PRINCIPAL HUNGARIAN PROBLEMS
                               Summary
 
          The long-range interest of the United States in the mainten-
ance of peace and stability in central Europe may be involved in 
the issues now arising in connection with terms of armistice for
Hungary, with the control o‚ Hungary during the armistice period, 
and with the territorial settlement. The two most pressing prob-
lems are (1) the share which the United States will have in the 
work of the Allied Control Commission, and (2) the payment of 
reparation by Hungary.
 
          It is possible that Soviet and American policy may not be in 
harmony if the Soviet Union uses its position as the power in ac-
tual control of the exec-tion of the armistice to intervene in
Hungarian domestic affairs, to dominate Hungary, or to pursue a 
severe policy of the reparation question which would cripple Hun-
garkan economy and thus delay the economic recovery of Europe 
and the restoration of normal economic relationships based on 
equal treatment for all nations.
 
          While American and British interests are more or less the same 
in these questions, we prefer an independent approach to the Rus-
sians and should seek agreement on solutions and procedures which 
take account of the interests of all these and of the other United 
Nations. It would be desirable to secure the agreement of the 
British and Soviet Governments to the following principles:
 
          1.   Participation of the American and British Governments in 
the execution of the armistice to the maximum degree consistent 
with leaving to the Soviet High Command decisions connected with 
the conduct of military operations; after Germany's surrender all 
three Governments should have equal representation and responsi-
bility;
 
          2.   An Allied economic policy toward Hungary which will recon-
cile legitimate claims of Allied nations to reparation with the 
general interest in promoting the rapid economic recovery of Europe;
 
          3.   The desirability of reaching a settlement of the Hungarian-
Rumanian frontier dispute and of encouraging an eventual settlement 
between Hungary and Czechoslovakia and perhaps between Hungary and 
Yugoslavia, by friendly mutual negotiation, which would take into
account the Hungarian ethnic claims.