in Britain improved. The Irish Free State played the classical two-level game by pitting Britain and Germany against each other for Irish commercial advantage. Irish representatives, notably the Irish high commissioner in London, wielded the threat of German penetration of the Irish market as a bargaining tool with Britain at the very time that Irish willingness to countenance substantial German entry to the Irish market receded. On the other hand, as Irish access to the British market increased, Germany was forced to make 'minor concessions' to the Irish Free State. As a result Irish-German trade was on a more

4Alan S. Milward, 'Fascism and the economy', in Walter Laqueur (ed.), Fascism: a reader's guide (Harmondsworth, 1979), 438.

5Stanley G. Payne, A history offascism 1914-45 (London, 1997), 188. 6Milward, op. cit. in note 4, 439.

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equitable basis during the remainder of the decade: while Irish imports of German goods remained at the same annual level, Irish exports to Germany increased. Although ultimately Irish-German trade was of marginal importance to both countries, it was of major importance in the British-Irish-German diplomatic triangle and a notable illustration of Irish foreign trade policy in the 1930s.

IRISH FOREIGN TRADE POLICY 1932-8: EXPORT AND IMPORT DIVERSIFICATION

Although the Treaty of Commerce and Navigation was signed between the Irish Free State and Germany on 12 May 1930,7 the Irish Free State had originally sought the agreement with Germany because it would endow the Irish Free State with a certain degree of international status and recognition.8 While it was also designed to encourage the growth of Irish trade with Germany, it was only with the new Fianna Fail government in 1932 that this endeavour proved fruitful. A special agreement for the avoidance of double taxation on the profits of Irish and German shipping companies involved in Irish-German maritime trade was finally signed in 1932. It was accepted by the Irish Free State despite the net loss of approximately £1000 in revenue to the Exchequer?.9 The belief of the Department of Industry and Commerce that it would encourage direct trade and shipping between Germany and Ireland1o ultimately overcame the Department of Finance's austere fiscal attitude. The new Fianna Faiil government was the key catalyst in the Department of Industry and Commerce's overwhelming of the Department of Finance's objections. Fianna Fail's scepticism of the laissez-faire policies of the preceding government, as well as the Anglo-Irish economic war, compelled a quest for alternative markets post haste.

The economic war resulted from a boycott placed on the Irish Free State by Britain. Eamon de Valera's withholding of the land annuities and his progressive dismantling of Ireland's ties with Britain and the Commonwealth, commencing with the abolition of the Oath of Allegiance in 1932, angered and frustrated British political leaders such as the secretary of state for dominion affairs, J.H. Thomas, who feared Irish secession from the Commonwealth." On the other hand, de Valera saw his assertive nationalist policy 'as a means of eroding British restrictions on Irish sovereignty'.'2 Britain's introduction of a 20% advalorem tariff on Irish agricultural exports to Britain led to an Irish retaliation in the form of a 20% duty on imports of British coal and sugar. The economic war worsened the effects of the great depression on Ireland. The depression had already caused a fall in prices for Irish products owing to reduced British demand and world overproduction of agricultural products.'3 In 1929 the Irish Free State's exports accounted for 38% of total national

7National Archives of Ireland (hereafter NAI), Department of Foreign Affairs (hereafter DFA), 314/49, untitled, unsigned, undated memorandum.

8Ibid., to FT Cremins on 'Registration of Portuguese and German treaties at the League', 11 July 1932.

9Ibid., Leydon to Ferguson, 11 May 1931. IOlbid., Ferguson to Leydon, 21 May 1931. "McMahon, op. cit. in note 1, 84. '2P.F. O'Malley, The origins oflrish neutrality in World War Ii 1932-1938 (Michigan, 1980), I 96. "13McMahon, op. cit. in note 1, 63, 68-9.

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production.'4 Hence, as a producer of mainly agricultural goods, uncommonly dependent upon export for generating national wealth, the restrictions on the Irish Free State's major export market, combined with the great depression, signalled economic hardship.

Despite the implementation of self-sufficiency and import substitution policies, Irish agriculture still required imports of fertilizers, chemicals and machinery. Coal, steel, chemicals and specialised plant machinery imports were essential to aid the development of the limited Irish industrial base.'" 'Alternative markets' to Britain were required. Even in normal circumstances sole dependence upon one foreign market was extremely precarious, as de Valera was aware. On 22 January 1934 de Valera even suggested to Georg von Dehn-Schmidt, the German minister to the Irish Free State, that 'the desire of his government was that the Irish Free State imports should be divided' equally between Germany, Britain and the United States. Irish Free State exports should likewise be divided on the basis of reciprocity between the three countries.16 This was a commendable, long-term Irish foreign trade policy.

The Department of Industry and Commerce, Department of Agriculture and Department of Foreign Affairs framed an improvised foreign economic policy during the economic war."7 Irish strategy at the height of the war was to negotiate reciprocal trade agreements and trade compensation arrangements. By diverting necessary Irish import needs to alternative markets such as Germany, the Irish bargained for reciprocal exports. Therefore the Department of Industry and Commerce and the Department of Foreign Affairs declared that 'regard should be had to the feasibility of placing the contract in whatever country offers at the moment the most advantageous return from the point of view of Saorstit [Irish Free State] export trade'.18 Industry and Commerce ordered all government departments and semi-state bodies who needed to import more than £ 1000 worth of goods to notify it, so that the Foreign Trade Committee'9 could 'recommend the country in which the contract concerned should be placed with due regard to the interests of external trade'. Occasionally the recommendations of the Foreign Trade Committee would conflict with the 'principle of the acceptance of the lowest tender',20 but in the interests of the livelihood of the Irish people 'it is necessary to keep in mind that it is exports which must ultimately pay for imports and which in fact make imports possible'.2 The great depression and saturated world food markets meant that there were limited opportunities for developing new markets for Irish agricultural exports, so the few

14NAI, DFA 107/115, Fahy to Walshe, 17 November 1937. 15J. Meenan, 'From free trade to self-sufficiency', in Francis MacManus (ed.), The years of the great

test 1926-39 (Cork, 1978), 77. 16NAI, DFA Letter Book: Berlin 1934-35, Walshe to Bewley, 10 February 1934. 17Meenan, op. cit. in note 15, 76. 8NAI, DFA 107/115, Department of Industry and Commerce memorandum, 'Placing of contracts

outside of the Saorstit', 30 November 1937. See also NAI, DFA 107/115, DFA memo, 'Placing of contracts in outside countries', 9 December 1937.

'gThe Foreign Trade Committee consisted of officials from the Departments of Foreign Affairs, Industry and Commerce, and Agriculture.

20NAI, DFA 107/1 15, Department of Industry and Commerce memo, 'Placing of contracts outside of the Saorstit', 30 November 1937.

2llbid., Fahy to Walshe, 17 November 1937, 2-3.

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that were available had to be cultivated. The view of the Department of Foreign Affairs as late as 1937 was that Germany was the only commercially feasible market Ireland had for increasing its extra-Commonwealth agricultural export trade.22 Under the relatively advantageous trade compensation clauses of the annual Irish- German trade agreements in the 1930s the Irish government sought to substitute British industrial imports with German imports as a means to increase Irish agricultural exports to Germany.

Of course this distorted traditional Irish trading patterns and had inherent negative implications for commercial competition. The secretary of the Department of Industry and Commerce, John Leydon, was apprehensive about the implications of these Irish-German trade compensation arrangements as the decade drew to a close. In 1937 he cautioned that German firms would realise their advantage over other foreign firms, owing to the trade compensation element of the annual Irish-German trade agreements. Therefore they could inflate their initial tender prices, recognising that they could reduce their figures subsequently, while firms from countries that did not offer trade compensation for exports to the Irish Free State did not have this bargaining advantage. Apocalyptically Leydon postulated that this could lead to a German industrial monopoly of the Irish market because

non-German firms would very soon realise that their tenders were being invited and only used for the purpose of reducing German tenders to the lowest possible figure; and it is quite certain that in a very short time non-German firms would refuse to submit any further tenders and we should then be quite helpless in dealing with German contractors.23

Therefore, although increased Irish exports to Germany during the economic war potentially reduced the burden on the Irish Exchequer, which had to pay fewer export bounty payments than if the produce had gone to Britain, they inherently did so at the expense of the purchasing department or semi-state body.24 Foreign Affairs was concerned that Leydon's 'semi-official letter' might become official Department of Industry and Commerce policy, although there was 'a good deal to be said for considering each case on its merits'. Regardless of Leydon's warnings in 1937, the Irish Free State continued to pursue a policy of bargaining state and semi-state contracts that could only be filled abroad for increased exports of agricultural produce.25 Diversions from 'the principle of the acceptance of the lowest tender' for Irish state-controlled imports were also justified on the basis that the prices received for agricultural exports on the German market during the economic war were higher than those received in Britain. Such diversions increased the total demand for Irish products and raised the prices received in Britain and elsewhere.26

22Ibid., DFA memo, 'Placing of contracts in outside countries', 9 December 1937. 23Ibid., Leydon to Walshe, 13 November 1937. 241bid., Department of Industry and Commerce memo, 'Placing of contracts outside of the

Saorstit', 30 November 1937, 2. 251bid., Fahy to Walshe, 17 November 1937. 261bid., Department of Industry and Commerce (hereafter DIC) memo, 'Placing of contracts

outside of the Saorstit', 30 November 1937.

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GERMAN MISGIVINGS, IRISH DISSATISFACTION AND IMPASSE, 1932-4

In 1929 the Irish Free State imported £1,549,000 from Germany. By 1932 imports had fallen to £ 1,303,000, a decrease of 15.9%. Over the same period Irish exports to Germany fell from £661,000 to £70,000, or by 89.4%.27 The Irish Free State required high quality mechanical and electrical expertise and products more than Germany needed Irish agricultural produce, particularly as a surplus of agricultural goods existed on the world market, and placed pressure on Germany from April 1932 to accept increased amounts of Irish agricultural goods 'to adjust the adverse trade balance'. Under the most-favoured-nation clause of the Irish-German Treaty of Commerce and Navigation the Irish Free State was entitled to an export quota of 6000 head of cattle per annum.28 However, the Irish faced significant obstacles in attempting to improve their trade relationship with Germany. A senior official in the Anglo-Irish section of the German Foreign Office, Baron Hans von Plessen, informed the Irish Legation in Berlin that the 'strained economic relations at present existing between Great Britain and ourselves [the Irish Free State] would not last very long because it was in the interests of both parties to reach an agreement'. This German perception threatened Irish proposals for closer trade relations with Germany as 'the Germans would probably feel that we were asking them to help us out of a temporary difficulty and were offering them as an inducement trade advantages which would also be temporary'. In addition the policy of the Junkers was to protect German agricultural interests, so there was an omnipresent threat of German tariff impositions on agricultural imports, especially cattle.29

Nevertheless, the Irish Free State policy of 'bargaining state controlled contracts in favour of the development of exports' was inaugurated in 1933 with the Thurles sugar factory machinery order. The Irish Free State placed a contract for £600,000 worth of machinery with a German firm because of their high quality products. The Irish delegation went to Berlin in December 1933. They attempted to use the granting of this significant contract to Germany as a lever to gain a quid pro quo in the form of the export of Irish butter and eggs to Germany in 1934.30 The Irish government rejected the German offer in butter and eggs as derisory, especially without a German offer to increase the cattle quota. When the Irish Free State capitulated and accepted the offer in May 1934 the German government replied that the offer was withdrawn and so no butter and eggs were exported to Germany in 1934. As a result of this salutary experience the Irish government resolved not to grant contracts prematurely to Germany again. In future a reciprocal compensation agreement with Germany in the form of Irish exports, especially cattle, had to be secured first. The Irish failure to procure such an agreement in December 1933 led to an adverse trade balance with Germany for 1934 of £2,150,000. This was the largest adverse balance of trade figure in Irish-German commerce for the decade." The Irish government, disturbed by this unequal pattern of trade and concerned about the negative impact of the economic war on Irish live cattle exports to Britain, actively targeted Germany as a substantial

27NAI, DFA 314/10/613, DFA memo, 'Brief note on Saorstit-German trade negotiations', 10 October 1934.

28NAI, DFA 314/49. 29NAI, DFA 19/10A, McCauley to Walshe, 6 September 1932. 30NAI, DFA 314/10/6/3, Bewley to Walshe, 7 November 1934. 3lIbid., DFA memo, 'Brief note on Saorstit-German trade negotiations', 10 October 1934.

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outlet for the Irish cattle surplus as a means to close the adverse Irish-German trade gap.

In October 1934 an Irish delegation was duly despatched to Berlin. The delegation consisted of J.V. Fahy (an official from the Department of Foreign Affairs), Charles Bewley (Irish minister to Germany) and Joseph Brennan (chairman of the Currency Commission). The inclusion of Brennan in the Irish delegation indicated the importance that the Irish government attached to the Irish-German negotiations. The delegation was instructed to finalise the negotiations for a special coal and cattle pact to cover the final quarter of 1934 whereby the Irish Free State would purchase German products, mainly coal, to the value of £500,000, and Germany would purchase £117,000 worth of Irish cattle. Owing to the Irish duties on British coal, German coal was now more economical, and 'an additional outlet for cattle would be much more valuable than an outlet for any other product' in the Irish view. The Irish government was also anxious to discuss cattle, butter and egg quotas for 1935.32 However, the Berlin negotiations failed to meet Irish expectations. The German delegation, led by Hans Hemmen of the Foreign Office, only wanted to discuss the projected special compensation agreement for October, November and December 1934. They declared that they had not been authorised to negotiate an Irish-German trade agreement for 1935.33 The annoyed secretary of the Department of Foreign Affairs, Joseph P. Walshe, informed the German minister to Dublin, von Dehn- Schmidt, that had he been aware of this unhelpful German attitude 'no delegation would have gone to Berlin'.34 Nevertheless, the Irish delegation remained to discuss the special compensation agreement, periodically pressing Hemmen and his colleagues for information about the prospects of a 1935 agreement.

The succeeding German conduct of the negotiations irritated the Irish delegation. On 19 October 1934 the whole Irish delegation attended a meeting on the understanding that it was a plenary session. Yet Hemmen arrived alone, and proceeded to inform the Irish that he had only expected Bewley and Fahy to attend. Bewley reported that 'we concluded that he had intentionally kept the other members away in order to feel himself freer in dealing with us'."3 Hemmen suggested an unattractive Irish-German exchange agreement for 1935 to the Irish delegation. To the consternation of the Irish representatives Hemmen proposed that the Irish Free State should be required to import £10,000,000 worth of German products and should only export £1,000,000 in return. Finally, the Germans proposed to enlarge the special compensation agreement for 1934 from the original £500,000 and £117,000 to £1,500,000 and £500,000. The Irish delegation refused to countenance such an alteration in the relevant sums of Irish imports from and exports to Germany. It regarded the offer as a 'red herring introduced for the purpose of prolonging the discussions', because every possible category of goods was involved in the latest German offer, not just cattle and coal.36

Hemmen claimed that the Germans preferred to export industrial goods rather than coal. Yet he knew that Ireland needed coal because of the duties that the Irish Free State had placed on British coal. De Valera and his ministers, despite the urgent

32Ibid., DFA memo, 'Saorstit-German trade negotiations', 12 October 1934. 33Ibid., Dehn to Walshe, 19 October 1934. 34Ibid., Walshe to von Dehn-Schmidt, 25 October 1934. 35Ibid., Bewley to Walshe, 20 October 1934. 36Ibid., Walshe to President, 19 October 1934.

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need to export cattle from the saturated Irish market, took a harsh line. They were not prepared to negotiate any types of compensation agreement for the last quarter of 1934 other than the £500,000 coal for £117,000 cattle that had been provisionally agreed in October 1934 by the Irish Free State and Germany before the despatch of the Irish delegation to Berlin; 1931 was to be defined as the normal year for Irish- German trade for the purposes of the special compensation agreement, and,

if Germany's offer of quotas for 1935, which will be known by mid-November, is unsuitable, immediate arrangements will then be made to exclude German coal except in so far as covered by the Compensation Agreement and drastic steps will be taken against other imports from Germany. If [the] compensation agreement on this basis [is] not accepted by Germany [the] delegation should return home immediately.37

The Irish government had had enough of the German government's perfidious conduct. Not only had the Irish Free State incurred a large currency loss in 1934, owing to the adverse balance pertaining to its German trade, but also some Irish firms had difficulty in securing payment. Irish agents for German firms were displeased because the German companies were tardy in paying their commissions when they sold their goods.38 Of course, the Reichsbank attempted to assure the Irish Free State that such difficulties would not arise again.39 Nevertheless, the German delegation aggravated matters. They desired to establish 1934 as the normal year for Irish- German trade, and wanted to stabilise the ratio at the 1934 level, despite Ireland's demand for 1931 as the base year. In 1934 the trade balance was ten to one in Germany's favour according to Germany's statistics, and seventeen to one in Germany's favour according to Irish statistics. Germany refused to accept 1931 as the base year, and the Irish Free State refused to accept otherwise.40 The Irish government was determined not to repeat the mistake of November 1933 when Germany was given a contract for the sugar factory machinery without securing extra exports to Germany in return. The talks were in danger of collapse.41

Then the Germans made an offer of what the Irish believed to be £700,000 worth of coal (1,200,000 tons) for £117,000 worth of cattle. It appeared that the Irish might withdraw from the negotiations because it was not the £500,000 to £117,000 compensation agreement that they had been sent to Berlin to finalise. The German delegation inferred that the Irish had misinterpreted them and that the offer was actually 700,000 tons of coal for £117,000 worth of cattle to be exchanged over the months of November and December. Hemmen made the feeble excuse 'that he had always spoken in tons, as he did not understand pounds'-600,000 tons of coal was equivalent to £500,000 worth of coal. The Germans desired that the Irish should take an extra 100,000 tons of coal for the months of November and December, but they still rejected 1931 as the base year for further trade negotiations after 1934. At this

37Ibid., Estero (Dublin) to Fodla (Berlin), telegram 48, 23 October 1934. 38lbid., Bewley to Walshe, 24 October 1934. 39"lbid., Brennan minute, 'Note on interview at Reichsbank', 17 October 1934. 40Ibid., Bewley to Walshe, 2 November 1934. 41Ibid., Bewley to Walshe, 7 November 1936.

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stage they had not even declared the number of cattle they were willing to take for £117,000.42

Consequently, on 19 November 1934 the Irish delegation was ordered home immediately, if the Germans persisted in refusing 1931 as the base year. They were instructed to return to Dublin 'without informing [the] Germans whether any measures [were] to be taken against their imports, in retaliation for their 'unreasonableness',43 because 'there was no possibility of making an agreement without disproportionate concessions on our side'.44 It was a tactic calculated to demonstrate to the Germans the Irish willingness to terminate unfavourable trade talks if necessary.

ACHIEVING PARITY IN THE BALANCE OF TRADE, 1935-9

As the Berlin negotiations broke down Hemmen 'expressed the hope that he would soon see our delegates in Berlin to discuss quotas' for the 1935 Irish-German agreement; the Irish delegates 'expressed no opinion on the subject'.45" Instead it was the turn of Germany to adopt the role of supplicant in an attempt to reverse the deterioration of Irish-German trade negotiations. A German delegation came to Dublin in December 1934 to discuss the quotas for the 1935 Irish-German trade agreement.46 It is therefore tempting to acceptJohn Leydon's retrospective conclusion that 'we were never able to make any progress with the Germans until we showed them clearly that we were prepared to take a firm line and stick to it'.47

However, matters were not so simple. It was the negotiations for the Anglo-Irish Coal-Cattle Pact of 3 January 1935 that ultimately stimulated the German government to concede and break the impasse.48 The advantageous £1-for-£1 basis of this pact with Britain led to a decline in the demand for German coal, threatening the toehold that Germany had acquired in the Irish market.49 Thus Germany accepted that the value of Irish Free State products exported to Germany would be based on an improved, though not ideal, ratio of one to three in relation to the value of German goods imported into the Irish Free State. This met the Irish demands that 1931 should be the base year for calculating the Irish-German balance of trade.50 Ultimately the subsequent Irish-German trade agreement for the year 1935 was an improvement from the Irish perspective in several ways. Firstly, the cattle quota was increased from 6000 head, to which Ireland was entitled under its most-favoured-nation status, to 15,000 head.5' Then the value of Irish products exported to Germany under the agreement was 'higher than could be procured from any other market' except Britain. Thirdly, the Irish Free State entitlement to export to Germany £1 for every £3 imported from Germany was a great improvement on the £1 to £17 ratio

42Ibid., Bewley to Walshe, 9 November 1934; and Bewley to Walshe, 12 November 1934. 43Ibid., Estero (Dublin) to Fodla (Berlin), telegram no. 52, 19 November 1934. 44Ibid., Walshe minute, 19 November 1934. 45Ibid., Bewley to Walshe, 23 November 1934. 461bid., Walshe to president, 11 December 1934. 47NAI, DFA 132/81, Leydon to minister, 28 October 1938. 48McMahon, op. cit. in note 1, 152. 49Ibid. 50NAI, DFA 232/1, Hemmen to Lemass, protocol no. 1, 28 January 1935. 51lbid., protocol no. 2.

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previously pertaining in 1934. The Germans also had to compete with other countries in order to gain entrance to the Irish market, while the Irish Free State was guaranteed a market in Germany up to one-third of the value of those German exports to Ireland.52 Finally, the Irish Exchequer gained because the German market paid higher prices for Irish produce than Britain. Ireland's most-favoured-nation status under the Irish-German agreement meant that it did not have to pay bounties to overcome tariffs as in England.53

So Irish exports to Germany increased from £163,828 in 1934 to £493,982 in 1935, while German exports to Ireland actually fell from £2.3 million to £1.4 million.54 By the end of 1935 Germany was the second-largest importer of Irish agricultural produce, after Britain. The Department of Foreign Affairs described German imports of Irish eggs and butter, and to 'a lesser extent cattle', as 'not inconsiderable compared with Great Britain's imports'. Outside of the great industrial nations of Great Britain and Germany there was little opportunity to find markets for Irish produce in Europe. So Germany was targeted for more development as a market, 'although it must be recognised that the development will be small relatively'.55

The one problem that the treaty of 1935 had for the Irish was the 'smallness of the quotas'. The Irish Free State could, of course, increase German imports of Irish produce by importing more German goods, as Hemmen suggested in early 1936. This increase in Irish exports was possible under a special understanding under the Irish-German agreement that special compensation agreements on a £1-for-£1 basis between Ireland and Germany were permitted when the Irish placed large contracts with German firms. The problem was that the Irish Free State's opportunities for increasing purchases from Germany were limited by its commitments to other countries.56 Nevertheless, the Department of Industry and Commerce promoted increased imports of German goods wherever feasible.

Finally, in late February 1936, a German trade delegation, headed by Hemmen, arrived in Dublin to negotiate anew trade agreement.57 When Ireland refused a barter scheme, Hemmen told them that the exchange ratio would have to remain at three to one, but the Irish government remained adamant that it had a right to a one-to-one ratio.58 The Irish allowed Hemmen to take the German delegation back to Berlin on 28 February 1936. Then, on 26 March, the German chargt d'affaires informed de Valera that the German government was prepared to offer to accept £1 of Irish exports for every £2 Ireland imported from Germany in 1936, instead of the one-to- three ratio that had prevailed in 1935.59 The Irish government accepted the offer reluctantly, maintaining its right to a one-to-one exchange.60 For the second consecutive year the Irish balance of trade with Germany improved. Irish exports to Germany grew from £493,982 in 1935 to £640,102 in 1936, while the corresponding

52NAI, DFA 314/10/6/3, Fahy minute, 'German-Saorstit trade agreement', undated. 53Ibid., Fahy note, 'Note on Saorstit-German trade position', 19 February 1936. 54NAI, DFA 232/1, Statement issued by the Government Information Bureau, 3 November 1938. 55NAI, DFA 314/10/6/3, 'Note by the Department of External Affairs on forthcoming trade

discussions with Germany', undated. 56Ibid., Fahy, 'Note on Saorstit-German trade position', 19 February 1936. 57NAI, DFA 132/8, Leydon to minister, 28 October 1936. 58NAI, DFA 314/10/6/3, Leydon, 'Memorandum', 28 February 1938. 59Ibid., Koester to de Valera, 26 March 1936. "60Ibid., Walshe to Koester, 27 March 1936.

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German exports to Ireland remained stable at approximately £1.4 million. Again a £1-for-l£1 trade exchange for large Irish orders placed in Germany was agreed.61

Consequently, the Irish were close to achieving parity in trade with the Germans. However, more problems arose. In June 1937 orders for plant machinery and equipment had to be placed abroad to build an oil refinery in Dublin.62 Irish National Oil Refineries proposed the purchase of seven oil tankers worth £1,200,000 from Germany. The Irish Free State demanded a one-to-one trade exchange agreement. German agreement was imminent, subject to a percentage deduction of the raw materials imported into Germany for the manufacture of the tankers. However, the German government discovered that the orders for the tankers had already been placed by Crusader Petroleum Industries, London, which was the company establishing the oil refinery in Dublin. The Crusader Oil Company had paid 50% of the price of the tankers to the German firm, mainly in oil. The Germans argued that they had no knowledge initially of the connection this contract had with the Irish Free State. Consequently, the order 'was not new business' and 'all the foreign exchange accruing to Germany from the tanker order had definitely been earmarked for specific purposes', so that it 'was not now available to pay for any special purchases of Saorsttit products'.63 As a special compensation agreement was therefore impossible, the Germans offered to compensate the Irish Free State by offering a new trade agreement for 1937 on the basis of an improved ratio for Ireland of three to two instead of two to one, excluding the value of the tankers. The Irish Free State accepted this as the basis for the 1937 Irish-German trade agreement.64 It was calculated that if Irish imports of German goods in 1937 remained approximately £1,400,000, as in 1935 and 1936, the Irish Free State would be entitled to export £930,000 worth of products to Germany. This meant that the Irish Free State could export 20,000 head of fat cattle to Germany in 1937.65

Despite the failure to gain compensation for purchasing the oil tankers, the Foreign Trade Committee, the Department of Agriculture and the Department of Foreign Affairs reapplied themselves to ensure that government contracts placed abroad resulted in trade compensation for Ireland.66 This was in accordance with the 'spirit' of the Irish-German agreement signed first in 1935. Protocol no. 1 stated that:

the Government of Saorstit Eireann assure the German Government that during the period the Agreement is in force they will use their own orders and their

61NAI, DFA 232/1, Statement issued by the Government Information Bureau, 3 November 1938. 62NAI, DFA 132/81, Fahy memo, 'Special purchases by Oil Co. from Germany', 28 September

1936. 631bid., DFA memo, 'Saorstit-German trade relations', 11 December 1936, 1-3. 64This practice was continued in the 1938 trade agreement (ibid., Murphy, 'Conversation on

telephone with Berlin delegation', 4 November 1936. 65Ibid., DFA memo, 'What the proposed Saorstit-German agreement means', undated. However,

Leydon believed that accepting the German offer would be a mistake. The three-to-two ratio was 'derisory' because when the oil tankers were taken into account it was in fact much worse from the Irish point of view than a three-to-two ratio. He recommended that the negotiations be terminated and that they be reopened when new 'negotiating levers' arose, such as the contract for the refinery plant and machinery, or when the ESB began to invite tenders for the proposed new Liffey power plant and machinery (ibid., Leydon to minister, 28 October 1936).

66NAI, DFA 107/115, Fahy to Walshe, 17 November 1937. Bord na M6na, the ESB and other semi- state bodies periodically invited tenders from abroad for large consignments of machinery, for instance.

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influence with institutions established under statutory authority and generally to increase trade with Germany.67

In 1937 and 1938, therefore, Ireland placed several large contracts with Germany. In August 1937 the Department of Post and Telegraphs placed a contract for 100 tons of copper wire with a German firm. In January 1938 it was arranged that Siemens- Schuckert would supply the ESB with a total of £133,000 worth of equipment for Inchicore power station.68 In early 1938 the ESB placed a £23,000 special order for equipment for the Liffey hydroelectric scheme with a German firm.69 Then in May 1938 Germany lost a contract for a turbo set that was required by the ESB for the Pigeon House power station.70 The reasons included a lower tender and a shorter delivery period by a Swiss firm, but it was primarily owing to the ESB advisers' 'opinion' that the Swiss turbo set was 'superior'.71 Nevertheless, another ESB order for two boilers worth £70,000 was placed with a German firm (Deutsche Babcock and Wilcox).72 Also in 1937 and 1938 there were negotiations concerning the possibility of further substantial orders being placed by the Irish National Refinery Company with German firms.73'"

The Irish Free State still experienced substantial difficulties in dealing with the Germans. All large contracts placed in Germany as a result of Irish government influence were expected to result in a ratio of one to one in a special trade compensation agreement between Ireland and Germany.74 However, the German authorities insisted that the value of the raw materials imported from abroad and paid for in foreign currency by Germany should be deducted from the price of the German manufactures imported by Ireland.75 The Irish authorities were satisfied to exclude any local costs incurred in Ireland in erecting imported plant machinery and equipment from Germany, including local raw materials and labour, but they objected in principle to Germany's argument that raw materials originating outside Germany should be excluded, because 'this could easily have very awkward repercussions in future trade discussions'. Bewley was instructed to protest against the German refusal to grant a one-to-one trade exchange on this basis.76 John Leydon informed Hempel that 'if Germany secured a 1 : 1 ratio from the countries in which she buys her raw materials this argument would not hold good'. Suggestions that the Germans desired an agreement on the basis of net foreign exchange arising from transactions, rather than on a fixed ratio, therefore crept into trade-related discussions with Ireland.77

However, the Irish-German trade agreement was renewed for 1938 on the same two-to-three basis as in the previous year, because the Germans had agreed early in

67NAI, DFA 232/1, protocol no. 1 (signed by Setin Lemass and Hans Hemmen) of the Saorstit- German Trade Agreement, 28 January 1935.

68NAI, DFA 107/115, Walshe to Hempel, 24 December 1937. 69Ibid., Murphy to Leydon, 14 January 1938. 70lbid., Leydon to Hempel, 4 May 1938. 71Ilbid., Leydon minute, 4 May 1938. 72Ibid., Leydon to Hempel, 4 May 1938. 73Ibid. 74Ibid., Walshe to Hempel, 24 December 1937. 75Ibid., Hempel to de Valera, 15 January 1938; and Hempel to Leydon, 10 May 1938. 76Ibid., Murphy to Leydon, 15 January 1938; and Murphy to Hempel, 28 January 1938. 771bid., Leydon to Hempel, 4 May 1938.

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1937 that this improved ratio was to extend for two years. There were some minor internal modifications to the treaty, however, relating to the prices and quotas for some of the Irish exports.78 Unfortunately, when the initial informal discussions commenced concerning the negotiation of a trade agreement for 1939 the indications emanating from Berlin were discouraging. Bewley reported that the German Foreign Office was unofficially opposed to the renewal of the trade agreement for 1939 on similar lines to that of 1938. Allegedly, the German Foreign Office considered that it

had given Ireland better terms than it received from any other country in the hope that the volume of their trade with Ireland would increase; that it had not increased but on the contrary diminished; and that they saw no inducements to make a new agreement on terms as favourable to Ireland as the old one.79

On the other hand, the Irish felt that they were entitled to a one-to-one ratio and improved contract prices.80 The initial hardline negotiating position of the Germans may have been an attempt to persuade Ireland to accept the new system of calculating the value of trade between the two countries-the 'export-valuta' or net-foreign- exchange system. The Irish Foreign Trade Committee estimated that 'the export- valuta system would reduce the nominal 1 : 1 ratio to such an extent that the arrangement might prove worse than the present 3 : 2 ratio'."'

Irish exporters were also dissatisfied by 1938 because they were commencing to 'lose money' by trading with Germany owing to the termination of the Anglo-Irish economic war. They now had easy access to the British market. The lowering of British tariffs on Irish agricultural produce made the British market more lucrative. If Ireland did not secure better prices for exports to Germany then Irish trade with Germany would be 'endangered'.82 Understandably Germany worried that 'the Irish authorities had no longer so much interest in trade with Germany' following the Anglo-Irish agreement of April 1938.83 However, once the Irish were assured of reasonable prices and the omission of the 'export -valuta' system, they did not persist in their demands for a one-to-one trade exchange ratio between Germany and Ireland. A new Irish-German trade agreement was easily negotiated and signed ahead of schedule on 3 November 1938.84

ANGLO-IRISH COMMERCE AND THE 'GERMAN CARD' 1932-8

The economic war had stimulated Irish export interest in the German market. As the war progressed, however, Britain became anxious that the diversion of Irish trade from Britain should not become permanent. The deterioration in the international climate, to which Germany contributed significantly, led to British conciliation of

78NAI, DFA 232/1, Bewley to Walshe, 30 November 1937; and Sein O'Droin to Walshe, 6 November 1937

79Ibid., Bewley to Walshe, 15 July 1938. 8olbid., Memorandum: 'Foreign Trade Committee meeting held on Wednesday, 3rd August, 1938',

in the Department of Industry and Commerce, Lord Edward Street, Dublin', 1. "81Ibid., 4. 82Ibid 83Ibid., Bewley to Walshe, 31 August 1938. 84Ibid., Leydon to Ruter, 3 November 1938.

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Ireland in order to ensure that during a war with Germany Ireland would be a 'friendly neutral' at worst. The economic war distorted the normal channels of trade. Irish duty on British coal, for instance, gave a 'substantial preference' to German coal. The British Board of Trade feared that if the conflict continued for too long a permanent trade relationship would develop to the cost of Britain.s85 German coal was ill-suited to numerous domestic and industrial appliances because of its high sulphur content.86 If Irish industry and Irish homes adjusted their appliances to suit German coal, British coal would be permanently excluded from the Irish market, aggravating British coal mining unemployment.87 By July 1934 the British Department of Overseas Trade was worried that 'the longer the dispute continues and the more artificial barriers are imposed between the two countries the smaller will be the volume of trade which will be available for recovery if, and when, the dispute is ended',88 Other British exports to Ireland were also negatively affected, especially cement, electrical goods, machinery and chemicals.89

Therefore, John V. Dulanty, Irish high commissioner to Britain, made an initiative on 30 October 1934 to ease the economic war. He played the 'German card',90 using the prospect of an Irish-German trade agreement to force British officials to adopt a more conciliatory attitude towards Ireland. The Treasury feared the loss of the Irish coal trade and welcomed any attempt to 'prevent the Irish Free State from forming new and permanently close trade connexions with Germany'.9' Dulanty floated the idea of an Anglo-Irish coal and cattle pact, realising that he had the support of both the Treasury and the Dominions Office. Of course the Mines Department was anxious to protect the Irish market from German (and Polish) coal, as a coal and cattle pact between Ireland and Britian could mean employment for 3000 miners. Despite the economic war the Irish Free State was 'a better customer than New Zealand and Canada combined'.92 As a result of this convergence of Irish and British trade interests the first Anglo-Irish coal and cattle pact was agreed in late December 1934.

Dulanty played the 'German card' again in October 1935, informing the Treasury that German delegates were coming to Dublin to discuss an extension to the 1935 Irish-German trade agreement.93 External events by this stage impinged on the considerations of both sides in the Anglo-Irish dispute. In 1935 Hitler introduced conscription to Germany, German rearmament proceeded, and the Italo-Abyssinian Crisis commenced. The international situation was deteriorating. Once negotiations for the renewal of the Anglo-Irish Coal-Cattle Pact opened in London in November, Dulanty emphasised that a growing German foothold endangered British interests in the Irish economy. He enlisted the willing support of the Treasury and the Mining Department once again. They wanted to safeguard the position of English and Welsh

85McMahon, op. cit. in note 1,69. 86Ibid., 148. 87Ibid., 110-11, 148. 88Ibid., 144. 891bid., 148, 85. 90Ibid., 150. 91'bid., 151. 92Ibid. 93Paul Canning, British policy towards Ireland 1921-1941 (Oxford, 1985), 163.

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coal in the Irish market. The fear of German penetration of their traditional market monopoly spurred them to seek a new coal and cattle pact with Ireland in 1936. At worst, the Department of Foreign Affairs and Dulanty used the Irish-German trade relationship cynically as leverage in negotiations with British officials to counter the British economic embargo on Irish products.94

The international situation had an increasingly positive effect on the course and character of Anglo-Irish relations from 1936 onwards. In 1936 Hitler remilitarised the Rhineland. Malcolm MacDonald, the dominions secretary, noted that de Valera was greatly encouraged by the British government's failure to challenge Germany's remilitarisation of the Rhineland and that this probably encouraged him to press ahead with his unilateral revision of the Anglo-Irish constitutional relationship. By 1937 the British government accepted the constitutional changes reluctantly, realising that they were a foregone conclusion. The British government's response to the new Irish Constitution (1937) was 'low-key' and 'flexible', only taking exception to articles two and three.95 As the probability of a European war increased, the flexibility of the British government on the contentious issue of the 'treaty ports' increased. By 1937 the British government finally believed that Ireland would not be hostile to Britain in another war. De Valera promised a 'benevolent neutrality'. Neville Chamberlain was willing to return the ports to Irish jurisdiction.

Arguably British appeasement of Germany, Japan and Italy in the 1930s was a continuation of a process begun in 1921 with the signing of the Anglo-Irish Treaty. De Valera supported Chamberlain's appeasement of the Axis powers partly because Ireland also benefited from it. Chamberlain's attempt to appease Ireland led to the return of the treaty ports, the termination of the economic war and the settlement of Anglo-Irish constitutional issues tode Valera' s satisfaction. As Malcolm MacDonald observed: 'We can scarcely without ridicule and damage to ourselves, be less realistic and less generous in our treatment of a Dominion Government than in our treatment of a Foreign Government'.96 Britain was even prepared to spend in order to 'get an all-round agreement and a new spirit in Irish relations'. In the first round of Anglo-Irish negotiations, ending on 19 January 1938, it was the British who made all the major concessions. Britain reduced its demand for a lump-sum settlement of the land annuities from £26 million to meet de Valera's offer of £10 million. The chancellor of the exchequer, Sir John Simon, was prepared to 'throw money into the scale without a pang' in the interest of improving Anglo-Irish relations. European events again impinged on the second and third rounds of the Anglo-Irish negotiations of 1938. The Austrian crisis developed in February at the conclusion of the second round of negotiations. When Germany entered Austria on 13 March the Irish delegates had just returned to Dublin with the newest British proposals.97 The Anschluss galvanised Chamberlain's determination to conclude the Anglo-Irish negotiations successfully. As he could not do anything about Hitler's action, he 'became all the more determined to reach agreement with Ireland'. He hoped (optimistically) that the Austrian situation might help him to persuade the Unionists

94McMahon, op. cit. in note 1, 168-70 950'Malley, op. cit. in note 12, 295-307. 96Canning, op. cit. in note 93, 177, 167. 971bid., 201, 209.

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of Ulster that it was 'no time for keeping open old sores'.98 So the German factor lay heavily on his considerations during the Anglo-Irish economic and political negotiations.

CONCLUSION

Although Ireland attempted to develop 'alternative' markets to Britain, the policy was unsuccessful. In no year did Irish exports to Germany exceed £1 million, although the German market was considered that with most growth potential. In fact Ireland's trade with Germany was less than that of any other European country, except for Iceland, which had a population of only 100,000 people, and Lithuania, where trade was discouraged by Germany for 'political reasons'.99 In addition, Ireland failed to achieve a truly equitable balance of trade with Germany in any year, experiencing annual adverse trade balances for the decade. The best trade compensation ratio that Ireland gained was £2 of Irish exports for every £3 of German products imported. This was achieved in 1937, 1938 and 1939. Of course Bewley argued that 'about 75% of the trade between Germany and Saorstdt Eireann is carried in Irish ships, [so] the actual proportion of 3 : 2 is in reality reduced to one within reasonable distance of equality'.'" Even if this was the case,'01 Germany had adopted an exacting and frequently exasperating attitude to the Irish Free State in trade negotiations in the early and mid-1930s. Germany took advantage of the Irish need to find alternative markets to Britain during the economic war, achieving a highly favourable balance of trade. It took several years of difficult negotiating for the Irish Free State to reduce the balance in Germany's favour to a more acceptable one. What was the reason for Germany's reluctance to negotiate evenhandedly with Ireland?

In October 1934, during the tortuous trade negotiations, Bewley wrote:

There is the question how far the German Government is genuinely anxious to come to an agreement with us at all. Normally of course the offer made by us should be regarded as extremely favourable. That it is not being accepted may be merely tactics in the hope of getting more, or may possibly be on political grounds, for the simple reason that Germany will do nothing which might conceivably be construed by England as being of assistance to us. No doubt both elements exist. 102

In an attempt to restore Germany's international status, Hitler hoped for an alliance, or at least an understanding, with Britain. British friendship or tolerance was essential if Hitler was to be permitted to extend the Third Reich's power and territories.

The traditional Anglophilia of the German Foreign Office compounded this tendency. This led to a very 'dismissive' attitude towards Ireland, which was reflected in German inflexibility in commercial matters with Ireland. As a Foreign Office official noted in 1932: 'Nothing was to be done with regard to the Irish Free

981bid., 210. 99NAI, DFA 132/81, Bewley to Walshe, 22 March 1937. ~oNAI, DFA 232/1, Bewley to Walshe, 22 March 1938. "o"There is no evidence available to verify or discredit this assertion. ''2NAI, DFA 314/10/6/3, Bewley to Walshe, 20 October 1934, 7.

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State that might be prejudicial to the interests of German relations with England'.103 The coincidence of the first Anglo-Irish coal and cattle pact and the first Irish- German trade agreement in early 1935 was not accidental. In essence the pattern of Irish-German trade relations was closely linked to Anglo-Irish developments. The Germans assumed that the extension of the Irish-German trade relations in 1935 would not be seen as taking advantage of the Anglo-Irish economic war to Britain's cost, as it might have been previously. Otherwise the Germans would have feared encouraging de Valera's policy of weakening Irish associations with the British Commonwealth and angering Britain.104 Therefore 'Germany's efforts in the first years of Nazism to achieve a good understanding with England were not matched by corresponding efforts to facilitate Ireland'.105 By 1936 Anglo-German relations had deteriorated rather than improved, and Anglo-Irish reconciliation was occurring to some extent. Between 1935 and 1938 the Irish Free State diverted 'all purchases by public and semi-state bodies which could be made in Germany', especially after the 1935 trade agreement, ensuring that Ireland's export return for its imports was better with Germany than with any other country except Britain.106 Nonetheless, it was an inequitable relationship, as the Irish-German trade was more important for the Irish Free State than for the Third Reich, for whom Ireland was a tiny market, which affected its more important diplomatic and trade relationship with Britain.

Ironically, following Germany's failed courtship of Britain, the German Foreign Office complained that there had been no increase in Irish purchases from Germany, blaming the Irish government.'07 According to Irish statistics, German exports to the Irish Free State peaked in 1934 at £2,300,000. They fell thereafter, stabilising at approximately £1,400,000 per annum for the years 1935 to 1938. But Ireland's trade policy must be seen in the context of the deprecatory return in terms of the quantity of Irish goods taken by Germany for the years 1932, 1933 and 1934, when German exports to Ireland were 18.6, 9.5 and 14.1 times the value of Irish exports to Germany respectively.108 So Ireland's agenda was to negotiate a more just trade exchange between the two countries. Only then would an increase in its imports of German goods and thus its exports to Germany be worthwhile.

Bewley recognised that, although the public sector was diverting orders to Germany, the private sector was not. Therefore 'private business should be induced to purchase German products if the state was to reap any reasonable profit from her imports'. It was undesirable that Britain and Northern Ireland should take approximately 92% of Ireland's exports annually. It gave Britain the power to destroy Ireland's export trade 'for political or other reasons'.109 Certainly, Irish businesses disliked 'the disruption of long-established trade links' with Britain. As regards coal, which was a major import used extensively in Irish industry and homes, the Irish government placed pressure on both private and state companies to import coal from the Continent, especially from Poland and Germany, during the early years

103John Duggan, Neutral Ireland and the Third Reich (Dublin, 1989), 14-15 104Ibid., 14-16. 105Ibid., 14. 106NAI, DFA 132/81, Bewley to Walshe, 22 March 1937. 107NAI, DFA 232/1, Bewley to Walshe, 15 August 1938; Bewley to Walshe, 31 August 1938; and

Bewley to Walshe, 15 July 1938. 108Ibid., Statement issued by the Government Information Bureau, 3 November 1938. 109NAI, DFA 132/81, Bewley to Walshe, 22 March 1937.

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of the economic war. For instance, Irish Great Southern Railways placed contracts with German firms in 1938 on the advice of the minister for industry and commerce.110 Overall Irish-German trade relations in the 1930s were highly politicised and a reflection of the state of the British-Irish-German diplomatic triangle. Sir Horace Plunkett's observation that in Ireland political economy was spelled with a large 'P' and a small 'e' was still applicable in the 1930s.111

110McMahon, op. cit. in note 1, 148. 111Meenan, op. cit. in note 15, 69

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The Economic War and Irish Foreign Trade Policy: Irish-German Commerce 1932-9

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Transcript of The Economic War and Irish Foreign Trade Policy: Irish-German Commerce 1932-9