462.00R296/4155a: Telegram
The Acting Secretary of State to the Ambassador in France (Edge)
289. This telegram is strictly confidential from Secretary Stimson75 for the Ambassador and Secretary Mellon. We feel, after conference between the President, Stimson, and Mills, that you should proceed and, if possible, endeavor to reach an agreement in principle with the French along the following lines, impressing on them that the time element is of supreme importance inasmuch as a critical economic situation has to be dealt with. It is our belief that prolonged negotiations would, in part at least, destroy the good effects already arrived at.
- First. The Hoover proposal contemplates no impairment of the integrity of any international debt obligation in existence. It is entirely contrary to this.
- Second. A strictly economic remedy has been proposed by the President to meet the serious crisis which in Central Europe threatened a complete collapse of credit with all the serious social and economic consequences that would have followed for the entire world from such a catastrophe. It is the American Government’s feeling that in taking the initiative, in acting when it did, and in proposing to its own people that they forego $250,000,000 which they would otherwise [Page 78] receive during a period of deep depression and governmental deficit, it was acting as much for the benefit of France as for any other country, the United States included. The American Government under these circumstances cannot admit any connection between European political problems and the Hoover proposal. In this connection see Department’s telegram No. 90 which the Embassy at Rome is repeating to you.76
- Third. We cannot make any concessions so far as regards the principle of total postponement. Similar concessions to other countries would have to be made if any concessions were made to one country; the completeness of our offer to our own debtors would have to be modified by us in turn until the entire fabric of the Hoover proposal would have been whittled away piece by piece. Its chief merits, we consider, were its simplicity, its completeness, and the promptness with which it could be put into effect, thereby restoring the confidence that was so sadly lacking in the world until the President’s offer was made and, at the same time, affording immediate relief from depressing economic influences. Our people, moreover, will never agree to a complete suspension of payments to them unless mutual sacrifice is made. Several days before the President’s announcement, we made this position clear to the French Government through Monsieur Claudel.77 Our offer, finally, was made only after the leaders of both parties in the House and the Senate had been consulted and their views were obtained with regard to a very specific and definite proposal containing the condition outlined above.
- Fourth. If a financial plan meets with French approval, we shall— although we cannot under any circumstances approach Germany in connection with any Franco-German political differences—be only too glad to urge that Germany accept and that she emphasize her recognition of the validity of existing financial agreements. We shall also be glad, under these circumstances, to urge, in the working out of financial details, Germany’s cordial cooperation.
- Fifth. To reach a decision as to the President’s proposal, it does not appear to us to be necessary to obtain further detailed information regarding the economic situation of Germany. That Germany was on the verge of collapse at the end of last week is generally admitted, and it was the President’s announcement which saved the situation. No time is available for an exhaustive investigation of the situation. All the evidence necessary for a 1 year’s suspension is at hand. And it seems to me that the offer should be welcomed by France to consolidate the gains which the President’s announcement has already brought [Page 79] about. France should realize that a refusal to go along or even a protracted delay in arriving at a decision might very well once more lead to the same conditions in a more aggravated form which existed only a few days ago. Yesterday, the Reichsbank lost on foreign exchange transactions and today it lost to an increasing degree. These losses contrast with the gains achieved earlier in the week and they are undoubtedly the result of France’s attitude and of the fear that the President’s program will thereby be blocked. The credit situation, as the French Government must know, is critical all through Central Europe, and in Hungary and Austria it is desperate, and there is no telling how much will be overwhelmed by the flood if there is a break anywhere in the dam. The present is not the time for negotiations to be protracted, and a decision must be reached over the end of the week. Having agreed, if France agrees, the other important creditors outside of Belgium are prepared at once to put into effect the whole program. The President will not be able to rally sufficient support in this country for his proposal if some arrangement for its acceptance substantially in its present form cannot be made.
- Sixth. You should present the following view strongly to the French Government early tomorrow morning: Their counterproposal is not acceptable to us, and you should ask them if they cannot so revise it as to meet the essentials of the proposal made by the President. We also desire you to ask them that they make any new suggestions at the meeting which, according to our information, is to be held on June 27 at 3 p.m.
- Seventh. Unless you hear further, you are authorized to present the following methods of bringing the French into line with our plan, if at that meeting they fail to do so.
- Eighth. Reconciliation of relief to Germany as embodied in the President’s proposal with the French determination to preserve the payment of unconditional annuities is the essence of the problem which now confronts us. The French proposal to forego retention of payments from Germany for 1 year and to make available to Germany in the form of a loan the sums deposited with the B. I. S. has fortunately opened the way for this. This proposal, as it is understood by us, would make available to Germany the total sums which otherwise under the terms of the Hague Convention would have been transmitted to foreign governments. There is partial accord with the President’s proposal in this under the terms of the French proposal. There is, however, a very serious difficulty in the fact that the unconditional payments, which France does not keep but are loaned back to Germany through the B. I. S. under the terms of the French proposal, become due and are to be paid back the following year. In 1932–33, in other words, there would become payable the unconditional [Page 80] payments due in the year 1931–32, the transfer of which to the creditor countries is suspended for 1 year. This would bring about the result that in 1932–33 there would be paid a double installment of unconditional annuities. The relief contemplated is not given by this, and it is manifestly impracticable. Should a double payment in 1932–33 be received by France, then a double payment must be received by every other country including the United States, and this would cause a collapse of the whole plan. Some continuation of reparations in kind creates a further departure from the President’s proposal. It seems to us that the exception which France desires to have made of the amounts necessary for the execution of the balance of the current contracts for payments in kind, is unsatisfactory, as it infringes upon the general principle of total postponement. The experts would have to discuss later the question of the balance of current contracts for payments in kind, as some provision may have to be made for that. The gap between the American and French proposals would appear to be spanned should France be willing that the 1931–32 unconditional payments which under her proposal would be paid to the B. I. S., be reloaned to Germany to be repaid in annual installments over the life of the agreement applicable to unconditional payments. This is to be known as Plan D.
- Ninth. If the problem be approached from a slightly different
angle, there appear the following three difficulties which are
giving trouble to France:
- 1.
- An anxiety for fear lest the Young Plan break down. Something in the form of a recognition of the validity of existing financial agreements is desired by France in this connection.
- 2.
- Other evidence of Germany’s good faith is desired by her.
- 3.
- Some responsible pledge, which would assure that the existing financial agreements be carried out, is also desired by her.
The terms of Plan C, which is as follows, seem to us to meet all of these requirements:
A deposit by Germany of the following type is envisaged by article 53 of the statutes of the B. I. S., and article 14 of the trust agreement between the creditor governments and the B. I. S. (both of which are contained in the Hague Agreements of January 20, 1930): A deposit with the B. I. S. for a period of not less than 5 years, withdrawable on 1 year’s notice, of not less than 400,000,000 reichsmarks, on which deposit Germany may receive a certain percentage of the Bank’s profits, and is entitled to compound interest. There is no relation between the reparations provisions and this particular provision. The hope that adequate deposits in the first instance would be given by it caused its insertion. No use has ever been made of it, but the Germans would give unqualified proof of their recognition [Page 81] of the continued validity of the Young Agreement, and concrete evidence of their good faith and willingness to continue to carry out existing financial agreements should they now make a deposit, under this provision of the Hague Protocol, of, let us say, 500,000,000 marks. Precisely what France is seeking through the payment of unconditional annuities would be given to her—that is to say: (1) recognition of the continuity of the Young Plan; (2) concrete evidence of Germany’s good faith; and (3) a substantial pledge from Germany that would insure that existing financial agreements be carried out.
From the French standpoint this would have the further advantage of avoiding the necessity of altering in any way, other than the mere suspension of payments for a year, the provisions of the Young Plan, just as our willingness to postpone the payment due us during the next fiscal year in no way alters the provisions of our debt agreements. From the French standpoint what is even more important is that a discussion would be avoided and a possible reopening of the question of distribution of unconditional annuities, which might well arise if they refused to waive the payments to France while other nations expressed the willingness to do so, might also be avoided. Reference in this connection is made to Mr. Mills’ cable to Mr. Mellon, No. 280 of June 25, submitting a memorandum prepared by Leon Fraser giving the background in law for any such proposal. As regards our point of view, it would permit exact compliance with the proposal of the President by a suspension for 1 year of all payments.
- Tenth. Our Government will accept either one of these plans.
- Eleventh. As respects the minor debtor and creditor nations, we feel our problems can be made the subject of subsequent negotiations and discussions once the principal creditor nations have agreed in principle. As respects Germany’s unconditional payments during the year of suspension, we believe they should be made available in principle in the form of a loan to Germany only.
- Twelfth. All manner of technical difficulties will evidently arise through the working out of the President’s proposal. Technical experts of the different countries affected will have to work these out.
- Thirteenth. You should point out in your discussions with the French that it is not pertinent that they should contrast their position during the year when all of the Young Plan payments are being made according to schedule with their position under the President’s plan. There is no resemblance in the situation at all. Except for the President’s proposal it is perfectly certain that there would have to have been an invocation of the suspension provisions of the Young Plan. The possibility is by no means remote that all payments, including the unconditional, would have become impossible if the complete credit collapse which threatened last Monday had taken place. [Page 82] This is what would have happened, in our opinion. France’s net receipts as we figure them are not much in excess of $10,000,000, even under the terms of the Young Plan, after taking into consideration the 500,000,000 reichsmark deposit which has to be met by France with the B. I. S., known as the Guarantee Fund, and assuming that under the terms of the British and American debt agreements France exercises the right of postponement. It is probable if the actual facts be taken into consideration that the President’s proposal does not actually suggest for France a greater sacrifice than she would otherwise have had to face, in spite of the fact that great emphasis is being placed on the fact that France is being deprived of unconditional annuities of perhaps $110,000,000 a year. After considering the Guarantee Fund and France’s out-payments even under the terms of the Young Plan, the amount of her sacrifice under the President’s plan is insignificant as contrasted with the Young payments. Inasmuch as public discussion has so far greatly over-emphasized the sacrifice asked of the French, we believe it is most important that you should call this to their attention.
All other instructions making suggestions of methods to reconcile the President’s statement with the French position are superseded by this instruction.