863.51/972: Telegram

The Chargé in Great Britain (Atherton) to the Secretary of State


196. For the President, the Secretary of State, and Mr. Mills. From Mellon. I am sending this to you in furtherance of my telephone conversation with Mr. Mills Tuesday evening and in response to a telegram signed by Mr. Mills sent through the State Department on Tuesday, June 15.33

I had a conversation yesterday with Mr. Henderson and the Prime Minister. I asked Mr. Atherton to transmit to the Secretary of State, for the information of Mr. Mills as well, the substance of this conversation. Governor Norman, with whom I went over the entire situation this morning, takes an extremely pessimistic view of the Austrian, German, and European situation. He is convinced that there would have been a complete collapse in the Austrian situation without his action in furnishing about four and a half million pounds sterling. The Bank was, he said, really without authority to advance these funds but he had taken this action with the approval of his Government because the collapse was so imminent. As to the position of the Reichsbank and conditions in Germany he is extremely apprehensive. The Prime Minister and Mr. Henderson were today very outspoken in their criticism concerning the terms of the French note to Austria in making Austria’s abandonment of its pact with Germany on the Austro-German Customs Union a condition. The action of the French in taking advantage of the financial exigency of Austria in an endeavor to have a scheme for an Austro-German Customs Union abandoned was characterized by MacDonald and Henderson as “blackmail”. A debacle in Austria or as to the Reichsbank would, the British fear, lead to csaos economically and politically not only in; those countries but spreading to Rumania, Hungary, and other Eastern European countries as well. I am convinced, while making allowance for the extremely pessimistic attitude of the authorities here, that the situation is very grave and has possibilities of serious consequences. Of course they are all very anxious that, in order to avert [Page 25] possible further untoward developments, something should be done on our part. While they hope that some action can be taken which would be helpful they understand the limitations of authority in our administration. The attitude of France is the unknown factor in the situation. I had a talk with M. Lacour-Gayet, now of the Bank of France, who came over at my instance. On account of our intimate personal acquaintance and because I wished if possible to get some background on the French situation, I felt free to ask him to come. I did not gain much information of importance from him, although he talked very freely to me. The action of the Government, he said, concerning the terms upon which the French would come to the financial assistance of Austria was taken in full discussion in the Cabinet. The action was unanimous. The authorities of his Government, he thinks, are inclined to resist any movement on the part of Germany to obtain relief and have lost confidence in Germany’s intentions regarding payments under the Young Plan. This is, however, only the personal opinion of Lacour-Gayet. I am convinced, upon the whole, that the conditions in the German situation are such that the German Government will be obliged to ask for relief under the arrangement of the Young Plan. It was stated to me by Mr. Henderson that France and Italy had already been advised, or, as he expressed it, warned by Germany that such action must be taken. There is danger that the Reichsbank’s precarious situation may precipitate such an action, which would result in serious political trouble to the German Government.

My personal judgment, in view of this situation, is that the President would be justified in initiating some proposal under our war debt agreements, toward a postponement of payments. The French, without payment from Germany, will undoubtedly refuse to continue payments under their agreement, and other countries will, it is most likely, follow that course so that in any event it seems most likely payments to us will cease for a time. Any proposal for postponement should, in my opinion, contemplate at least 2 years and that accumulations in that period should be put over to the end of the final payments. I should think it would be desirable to go to that extent to be of substantial assistance and to have the desired effect. I am at a loss to know, in view of the existing lack of authority of the administration, whether it is possible to take action to the extent suggested. However, I am making the suggestion that to be adequate something to this extent should be considered. I consider that it will be essential that the French should first be sounded out to ascertain their attitude and responsiveness whatever proposal is contemplated in Washington. There is danger that they may not be in a frame of mind to cooperate.

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Mr. Henderson expects to have a conversation with Briand and the Prime Minister about July 15, when he is to be in Paris. I think Mr. Henderson is to be in Germany about the 19th but so as to leave a clear field for Mr. Stimson, Henderson’s visit will be before Mr. Stimson arrives. The gravity of the situation is such that any proposal on our part would have a very beneficial effect at this time, so if some action is to be taken by the President I think the sooner it can be done the better. However, I am inclined to think that there is no immediate danger in the situation demanding action earlier than Mr. Stimson’s visit, to which all are looking forward with the hope that it will result in some measure of relief on our part. If there were great danger in the situation, I would say that action should be taken as soon as possible. In any event, the necessity is clear for whatever relief can be proposed on our part.

The Prime Minister has, since I dictated the above, sent me a message through Mr. Atherton that, in his personal opinion, due to the action on Tuesday of the Bank of England the French hand has been forced and French bankers have agreed to participate in the Austrian credit to the amount of some 65,000,000 schillings, the Prime Minister understands. [Mellon.]

  1. See telegram No. 165, p. 19.