Papers relating to the foreign relations of the United States, 1929, Volume II

462.00R296/2773: Telegram

The Ambassador in France (Herrick) to the Secretary of State

Paris, March 28, 1929—8 p.m.
[Received March 29—2:54 a.m.¹⁹]

115. Reparation 201. Personal for the Secretary.

[Paraphrase.] Following is text of memorandum referred to in Young’s statement contained in my telegram No. 114, Reparation 200. Memorandum was prepared and circulated by the British, French, Belgians and Italians, who are the four principal creditor groups: [End paraphrase.]

“After seven weeks of negotiations, the general lines of a new scheme facilitating for Germany the complete and definitive settlement of the problem of reparations has been sketched out in collaboration with the German group. It now remains to fix the annuities which will be payable under this new regime.

Upon the basis of the Dawes Plan the annuities reached two and a half milliards of gold marks and increase according to the movements of additional prosperity. These are the annuities that are payable at present and which will continue in being under the conditions established by the Dawes Plan if no agreement has been reached.

The Governments alone are able to modify these figures but the experts can propose different ones within the framework of a new plan.

By reason of the necessity for opening the discussion upon the annuities on a basis which will permit of reaching a solution acceptable to all the following procedure is suggested:

(1) To replace a part of the advantage of the index of prosperity by a participation by the creditor states in the profits of the International Bank and by the commercialization of a part of their credits which can be carried out by means of the bank;

(2) Readjustment of the standard annuity constitutes covering actually at the moment two categories of needs:

(a) A part covering the exterior debts of the creditor European states towards the United States of America;

(b) The other part covering the internal claims resulting from damage sustained by the civil population—damage the existence of which justifies the whole of the allied credit.

Subparagraph (a) As to the debts, 1,350,000,000 are indispensable as a constant annuity over 58 years to discharge it in full. At the moment, these annuities amount only to 870,000,000 but they will grow to reach 1,700,000,000 towards the end of the period. The difference between 1,350,000,000 and 870,000,000 is at present kept as a balance by the European creditor states. In view of the fact that the new system permits the creditor states to mobilize their annuities, id est to have capital receipts in the immediate future, the creditor nations can give up these temporary surpluses and agree to distribute these payments, following exactly the scale of payments made by each nation to the United States.

The first part of the annuity can thus be lowered from the start from one thousand three fifty to eight seventy millions which will reduce considerably in the beginning to [the?] budgetary chargé on Germany. This part of the annuity will be divided into two sections, one subject to transfer postponement corresponding to the debt annuities of each country, so far as these are subject to moratoria, and the second being an ordinary unconditional portion payable in any case.

A part of the profits of the International Bank may be assigned to Germany and mount up to allow her to cover, after 37 years, all or part of the annuities remaining due for debt payment, the German budget having only (but being obliged) to complete the balance not covered by the product of the German share in the bank profits.

Subparagraph (b) The second part of the annuity should be made unconditional and mobilizable; its period which the creditor states might limit to 58 years would be converted to 37 years, the present value being kept unchanged. The experts of the creditor nations, knowing the interior needs of their respective countries, are ready to study, each so far as it concerns himself, the reduction of their shares of the second part of the annuity thus calculated.

They are ready to open on this basis negotiation figures with the idea that it is possible to arrive by this procedure at results acceptable to all.

Their proposition has no other aim than to furnish a basis of discussion to facilitate putting into practical application the program whose essential features have been traced in the course of the committee’s work during its first weeks of session.

This program, if taken as a whole, appears to them to meet the situation because it makes it possible to relieve the problem of reparations of all political character, to get rid of the flagrant controls which limit German sovereignty and the uncertainties which weigh upon her credit and her economic life, to create the International Bank with its great advantages for Germany, and finally to facilitate international rapprochement and the development of world prosperity.”

Herrick

19. Telegram in two sections.