462 00 R 29/119: Telegram

The Ambassador in France (Wallace) to the Acting Secretary of State

750. R–432 to Secretary of the Treasury and Davis. Department’s 534, March 15, 6 p.m., your R–272.

[Page 372]
Form of letter to Germany set forth my R–38263 was sent them on March 4th.
German reply to said letter is dated March 8th [and] reads as follows:

“I have the honor to confirm receipt of the letter of the Reparation Commission of March 4th CR–751 by which the German Government is requested to call up all securities owned by German nationals which represent interests in enterprises situated in neutral countries for the purpose of providing funds out of the proceeds of such securities and similar securities owned by the German Government and [the] German states for the supply of food and raw materials in accordance with article 235 of the peace treaty. I have informed my Government accordingly but should like to point out forthwith that the results of carrying out that measure will be extremely disappointing for all who expect that it may contribute essentially to solution of the problem how to provide means for supplying Germany with food and raw materials. The experience gained by the efforts of the German Emperor [Government] to sell the German owned foreign securities called up in March 1919 under the Brussels agreement64 has shown unmistakably that the idea of financing in that manner immediate and important needs of food and raw materials is to be considered as a failure even in the instance of the Brussels agreement, when Germany had the choice to select the very best foreign securities still owned by German nationals. What now remains of German investment in so-called neutral securities is represented by thousands of divers small parcels which in the aggregate do not reach a very high figure and the collection of which will necessarily be very difficult, slow and expensive. There is to be taken into account that the German Government has not the actual power to reach the greater [part] of those securities which is deposited outside of Germany, but the same is unfortunately true of many securities hidden away within the country. The selling of the securities if and when collected is still another and even more difficult matter. The German Government will, of course, do everything in its power to meet the demands of the Reparation Commission, also as regards the proposed measure if the Commission should insist in having it carried out. On the other hand I think it necessary to submit to the Reparation Commission detailed information about the specific conditions prevailing in Germany and the experiences that have been made by the similar measure adopted under the Brussels Agreement. It might be useful to have the matter investigated by a special finance committee of the Reparation Commission to which I should be glad to convey any information desired.”

At meeting of Reparation Commission March 17th after French had, with some support from Italians and British, advocated reply insisting that Germany without explanations should put into immediate effect measures set forth in note of March 4th, it was decided to reply to German note that without changing position set [Page 373] forth in March 4th note, discussion of matter by Germans with finance section was approved.
As result of these discussions I trust it will be possible to work out some practicable plan which will avoid dangers pointed out in your cable. I entirely agree that it will be found that German nationals have disposed of most of their neutral securities that could be requisitioned. Believe too it will be possible to prevent Germany being compelled to make forced sales of neutral holdings at insufficient prices or to turn over her South Pacific investments to Allied Governments. While no doubt true that certain powers or a certain power anxious to obtain certain neutral securities of Germany, prime aim of others or another is desired to obtain payments, and endeavor to maintain attitude of victory and ban public speeches [sic] very possibly a wish to cripple Germany economically and perhaps to make treaty impossible of performance.
Letter of March 4 to Germans goes further than did Allied and Associated Powers by Brussels convention which compelled Germany to resort to gold and neutral securities to obtain food and it follows course you suggested regarding securities already requisitioned by Germany from its nationals.
The threat in note to Germans not to consent to deductions of payments under 235 unless neutral securities are used to purchase food and raw materials is not in my judgment of great practical importance. If situation in Germany becomes sufficiently desperate necessity of permitting Germany to use its resources for food purchases will have to be recognized.
I assume it was thought when article 235 was drafted that by May 9th 1931 [1921] Germany would have accumulated foreign exchange sufficient to deduct therefrom costs of armies of occupation essential food and raw materials and with balance to pay some reparations in addition to deliveries in kind provided for by annexes. I fear that Germany would not have accumulated by date mentioned sufficient foreign exchange to pay costs of armies of occupation and of essential food and raw materials. If this is so we could hardly press objection to having neutral securities applied to purchases of food and raw materials if sufficient in amount to justify their requisition though in our opinion in long run Germany’s capacity to pay would be increased by permitting retention of its neutral securities. I do not suppose America desires to be called upon to make loans to Germany to provide for its food and raw materials. It seems reasonably sure and from confidential statements made to me by British and Belgian delegates I understand that to be their opinion, that including values of deliveries under annexes Germany will not be able to provide the fixed sum of 20,000,000,000 marks when that debt matures under article 235.
You will note that German note quoted in paragraph second does not raise point that Reparation Commission has not authority to require Germany to use neutral securities for food purchases. If Germany is prepared to agree to use of her nationals’ neutral securities for acquisition food and raw materials do not see that we need object.
You understand that four Powers officially on Reparations [Commission] agree on conclusion of majority opinion regarding right to demand neutral securities and specific commodities under article 235. Bradbury63 has told me he has instructions from his Government to support that view but he presumes I will be able block its being carried out. Keynes64 has just told me that it was intention of framers of treaty to confer power to demand neutral securities of German nationals under article 235 for purpose of first twenty billion mark payment. If we do not ratify and if we withdraw our unofficial representation it is most probable that authority under article 235 in the respect mentioned that majority of lawyers say Commission possesses will be exercised by it.
Believe agreement reached on our original letter to Germans has in fact increased our influence with Reparation Commission and will eventually prove to be more helpful in enabling treaty to be worked along practical and sound economic lines than if we had absolutely refused to consent to letter which calls upon Germany to use neutral securities for its food [and] raw material requirements. You appreciate that situation is not easy when four votes are against you and none in your favor. You will recall certainly America made concessions in framing treaty and undoubtedly will have to make some concessions in carrying it out.
I am of course prepared to take any position on this matter before Reparation Commission that you desire. It is unfortunate that your views on proposed compromise, embodied in my R–36265 of February 26, were not communicated to me earlier than your R–272 of March 15th. I have stated to Commission that my Government did not approve of letter sent to Germany as to which I had previously agreed. You will understand from foregoing that Reparation Commission will not withdraw letter nor will it now accept [Bayne’s] construction of article 235. Would like promptly definite instructions as to just what you wish me to do.
Bradbury tells me he has received instructions from his Government to take position that deliveries under annexes must be credited to payment provided under article 235.
Inclined to opinion that it would be well to have Department address separate notes to various governments as suggested. Please cable when done with text of notes. Rathbone.
  1. Ante, p. 366.
  2. Not printed.
  3. Sir John Bradbury, British representative on the Reparation Commission.
  4. John M. Keynes, principal representative of the British Treasury at the Paris Peace Conference.
  5. Not printed; see telegram no. 613, Mar. 2, from the Ambassador in France, p. 366.