Papers Relating to the Foreign Relations of the United States, 1922, Volume I
800.51 W 89 Great Britain/28
The Ambassador in Great Britain (Harvey) to the Secretary of State
[Received August 14.]
Sir: Supplementary to my telegram No. 336 of August 4, 1 p.m.,28 I have the honor to forward to you herewith the authentic text of the Balfour Note.
I have [etc.]
Counselor of Embassy
The British Acting Secretary of State for Foreign Affairs (Balfour) to the French Ambassador in Great Britain (Saint-Aulaire)29
As Your Excellency is aware the general question of the French debt to this country has not as yet been the subject of any formal communication between the two governments, nor are His Majesty’s Government anxious to raise it at the present moment. Recent events, however, leave them little choice in the matter, and they feel compelled to lay before the government their views on certain aspects of the situation created by the present condition of international indebtedness.
Speaking in general terms, the war debts, exclusive of interest, due to Great Britain at the present moment amount in the aggregate to about £3,400,000,000 of which Germany owes £1,450,000,000, Russia £650,000,000 and our Allies £1,300,000,000. On the other hand, Great Britain owes the United States about a quarter of this sum—say [Page 407] £850,000,000 at par of exchange, together with interest accrued since 1919.
No international discussion has yet taken place on the unexampled situation partially disclosed by these figures: and, pending a settlement which would go to the root of the problem, His Majesty’s Government have silently abstained from making any demands upon their Allies, either for the payment of interest or the repayment of capital. But, if action in the matter has hitherto been deemed inopportune, this is not because His Majesty’s Government either underrate the evils of the present state of affairs, or because they are reluctant to make large sacrifices to bring it to an end. On the contrary, they are prepared, if such a policy formed part of a satisfactory international settlement, to remit all the debts due to Great Britain by our allies in respect of loans, or by Germany in respect of reparations.
Recent events, however, make such a policy difficult of accomplishment. With the most perfect courtesy, and in the exercise of their undoubted rights, the American government have required this country to pay the interest accrued since 1919 on the Anglo-American debt, to convert it from an unfunded to a funded debt, and to repay it by a sinking fund in twenty-five years. Such a procedure is clearly in accordance with the original contract. His Majesty’s Government make no complaint of it: they recognise their obligations and are prepared to fulfil them. But evidently they cannot do so without profoundly modifying the course which, in different circumstances, they would have wished to pursue. They cannot treat the repayment of the Anglo-American loan as if it were an isolated incident in which only the United States of America and Great Britain had any concern. It is but one of a connected series of transactions, in which this country appears sometimes as debtor, sometimes as creditor, and, if our undoubted obligations as a debtor are to be enforced, our not less undoubted rights as a creditor cannot be left wholly in abeyance.
His Majesty’s Government do not conceal the fact that they adopt this change of policy with the greatest reluctance. It is true that Great Britain is owed more than it owes, and that, if all inter-allied war debts were paid, the British Treasury would, on balance, be a large gainer by the transaction. But can the present world situation be looked at only from this narrow financial standpoint? It is true that many of the allied and associated Powers are, as between each other, creditors, or debtors, or both. But they were, and are, much more. They were partners in the greatest international effort ever made in the cause of freedom; and they are still partners in dealing with some, at least, of its results. Their debts were incurred, [Page 408] their loans were made, not for the separate advantage of particular States, but for a great purpose common to them all;—and that purpose has been, in the main, accomplished.
To generous minds it can never be agreeable, although, for reasons of State, it may perhaps be necessary to regard the monetary aspect of this great event as a thing apart, to be torn from its historical setting and treated as no more than an ordinary commercial dealing between traders who borrow and capitalists who lend. There are moreover reasons of a different order, to which I have already referred, which increase the distaste with which His Majesty’s Government adopt so fundamental an alteration in method of dealing with loans to allies. The economic ills from which the world is suffering are due to many causes, moral and material, which are quite outside the scope of this despatch. But among them must certainly be reckoned the weight of international indebtedness, with all its unhappy effects upon credit and exchange, upon national production and international trade. The peoples of all countries long for a speedy return to the normal. But how can the normal be reached while conditions so abnormal are permitted to prevail? And how can these conditions be cured by any remedies that seem at present likely to be applied?
For evidently the policy hitherto pursued by this country of refusing to make demands upon its debtors, is only tolerable so long as it is generally accepted. It cannot be right that one partner in the common enterprise should recover all that she has lent, and that another, while recovering nothing, should be required to pay all that she has borrowed. Such a procedure is contrary to every principle of natural justice and cannot be expected to commend itself to the people of this country. They are suffering from an unparalleled burden of taxation, from an immense diminution in national wealth, from serious want of employment, and from the severe curtailment of useful expenditure. These evils are courageously borne. But were they to be increased by an arrangement which, however legitimate, is obviously one-sided, the British taxpayer would inevitably ask why he should be singled out to bear a burden which others are bound to share.
To such a question there can be but one answer, and I am convinced that allied opinion will admit its justice. But while His Majesty’s Government are thus regretfully constrained to request the French government to make arrangements for dealing to the best of their ability with Anglo [Anglo-French] loans, they desire to explain that the amount of interest and repayment for which they ask depends not so much on what France and other allies owe to Great Britain as on what Great Britain has to pay America. The policy [Page 409] favoured by His Majesty’s Government is, as I have already observed, that of surrendering their share of German reparation, and writing off, through one great transaction, the whole body of inter-allied indebtedness. But, if this be found impossible of accomplishment, we wish it to be understood that we do not in any event desire to make a profit out of any less satisfactory arrangement. In no circumstances do we propose to ask more from our debtors than is necessary to pay our creditors. And, while we do not ask for more, all will admit that we can hardly be content with less. For it should not be forgotten, though it sometimes is, that our liabilities were incurred for others, not for ourselves. The food, the raw material, the munitions required by the immense naval and military efforts of Great Britain and half the £2,000,000,000 advanced to allies were provided not by means of foreign loans, but by internal borrowing and war taxation. Unfortunately a similar policy was beyond the power of other European nations. Appeal was therefore made to the government of the United States: and under the arrangement then arrived at the United States insisted, in substance if not in form, that, though our allies were to spend the money, it was only on our security that they were prepared to lend it. This co-operative effort was of infinite value to the common cause; but it cannot be said that the role assigned in it to this country was one of special privilege or advantage.
Before concluding I may be permitted to offer one further observation in order to make still clearer the spirit in which His Majesty’s Government desire to deal with the thorny problem of international indebtedness.
In an earlier passage of this despatch I pointed out that this after all is not a question merely between allies. Ex-enemy countries also are involved; for the greatest of all international debtors is Germany. Now His Majesty’s Government do not suggest that, either as a matter of justice or expediency, Germany should be relieved of her obligation to France or the other allied States. They speak only for Great Britain: and they content themselves with saying once again that, so deeply are they convinced of the economic injury inflicted on the world by the existing state of things that this country would be prepared (subject to the just claims of other parts of the Empire) to abandon all further right to German reparation and all claims to repayment by allies, provided that this renunciation formed part of a general plan by which this great problem could be dealt with as a whole and find a satisfactory solution. A general settlement would, in their view, be of more value to mankind, than any gains that could accrue even from the most successful enforcement of legal obligations.