862.51/2141
The Assistant Secretary of State (Harrison) to the Secretary of State
Dear Mr. Secretary: The situation with respect to the general subject of German loans seems to be as follows:
Prior to October 9th, it was the practice of the Department to suggest that American bankers assure themselves that the financing in question would increase the productivity of Germany, and to call their attention to the provisions of the Dawes Plan, and, when necessary, to the provisions of Article 248 of the Treaty of Versailles. Subject to the foregoing, and in the light of the information at hand, the Department then stated that it offered no objection to the financing in question. The Department also used the customary formula in pointing out that it did not pass upon business risks or assume any responsibility.
From October 9th, the Department has been using the new formula71 which brought about objections on the part of the bankers, and a revision of which is now under consideration.
You will recall the statements made by Dr. Schacht and the claim that a new situation has been brought about by a change in the policy of the German Government. However, after repeated inquiries by cable to the American Embassy at Berlin, the most that [Page 184] can be said is that about October 21st a public announcement was made by the Advisory Board that it would take a stiffer attitude with regard to municipal, commune, and state financing, and, according to our information, the Board has done no more than to reduce somewhat the amount of proposed municipal and state financing.
Recently, Mr. Gilbert made public a statement of the attitude of the Agent General and the Transfer Committee with regard to the question of transfers.
From the foregoing, it will be seen that there has been little, if any, actual change in the situation since October 9th which in itself would justify us in modifying the formula which has been used since that date.
In accordance with your instructions I have discussed the matter informally with Mr. Winston,72 and I gather that as a matter of policy he does not wish to prevent German financing but merely, in stating that there is no question of Government policy involved which would justify us in making objection, to call the attention of the bankers to the question of productivity, difficulty of transfer, and, when necessary, Article 248. I attach a rough draft of a formula which he has sent me.73
I have not yet ascertained what position Mr. Hoover is likely to take since the receipt of the last report from Mr. Schurman, a copy of which was sent to him.
So far as I can see, the reasons which led the Department to adopt the formula of October 9th and since that time, have not been modified in any substantial degree. It would not appear to be wise, therefore, to depart in any great measure from the position taken in the formula of October 9th except as to the change in the situation brought about by Mr. Gilbert’s public statement.
I beg, therefore, to submit a revised formula for your approval.73