462.00R296/4121b: Telegram
The Secretary of State to the Ambassador in France ( Edge )
280. For Mr. Mellon from Mills.
1. After further consideration the President wishes to withdraw Plans A and B which were suggestions contained in our cable of June 24.72
[Page 75]2. More precisely, we are convinced that Plan A is completely unworkable, especially since the repayment period of the nonpostponable portions of the sums due this Government under its debt agreements would need to be related to the repayment period of the suspended unconditional annuities of the reparations agreements. This would be altogether too cumbersome and complicated. In addition, any reloaning proposition of the nature suggested by the French Government is unworkable, so intricate is the whole structure of the Hague Convention as it relates to the unconditional payments and the various agreements between the creditor countries.
3. I shall appreciate your giving us the benefit of your views on Plan B, in which I still think there is some merit. You will understand, however, that neither plan is to be suggested to the French.
4. The President would like to have you discuss his original proposal with the French negotiators and then, after a full discussion, make any suggestions you care to and give him the benefit of your appraisal of the situation.
5. You should point out to the French that the President’s proposal was intended to preserve the integrity of existing agreements and not at all to lead to their collapse; that the American Government is just as concerned in maintaining its debt agreements as the French Government is in preserving the integrity of its own debt agreements. You should indicate, in the second place, the great value that there is in a comprehensive and easily understood proposal, and thirdly, that the people of the United States cannot be expected to make sacrifices to the extent demanded of them if other nations are unwilling to make sacrifices of a similar character, even if the amount given up by them is less than the amount sacrificed by us. In the fourth place, you should point out that the American proposal was issued only after a very great number of leaders of Congress scattered throughout the whole country had been consulted; that we were authorized by them to make a simple, definite proposal to the leading creditor countries; that any considerable modification of that proposal would of course mean a violation of the agreement which we reached with them, a forfeiture of their support, and the consequent impossibility of securing the required legislation in December. This factor is very serious. By way of illustration, the President received a telegram from Senator Borah this morning in which the Senator said that he was glad to approve the President’s proposal, which seemed just and equitable to all, but that if correct reports of the French proposal had been received here, he could not support it. He stated that he could not support any proposal which would require Germany to make any payments at all during the moratorium year, [Page 76] that this would be not only unjust but would render the whole scheme futile. You may care to bring this to the attention of the French. The necessary legislation cannot be obtained in the fall if Borah withdraws his support. This you of course recognize. We are aware of the problems facing the French Government, but if we are forced to withdraw our proposal, which is now supported without condition by Italy, Great Britain, and a number of other countries, before the middle of July the French will be confronted with the collapse of Germany and some other nations. The French can then look for no financial or other support from this country, and when they attempt to put the pieces together again, even if it can be done, by calling a general European conference, they are likely to find themselves at the council table alone. Can they afford to incur the risk of so complete a catastrophe and their own isolation for the sake of receiving for 1 year a comparatively small amount of unconditional payments?
6. Let me summarize the conclusions reached here this morning in order that there may be no misunderstanding. We are withdrawing Plans A and B. We desire you to discuss the original proposal of the President frankly and completely but very firmly with the French, and following that discussion to advise us what you feel is the right course of action for us to pursue in view of all the circumstances. I may add for your information that the British think that unless there is to be a complete breakdown it is absolutely essential that all concerned give an unconditional acceptance of our original proposition.
On my own initiative and for your further information with regard to a proposal which I discussed with you by telephone night before last, I am sending a memorandum approved by Gilbert and prepared by Leon Fraser.73 This is not for the French but is for your information only.
[The memorandum, which follows here, and which explains in detail the legal basis for the proposal, is omitted.]
We are told by the French that they want to preserve the Young Plan and to secure some concrete evidence of the good faith of Germany. It is my view that they should be satisfied on both points by a German deposit of perhaps 500,000,000 reichsmarks with the Bank for International Settlements under the terms of the Young Plan itself and as provided for in article 53 of the statutes of the B. I. S.74 Such a deposit would involve no departure from the President’s proposal for a complete suspension of payments on international debts since the deposit would be made in reichsmarks to Germany’s credit and Germany would share in the profits and draw interest on the deposit [Page 77] under a section of the Young Plan which is completely separate from the reparations section. Reparations payments would be suspended completely for 1 year. However, by depositing 500,000,000 reichsmarks to her own credit under a clause of the Young Plan, Germany would formally recognize the continuation of the Young Plan and would be giving a substantial pledge for its continued existence. The Germans should not have difficulty in finding 500,000,000 reichsmarks. Since the deposit would be made in reichsmarks it is clear that no exchange difficulties would be involved. The money would continue to be German money and, as I have said, Germany would be paid interest on it and would be permitted to share in the profits of the B. I. S.
7. I am personally very favorably impressed with this last plan. I am suggesting it to you for your consideration and advice, although it has not yet received the President’s approval. Mills.