462.00R296/2910: Telegram
The Chargé in France (Armour) to the Secretary of State
233. Reparation 252. Following receipt of your 167, May 21st, I yesterday addressed to Pirelli, who presided over the meeting of the creditor groups at which I appeared on May 20, the following letter:
“At the meeting which I had with the representatives of the creditor groups on May 20, over which you presided, I stated the position of the United States Government as you will recall as follows:
That the President would recommend to the Congress:
- 1.
- That the United States agree to accept 90 percent of its Army costs, provided France and Great Britain make a similar concession. On this basis the United States would accept an annuity sufficient to cover this amount in 37 yearly payments with interest at 5½ percent on all deferred payments. I mentioned that my estimates were that this would require an annuity of about 32.8 million gold marks but that I wished to reserve this figure until I could obtain a more precise estimate and that I would communicate with you later.
- 2.
- That the United States Government agree to accept on account of mixed claims a flat annuity of 40.8 million gold marks to be paid yearly until the claims as covered in the settlement of War Claims Act are completely discharged. As nearly as could be estimated this would require a flat annuity of 40.8 million gold marks for 52 years, id est, for 37 years plus 15 additional annuities of 40.8 millions after the 37th year.
- 3.
- That the United States agree to place its payments on account of Army costs in the conditional class of the annuity, but, in view of its obligations to its own nationals who would be accepting a postponement of ultimate payment of their claims, it would require that payments on account of mixed claims be placed in the unconditional class.
With regard to the annuity on account of Army costs, I am now in a position to advise you that it is estimated that an annuity of 31,231,000 gold marks for 37 years will be required. This figure is arrived at as follows:
Deducting 10 percent of the total amount of the United States Army costs leaves a net amount due as of September 1st, 1929, of approximately 691,000,000 marks. Under the present plan the United States is receiving 55,000,000 marks a year which would retire the debt of 691,000,000 in about twelve and a half years. Interest at 5½ percent would run on the deferred paymentn, viz: on the difference between the 55,000,000 and the 31,231,000 marks beginning the first year. This would require as stated above an annuity of 31,231,000 gold marks for 37 years.
I should be glad if you would communicate the foregoing to the other representatives or the creditor groups who were present at the meeting on May 20.”
The situation as to provision for our claims are [is] as follows:
The creditor groups have reached agreement on distribution of the annuity given in their memorandum sent to Schacht yesterday (see my Reparation 25054). This distribution gives us in the first year April 1st, 1929, to March 31st, 1930, the amount of 92.2 millions. As explained in my Reparation 250, this first annuity is composed of 9 months of the Dawes annuity and 3 months of the new annuity of 2,050,000,000. We thus receive three-fourths of 100,000,000 or 75,000,000 plus 17.2 millions for the 3 months of the new annuity. Thereafter the proposal is to give us an annuity of 69.2 millions over 36 years. The creditors calculate that this, together with the annuity of 92.2 in the first year, will provide an average annuity of 70.5 millions for 37 years.
[Paraphrase.] Of course this is insufficient to satisfy American claims on the basis you lay down in your telegrams No. 165, May 19, and No. 167, May 21. Allocation of 40.8 millions for mixed claims would leave but 29.7 millions for Army costs payments. Deficit is further increased by fact that first annuity year would begin on April 1, 1929, while our figures are based on status of our claims as of September 1, 1929, after applying the payments which are to be received up to that date.
It will be very difficult, I think, to get creditor groups to increase our share in any material measure. There has been a struggle, as you will readily imagine, over every 100,000 marks and every group has [Page 1080] had to whittle down requirements which were supposed to be its minimum. Possibly I can obtain an increase of one-half or three-fourths of a million, but I have small hope of getting anything larger. For that reason I feel that we should carefully consider whether there is anything we can do to come somewhat nearer their figure; particularly is this true in regard to rate of interest chargéd. The 31,231,000 for Army costs annuity stated in your No. 167 was based, it is presumed, upon compound interest at 5½ percent on payments deferred. May I suggest that we should consider accepting interest at rate approximately what the United States would have to pay for money, let us say 4¼ percent. The following estimate has been made for me by accountants here:
On assumption that we receive 29.7 millions for Army costs over period of 13 years (12½ years would be more exact, but 13 years is basis of estimate), there would be deficit to be carried to deferred payments of 25.3 millions per annum; that is to say, 55,000,000 minus point 7. At end of 13 years the interest on these annual deficits at 4¼percent compound interest would amount to 90.2 millions. This amount added to the 305,000,000 of principal which would remain to be paid the 13th year comes to 395.2 millions, and the annuity required to produce this amount at 4¼ percent discount over remaining 24 years comes close to 27.3 millions.
If the above figures are approximately correct and would be acceptable to us, they would bring us very near the annuity which the creditor groups proposed for us. A slight deficit would probably still be left, due to fact that, as I have pointed out above, the annuities are to start as of April 1 and the foregoing estimate has been based on our claims as of September 1, 1929.
It may be added that, as far as I know, none of creditors has calculated claims on basis of 5½ percent interest. Only use which has been made of that figure has been in computing value of 74 proposed settlements.
If there is to be any settlement reached here, apparently it will be on basis of first annuity’s beginning as of April 1, 1929. I venture to suggest, therefore, that Treasury be asked to prepare figures on following lines:
Amount of the annuity for 37 years which would be required to pay our Army costs as they stood on April 1, 1929, after making deduction of 10 percent of total costs with interest at 4¼ percent on all deferred payments. If this amount added to the 40.8 millions for mixed claims fairly approximates annuity of 70.5 millions now provided for us, I may be able to obtain the difference. I should also appreciate confirmation by Treasury that an initial annuity of 90.2 millions plus 36 annuities of 69.2 millions would give us, in fact, average annuity of 70.5 millions value over period of 37 years.
[Page 1081]Certain difficulties are also offered by the 15 additional annuities of 40.8 millions for mixed claims. On basis of existing rights we could claim, so it would seem, only 2¼ percent of amount available for reparations after the 37th year. This amount will be about 1,600,000,000. Creditor groups, however, have agreed to add to schedule of annuities presented to the Germans statement to effect that 15 additional annuities of 40.8 millions will be required to satisfy the United States mixed claims. What German reaction will be to this I do not know, but if they are prepared to make settlement on basis of the new proposal they have received from the Allied groups, I should think that they would raise no very serious objections to these additional figures for us; particularly should this be true as the matter is bound up with return of German property in the United States. If this point raises any difficulty, I feel that Young will help as much as possible by talking with Schacht.
Early reply to points raised in foregoing would be appreciated, as a little time may be required to obtain any readjustments here. [End paraphrase.]