800.51 W 89France/369

The Secretary of State to American Diplomatic and Consular Officers

No. 529

Gentlemen: There is enclosed, for your information, a copy of a translation of an extract from a leading article in Le Temps of Paris, July 18, 1926,26 which is a comparative analysis of the agreements for payment of war debts recently negotiated with France by Great Britain and the United States, respectively.

It is felt that study of this article will be useful in case of further prejudiced or ill-informed criticism, from whatever source, of the alleged rigor of the terms of the American agreement compared with the terms of the British agreement. The source of the article makes it particularly valuable as a refutation of such criticism.

There is also enclosed a memorandum, prepared in the Department of State, comparing the American debt settlement with France with the several agreements which constitute the British debt settlement with France. While the statements contained in this document are not confidential, it is not desirable that they be quoted or used as originating in a study made in the Department of State.

I am [etc.]

Frank B. Kellogg

Comparison Between British and American Debt Settlements With France

The settlement of the French debt to the United States is contained in a single agreement providing for the liquidation of all sums borrowed by France during and after the war. In the case of France’s debt to Great Britain, however, bank advances and obligations for purchase of war supplies have been treated separately from what is termed “war debt”. In comparing the two settlements, therefore, it is necessary to take on the one hand the several agreements between France and Great Britain and on the other hand the Franco-American agreement. To compare the latter merely with the Franco-British agreement of July, 1926 would be unjust.

According to statements on pages 59 to 72 of M. Clementel’s “Inventory of the Financial Situation of France”, 1924, the payment of [Page 103] France’s debt to Great Britain in respect of surplus war supplies is regulated by two agreements of July 1920 and March 1923. According to the agreement of July 1920, France undertook to pay Great Britain in 1925 the sum of £2,226,069:10:1 in respect of war supplies delivered to certain French ministries. This agreement provided for 6 per cent interest. The agreement of March 1923 provided for payments as follows:

1924 £750,000
1925 750,000
1926 1,250,000
1927 1,000,000
1928 1,250,000
1929 1,000,000

The Bank of England advanced a total of £72,000,000 to the Bank of France, this debt being represented by French Treasury bonds. These bonds were discounted at a rate of 1 per cent greater than the discount rate of the Bank of England, but it was provided that the-interest rate paid by France should in no case be less than 6 per cent. The Bank of France furnished a deposit of gold equal to one-third of the loan. Certain payment in 1918 and also in 1922–23 reduced this debt to £55,000,000. According to an agreement of April 1923 this, debt was to be repaid as follows:

1924 £5,000,000
1925 6,000,000
1926 7,000,000
1927 8,000,000
1928 9,000,000
1929 15,000,000
1930 5,000,000

The capital sum of France’s so-called “war debt” to Great Britain, as finally adjusted, was £445,218,387. The total sum of French obligations held by Great Britain, however, was increased £208,000,000 by the addition of interest making the total covered by the agreement £653,127,900. It is understood that the obligations have been in the form of 12 months French Treasury Bills which, as they fall due, have been replaced by new bills discounted at the discount rate of the Bank of England. It is the annual compounding of interest that has increased the principal of the debt by 46.7 per cent. With respect to the interest charged on these obligations, M. Clementel made the following statement in his “Inventory” (page 71):

“The rate of interest which was originally agreed upon was to correspond with that of the issues of British Treasury Bonds; thus it was increased successively from 3¼ per cent to 5½ per cent and 6 per cent which represented an actual burden of 6 to 6½ per cent in view of the fact that interest was paid in advance.

[Page 104]

“As issues of Treasury bills became irregular after 1916, the French Treasury bonds were thereafter discounted at the Bank of England rate; the interest then rose to 5 per cent and later, progressively, to 6 and 7 per cent, increasing the cost of our advances to more than 7½ per cent.

“This figure appears very high by whatever standard of comparison is taken, whether the average interest on the British long-time loans, which is not over 5 per cent; the rate granted by the United States to its debtors, which was originally 3 per cent and later 5 per cent; or the rate on all other inter-Allied debts, no part of which was as high as this rate.”

Summarizing, on the basis of these agreements, total payments by France to Great Britain on account of the three categories of debts, according to the agreement of July 1926 and other agreements described in M. Clementel’s “Inventory” are as follows:

1924 £5,750,000
1925 8,976,069
1926–1927 14,250,000
1927–1928 15,000,000
1928–1929 18,250,000
1929–1930 26,000,000
1930–1931 17,500,000
1931–1932 to 1956–57 12,500,000
1957–1958 to 1987–88 14,000,000

In the case of the Franco-American settlement, no distinction is made between so-called war debt, advances for exchange stabilization, commercial debt and advances to pay for surplus war supplies. The $407,000,000 representing French indebtedness to the United States for surplus war stocks is, of course, properly comparable with the indebtedness of France to Great Britain incurred for a similar purpose. Of the $2,933,000,000 of France’s other indebtedness to the United States, $682,000,000 represents advances to pay maturing commercial obligations of the French Government or to support the franc in international exchange. These advances are similar to those made by the Bank of France to the Bank of England.


(1) Had the principles of the British-French settlements been applied to the French debt to the United States, the $407,000,000 and the $682,000,000 would have been settled on commercial principles. The burden of such a settlement would have been far greater than the settlement actually made, and could not have been supported by France.

(2) The present value of the Franco-American settlement, on a 4¼ per cent basis, is $2,008,000,000, or 60.2 per cent of the capital sum advanced. The total present value of the several Franco-British settlements, [Page 105] on a 4¼ per cent basis, as of their respective dates, and the capital sums advanced are as follows:

War debt settlement,
July, 1926 £445,218,387 £260,660,000
Bank debt settlement,
April, 1923 £55,000,000 45,999,000
Surplus war supplies,
July, 1920 £2,226,069 2,429,000
Surplus war supplies,
March, 1923 £6,000,000 5,154,000

The total of the above present values is 61.8 per cent of the total capital sums, compared with 60.2 per cent in the case of the Franco-American settlement.

(3) The comparative burden imposed on France by the settlements with the two creditors during the early difficult years is as follows (in dollars):

British settlement American settlement
1926–27 $69,400,000 1st year $30,000,000
1927–28 73,000,000 2nd year 30,000,000
1928–29 89,000,000 3rd year 32,500,000
1929–30 126,000,000 4th year 32,500,000
1930–31 85,200,000 5th year 35,000,000

(4) The provisions relating to possible postponement of payments, to protect the transfer, are substantially similar in both the British and American settlements with France, except that the Churchill-Caillaux settlement provides for interest at 5 per cent on any payments postponed, while the Franco-American agreement provides for 4¼ per cent.

(5) The large amount of compound interest that was added to the capital sum advanced by Great Britain to France is primarily responsible for the fact that the principal funded in the Churchill-Caillaux agreement is over $1,000,000,000, or 46.7 per cent, greater than the capital advanced, whereas in the case of the larger debt to the United States, the excess due to interest is $685,000,000, or 20.5 per cent.

In the light of this comparison it is clear that France has had generous treatment from the United States and that the Franco-American basis of settlement is much more favorable to France than the Franco-British basis. Particularly this is true during the first five years, which will be most difficult for France.

Finally, it is important to note that France today owes the United States $1,655,000,000 for obligations incurred by France after the end of the war. The present value of the entire French-American settlement, [Page 106] at the rate of interest carried in France’s existing obligations is $1,681,000,000. In effect, therefore, America has cancelled the obligations of France for all advances during the war, and France in the Mellon-Bérenger agreement has undertaken only to repay the advances and obligations subsequent to the Armistice.

Supplementary Note

The bank debt of £55,000,000 discussed on pages 60–61 of the Clementel inventory appears to be quite distinct from the advances of £53,500,000 mentioned in paragraph 7 of the Franco-British agreement, which were made pursuant to the Calais agreement of August 1916 (see page 72 of Clementel inventory). The Calais agreement appears to have provided for an advance secured pound for pound by a deposit of gold. The provision in Article 7 of the Franco-British agreement of July 1926 whereby this sum remains as a non-interest bearing debt of France, is of course in consideration for the fact that Great Britain retains the gold deposit without paying interest. In this connection, attention is called to a colloquy in the House of Commons, April 9, 1923, in which Mr. Baldwin27 in reply to an inquiry from Colonel Wedgwood stated as follows:

“There is no connection whatever between the debt of the Bank of France to the Bank of England, and the gold deposited with the Bank of England in connection with French Government debt to the British Government.”28

The Department has no information to indicate that the agreement of April 1923 described on page 60 of the Clementel inventory has been modified.

  1. Not printed.
  2. Stanley Baldwin, British Chancellor of the Exchequer.
  3. See Great Britain, Parliamentary Debates, Fifth Series, vol. 162: House of Commons (London, 1923), cols. 887–888.