462.00 R 29/655: Telegram

The Commissioner at Berlin ( Dresel ) to the Secretary of State

[Paraphrase]

433. This morning, Haniel, Secretary of State,35 told me that by request of Simons he wished to discuss advisability of sending the German proposals to Washington. Simons was apprehensive that this transmission might be considered as an attempt to limit freedom of action of United States in the hoped-for mediation and that it might be thought that the German Government was endeavoring to impose conditions on possible mediation. Haniel categorically disclaims such an attempt. I told Haniel that the German Government would have to decide this matter for itself. Later he showed me copy of the memorandum but especially requested that text be not transmitted as an official document but that at most it should be forwarded for purpose of confidential information concerning point of view of Germany and not be used as a basis of decision regarding American Government’s mediation.

Therefore, I give below substance of German memorandum. Haniel tells me that probably this may be made basis of ultimate German proposals to Allies if American mediation should be refused. He says the substance of the memorandum has as yet not been communicated to Allies.

1.
German Government believes the most urgent part of reparations problem is reconstruction of the devastated areas. Germany is prepared to undertake the rebuilding of villages and towns which may for that object be pointed out by Allied Powers or to assist with materials and labor in reconstruction in any way the Allies may desire, the expense of material and labor supplied by Germany to be paid from current revenue. A detailed scheme for such reconstruction has been prepared by the Government.
2.
Germany wholly recognizes that reconstruction of devastated areas constitutes but a portion of obligations to which Treaty of Versailles compels her. She is therefore prepared to make compensation to Allied and Associated Powers by such other method as may be possible for the injury suffered.
3.
It must be considered, however, that Germany’s power of payment has been greatly diminished by the war and that any new interference with her productive ability must result in additional weakening of possibility of making reparation.
4.
Germany sees no method of meeting her reparation obligations for any extended period of time other than by employing the surplus engendered by labor of the nation to meet the sinking fund and interest on an international loan. In this case the creditors of Germany [Page 44] would be obliged to waive their rights of insisting on first mortgage on assets of Germany for benefit of those who supply capital. Germany would have to have a free hand in negotiations with such capitalists.
5.
In accordance with German view, answer should be made to the following questions: (a) What is Germany’s annual productive capacity? In other words, aside from any particular payment, what surplus can be produced if Germany’s internal necessities are limited to the greatest extent? (b) How can such a surplus be produced and how can it be made available? (c) Referring to such international loan, what is required for annual interest and sinking fund payments? As limited amounts only are available to meet these charges the total amount of proposed loan depends on them.
6.
Germany sincerely trusts that the President of United States will feel he can nominate commission of impartial experts to make investigations and present verdict as to these problems. Germany is willing to agree to such decisions as are based on determinations of the commission. If Germany’s total capacity to pay which the experts determine, should be more than interest and sinking fund on international loan, Germany will, upon request, make available to the Allied Governments this difference (a) by providing materials, labor, and other kinds of services in place of cash; (b) by agreeing to transfer to German Government part of indebtedness of Allied Governments to United States; and (c) by consenting to other practicable credit operations.
8.
[sic] German Government is prepared to transfer to Government of United States or to international capitalists who may take responsibility for the loan the security considered requisite, as, for instance, railroads, mines, harbors, and receipts from customs.

During discusssion of last paragraph the question came up of Entente participation in German industries. Haniel stated that this participation was not excluded as no limits were set on eventual decision of President Harding but that they hoped earnestly that if demand was made for this participation it would be for benefit of neutrals or America in form of guarantee for the international loan rather than direct payments to the Entente nations. In the latter case 30 percent would give a controlling interest in many corporations and stock could be voted for political purposes.

Considering the circumstances under which this memorandum was given me, I urgently ask that at present it be not given publicity.

Dresel
  1. Telegram in two sections.
  2. Of the Foreign Office.