462.00R296/2768: Telegram
The Ambassador in France ( Herrick ) to the Secretary of State
84. Reparation No. 190. Message from Owen D. Young follows:
“Experts Committee has been in session three weeks. First week was devoted to presentation by Germans of economic situation in Germany principally directed to establishing their contentions that Germany must pay over the frontier not less than one billion marks [Page 1030] per year for the services of her private debts of thirteen billion marks principal; that of these borrowed thirteen billions not all has gone into productive enterprises, some of amount having been wasted or lost, especially in agriculture; and therefore as a consequence the liquid capital supply in Germany created by the loans is not in excess of face value of the loans; that Germany also has in addition a large amount of foreign bank deposits and other short obligations not offset by more than 25 or 30 percent of the corresponding German obligations in other countries. Although the Germans did not seriously challenge the figures in Gilbert’s9 latest report, they objected to optimistic tone it carried and to the inferences to be drawn therefrom.
German position was that, in view of facts presented, if transfer protection were to be abolished Germany could not safely assume obligation to pay annually over the frontier more than one billion marks on reparations, which with the out-payment service of her private loans would make altogether two billion marks per annum.
The Committee devoted the second week to discussion of the number of annuities and amounts of each. With regard to number, Germany took position that Treaty of Versailles in express terms looked to discharge of all war obligations in one generation;10 while she disliked many things in that treaty, she did like this particular one, and, having accepted the treaty, she proposed to claim the benefit of this particular clause in it. Her position is that there is no reason for Germany’s yielding her position in regard to one generation merely because the Allied Governments have extended their payments over two generations or more.
Question of number of annuities was then laid aside in order to take up investigation of what amount of annuity Germany would be able to pay, measured by her capacity. Result was three-point discussion: (1) How much could Germany pay unconditionally; (2) how much could she pay conditionally; (3) how much in deliveries in kind could she pay?
Subcommittees were set up for the study of each of these questions.
Lord Revelstoke was made chairman of the subcommittee on unconditional payments, which has been working principally on question of how these payments should be set up and what machinery ought to be created to handle their mobilization and their commercialization if, sometime in the future, commercialization were to take place.
Subcommittee on conditional payments, of which Sir Josiah Stamp is chairman, has been working on question of transfer, as only distinction [Page 1031] between conditional and unconditional payments is that former are to be subject to a moratorium which Germany may declare for period not to exceed two years and which corresponds to similar provision in the American debt settlements. Moratorium applies only to transfers, and does not exempt Germany from obligation to raise through taxation and to pay internally the amounts required during moratorium period for service of the conditional payments.
This subcommittee has also had under discussion the question of an advisory council from the creditor nations to come into existence (1) on Germany’s call or (2) in case of default on her part to advise either the German Government or the creditor powers, or both in regard to the situation.
The third subcommittee, of which Perkins is the chairman, is working on deliveries in kind in endeavor to see to what extent they can be used, say over a period of ten years, to facilitate transfers from Germany. For the first year it is thought that deliveries might run as high as 750 million marks, gradually diminishing year by year to the end of the period to 300 million marks, thereby easing the shock on German industries when such deliveries cease.
During the third week we have held only one meeting of the main committee, which took place on Monday. Rest of the time has been devoted to work by the subcommittees. Next Monday all will make progress reports to the full committee.
There are certain matters which fall outside the formal work of the Committee and the subcommittees. Important informal talks are going on and individuals are suggesting many different schemes which are not matured sufficiently to be brought formally before full Committee; of these, only two are important at present time.
First, is that in private conversation with me Schacht has indicated that over a period of approximately thirty years Germany would pay through unconditional, conditional, and delivery-in-kind obligations, amounts which our people have, computed to have present value, excluding the amount payable to non-debtor powers on a 4¼ percent discount basis, of about 6,540,000,000 dollars. This amount is about 650 million dollars less than present value of the out-payments of the creditor powers to the United States. Difficulty resides, however, in fact that when German payments are distributed in accordance with the Spa percentages11 the several debtor countries do not come out with pro rata deficits. On a present value calculation at 4¼ percent, Great Britain would show, in round figures, a deficit of 450 million dollars; in like manner Italy would show [Page 1032] deficit of substantially 490 million dollars; taken together these two countries would show a deficit of 900 million and one billion dollars. As for France and Belgium the former would show a surplus of about 220 million dollars and the latter approximately 65 million; together these two countries would show a total somewhere in the neighborhood of 275 million dollars. Thus the 650 million dollars deficit of Germany’s payments would be entirely undistributed. Also, while this excess would probably satisfy Belgium, it will not satisfy France, as she wants a larger contribution toward her own reconstruction.
Probably Germany will be willing to make some sort of a side trade with Italy which will alleviate that situation, and British Government may be willing to accept substantial deficit in order to get a settlement; this is especially likely if deliveries in kind detrimental to British industry are terminated within relatively short time.
I have not transmitted to the representatives of the creditor countries the foregoing figures given me by Schacht as I hope to improve his offer before beginning negotiations with the creditor powers.
Second important matter of the agenda is question of an international settlement and credit bank for handling of all the German obligations. The French and the Belgians would like to have all the German obligations put in one basket; then, if some were commercialized or mobilized, Germany would have to pay service on all in order to be sure that payment was being made on the commercialized obligations. That is to say, they would like to throw color of commercialized debts over entire amount of German obligations thereby diminishing risk of segregated and separate amount which might be held by bank agents of the creditor powers and therefore might be treated in future by Germany as political debts.
To effectuate this program a bank has been suggested by Francqui which would be a mere shell to hold the German obligations in their entirety and to collect from Germany the service of such obligations and to make the distribution of it to the interested persons whether they be private or Government holders.
On the other hand Schacht has proposed formation of an international credit bank into which Germany would pay substantial amount of capital, the shares issued against that capital to be distributed to the creditor countries in some agreed proportion. Under this plan it is contemplated that Germany also should have privilege of becoming stockholder.
I think that Schacht would make this payment in addition to figures which he has already suggested, as his object is to obtain establishment of a bank with a capital which can grant credits to develop international trade and will thereby be a means of enlarging the total international [Page 1033] business which Germany would be able to share through increased exports without being under compulsion of diverting existing business from other nations in order to make up her required export balance in addition to wiping out the average export deficit of two billions per year which she has had over the last four years.
The question which we are now studying informally is whether Francqui’s bank and Schacht’s bank could not be combined and act as trustee; receipt and collection of German obligations and their distribution to be in one department, another department to act as credit bank and promote international trade, and a third department to handle and finance deliveries in kind. If bank were to perform all these acts, there would be practically no further need for Reparation Commission, as far as Germany is concerned. Briefly, we could abolish Reparation Commission, withdraw from Germany all the receivership machinery of the Dawes Plan,12 obtain military evacuation and leave Germany a free and responsible power to deal, through the bank, with her own indebtedness. A bank of this sort would also be able to aid Germany in transfer, but it would not assume the responsibility for transfers. To sum it up, the world would be rid of all the war agencies and there would be turned over to the bank the machinery for handling the German obligations through the normal channels of finance and commerce, and thus, at one stroke, we would get rid of machinery which is largely political in character and which has been very embarrassing during the past decade because of that fact.
It would be agreeable to Schacht to have such a bank located at Antwerp. We have said that we would not have it located at Geneva, and Schacht wishes to avoid political capitals anywhere. I do not know whether anything will come of the bank, but we can see its great possibilities to aid in all these debt settlements of the future and thereby render the United States, as creditor country, less the football of politics and source of constant irritation in Europe.
The bank, it might be added, would be agency through which mobilization and commercialization, if there be any, would later take place. Indeed, the detail work of the three subcommittees described above would be merged into and become part of the organization of the bank if it were to be set up.
If such a bank as has been described can be organized, it possesses, I believe, so many advantages for each country that a satisfactory settlement on figures will be reached; if plans along this line are formulated I intend to ask Schacht to offer new proposal based on these new conditions.
[Page 1034]With regard to immediate flotation of a large bond issue in near future, I quote a memorandum which Lamont has furnished me; he has been sitting in with Morgan on the first subcommittee:13
‘There has been no discussion whatever as to the issuance in the near future of any large block of reparation bonds; any newspaper reports to that effect are unfounded. Members of Revelstoke committee have been discussing among themselves eventual plans which might ultimately make feasible the mobilization and sale of certain German annuities but no amounts or definite plans for issuance have as yet been talked of. Hitherto the socalled Revelstoke group has been engaged chiefly in outlining some mechanism which would be in shape to function towards the issuance of reparation bonds on a reasonable scale in the event that, subsequent to the issuance and adoption of the committee’s report, the Allied Governments should deem that market conditions were favorable for some such bond issue. There seems to be no present expectation here in any responsible quarters that prior to the adjustment of the committee any definite plan for bond sales will be laid out or agreed to.’
Neither in the Committee nor informally outside it has there been discussion of or any evident desire to discuss the debts due the United States.
This message is intended solely for the President, the Secretary of State and the Secretary of the Treasury. [Young]”
- Telegram in eleven sections.↩
- S. Parker Gilbert, Agent General for Reparation Payments; see Foreign Relations, 1924, vol. ii, pp. 135 ff.↩
- Art. 233, Malloy, Treaties, 1910–1923, vol. iii, pp. 3331, 3420.↩
- For text of the agreement between the Allies, signed at Spa, July 16, 1920, see Foreign Relations, 1920, vol. ii, p. 406.↩
- See Foreign Relations, 1924, vol. ii, p. 1; and The Experts’ Plan for Reparation Payments (Reparation Commission, Paris, 1926); also printed in Great Britain, Cmd. 2105: Reports of the Expert Committees Appointed by the Reparation Commission. ↩
- Quotation not paraphrased.↩