863.51 Relief Credits/7a
The Secretary of State to the Secretary of the Treasury (Mellon)
Sir: With reference to this Department’s letter of December 8 and to previous correspondence regarding the Austrian relief indebtedness to the United States and the proposed flotation of a new Austrian loan, I have the honor to transmit herewith a copy of a note of December 6, 1927, addressed to the Department by the Austrian Minister at Washington. I also transmit a copy of despatch No. 1629, dated November 30, 1927, from the American Minister at Vienna on the same subject.
The note of the Austrian Minister makes the specific proposal that an agreement be made at this time for the funding of the relief debt; that actual payments should not begin until 1943; and that from 1943 “the whole debt (capital and interest) should be paid in 25 equal yearly instalments, and that these instalments should also include an amount corresponding to the loss on interest which the creditors suffered by non-payment of agreed upon instalments due prior to 1943”. The Austrian Minister stated in conversation on December 5 that the proposed funding of the relief debts was on the supposition that the relief debt creditors will raise no objection to the new loan, and will give it precedence until it is paid off in 1958. The note, however, does not raise this question but inquires only “whether in principle the Government of the United States would accept to enter negotiations for a settlement of relief debt credits along aforementioned lines”.
[Page 464]Despatch No. 1629 of November 30 indicates that at that time the Austrian Government desired that the funding of the relief credit bonds and the subordination of the lien of these bonds to the new Federal loan be not considered together. It was apparently the intention of the Austrian Government to propose to the International Relief Bonds Committee meeting at London that the relief creditors subordinate the lien of their bonds and that as soon as the new loan has been floated the question of entering into a general funding arrangement for the relief credits be taken up.
On December 14 the Department was informed by Mr. Leffingwell of J. P. Morgan and Company that discussions were going on in London between the Austrian Government and the European Relief Creditor States. It will be remembered from Reparation Commission Annex 3258 B–1, a copy of which was transmitted to you by a letter of October 21, 1927,31 that an International Relief Bonds Committee, representing the Governments of Denmark, France, Great Britain, Holland, Italy, Norway, Sweden and Switzerland met in Treasury Chambers, London, and, on or about July 14, 1927, agreed with the Austrian Government to replace the bonds of Relief Series B of 1920 with renewal bonds maturing January 1, 1943, and bearing 5% interest. You will recall that a secretary of the American Embassy at London attended meetings of this Committee during the last half of 1924. The Department, however, has since that time not been in direct touch with the proceedings of the Committee. It may be noted, in passing, that the settlements which this Committee has negotiated with relief debtors have been much more favorable to the creditor governments than the settlements which the United States has negotiated with its debtors.
The Department has orally assured the Austrian Minister that his formal proposal for the funding of the relief debts would be given prompt consideration by this Department and by the Treasury Department. In this connection, you will note the statement of the Austrian Minister that his Government has made the same proposal to the governments of the eight other relief creditor States.
Since substantial unanimity of action on the part of these governments will be required if the proposed funding is to be carried out, there is no occasion, pending further developments, to consider making at this time any affirmative commitment regarding the eventual attitude of this Government. This Department, however, feels that, if you concur, the Austrian Minister might now be informed that this Government is in principle disposed to consider at this time an arrangement for payment of the relief obligation commencing in 1943, but that it desires a more specific statement of the proposal [Page 465] before a further expression of views can be given him. Before addressing any communication to the Minister, however, I shall be glad to have an expression of your views on the subject. I shall also be glad to receive such comment, if any, as you may care to make as to the desirability of the Government of the United States endeavoring to keep in touch with the discussions between the other relief creditor States and the Austrian Government.
For convenience of reference in connection with the general subject, I transmit herewith for your confidential information a copy of Annex 3271 D–2 of the Reparation Commission,32 which contains documents bearing upon the proposed loan, including a statement of “reasons which led the Austrian Government to submit a proposal for authorization to contract a loan to cover capital expenditure”.
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Assistant Secretary