The war in Europe began with a series of impressive and rapid German victories. The German army swiftly overran Poland, and on September 27, 1939, Warsaw surrendered. On April 9, 1940, the Germans attacked the Scandinavian countries of Denmark and Norway. The Danes surrendered the same day, but the Norwegians bravely held out for two months before surrendering on June 9. After the invasion of northern Europe, Germany turned its attention to the west, launching attacks on Belgium, the Netherlands, and Luxembourg on May 10, 1940; the German Wehrmacht occupied Luxembourg that same day, and Holland surrendered on May 14. Two weeks later, on May 28, Belgium followed suit. The Germans—now backed by Italy, which had entered the war on June 10—then moved toward France.1
The Brazilians watched the war in Europe with increasing concern. Germany’s stunning advances in Europe had deprived Brazil of hugely valuable trading markets. The loss of the markets for Brazilian exports was problematic enough, but there was also a growing feeling that the Axis powers would prevail in the European war: Germany and Italy were poised to overrun France, and there was a chance Spain would throw in its lot with the Axis as well. The evacuation of the defeated British forces from the Dunkirk beaches in France in late May and early June, meanwhile, was covered heavily in the Brazilian press, further dampening any optimism about the Allies’ prospects. Unless the United States entered the war, the consensus in Brazil was that once the Germans were finished with France, they would overrun Great Britain as well.
With the Allied position in Europe collapsing, President Vargas decided it was time to remind Washington not to take Brazil for granted, nor to forget its trading partner’s needs. Benito Mussolini’s decision for Italy to join the Axis had amplified Brazilian fears about unruly immigrant populations—Brazil’s Italian population, in one estimation, being second in number only to the Portuguese population—and this development, as well as Germany’s spate of recent military victories, put more pressure on Brazil to abandon its relations with the United States and side with the Axis. Vargas needed to make clear to President Roosevelt that any further trade with Brazil would come at a steep price. Vargas chose a high-profile event in Rio, at which several US officials would be in attendance, to make his move. The timing of his address, coming the day after Italy joined the war, was no coincidence.
June 11, 1940, was a perfect late-autumnal morning in Rio. Traditionally, the autumn and winter months brought the city much less rainfall than the more tropical summer season, which ran from December through the new year to Carnaval in late February. There were only a few scattered wispy clouds in an otherwise clear sky, the temperature was a pleasant eighteen degrees Celsius, and the sea was almost totally calm, with a slight swell at the water’s edge. Conditions could not have been better for Brazil’s annual Navy Day.
In Rio’s harbor, anchored offshore at the entry to Guanabara Bay, sat most of Brazil’s naval fleet. Its flagship, the Minas Gerais, glistened impressively in the sunlight, its deeply tanned officers turned out in immaculately pressed white dress uniforms complete with colorful medal ribbons. Senior officers from other ships in the fleet had assembled on the flagship’s deck for a celebratory lunch, and stood around smoking as they awaited the arrival of their commander in chief.
Vargas had worked on his speech late into the previous evening. When the text was complete, he showed it to Alzira, who was busily decoding classified diplomatic cables for her father in the presidential secretary’s office. Vargas had also discussed the contents of the speech with Góes Monteiro, telling the general, “one has to shake the tree vigorously to get the dead leaves to fall.” Vargas meant to shake things up a little and remind the Americans that he and Brazil should not be taken for granted.2 Góes Monteiro could hardly contain his joy at the contents of the speech and its likely impact on Brazil’s American friends. While he had run his message past these two confidants, however, Vargas had not discussed the speech with his minister of foreign affairs, Osvaldo Aranha, for fear that Aranha would inform the Americans of the contents of the speech, thereby reducing its impact.3
It wasn’t that the president didn’t trust Aranha, it was simply that Vargas knew his foreign minster could not help himself when it came to forwarding information to Caffery in Rio or speaking directly to the State Department in Washington. Góes Monteiro shared Vargas’s wariness of Aranha; despite their considerable political differences, the general enjoyed a close personal relationship with the foreign minister, yet he too thought it best not to alert Aranha to the speech. Vargas had also not shared its contents with any other member of his cabinet. This was most unusual for the president, who liked to take the temperature of his cabinet on important matters of state—and was all the more unusual given the importance of the speech and its likely implications for US-Brazilian relations.
Vargas’s normal schedule had been suspended on June 11, and he spent the morning out of the office, beginning with a visit to the naval academy to meet the new officer recruits. He was then taken by motor launch out to the Minas Gerais, from which he watched a simulated air attack on the assembled warships. After speaking with senior officers, Vargas settled down with them to a full lunch. When the dessert was finished, Vargas, invigorated, rose to address the gathered officers.
Following the events of May 11, 1938, and the revelation of the navy’s central role in the Integralista plot, Vargas had been careful to promote “right-minded” officers—those loyal to his regime—to senior roles in the navy. In November 1939, the navy’s allegiance to the president was more secure, but most of its officers still favored developing ties with Germany, not the United States. On this day, Vargas selected for his audience those military officers who were pro-German, ensuring that they would be perfect for his message. Vargas started his address on a positive note:
There are no longer any differences on this continent. We are united by bonds of close solidarity to all of the American nations in ideals and aspirations and in the common interest of our defense. We, and all humanity, are passing through a historical moment of grave repercussions resulting from rapid and violent changes in values. We are headed for a future different from anything we have known in the line of economic, social, or political organization, and we feel that the old systems and antiquated formulas have entered into decline. It is not, however, the end of civilization as the pessimists and staunch conservatives claim, but the tumultuous and fruitful beginning of a new era. Vigorous peoples, ready to face life, must follow the line of their aspirations instead of wasting time in the contemplation of that which is tottering and falling in ruins. It is therefore necessary to understand our times and remove the hindrances of dead ideas and dead ideals. Political order is no longer made in the shadow of the vague rhetorical humanitarianism which sought to abolish frontiers and create an international society without characteristics or friction, united and fraternal, enjoying peace as a natural right and not as a day to day conquest. Instead of this panorama of balance and of just distribution of the world’s riches we are witnessing the exasperation of nationalism, strong nations imposing their will by the sentiment of nationality and being sustained by the conviction of their superiority.4
President Vargas’s observations about the challenges facing Brazil were ones that anyone in his audience would have agreed with, although his allusion to a “new era” surely left many of them guessing what this future might look like, and how Vargas planned to lead Brazil into it. They would not have long to wait.
After these opening remarks, Vargas changed his tack and moved to the portion of his speech that he knew would cause great offense in Washington and London. He spoke slowly, to give emphasis to his words. Brazil, he said:
Was witnessing the end of the era of improvident liberalism, sterile democracy where the power, emanating directly from the people and instituted for the defense of their interests, organizes labor—the source of national greatness—and not ways for private fortune. There is no longer room for regimes founded on privilege and class distinction; only those that incorporate the nation in the same duties and offer equitable social justice and opportunities in the struggle for life can survive.
The order created by new circumstances that are guiding nations is compatible with individualism, [specifically] at least when it clashes with the collective interest. It does not recognize rights, which interfere with obligations to the nations. Happily, in Brazil we have established a regime that is adequate for our necessities without imitating or affiliating itself with any of the current ideologies. It is a Brazilian regime of order and peace in accordance with the nature and traditions of our people, capable of bringing about more rapidly our general progress and of guaranteeing the security of all.5
Although Vargas claimed that the political ideology he was outlining was a uniquely Brazilian one, independent of the competing systems of the Allies and Axis, his comments carried a thinly veiled warning. In his call for Brazilians to make the state’s interests their own, his seeming dismissal of individual rights, and his disparaging remarks about liberalism and democracy, Vargas was beginning to sound a lot like what Washington feared most—a fascist.
The initial response to Vargas’s remarks was muted. The thirty-eight senior officers who attended the luncheon on board the Minas Gerais received Vargas’s speech politely but without much visible support for the political vision he had outlined. The one foreigner present, the American chief of the naval mission in Rio, noted, “The speech was received with no enthusiasm and was not mentioned or discussed later within the party. There had seemed to be an air of expectancy, which was not satisfied, and the effect produced seemed more that of a lecture or scolding than of flag waving.”6 Yet while the officers were the immediate recipients of Vargas’s message, they were not intended as its ultimate destination.
During his visit to the Minas Gerais, Vargas had gone out of his way to speak to the American naval officer aboard the ship, engaging him in conversation on two occasions.7 The president appeared extremely keen for his speech to be widely reported internationally, giving permission to the Brazilian press to publish the speech in its entirety. He need not have worried, however. News of the speech reached Washington very quickly, and it had exactly the effect Vargas intended.
This was not quite the speech that the US State Department had hoped to hear from the main benefactor of its “good neighbor” program. That policy, after all, had been intended to draw Latin America into the US sphere of influence, thereby ensuring that the European dictatorships were not able to expand their influence in the region. The secretary of state, Cordell Hull, exploded when he heard the unconfirmed reports of the contents of Vargas’s speech from the undersecretary of state, Sumner Welles. Hull immediately sought clarification from Caffery in Rio. “President Vargas of Brazil in a public speech this afternoon has alluded to the European dictatorships in a complimentary manner,” he wrote to the ambassador.8
At first, Caffery tried to downplay the importance of Vargas’s remarks to Washington:
Italy’s entrance into the war has increased the concern of the government as to the attitude of the large German and Italian populations here. This was demonstrated in the speech made today by President Vargas. While he praised Pan-American ideals and so on, in several places he made statements that are manifestly sops to those groups.9
Yet Vargas’s address aboard the Minas Gerais had rattled Caffery, who was stung by the unexpected content of it and by the furious reaction it had elicited in Washington. The US ambassador struggled to piece together the motives behind Vargas’s provocation. When Caffery spoke with the British embassy in Rio, he found that his counterparts there had been equally in the dark before the speech, but that they agreed with his assessment as to Vargas’s motives for the speech.10
The ambassador’s concerns increased when he phoned Aranha, who told him that he had known nothing of the speech and was pretty sure that nobody in the cabinet had been aware of its contents either.11 To make matters worse for Caffery, the Associated Press ran an article suggesting that Vargas had endorsed totalitarianism, and this had been picked up by the press in Brazil’s great rival, Argentina. The Argentine president instructed his foreign minister to seek clarification about the remarks from the Americans. “The sentiments expressed by President Vargas would seem to be at variance with the views held by the Argentine government,” he warned the Americans.12 The speech was no longer simply a US-Brazilian affair; it now had potentially dangerous regional implications, and particularly in terms of Argentine-Brazilian relations.
On June 12, 1940, the major newspapers in Brazil, the United States, Argentina, Germany, and Italy all led with the news of Vargas’s comments. Predictably, the coverage in Italy and Germany was much more complimentary than that in the other countries. Benito Mussolini offered his congratulations in a telegram to the president. “You are a great statesman,” Mussolini proclaimed, expressing his great admiration for the speech.13 In the United States, by contrast, the New York Times ran the story under the ominous headline “Vargas Backs the Virile; Predicts New World Order,” while the New York Herald Tribune began its piece under the banner “Vargas Defends Force.” American reporters based in South America characterized the speech as “the first outspoken fascist speech by any South American president.” In Buenos Aires, Argentina, the local paper, Critica, carried the headline “Vargas, with fascist language, justifies the aggression of the barbarians.” Only in Brazil was there an absence of commentary. The government state censor banned all analysis of the speech, and foreign journalists operating in Brazil were prevented from wiring commentaries at the request of Aranha, who was attempting to control the international fallout from the speech.
Back in his office in the Catete Palace on the morning of June 12, Vargas feigned surprise at all the fuss. He admitted that the “Americans have expressed their dismay and that they now accuse me of being a Germanophile.”14 Under pressure from Aranha, however, he decided to prepare a note explaining his position.
At the State Department in Washington, meanwhile, a major damage control exercise was also under way, this one aimed at countering the increasingly hostile newspaper reports about Vargas’s alleged fascist sympathies. The undersecretary of state, Sumner Welles, wrote to President Roosevelt expressing a viewpoint originally put forward by Caffery: the speech, he said, was simply sops to the Germans and Italians living in Brazil. He added, “There is nothing whatever in the speech except one or two ill-chosen phrases that justify the onslaught being made upon President Vargas by the American press today.”15 Welles concluded his note by suggesting that if the president could find a few words of regard for President Vargas at his next press conference, which was scheduled for later that day, it would have an “admirable effect.”
Unbeknownst to Welles and Roosevelt, back in Rio, Dutra and Góes Monteiro were so incensed about the comments in the US press that they sought advice on suing the offending publications. Lawyers acting for the Brazilian government had to explain to them that the press in the United States was a free one and could say pretty much anything they liked. In Brazil, the vast majority of the press was government-controlled, with many of the newspapers in Rio taking their news and commentary directly from the statements produced by the government’s propaganda office. Editors who took views that differed from the official line more often than not had their publication either temporary suspended or closed down altogether.
As the controversy over his remarks mounted, Vargas continued to coolly work through the day’s large number of diplomatic cables with the help of Alzira. Unlike Aranha, who since the start of the war in Europe had been growing increasingly edgy and nervous, Vargas appeared hugely focused and in complete control. His diary records that he even continued to find time for a round of golf once a week, which took up much of the designated day.
Vargas was having a good war, and he knew it. Aranha, on the other hand, was struggling to balance the diplomatic and economic demands of the Americans, the British, the Italians, and the Germans. Inside the government, Aranha was well-liked by many; his colleagues admired his past record and his vision for Brazil’s future. Within the presidential cabinet itself, however, his following was rather small. In contrast, the minister of war, Dutra, was quietly building up his own cabal. Although he would not have liked the analogy, Aranha was becoming something of a fireman putting out the conflagrations other people started—and Vargas’s speech was perhaps the greatest fire he had yet confronted.
The irony of all this was not lost on the chief of the army, Góes Monteiro, who had initially mistaken Vargas’s speech for a real change of course in Brazilian foreign policy toward the Axis powers. Góes Monteiro had since come to appreciate the true purpose of the speech, and in Aranha’s office the general tried to explain to a clearly irritated Caffery that the speech had actually been intended to launch a Brazilian program of social and economic reforms that resembled Roosevelt’s New Deal. Caffery snapped back, “United States citizens held Brazil in the highest esteem and therefore were filled with consternation.”16
Aranha learned from Caffery that the State Department had two gripes with Vargas’s speech. The first and least problematic was the content itself, which despite the dramatic newspaper headlines in New York and Buenos Aires didn’t unduly alarm either Welles or Hull once they had read the complete translation of it. Curiously, both US officials took the speech at face value, rather than waiting for a deeper analysis of the motivations that lay behind it.
The major issue that the US State Department had with Vargas’s speech was its timing: Vargas had cut into Roosevelt’s news cycle. On June 10, the day before Vargas’s speech aboard the Minas Gerais, the American president had given a dramatic speech at the University of Virginia, during which he had expressed in his strongest terms to date his deep sympathy for the enemies of the Axis powers. The president’s speech had gone down well in London and in Rio, but President Vargas did not hear it, as he was too busy working on his own speech for the following day. And as the clamor over Vargas’s address grew in the days that followed, Roosevelt’s speech became lost in the noise.
Aranha decided to send the Brazilian ambassador, Carlos Martins, to Washington to meet with Cordell Hull. Martins apologized to Hull for the timing of the speech, explaining, “When President Vargas went to deliver his speech, he did not know that President Roosevelt had delivered his Charlottesville speech the night before.”17 The ambassador added a line fed to him by Aranha, telling the secretary of state that the speech had been intended only for internal consumption, and that Vargas would soon issue an explanatory statement. The following day, Martins met with the undersecretary of state, Sumner Welles, to deliver the promised explanation.
Vargas’s apology was aimed at President Roosevelt, who had pointedly not uttered a “few kind words” about Vargas at his press conference, as Welles had requested. The Brazilian president’s message appeared to be a simple attempt to clear up any misunderstandings Roosevelt might have had about the speech, as well as an attempt to massage the American’s ego:
Speech delivered June 11 can in no sense be regarded as contradictory to that of President Roosevelt, whose speech I had not read at that time. My speech is a warning, a call to reality, addressed to Brazilians and which might cause surprise only to persons devoted to routine, not to a far-seeing mind like that of Roosevelt, who is liberal minded, progressive, and forward looking, crying out as the voice of the whole continent regarding perils which threaten America and who knows that Brazil will not fail him in loyalty.18
In other words, Vargas’s message implied that Brazil was very much still on the side of the Americans and was a strong supporter of President Roosevelt. As a finishing touch, Aranha had the appropriately named department of press and propaganda issue a statement in Brazil expressing the same sentiments.
The crisis caused by Vargas’s speech appeared to be over. The British noted the impression—widely held among the international diplomatic corps—that Vargas had been given a mild, but firm, rebuke by the United States.19 From start to finish, the whole crisis appeared to have been caused by simple bad timing and a few sops by President Vargas to the Axis powers—a diplomatic maneuver the Allies were prepared to tolerate, given that Germany looked likely to prevail in the European war. Alzira, however, understood the real motivation behind the speech, which had little to do with internal Brazilian works and everything to do with US-Brazilian economic relations.
In January 1940, Vargas had unveiled a hugely ambitious five-year plan for Brazil. The core of the plan called for the development of a Brazilian industrial sector, at the heart of which was a major steel plant. Other parts of the plan called for the construction of a modern transportation infrastructure across the country, including railways and roads linking the different regions of Brazil. Alzira noted, however, that the construction of a steel mill was the project that most interested her father, due to its importance to the future industrial development of Brazil.
Vargas’s five-year plan had the potential to secure a place in Brazilian history for the Estado Novo and assure its legacy as a transformational, progressive regime. The problem was that with the onset of World War II and the closing of Brazilian trading markets overseas, it looked highly improbable that Brazil would be able to contribute much in the way of funding for this project. So the Vargas administration sought outside funding, and the Americans and British became alarmed when the German company Krupp indicated that they were interested in building the steel mill.
Vargas would have welcomed US assistance with the five-year plan, but he had not received it; the United States Steel Corporation had decided not to participate in the plan.20 In January 1940, Brazilian ambassador Carlos Martins told the US State Department that Brazil regarded the steel mill project as the litmus test of the Good Neighbor Program: if the United States would not assist Brazil with such a basic and unthreatening program, after all, could it really be considered a strong and well-meaning partner?21 The ambassador also warned the Americans: “President [Vargas] states that he would greatly prefer to have [the steel mill] carried out with the assistance of American enterprise and capital, but that if this is not forthcoming, he [will] turn in other directions.”22 The State Department heard the message loud and clear: if the United States wanted to stem the influence of Germany in Brazil, it would have to come up with some way of helping Vargas realize this key part of his agenda for modernizing the country. If the Americans failed to do so, the Germans were all too eager to fill the void and move Brazil further into Berlin’s economic orbit.
President Vargas, who enjoyed a game of cards along with his habitual whiskey and cigar, knew he was holding a strong hand. And the Americans knew this, too. On April 11, 1940, Welles formally asked the United States Steel Corporation to reconsider its decision not to proceed with its development of a steel mill in Brazil.23 President Vargas’s patience with the US corporation snapped, however, and he decided to move ahead with the project with a Brazilian cooperation—although, in reality, he would still need loans from the Americans in order to construct the plant.24 Finally, on May 31, after hearing of the efforts of Krupp to secure the contract to build a German steel mill in Brazil, the US secretary of state approached Vargas with some good news: the US federal loan administrator had agreed to loan Brazil the money to build the mill.25 Initially, $10 million was offered; to sweeten the deal, the federal loan administrator promised more funds if the costs exceeded the original amount, up to $20 million. Caffery was very pleased to inform Hull: “President Vargas is delighted with the news. He tells me that he will send a commission to the United States very soon to proceed with the business.”26
Vargas appeared happy, but on a deeper level he understood that there was still much to negotiate before the project could commence. The president was not an impatient man, but he had little understanding of the workings of US diplomacy and feared that the wrangling over the construction and running of the mill would delay the project. Vargas did understand, however, that the process would not be as easy as Hull had indicated. In order to guarantee its success, Vargas would have to remind the Americans of his importance to them—and of the fact that he had an alternative partner in the Germans, whom many in his own cabinet and in the Brazilian military preferred for the project. And what better opportunity to remind the Americans of his own importance, and that of Brazil, than in a speech to an audience that had little time for the United States or its Good Neighbor Program?
Alzira, for one, understood full well what the speech of June 11 was about. The president wanted his steel mill, and he was going to do everything in his power to make sure that he got it from the Americans on terms that were acceptable to Brazil. As he sat in his office reminding everyone, especially Aranha, of the pain the US press was causing him, he was also instructing the Brazilian negotiators in Washington to press the Americans hard and to secure a quick conclusion to the steel mill negotiations.
Caffery took the hint. The ambassador warned the US State Department that Vargas was at a turning point, and that the future of the Good Neighbor Program depended on the United States securing the contract for the steel mill project. Perhaps sensing that Caffery was as keen to wrap up the negotiations as he was, Vargas had Aranha keep up the pressure on the ambassador. When the two met on September 5, Aranha told the ambassador of Krupp’s continued interest in the project. Caffery told Hull, “Aranha told me last night that he had received another letter from Krupp making very attractive offers in connection with the construction of the steel plant.”27
Aranha’s comments did the trick. The last minor issues were resolved that month, and the steel mill deal was signed on September 26, 1940. There was widespread jubilation in Rio over the signing, and President Vargas received a great deal of praise from all corners of Brazil.28 Aranha wrote to Sumner Welles, expressing his satisfaction at the signing of the deal and highlighting its importance for Brazil. “No factor may better reveal the decision of the United States to collaborate for the prosperity of Brazil and of the American continent,” he assured the undersecretary of state.29 Welles’s reply was equally warm, assuring Aranha: “The exchange of letters with regard to the establishment of the iron and steel industry in your great country is a source of the greatest pleasure to this government,” and he added, “I believe unquestionably that this agreement marks the reaffirmation of a policy of close practical and intimate cooperation between our two governments to our reciprocal advantage and the advantage of the new world.”30
President Vargas was delighted with the deal, not least because he suspected President Roosevelt had taken a personal role in the business.31 The timing and the contents of Vargas’s Navy Day speech had been instrumental in hurrying the Americans along.32 So, too, had the Germans’ ongoing interest in the project; toward the end of the negotiations, when disputes over the small print threatened to derail the deal, Vargas merely used the letters of interest from Krupp to prod the US State Department back into line.
Vargas and Aranha, the two gaúchos, had pulled off a major coup. The final deal was hugely important for Vargas, both as a symbolic economic linkage of Brazil and the United States and as a galvanic current to jump-start his hugely ambitious five-year plan for Brazil. It would be fair to say, too, that his speech to the naval officers succeeded not only in worrying the United States, but also in boosting his popularity among a branch of the armed forces that had played an outsized role in the attempted coup in 1938. This was not President Vargas’s finest hour, but it was very close to it.
On January 30, 1941, Decree 3002 approved the construction and operation of the national steel mill and the establishment of the national steel company (Companhia Siderúrgica Nacional). Soon after the decree was signed, work began at the mill’s Volta Redonda site, only ninety miles from Rio. The initial loan from the United States through the Export-Import Bank was increased to $45 million during construction, and the total cost of construction was put at $70 million.33 It was a huge project, but by the end of World War II the plant was operational and around 80 percent completed.34 When it officially opened in 1946, it was the first steel mill in South America. The original plant was expanded throughout the late 1940s and 1950s and well into the 1960s.35
The Volta Redonda mill was not the only boon of the deal. The initial project also called for the development of new infrastructure to support the plant’s operation. Brazil’s central rail network was expanded, linking Rio de Janeiro with the plant at Volta Redonda; some parts of the network were also converted to electricity, a major step toward modernity for a country whose railways were still powered predominately by steam.36 Most ambitious of all was the construction of the city of Volta Redonda, where the staff of the plant eventually lived.37 The city had new houses, schools, hotels, and churches, along with the additional infrastructure required for a large, modern metropolis.38 It remains one of the lasting legacies of the Estado Novo in Brazil.
The construction of the giant steel mill and the city of Volta Redonda, however, were not the only elements of Vargas’s five-year plan made possible by the support of the United States. As 1940 drew to a close, his plans to develop the Brazilian military into South America’s most powerful army had not progressed as smoothly as Vargas and his commanders had hoped. This plan remained crucial, however, to the military leadership’s goal of effectively overtaking their old rival, Argentina, as the major military power on the South American continent. In order to do this, however, Brazil would need all the weapons it could get. And in 1940, it particularly needed weapons from Nazi Germany.
Brazil had ordered a large shipment of weapons from Germany before the outbreak of the war, and had even settled on a fee. The weapons were to be sent from Germany to neutral Lisbon via rail, and from there via ship to Brazil. In order to reach Rio, however, the ship carrying the cargo of arms would have to run the British naval blockade off the coast of Portugal—a risky prospect that Vargas hoped to avoid if at all possible. Attempts to reach a negotiated solution with the British in order to let the ship depart Lisbon produced little in the way of progress. In the end, both the Brazilians and the British were left with a difficult choice to make about how best to proceed.
Once again, this was high-stakes diplomacy for the Brazilians and the Allies. The British and their US partners could not very well allow the Germans to continue profiting off international trade if they could help it. For President Vargas and Osvaldo Aranha, on the other hand, it was crucial that the Brazilian military receive the weapons from Germany; if the Estado Novo could not deliver the arms, its failure would seriously jeopardize Vargas and Aranha’s carefully constructed relationship with the United States. The Allies would have been denying Brazil armaments from Germany while failing to provide any themselves.
After the cargo ship had lain in the waters off Lisbon for weeks, Vargas and Aranha came to a decision and issued the vessel an order through the Brazilian embassy in Lisbon. As the Brazilian embassy worked to decrypt the cable containing the order, British intelligence was doing the same. This was nothing out of the ordinary—from 1940 onward, all communications in and out of the Brazilian embassy were intercepted by the British, who were keen to understand the movements of Portuguese shipping back and forth to Brazil. This message, however, would have tremendous repercussions—for Brazil, for Great Britain, and for both countries’ relations with the United States.