The Acting Secretary of State to the Ambassador in France (Edge)
362. [Paraphrase.] For Mr. Stimson. The loan plan proposed by the French Government is completely impracticable. Under the French scheme $500,000,000 would be loaned to Germany through the Bank for International Settlements for 10 years secured upon the customs, one-third each taken by France, the United States, and Great Britain and guaranteed by those governments upon public issue. It is clear that the Government of the United States has no authority for such a guarantee.
Such an issue could not successfully be offered on the American market without a Government guarantee. The proof of this is the fact that the Dawes and Young loans are now selling at a very heavy discount, and both of these have priority over all German payments. A loan such as the one contemplated by the French proposal and one which would be secondary to the reparations payments would be even less acceptable to the investor.
In addition the bankers here do not hold the conviction that the present crisis in Germany raises a demand for any such sum of money. If an acceptable plan can be worked out, one which is practicable from the standpoint of the present conditions of the money market, our bankers are inclined to cooperate.
It seems to us that Henderson’s statements to you as to the British attitude on the French proposals may have led to a misunderstanding on your part concerning the British position. The following is a note on a telephone conversation between Norman and Harrison. [End paraphrase.]
“Norman says things look very bad; that we are in for a bad weekend; the whole thing is boiling up; [he] has just left the Prime Minister and the Chancellor; the conference the British called for Monday is in danger of being cancelled, if it has not already been cancelled owing to the position of the French; he has just learned within the hour that the French have proposed a huge credit to be guaranteed by the Government; that it is impossible for the British to consider any such thing; that if they did so for Germany, they would have to do it for India, Australia, and so on; no possibility of London even considering it; Henderson is in Paris on disarmament and nothing else; that he knows nothing about the economic situation; that is entirely up to [Page 269] Snowden81 and not to Henderson; he mentions it so that he will not have any misunderstanding as to the significance of Henderson’s presence in Paris; another reason why the French proposal is impossible is connected with their condition as to customs receipts; it means that the bondholders would take charge of Germany again; would prejudice the Young Loan because it gives another security to a new loan that the Young Loan has not got; no such proposal can be considered; that Norman never heard of it until Snowden just told him; the British are apparently indignant about it. The French are insisting on no change in the fundamental position towards Germany, and it is for that reason the French are trying to break up the conference on Monday. Norman’s idea is that Germany does not need long-time money at this moment; what she really needs is the possibility of credit when required; she cannot get this credit, not because she has not got a good basis for credit, but rather because of political obstacles which it was hoped they might dispose of at their conference on Monday; that was the purpose of calling the conference; Norman says that the French are planning to get the Germans into a room tomorrow and put this huge loan up to them, and that in effect this is sham because they know that they are not going to get Governments to guarantee the loan.”
[Paraphrase.] In this connection you should keep in mind the fact that the British would be quite ready to open again the whole of the debt and reparations questions. Naturally we cannot consider this for a moment. On this point we believe that we have safeguarded ourselves in accepting the British invitation to a conference by insisting that it be confined solely to questions growing out of the present emergency. However we are glad to note that the British Government entirely agrees with us that the French plan is impracticable. If the Germans entertain any hopes based upon such a French proposal, it is unfortunate; for it is clear that neither we nor the British are able to cooperate in this plan of assistance to Germany. [End paraphrase.]
We hope you will not hesitate to reiterate that the American Government has already sacrificed $260,000,000 and produced for Germany an alleviation to the extent of $400,000,000 through the President’s debt suspension program and that no further sacrifices can be called for from the American Government, and that it is urgent that all plans for credit relief for Germany shall be placed on a purely commercial basis.
Mr. Stewart,82 about whom the President spoke on the telephone, is in London and has been instructed to join you to give you and Mr. Mellon his technical assistance.