Memorandum of a Conversation at the Residence of the American Ambassador in France, July 16, 1931, at 3:45 p.m.
Present: M. Flandin, French Minister of Finance; Mr. Arthur Henderson, British Secretary of State for Foreign Affairs; Secretary Stimson; Ambassador Walter E. Edge; Mr. Henderson’s Assistant; Mr. Allen T. Klots.79
The main purpose of the conference was to get Mr. Flandin’s description of the proposal which had been worked up by the French Ministry of Finance and which was outlined this morning.[Page 266]
1. As to Germany’s need. Mr. Flandin stated that when Luther was here on Monday he said that the foreign short-term credits loaned to Germany amounted to about eight billion reichsmarks. On Monday about three billions were withdrawn. The French estimated that at present there are about five and one-half billion of such short-term loans to Germany, or about $1,400,000,000. His estimate was that about three and one-half billion reichsmarks consisted of deposits and about two and one-half billion reichsmarks trade acceptances. (This does not seem to check exactly with the figures which the President stated over the telephone last night to the effect that there were $800,000,000 in trade acceptances outstanding.)
Governor Moret of the Bank of France estimates that a loan of $500,000,000 to Germany at the present time would be probably adequate to meet the situation provided the foreign banks continued to leave on deposit in Germany approximately the same amount as now exists and continued to hold approximately the same amount of trade acceptances. In answer to a direct question put by Mr. Stimson both Flandin and Henderson said that the English banks and the French banks would join the United States in continuing to hold approximately the same number of trade acceptances as they now hold. Flandin said that France held about $45,000,000 of trade acceptances and had no cash deposits.
2. Flandin’s proposal as to the disposition of the sum of $500,000,000 to be raised is as follows: This money is to be deposited in the B. I. S. to the credit of the Reichsbank and not to the credit of the German Government. The use of the fund by the Reichsbank is to be supervised and controlled by a committee made up of a representative of each country participating in the loan. The loan is to be secured by the receipts from the German Customs. It is proposed that this committee is to have similar control of the German Customs and functions similar to those of the Commissioner of Controlled Revenues under the Dawes Plan.80 This Committee is also to have supervision of the use made by the Reichsbank of this credit. This control will be guided by an examination of the weekly balance sheets of the Reichsbank, a consideration of its reserves and will be exercised to prevent extension by Germany of credits to foreign countries unless the committee approves. The French say here they have particularly in mind the credits by Germany given not only to Russia but to Turkey. The committee is not to limit the normal commercial use of the Reichsbank’s funds within Germany itself.
The pledging of the customs as security was suggested by Mr. Flandin because it was one of the services pledged under the Dawes [Page 267] Plan and under that plan it worked well and the fact that it had been pledged before should make it more feasible to secure its pledge again from Germany. Flandin stated that the customs amounted to more than two billion marks.
The loan is to cover a period of ten years.
3. As to the methods of raising the loan and the amounts to be raised by each country, Flandin first suggested that $250,000,000 should be raised in the United States and $250,000,000 in Europe. Mr. Stimson and Mr. Edge at once objected and stated that the United States would under any circumstances only consider taking the same amount that France and England each would take. Flandin appeared to agree to this but Henderson said nothing. This would mean that the United States, England and France should each raise $166,000,000. So far as France and England were concerned, it would probably be impossible to sell bonds to the public on this loan without a government or inter-governmental guarantee of England and France. While this was maintained as to the French position, Mr. Henderson made no comment as to the British position. It was not made clear as to whether France and England were to guarantee jointly all the bonds issued in their countries or whether England was to guarantee the bonds issued in England and France was to guarantee the bonds issued in France. So far as the American participation was concerned the details would be left entirely to the American banks and the Americans could decide for themselves whether the participation would be taken by the banks or whether the bonds would be sold to the public. It was understood in view of what Secretary Stimson had said this morning that the guarantee by the United States Government of the bonds of the American participation would be impossible. All bonds, however, are to enjoy the same security to be furnished by Germany through customs and committee control.
Mr. Flandin said that the suggestion of his Ministry had not yet been presented to the French Council of Ministers and it was therefore only tentative. It was to be presented however at the meeting this afternoon at five o’clock.
The question was then discussed as to when the Germans were coming to Paris. The understanding this morning was that the invitation would not be issued until after the meeting of the Council this afternoon. Some concern was expressed as to necessity of holding the meeting promptly. Mr. Flandin said that unless some communiqué was issued on Monday a very serious situation might develop.
I am not sending by telegraph the details of this morning’s conference since they were all rediscussed as above this afternoon and considerably clarified. However, Secretary Stimson made it clear at the morning’s conference that the United States could not under [Page 268] any circumstances consider guaranteeing even jointly or individually any loan and reserved our position as to all other features of the French proposition.