862.51/2039
The Ambassador in Germany (Schurman) to the Secretary of State
[Received October 1.]
Sir: In connection with previous reports from this Embassy concerning the placing of American loans in Germany, I have the honor [Page 173] to call particular attention to the Department’s telegram No. 170, dated September 2, 6 p.m.54
As set out in my telegram No. 156, dated September 5, 5 p.m.,55 the German authorities have stated that the German Government is opposed to the indiscriminate contraction of loans by German municipalities, but that otherwise the press report of September 2 was incorrect. I added, for the Department’s confidential information, that a group of municipalities, advocating the policy indicated, had approached the representatives of the National City Bank here in an endeavor to secure loans, but that the bank had refused to consider their proposition.
I have discussed this matter with a number of the higher German officials and many of the leading industrialists and financiers, (see my despatch No. 147, of August 6, 1925),55 and their opinion, without exception, has been that, if American capitalists continue granting considerable loans to German municipalities, the result will be disastrous for the future of German Economy and will eventually lead to interference, on the part of the Transfer Committee, with the Transfer out of Germany of the interest charges involved. The Government has attempted to put a curb on the borrowings; but, on account of a lack of a dependable majority in the Reichstag, the German Cabinet must play more than the usual amount of politics and is not always able to take a firm stand under the provisions of the law which requires that municipalities must receive the previous authorization of the Government before contracting loans (An additional step in this direction has recently been taken by the Prussian Government: See my despatch No. 251 of September 455).
It is fully realized by German business men that, if reparations are to be paid and interest charges on loans now being contracted are to be met, it is necessary to take steps, without more delay, to bring about a change in the status of Germany’s balance of trade. To do this, it is obviously necessary to build up German agriculture and German industry; and it is extremely difficult to build them up at this juncture on account of high interest rates prevailing as a result of a lack of liquid capital (not to mention other well-known difficulties, growing out of the application of the Treaty of Versailles, so frequently described in the international press by Germans and German partisans). With this in mind, these men of business say that the only thing that can save them is the ability to borrow abroad (and abroad, [Page 174] of course, means America). They feel that they, and not the greedy municipalities, should have first call on all money loaned to Germany.
I take it for granted that American concerns which lend money here desire to be eventually repaid, and for this reason I am taking special occasion to ask consideration of the whole question. There are two points of view about lending money to Germany. One is that German industry, commerce, agriculture and finance are in a hopeless condition; reparations will never be paid; money loaned to Germany is thrown away. The second is this: it is a fact that economic conditions in Germany are not good at present, but they can be improved by letting Germany have enough money in the shape of loans to enable her to get back on her feet again. Once she is back on her feet again economically, she will find the necessary markets for her exports and be able to pay reparations and repay the money she has borrowed. The recent loan made by the National City Bank to the Rentenbank, for agricultural purposes, is a case in point. (See my telegram No. 159, dated September 14, 3 p.m.57)
It does seem clear that the first essential is for agriculture, and, after agriculture, industry, to be given a chance; and they will get the chance if they are able to borrow moderate sums abroad; but it is essential to bear in mind that they should not be permitted to borrow more than they can repay, and each application should certainly be scrutinized most carefully as to its merits.
With these factors in mind, I believe that the demands of the municipalities should be relegated to the background; and I have come to the conclusion that we can do no better service to Germany and to ourselves than to discourage the further placing of German municipal loans in America.
I have [etc.]
- The telegram reads as follows: “Press September 2 reports that German Government has adopted policy that municipalities will not contract any more individual loans but will unite to seek consolidated loans to be apportioned as required. Telegraph brief report and mail details.”↩
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