462.00R296A/4: Telegram
The Ambassador in Germany (Sackett) to the Secretary of State
210. Your 193, 27th of October, 6 p.m. Reference is made especially to the last sentence.
Today I asked Bruening to luncheon (Von Bülow37 and Gordon38 also being present) and had a long talk, in the course of which I strongly pressed upon him your views of procedure and the reasons therefor, as there have been indications that a course contrary to that set forth in the remainder of your telegram was being contemplated here.
The German position as developed by the Chancellor is as follows: Germany’s most serious and pressing problem is the prolongation of short-term credits. Unexpected leaks have been disclosed in the operation of the Standstill Agreements by which certain creditors by taking advantage of legal loopholes have effected withdrawals which the Basel Committee and the German Government had not anticipated (up to this time the Chancellor estimated these leaks as amounting to 1,000,000,000 marks). From the point of view of the general short-term creditors such withdrawals necessarily take on the appearance of discrimination by Germany in favor of certain creditors and tend to injure German credit. As Germany is wholly dependent on the working capital constituted by these short-term credits it is imperative to stop this process. The drying up of her export sales due to lack of fresh credit to finance them is rapidly becoming more accentuated. (See my despatch No. 1081, August 15.)39
As a result, during the past few weeks suggestions have been in the process of elaboration and are nearing final shape for the prolongation of the short-term credits, probably on the basis of very long-term installment payments, and for closing up the leaks in the present method. The desideratum of the German Government is to substitute for the present Standstill Agreement an agreement along the lines of these proposals, or failing that, to obtain an acceptance in principle of such a process to go into force at the time of expiration of the present agreement pending determination of the reparations question.
The Chancellor continued by saying that if Germany immediately called for the appointment of the Committee provided for under the [Page 336] Young Plan, such action would jeopardize any chance of reaching a successful issue in the proposed short-term credit negotiations because a decision by the Committee that did not offer Germany either a further holiday of reparations continuing for several years or “remittance” would cause refusal of extension by some holders of the short-term loans. The report of the Committee would produce no adequate solution of the German situation, as no assurance that further necessary steps beyond those provided in the Young Plan would be taken even if the report should reach the most fair-minded conclusions possible under paragraph E of article 8. Von Bülow added that the German Government could hardly see its way to taking such a leap in the dark. Germany should, before it did so, receive from France on M. Laval’s return some assurances of further action after the exhaustion of the legal methods provided for in the Young Plan.
If the Young Plan Committee comprised more or less the same members as the recent Basel Committee,40 Bruening remarked, a report might be very quickly rendered. If the Committee were given a personnel which had to cover the same ground over again, such would not be the case.
In consequence the Chancellor stated that he saw grave danger if his Government were to apply for the calling of the Young Plan Committee concurrently with its proposed negotiations on short-term credits, since France, for instance, had such a large stake in reparations and so small a stake in the form of private short-term credits that she would not wish to sacrifice the former at the expense of the latter. On the other hand, if it were decided in advance that reparations, including the non-postponable portions, were not going to be postponed or “remitted,” the Swiss and Dutch private creditors having no reparations interest would be less inclined than ever to agree further to leave their money in Germany.
I dissented at various points during the foregoing exposition from the views expressed and impressed upon the Chancellor our suggested procedure. Even if a Young Plan Committee made a report inadequately meeting the entire situation, it was an essential condition precedent to any of the further steps necessary to a solution of the whole situation to which he had referred. I emphasized the foregoing, and also that in the absence of this initiative by the German Government, I felt sure that no assurances such as had been mentioned would be forthcoming from M. Laval. Along with several other arguments, I added that I could not agree that for Germany to open short-term credit negotiations concurrently with a call for the Young Plan Committee would be dangerous.
[Page 337]The Chancellor before reaching a decision in the premises will await a conference in Paris between Laval and the German Ambassador. He said that he would talk over with Treasury officials and banking advisers what I had told him. The press, however, has in the last 2 days been actively instilling into the public the Chancellor’s point of view as set forth above.
While I may not fathom the logic of the German argument, as the Chancellor views the situation it may be summed up as follows:
- 1.
- It is essential to the continuation of German foreign trade that the Standstill Agreement be prolonged. Foreign trade is the only resource for building a surplus to meet German obligations.
- 2.
- The debtors of Germany are of two opposite types, those like Switzerland and Holland where short-term credits are far more important than reparations, and those like France where reparations are the largest interest and short-term debts comparatively small.
- 3.
- Since the results to be derived from the Basel Committee are uncertain, due to the limitations upon it by the Young Plan and by the length of time required for a report, and since Germany has no assurance that the question of her needs will be covered by any further action, she fears that the Swiss-Dutch group would not allow the Standstill Agreement to be prolonged and would force a German declaration for a general moratorium with its attendant disasters.
- 4.
- If consideration is first given to extension of the Standstill Agreement before submission of the reparation question for an apparently uncertain determination, the probability of success in this dilemma is greater.
I believe that Swiss and Dutch creditors with German banking affiliations are putting the screws to the Chancellor to force some kind of preference for short-term loans and to subordinate reparations. Germany’s view of procedure is, I believe, motivated by this fact.
I have just received a telephone call from the Chancellor requesting another interview with me on Monday afternoon.