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

462.00R296/2773b: Telegram

The Secretary of State to the Chargé in France (Armour)

Washington, April 8, 1929—7 p.m.

102. Reparations Number 72. [For Wilson.]

Please bring the following strictly confidential message immediately to the attention of Mr. Owen Young:

“The following memorandum has been prepared by the Secretary of the Treasury in the statements of which this Government is in entire agreement:

‘I am very much disturbed at the course which is apparently being taken in Paris in the matter of the settlement of reparations as reported in the attached cable from Owen Young²¹ and in the article appearing in the New York Times under date of April 6, 1929.

1. Previous cables from Mr. Young have described a proposed International Bank which is to be set up and the principal duty of which will be to collect reparation payments from Germany and to distribute them, whether in cash or payments in kind, to the creditor governments. In this connection you will remember that it is suggested that the Governor of the Federal Reserve Bank of New York, or some one that he might designate as an alternate, should serve as a director of the proposed International Bank.

2. It is now proposed, both by Mr. Young and his American associates and the creditor governments, that German reparation payments be divided into two categories: (a) Payment in satisfaction of the internal claims of the creditor governments resulting from the damages alleged to have been sustained by the civilian population. These claims are apparently to be unconditional, irreducible and to be paid over a shorter period of time than those in category (b). (b) Payments in this category are to correspond, dollar for dollar, to the payments to be made by the so-called creditor governments to the United States under the various debt settlement agreements, the periods of payments to correspond exactly to the periods of payment provided for in the debt settlement agreements. In this connection they apparently then go so far as to provide that the moratorium privilege extended in our debt settlement agreements shall apply to German payments in this category, the net effect of which would appear to be that when Germany fails in any given year to make a transfer the governments that are debtors to us will exercise the moratorium privilege.

3. In the article appearing in the New York Times it is suggested that the amount which we receive in satisfaction of the claims of American citizens, which are now being satisfied through the machinery provided for by the Settlement of War Claims Act of 1928,²² may be diminished.

It is apparent from all of this that the position which has consistently been taken by this Government, that the payments of the war debts to this country were entirely independent in so far as the United States is concerned from any sums that the allied governments might collect from Germany, is being most effectively nullified. Theoretically we may still maintain that our position is unchanged but practically Germany will be paying her obligations directly to an International Bank on the Board of Directors of which our Federal Reserve System is represented in the person of the Governor of the Federal Reserve Bank of New York, and these payments will be transferred directly to us by the International Bank in payment of the obligations of the British, French, Belgian and Italian Governments. In other words, we will be collecting reparations from Germany in satisfaction of the allied debt to us through the means of an International Bank which we have created and in the management of which we participate through the person of one of the principal officials of our Federal Reserve System.

In so far as the payment of the mixed claims is concerned, I feel most strongly that the annual payment of Germany should not under any circumstances be reduced below the amount payable under the standard annuity. The Settlement of War Claims Act which provided for the satisfaction of the just claims of our own citizens and incidentally provided for the temporary holding of 20 per cent of the property of German citizens, which, as a matter of policy, we were unwilling to confiscate, was based on the assumption that we could rely on the payment of such an amount over a considerable period of years. If that amount is reduced it will destroy the basis on which after so many years of effort these very difficult problems were finally adjusted.

It is impossible for me to draw any other conclusion but that the American delegates have failed to maintain the position consistently taken by their government and that their failure to do so may have unfortunate consequences in the future in so far as the protection of America’s interests are concerned. If the settlement goes through as planned, for all practical purposes the United States will be the one creditor nation. The whole burden of the collection and transfer of reparation payments will fall on our shoulders and the allied debtor nations will have succeeded, by including Germany in their ranks, in creating a solid European front which will exert continued pressure for the reduction and the eventual repudiation of these debts. In the meanwhile they will have created a most unfavorable popular atmosphere in this country for the capitalization of future payments and for the ultimate settlement of these debts on a fair and reasonable bases.

In summary—

1. That under no circumstances will Mr. Harrison or any other official of the Federal Reserve System be permitted to serve as a director of the International Bank or to name a director.

2. That our Government would consider it most unfortunate, both from the standpoint of public sentiment in this country and such future steps as might be taken in the matter of a final settlement of war debts, if the proposed payments by Germany are divided into two categories, one of which is to be made to correspond exactly to payments by the allied governments to this country.

3. That our Government cannot consent to a reduction of the payments to be made for account of mixed claims below the amount provided for under the standard annuity.’”²³

Stimson

21. Telegram No. 115, Reparation 201, supra.
22. 45 Stat. 254.
23. Laid down in the agreement of January 14, 1925, Foreign Relations, 1925, vol. ii, pp. 145, 149.