The Finnish Government received the first Soviet demands through Stockholm in January 29. The demands were that Finland would have to cede the Karelian Isthmus including the city of Viipuri and the areas north and west of Lake Ladoga. The Hanko penissula was to be leased to the Soviet Union for 30 years.
The Finnish Government didn't accept this, but tried instead to negotiate for support from Sweden and from France and Great Britain. The Western powers promised to send 20,000 men by the end of February to help Finland but the Swedish government, headed by Prime Minister Per Albin Hansson, declined to let them pass through Swedish territorium.
The Swedish Cabinet also decided to reject repeated pleas from the Finns for regulary Swedish troops deployed in Finland, and in the end the Swedes also made clear that their support in arms and munition could not be maintained for much longer. Diplomatically Finland was squezed between Allied hopes for a prolonged war and Scandinavian fears for a continued war propagating to the Scandinavian peninsula (or for the surge of refugees after a Finnish defeat). Also from Nazi-Germany distinct advices for peace and concessions arrived - the concessions "could always later be mended."
By the end of February the Finnish Commander-in-Chief Carl Gustaf Mannerheim was pessimistic about the military situation, and therefore the Finnish Government decided, on February 29, to start peace negotiations. The same day the Soviets commenced an attack against Viipuri.
When France and Britain realized that Finland was seriously considering a peace treaty, they gave a new offer for help: 50,000 men were to be sent, if Finland asked for help before March 12, but actually only 6,000 of these would have been destined for Finland. The rest was thought to secure northern Scandinavia and the North-Swedish iron ore fields.
The harsh peace
On March 6 an Finnish delegation lead by Prime Minister Risto Ryti travelled to Moscow. During the negotiations, the Soviets broke through the Finnish defence around Tali and were close to surrounding Viipuri.
The Peace Agreement was signed on March 12. The fighting ended the following day.
Finland was forced to cede nearly all of the Finnish part of Karelia (with Finland's industrial center, including Finland's second largest city Viipuri, in all nearly 10% of the territory), even though large parts still were held by Finland's army. 422,000 Karelians, 12% of Finland's population, lost their homes. Military troops and remaining civilians were hastily evacuated to avoid becoming subjects of the Soviet Union.
Finland also had to cede a part of the Salla area, the Finnish part of the Kalastajansaarento (Rybachi) peninsula in the Barents Sea and the islands Suursaari, Tytärsaari, Lavansaari and Seiskari in the Gulf of Finland. The Hanko penisula was also leased to the Soviet Union as a military base for 30 years.
Additional demands were that any equipment and installation on the ceded territories were to be handed over to the Soviets. Thus Finland had to hand over 75 locomotives, 2000 carriages, a number of cars, trucks and ships. The Enso indistrial area, which was clearly on the Finnish side of the border, was also handed over after Soviet demands.
The Finns were shocked by the harsh peace terms. It seemed as if more territory was lost in the peace than in the war. Sympathy from world opinion, and from the Swedes in particular, seemed to have been of little worth. For better or for worse the harsh terms made the Finns inclined to seek support from Germany, and made many Finns regard a revanche as justified. In the end, this might have been a necessary condition for Finland's survival in the World War.
Only a year later, in June 1941, hostilities resumed in the Continuation War.