The Chargé in Great Britain ( Atherton ) to the Acting Secretary of State
[Received July 20—10:42 p.m.]
255. From Stimson. The session of the Conference this evening was opened by MacDonald with a statement, later given to the press, in which he praised President Hoover’s courage and statesmanship in proposing the moratorium on intergovernmental debts. At MacDonald’s request, Laval followed with a summary of the conversations in Paris and the events which led up to them. As for the conversations between the Germans and the French, Laval also read the communiqué which was issued last night by the French.98 He gave no additional details but his entire statement was conciliatory in tone and he expressed a sincere desire to reach not only an immediate but a permanent understanding with the German Government. He expressed his satisfaction with the Paris conversations and with the friendly and frank attitude of the Germans. He said that both parties were in agreement on the fact that without cooperation between them there could be no hope of confidence in Europe and that neither the French nor the Germans intended to consider their meeting as an isolated event. Laval took this occasion to remind the conference that the French had made a concrete suggestion, although it was only a suggestion and not a precise plan.
At MacDonald’s request Germany’s financial position was set forth next by Bruening. Bruening said that the budget had been balanced by the drastic step of the emergency decree of June 5. He said that the President’s proposal was of the greatest value and that among other things it had helped Germany pay back a certain amount of short-term credits. However, in July Germany had lost 300,000,000 marks in short-term credits.
Bruening said that a peculiar characteristic of the German financial system was that the covering for their currency was founded on foreign exchange and short-term credits. It was for this reason that the withdrawal of short-term credits was an especially serious matter. He said that in line with the emergency resolution of the Reichsbank directors the reserve had been reduced below the required minimum of 40 percent to as low as 35.8 percent on June [July?] 15. He indicated that the German banking difficulties were closely linked with those of other European countries. The present emergency had begun [Page 299] with the financial difficulties in Austria and also with certain Dutch banks. He stressed the fact that Germany was doing all she could to help herself and mentioned in this connection the recent emergency decrees. He said in addition that at the very outset of the depression Germany recognized that a weak spot in her system was the dependency of her reserve on short-term credits, and so they utilized deflationary measures almost too rapidly. When they tried to carry out their obligations as long as possible a most dangerous situation was created for the financial system and for the political viewpoints of the German people. In conclusion he urged two remedies: the stopping of further withdrawals, and a safe coverage for their note circulation. He felt that this required a substantial sum of new money. He said that the loan recently made of $100,000,000 had had the strange effect of stimulating withdrawals, since creditors used it as an opportunity to get out. He said that the new credits should amount to approximately $375,000,000.
At this point MacDonald summed up the situation which had been presented to the Conference in the following terms: that the German Chancellor desired to halt any further liquidation of short-term credits and to get a sufficient amount of new credits to furnish an adequate covering for their note circulation; that Laval suggested a loan to Germany conditional upon an agreement with Germany on “certain points” and on international participation in the loan. Both Bruening and Laval agreed to this statement of the case.
Then the meeting adjourned until 10 o’clock tomorrow morning. [Stimson.]
- See supra. ↩