462.00 R 296/775: Telegram
The Ambassador in France (Herrick) to the Secretary of State
585. [Paraphrase.] L–285, from Logan. As the Finance Ministers’ conference approaches I need the Department’s definite instructions on certain questions. I realize that the trend of the negotiations may result in the shifting of our position on some points and that many details may have to be adjusted by exchange of cables as the conference progresses, but I do not want to be placed in position of delaying conference unduly and of not being able to announce our position on questions of fundamental principles at time when it is opportune to declare it. I believe that I am aware of Department’s general position, as it has been stated from time to time, but nevertheless in order to be sure that new developments have not altered that position I put the following questions:
[Page 109]1. Is the Department ready to waive all payments for Army costs or other claims during first two years, providing that a satisfactory arrangement is made for future years?
[Suggested] answer: Yes, if necessary, but it is desirable to obtain percentage on account of Army costs on any cash which might be transferred during second year. Percentage might be fixed at 20 percent of cash transferred with understanding that the United States would demand at most not more than 30 million gold marks.
2. What percentages for Army costs or for other claims, or both, would Department seek in any capital sums that may be realized in addition to annuities because of sale of industrial or railway bonds? Would percentages be on sliding scale in accordance with proportion between amount of bonds sold in the United States and those sold elsewhere?
Suggested answer: Out of a capital payment on account of Army costs and other claims, the United States will ask for each claim a sum which is proportionate to amount to which it would be entitled if these capital receipts were annuities instead of being capital receipts; and in addition, to satisfy claims besides Army costs, United States will desire 10 percent extra if one-half bond issue were floated in the United States with sliding scale of 1 percent additional for each 5 percent over one-half floated in the United States. Concretely, if the loan were $100,000,000 and the percentage of the United States on its reparation claims were 5 percent and $70,000,000 of the loan were placed in the United States we should ask: (a) 50–60 million gold marks for Army costs; (b) $4,000,000 (5 percent on an assumed balance, after priorities, of $80,000,000); and (c) $14,000,000 as a recognition of our special contribution to loan. Will the Department be good enough to indicate its views on this general suggestion? In forthcoming arrangements we must be ready to formulate our claims against capital receipts, as it is very probable some of the bonds will be floated in next two or three years.
3. Is the Department agreeable to the suggestion that we should ask for annual lump sum of 50 or 60 million gold marks for our Army costs to be paid by priority from cash transferred? Will figure be 50 or 60?
4. As part of the foregoing proposal there is coupled with it question whether Department is willing as far as its other claims are concerned to accept fixed percentage which will be operative on net balance remaining after all priorities have been deducted from annuities, and from which United States will be paid pari passu with Allies. [End paraphrase.]
Concretely it appears that we shall require around 4 to 5 percent of sums remaining after priorities are deducted in order to secure [Page 110] a sum which added to a flat annuity of 50 million for Army costs would bring a grand total of 125,000,000 gold marks per annum in standard year. In answering this question I request Department particularly to consider the effect of expression pari passu. It means that we would merely have a credit in reichsmarks in the hands of Agent General and that it would then be up to us as it is to the other Allies to find ways and means of getting these funds out of Germany. Is Department willing to accept such a reichsmarks credit? Although it is perhaps unnecessary to decide finally now how we would use such a credit nevertheless likely that Allies will make general inquiries because of repercussion of our system on their own modes of utilizing their funds which are now being worked out. Two suggestions are the following:
(a) Congress might authorize proceeds of enemy property in the United States to be paid in dollars to recipients of Mixed Claims awards, German Government in turn issuing bonds in marks. These bonds to be given German owners of the German property so liquidated. The United States then assigning to the Germans for the service of these bonds the reichsmarks accruing to its account with the Agent General.
[Paraphrase.] On this solution Hill is hesitant. Owen Young and Gilbert have favored this arrangement and my own view inclines overwhelmingly to it.
(b) The reichsmarks might be allowed to remain on deposit in Berlin, and by some arrangement with the Federal Reserve Bank the Government could perhaps sell them to American merchants or bankers who have obligations to meet in Germany or elsewhere in reichsmarks. The merchants and bankers have to buy reichsmarks from someone and they might as well buy indirectly from the United States. This is a matter of banking machinery, but would in large measure assimilate our position to that of deliveries in kind.
The Department probably has additional solutions to offer, and I should like to have an expression of its views.
5. The British and the French in their adjustment of the Belgian debt question under article 232 of the Treaty of Versailles and Germany’s liability for this debt are proceeding on theory that the right of the United States can be disregarded, probably on ground that we have not waived our claim against Belgium and accepted Germany’s liability for it. There are two possible positions: The first is for us to insist on receiving a percentage of the annuity for satisfaction of the Belgian debt just as the British and the French proposed to do (with Belgium’s agreement) and that that percentage be proportionate to amount of our debt and the amount of British and French debts, and that that proportion be separate from and in addition to other claims against the annuities. I am aware that this [Page 111] may have the objection of linking our debt claims with the reparation problem, but it seems to me that appropriate reservations could at least safeguard our position. The other solution is for us to insist that Belgium receive the amount which we would receive if we were to claim it. Reason for this would be that Belgium owes us money, and that if Belgium instead of Germany is going to pay us, as was the real intent of the treaty, then Belgium ought to receive compensation from the German annuities. I should like to be informed which of these alternatives the Department wishes me to take, or if neither, what other suggestion the Department has to offer. This question of the Belgian debt will be among the questions early discussed and it is indispensable that I receive instructions without delay.
6. Am I to understand clearly that the United States is willing to abrogate the agreement of May 25, 1923, entirely and to incorporate new mode of payment of Army costs in any new instrument which may be drawn up by the Finance Ministers’ conference, or is it our Government’s position that the agreement of May 25 is merely to be held in abeyance? It is my opinion that the Allies will insist on agreement’s definitive abrogation and on the acceptance of a new scheme.
7. Is my understanding correct that if we accept a flat annuity and percentage it will not be necessary to state formally in any instrument that will be drawn up that we assert claim to interest on either Army costs or other claims? In my view it is preferable not to speak of interest, and if interest must be covered to try to cover it by increasing our percentage demands.
8. If the United States does ultimately give credit to Germany for ships or other property, how, in practice, would the credit be given; i. e., against current annuities or on capital claims, with result that the number of annuities would be reduced? I suggest that latter position be taken.
The Department will aid me greatly by giving specific answers promptly to these eight questions. Logan. [End paraphrase.]
- Telegram in five sections.↩