462.00R296/4670: Telegram

The Chargé in Great Britain ( Atherton ) to the Acting Secretary of State

260. From Stimson. [Paraphrase.] The session this morning was spent in discussing the memorandum which was drafted yesterday by the Finance Ministers and which was quoted in my telegram No. 258 of July 21, midnight.

The Chancellor of the Exchequer, before the general discussion began, made a lengthy speech in which he said that he could not agree with any of the solutions proposed, because he thought they were insufficient [Page 307] since they did not go to the roots of Germany’s difficulties. These difficulties, he felt, were the political obligations which were weighing Germany down. By that he meant the reparations. He stated that he believed this position accorded with President Hoover’s original proposal which got at this aspect of the situation by suspending the payment of reparations for 1 year. He said that while relief to Germany had been brought by this measure, that that relief was not enough, and that the temporary character of the measures now proposed would not aid the situation enough to pay for the risks involved. He said that at the present time the Bank of England could not grant any further credits to Germany. This was because the withdrawals from the Bank of England were still going on at a heavy rate and any promise on the part of Great Britain to give assistance which could not ultimately be met would make things far worse than they are now. In addition he directly attacked the stabilization plan which yesterday he had supported.

To this non-constructive and very pessimistic utterance I replied as follows: [End paraphrase.]

“Mr. President, the Chancellor was good enough to petition my name, or that of my Government, in connection with what he has just said in regard to the third of these paragraphs and for that reason and that reason alone I feel that it is necessary for me to make a statement in the hope of not having any misunderstanding here with the Chancellor or with this meeting. Most certainly if I understood the Chancellor’s remarks they do not represent the position of my country, and the interpretation of this third paragraph which I heard him give is not the interpretation which I had of it as represented by the discussion yesterday. There is no question that Snowden and I differ in our conception of the relations of our Governments to the Central Bank in our respective countries; but we were discussing yesterday—and this recommendation is an attempt as I understand it to embody the discussions of yesterday on that point—we were discussing yesterday the means of improving that lack of confidence which we all agreed underlay the difficulties which are afflicting the German Government. We were discussing what steps could be taken to now improve that confidence and the discussion centered throughout the entire morning upon the means which have been, as I understood it, adopted in this recommendation. I have no means of understanding the recommendation except in the light of the discussion yesterday. Certainly yesterday we had no idea of giving a Government guarantee to this matter. We were suggesting as a body of statesmen assembled here so to speak a committee of informal discussion; we were discussing the trouble that is afflicting Germany and the means that might be taken by agencies of Government to remedy the trouble and the one point about which our argument centered was the means of stabilizing these credits to which this third paragraph applies. The Chancellor asked me yesterday what my views were; I attempted to make them clear. Our views were that it was possible for the creditor banks of a country under [Page 308] the influence and the guidance and the leadership but not the compulsion of the Central Banks, still less the compulsion of the Government, so to regulate public opinion on this matter that these credits could be stabilized and I took the occasion to ask the Chancellor his view then upon the efficiency of this particular step to which paragraph 3 relates and I was so surprised at his remarks this morning that I sent for the minutes on that question and that answer and I find they are reported as follows: I said to the Chancellor ‘I think we should enjoy having your opinion upon the subject on the same lines as Bruening was speaking in answer to my question as to whether this was the first and important step, that [is,] to organize a stoppage of withdrawals’. The very subject to which this resolution applies. The Chancellor’s answer was ‘most certainly I think that is the most important and preliminary step to any further decision that may be taken. [’] Now I supposed that we were meeting here to give advice, not to give direction; that we were meeting here to organize the opinion of the world in a hopeful manner upon this great crisis which confronts us and which is focused upon Germany, not to organize measures of Government. Speaking for my own Government we think that the American Government in placing 260 million dollars out of its Treasury at the disposal of Germany, more than two and a half times what any other Government, even the most advanced, has placed at the disposal of Germany; has done all that it could be expected to do for the present at least. What we are talking about now is the best way of organizing the public opinion of the world so as to make it a good banking proposition to keep up those short credits in Germany and if there should go out to the world—I do not mean to use too strong language—such jeremiads as have just issued from the lips of my good friend, I do not think it would help the psychology of the world which we are assisting to raise. Our view is just the contrary. We have not changed it. Our view is as I said yesterday that the condition of Germany is a temporary condition. The resources and the strength of Germany remain unimpaired and they are a good risk barring the effects of the present crisis and the present panic of which all Governments to a certain extent are victims, and the means of surmounting that crisis is a psychological question, a question of restoring confidence, and we are met here as a committee to assist in restoring confidence, not to direct the instruments of Government that do it. Now I am not in any way concerned with the authorship, with the language, of this third paragraph or of any of them but I was concerned with the discussion which took place yesterday which I thought this memorandum was drawn up to embody and I do not intend meticulously to attack or defend the language. If it does not represent what we did yesterday, why, let us change it. I think this entire memorandum could be made more hopeful than it is. I think therefore it could be made more calculated to carry out the purpose for which the Government of Great Britain called us here to consider the situation. I think it could be calculated to carry on the splendid work which was begun in Paris by the meetings of the French Government with Germany. I do not think it is a time to throw cold water on it. I do not think it is a time to take scalps and consider the matter as if we were trying to order our banks to do anything—certainly we are [Page 309] not in America—but we were gathered here to get the views of the world so far as they could be brought here by the Foreign Ministers and the Prime Ministers of the world and to embody them in a resolution and that is the way in which I look at this paper before us. I am ready to stand for any corrections of it in the matter of language. As I say I had no share in its authorship. I was not one of the Chancellors or Finance Ministers who met yesterday and drew it up but I think that is the way in which we should look at it and that is the light in which it should be criticised. I only make those remarks because I do not wish any misunderstanding as to the position which my Government took on the matter”.

[Paraphrase.] Mr. Snowden made no reply and therefore the British voted for the stabilization plan which he had attacked.

At the conclusion of my speech MacDonald said that the Conference was assembled to prescribe remedies for an emergency and not to get at the fundamentals of the situation. Unless something is done creditors everywhere will lose all that they now have in Germany. Therefore we must use the temporary measures now at hand so as to reestablish the confidence which will make more permanent measures feasible.

After this the Conference, which had earlier agreed to the preliminary matter in the report of the Finance Ministers as far as the paragraph numbered 1, adopted paragraph No. 1 (which deals with the renewing of the $100,000,000 credit) subject to some possible drafting changes.

The discussion of paragraph No. 2, which is concerned with the rediscount of internal German commercial bills by the Central Banks, was begun by Francqui of Belgium, who had suggested this provision at the meeting yesterday afternoon. He stated that this action would obviously aid German economic life and that it might even be possible that the confidence which would be created by it would make the use of the provision unnecessary.

The French Minister of Finance suggested that the difficulties foreseen by the Chancellor of the Exchequer on this point might be removed by the guarantee of these bills by the Gold Discount Bank and the newly created industrial guarantee. In this way there might be formed a basis for the resumption of normal economic life in Germany.

The Chancellor of the Exchequer then pointed out that a proposition of this nature would mean expanding the credits of $100,000,000 suggested in paragraph 1 to possibly $400,000,000, since this would be the amount involved in the bills to be rediscounted.

Mr. Snowden said that at present there was nothing to prevent the Central Banks from discounting the bills in the portfolio of the Reichsbank. Nevertheless, he could not recommend any further credits to the Bank of England since at the present moment the Bank [Page 310] was in no position to extend such credits. As far as he was concerned, therefore, the question of security or guarantees did not arise.

Bruening stated that inasmuch as the question of relations with the Gold Discount Bank was not completely clear, he would have the matter clarified for the meeting of the Finance Ministers in the afternoon. Laval then suggested that the best thing to do at this point would be to leave the second paragraph for later consideration and go on to the discussion of paragraph 3. Paragraph 3 deals with common measures to maintain the volumes of credits, and Laval pointed out that this paragraph was closely connected with paragraph 1.

At this point MacDonald said that he felt that it was only fair that the other states represented at the Conference and concerned in the economic position of Germany should, in order to make relief for Germany easier, share in the burdens which those countries now holding the major portion of the German credits were carrying. These countries were England, which he knew was heavily burdened in that respect, and the United States, which he said could speak for itself. He expressed his opinion that some distribution of this burden would be along the same line as the spirit which moved the various Governments to come to London to discuss the crisis.

Laval said that he was unable to make any recommendation of this nature to the French banks. He did not have the power to control them and he felt that even if he should make such a recommendation it probably would not be followed. He said that the French banks had loaned money at low rates of interest to countries which he thought had then loaned it to Germany at higher rates. While this was perfectly legitimate as a risk that the foreign banks might take, nevertheless France could have loaned directly also if she had desired to take the same risks. He stated his belief that the bankers in France would be greatly opposed to accepting any suggestion that they should now share the risks which they had been previously unwilling to take.

I pointed out that the United States was ready to do her best under her present commitments, but that I felt that the solution of the present crisis would undoubtedly be facilitated by some distribution of the credits held in Europe.

However, Laval felt that he could not change his position in any way. He said that he did not think France was lacking in generosity, for at the meeting of the Bank for International Settlements when the question of prolonging the $100,000,000 credit had first arisen, the Bank of France had completely agreed to prolong it for 3 months, whereas the Bank of England was only willing to extend the period by 1 week. [Page 311] Consequently the French Government maintained its feeling that it could not go beyond paragraph 3 as it was now drafted. Laval did not see how redistributing the credits already granted to Germany would be of any particular aid to Germany in its present difficulties. Still, as he had previously stated, he was willing to do his utmost in this crisis.

I said that I had endorsed the suggestion of Mr. MacDonald for the United States, because I believed that it was a fair suggestion for meeting the crisis which is now confronting Germany and the whole world. However, since the discussion had already been prolonged I wanted to point out once more that the United States had not deviated from the position that it was willing to take every step to see that the credits which are now held in the United States should be maintained.

Then I pointed out that the discussion had apparently reached the place where expert advice of banking authorities was required. I therefore submitted a proposed form of a resolution which might be used as a basis for discussion by the Finance Ministers. This proposed resolution reads as follows: [End paraphrase.]

“That the Conference recommends that a committee be appointed without delay composed of a representative selected by the Central Bank of each of the nations represented at this Conference to undertake to organize cooperation for the following purposes:

(a)
In consultation with the banking interests in the different countries to endeavor to provide for the maintenance of the present volume of outstanding short-term credits from these countries.
(b)
To make inquiry into the immediate further credit needs of Germany.
(c)
To develop during course of the next 6 or 8 months plan for a conversion of a portion of the short-term credits into long-term credits”.

This draft was referred by the Conference to a meeting of the Finance Ministers to be held at 4 o’clock this afternoon and after which the text of paragraph 3 was adopted by the Conference in its exact form subject to such minor drafting changes as the Ministers of Finance might propose.

The Conference adjourned until 10 tomorrow morning when it will hear the report of the Finance Ministers who are to meet this afternoon at 4 o’clock to consider:

1.
The redrafting of the memorandum drafted yesterday afternoon in the light of today’s discussion,
2.
A proposal which Doctor Bruening was to prepare for a substitute for subsequent developments, and
3.
The draft resolution which I submitted for the setting up of a banking committee to consider certain matters.

  • [Stimson.]
  • Atherton
  1. Telegram in seven sections.