The Chargé in Great Britain ( Atherton ) to the Acting Secretary of State
[Received 9:45 p.m.5]
257. From Stimson. This morning’s plenary session of the Conference opened at 10 o’clock at the Foreign Office. Mr. MacDonald said that the British had no special plan. He said that from the previous discussion there had emerged two points of view: whether a loan to Germany was necessary, or whether the stabilization of credits alone might not be sufficient.
The Chancellor of the Exchequer, Snowden, asked for more complete details on the French suggestion for a loan, which had so far been discussed only in the press. Laval stated that although there had been discussion in Paris of a loan, the immediate question was whether a loan was necessary or desirable. He agreed that the primary necessity was to stabilize credit, and expressed his feeling that this point would be clarified by a general discussion.
Dr. Bruening was then asked by the Prime Minister if he would state his views on what would be needed to halt the flow of short-term credits from Germany. Bruening did not think that a mere understanding that no credit should be withdrawn would be a complete answer. In order that the smaller banks would not continue withdrawals in spite of an agreement by the Central Banks possibly a deposit of rediscount credits or some form of guarantee would be essential. Bruening’s figures on the amount of credits held in the United States checked quite accurately with the figures given in your 221 of July 20, 2 p.m.,6 although he said that in addition to the $400,000,000 held by the principal New York banks, $250,000,000 of credits to small firms, small banks, and municipalities in Germany was carried by American banks beyond the immediate influence of the principal banks of New York. He said that France at the present time held only about 5 percent of the short-term credits of Germany but that England was holding about $400,000,000.
I then questioned Bruening as to what power the Reichsbank might have to prevent the flight of unorganized marks which might immediately occur, as soon as any proposal for relief should receive serious consideration, in order to avoid any penalty such as some banks [Page 302] have been suffering since June 20 while smaller competitors withdrew their holdings. I felt it vital to ascertain whether the Reichsbank had the power to prevent such flight, whether it could exercise such power and whether it would be ready to do so. After a good deal of discussion and the clearing up of some confusion as to my question, Bruening declared that the Reichsbank had this power as an emergency measure, although it was contrary to articles 29 and 31 of the Bank’s statutes. He said that since these articles had been passed in accordance with the Hague agreements,7 any change in them would require international consent and that if this could not be obtained the only alternative would be a moratorium on foreign payments. They would hesitate to take the latter step since the whole credit situation in Central Europe might be disastrously affected thereby. I indicated that any movement for aiding Germany participated in by the great Central Banks with their efforts to organize their membership to restore credits or at least to prevent withdrawals ought also to have the effect of restoring the confidence of unorganized credit and of the smaller banks. Bruening said that this basic step was important but that other actions should be taken. The Central Banks should grant a limited credit to Germany and the covering of the note circulation of Germany should be lowered so that Germany could carry on her economic life. The latter proposal might require a change in the Hague agreements. The financial difficulties of Germany could not be lessened for any considerable length of time without these steps. In reply to specific questions which I put, Bruening ultimately declared that some plan for stopping withdrawals of short-term credits from Germany was the first and most essential step. This should be arranged between the Central Banks and the other banks in foreign countries which hold such credit.
Flandin expressed his belief that it was not desirable to utilize at this time any methods which would require changes in the Young Plan. He believed strongly that if the gold basis of the mark were disturbed a whole new series of difficulties would arise. On the other hand, he stated his belief that if some plan for limiting or preventing further withdrawals of credit could [not?] be devised by the Conference, a moratorium of foreign payments perhaps would not be the worst alternative. Snowden expressed agreement as to the dangers of inflation and saw no method of a partial moratorium. He felt that in the last few weeks the Reichsbank had been doing all that it could and that it had had considerable success in cutting down withdrawals, even though the actions of the Central Banks of Switzerland, Sweden, and Holland had raised problems since they had been drawing very freely [Page 303] on London in addition to their general withdrawals. Snowden did not feel that the necessary cooperation of the Central Banks in London and New York would be difficult to secure and that a recommendation by the Conference would have a strong effect. He believed that the discussion might be brought to a head if the Conference could agree on some statement which would recommend that the Central Banks halt withdrawals of credit and which would also restore confidence and make possible the granting of additional credits. In answer to this suggestion I then made the statement (I have just read the statement over the telephone to the President), a digest of which follows:8
“The banks in New York hold 420 million dollars of German short-term credits. The New York banks have not been decreasing the short-term credits since June 20th and as a matter of fact some of the New York banks have actually increased them. Throughout the United States the holdings of short-term credits do not exceed 600 million dollars. We feel confident that if similar efforts are made towards the stopping of withdrawals and the maintenance of the present level of short-term credits by other Central Banks we could within 24 hours get the assurance of a great majority of the banks in the United States who hold short-term credits of their earnest cooperation. But obviously this cannot be done in one country while another country is holding back and there must be general cooperation to bring success in this common cause and there is the danger as to what would happen on mere announcement that this effort was being made while the organization of the plan was going on. It was for this reason that I have just asked Chancellor Bruening what could be done in Germany to discourage withdrawals by one set of banks at the expense of another. In the United States not only can we do it as a part of a joint cooperation but we feel it is the first and principal step that is called for. This would put the world’s recuperation upon an economic basis. We have faith in German[y’s] economy, in its resources and in the character of its population and the intelligence and energy of its labor and we feel that, given an opportunity to recover from the lack of confidence and the state of panic which has been existing in the world in the past few weeks while one set of creditors were competing with another to withdraw their funds, [there] would result in [effect] a pause and with this pause we might even find the credit increasing and allow for ultimate reorganization.
This proposal to maintain existing credits is putting the horse in front of the cart instead of the cart in front of the horse. It would provide a breathing spell. It would be a chance to appraise the situation and give the German resources a chance to assert themselves under proper economic conditions and make a proper basis for any ultimate reorganization that might be necessary.
The steps taken by France and Germany in Paris have already greatly assisted the situation and helped to make possible the step of ascertaining whether by voluntary organization of the creditors of [Page 304] Germany, led by the Central Banks of the world, further steps can be taken to check or stop withdrawals.[”]
Flandin expressed agreement with this idea of a recommendation to the Central Banks to take common action to prevent further withdrawals of short-term credit from Germany.
Grandi said that he felt sure the Italian banks would do everything possible to assist in a general effort.
Francqui9 of Belgium felt that the question should not be referred back to the Central Banks just now, since they had just last week finished their Basel meeting by referring the question back to the Governments.
Laval agreed with Francqui that the matter was one for determination by the Governments. He realized that the Central Banks were not part of the Governments, but nevertheless a common recommendation of the Governments would be surely considered seriously by the Central Banks of the nations concerned. He stated further that the Government of France would do everything possible to get the creditors of Germany to execute the American plan. He said that he knew that he would have my agreement that naturally the Ministers of Finance should limit their discussions solely to financial questions, but that there was no reason why they could not go beyond the mere recommendation itself and examine into any methods for restoring confidence. He also wanted to add that France had gone through an experience in 1926 somewhat similar to Germany’s present difficulties and that France had reestablished herself through her own efforts. If Germany could only feel that the world at large had more confidence in her, her credit would be reestablished. Laval felt that the French experience should be an encouragement.
It was then decided to hold a meeting of the Finance Ministers of the interested powers at 3:30 this afternoon in order to draw up a formula for some such recommendation. MacDonald will preside in order to insure continuity in the deliberations. Bruening will represent Germany since the German Finance Minister is not present.
The next plenary session of the Conference set for 10 o’clock tomorrow morning will receive the report of the Finance Ministers. [Stimson.]
- Telegram in six sections.↩
- Not printed; it stated that there were $600,000,000 of German short-term credits held in the United States, of which $438,000,000 were held by New York banks.↩
- Great Britain, Cmd. 3484, Misc. No. 4 (1930): Agreements Concluded at the Hague Conference, January 1930. ↩
- Quotation not paraphrased.↩
- Emile Francqui, Belgian representative on the Committee of Experts on Reparations, 1929; Minister of State; Regent of the National Bank of Belgium.↩