The Acting Secretary of State to the Chargé in Great Britain (Atherton)
219. For Stimson and Mellon. With reference to my telegram No. 218 of July 19, 1 p.m., the following considerations may come up in the discussions of the Conference:
- Although the American proposal is simply a first step, it is possible that it will be held that it is inadequate to take care of the present situation. In this regard the banking world has no information of a convincing or satisfactory nature. Naturally it is felt in Germany that more credit is needed; but without further evidence it will be impossible to satisfy the banking world on this point.
- It should be understood in Germany that because of their crisis the entire world of finance has been placed in a very precarious position and that it is much more difficult now to provide further credit than would have been the case 3 months ago. It is necessary first of all to bring back confidence even though for a certain length of time Germany should be short of working capital. Furthermore, Germany should realize that at present the entire world is short of capital, and that each nation is now endeavoring to bolster up its own economic structure.
- On the 20th of June when Mr. Hoover made his offer, there was a practical cessation of the external run on Germany, but unrest developed again both in Germany and abroad as a result of the delays on the part of the French in accepting. In consequence from various quarters there has been a demand on Germany to furnish [Page 284] exchange against a large proportion of these short-term credits. The Hoover proposal has been undermined as a consequence of these demands. According to information which has come to us, the banks in the United States have stood up to a very large percentage and certain of these banks have even complied with demands for additional aid. The French, on the other hand, are said to have reduced their holdings of German short-term credits by more than $200,000,000. Moreover, the banks of Italy, Holland, Denmark, and Switzerland are said to have done the same thing. The present situation has come about principally because of the action by these groups of banks; and it is their moral obligation to assume their share of the world burden and restore these credits. Such a result can be obtained in either one of two ways: Each nation should bring back its situation with respect to Germany to what it was on June 20 or, alternatively, each country should restore its credit up to the same proportion of its June 20th credit as the proportions which have been maintained by the American and British banks to date as compared with June 20th. That is to say, if American credits were decreased during this period by 20 percent, then the other nations of the world ought to restore these credits to 80 percent of what they were on June 20th. The reply to this suggestion will doubtless be to the effect that these matters are private transactions; to which we can say that American and British credits have been held open through governmental influence which would have been equally effective and can still be made effective in other banking nations.
- It cannot be said that the American banks would not consider making some additional short advances; but they are entitled to know that other countries have restored the situation proportionately and that any new load that may be necessary will be borne by them in just proportions.
- It might be well for you to suggest, at some point in the discussions, that if other nations agree to maintain and build up credits to the amount of $120,000,000, the Government of the United States will agree to finance raw materials in cotton and wheat for such an amount at the same terms that credit is extended to Germany by other nations. Otherwise expressed, the American Government, instead of providing banking credits, would be able to open credits to Germany for the purpose of buying these raw materials from American governmental agencies. This kind of service amounts to the same thing as the extension of credits by banks.
- With regard to the assertion of the French Government to the effect that it is the only Government which is showing any willingness [Page 285] to face the situation, you can answer effectively by the following statement:
- The United States has put up already by the Hoover proposal two and one-half times as much as France has. Over one-half the entire burden of Germany’s short-term credits is carried by American banks; while less than 5 percent is carried by the French. Even since President Hoover’s offer was announced the French have further embarrassed the situation by reducing their credit. It would be of advantage if the French would agree at the conference to restore these credits in the same proportion as the credits still held by Americans, who have maintained their short-term holdings at the request of the President. The Government of the United States is willing to help extend German credits either through increasing the outstanding American banking credits or, in any case by supplying raw materials as stated above, on condition that other banking nations agree to render assistance in proportion. In order that these various matters could be considered, we made the suggestion in telegram No. 218 of a committee.
- According to indirect information received from the officials of the Reichsbank, we are of the opinion that the immediate needs of the moment can be provided for by keeping the lines of credit outstanding at present open. There is no doubt that the situation can be handled successfully if other banking nations will build up their credits to the same level proportionately as that maintained by the Americans now in comparison with their June 20th level. The American Government is afraid, however, that if the success or failure of the Conference is considered dependent on whether or not a new sum of money is provided for Germany, the entire world will be on edge until such a loan is consummated; and it should be remembered moreover that the loan may prove a failure. If, on the other hand, the immediate step is taken of keeping open the lines of credit which now exist, there will be a general feeling throughout the world that stabilization of the situation has been achieved. The world will begin to regain its confidence; and from this restored confidence will arise the possibility of taking additional steps.
- In view of the fact that France has already withdrawn all but a very small portion of its short-term credits, you will appreciate the fact that, if other nations agree to maintain these credits, we can for the present save Germany without the help of France. Moreover, the force of public opinion, which ultimately made it impossible for France to turn down the Hoover offer, will once more force her to join with us. For these reasons, we are not dependent on action by France; nor do we need to agree to any demands of a political [Page 286] nature which the French may make of the Germans, nor need we be involved by the French in any manner unacceptable to us.
There is no doubt that in case France should be willing to give money to Germany in exchange for political concessions and if these conditions should be accepted by Germany, confidence in Germany would be completely destroyed, and her collapse would be precipitated. Consequently we are not in sympathy with encouraging France to put out money for Germany under the conditions set forth in the French proposal; nor would Germany gain anything by accepting money under political conditions such as these, which would cause the confidence of the rest of the world to be lost. In brief, the London Conference is not subject to French dictation.