462.00R296/4179: Telegram
The Ambassador in France (Edge) to the Acting Secretary of State
365. It was not possible to obtain an interview before our meeting at 3 o’clock owing to the fact that the Cabinet did not get away from [Page 86] the Chamber of Deputies until this morning at 6 o’clock. We opened the discussion with a strong presentation of the points set forth in sections 1 to 5 of your telegram No. 289 of June 26, 6 p.m. We met with the unsatisfactory responses which have been previously outlined and some added comments which were evoked by last night’s attacks in Parliament.
When it was found that we had reached an impasse so far as accepting either President Hoover’s original proposal or the French reply as a whole, we attempted to find some way out. The French representatives expressed clearly their view that we could find a way out. The proposal which follows emerged after 2 hours of discussion. We agreed to submit it to you for comment before the meeting which we will hold at 10:30 on Monday, June 29. The understanding is that the suggestion is completely confidential and does not bind either Government as to a final decision.
The proposal in substance is that France will place at the disposal of the Bank for International Settlements, as the monthly unconditional payments are made by Germany for 1931–32, a sum equal to the French share of the unconditional annuities. The Bank, in accordance with its statutes, will then apply this sum to loans made available to Germany. France, however, wants to have one-fifth of this money applied to loans to other countries of Central Europe, with those countries which will suffer hardships from the postponement of the Young Plan receiving priority.
On July 1, 1932, the money loaned by the Bank will be repayable, but for 4 years the complete repayment will be adjourned. Repayment will be made gradually by monthly payments in the last 3 years amounting to one-third of the total annually and drawing interest as of July 1, 1932. This postponement of payment is made on the assumption that Germany before this date will not have declared a moratorium. If Germany declares a moratorium between July 1, 1932, and July 1, 1936, then the loans in question will be called, but France will use the money thus called in to establish the guarantee fund for which the Young Plan provides.82 According to an understanding with Flandin the interest rate should not be greater than 5 percent.
This proposal involves a series of compromises by the French. The French originally asked for the commencement of monthly payments in the second year to be completed by the end of the third year and for interest to begin at the end of the first year. The proposal which I have outlined above was drawn up by Flandin at the end of the meeting when we made it clear that we could neither accept nor recommend the original French suggestions. We agreed to submit the new [Page 87] proposal confidentially. It will be noted by the Department that there is reference to the fact that the money loaned by the Bank for International Settlements is to be loaned in accordance with the Bank’s statutes. This means that the loans will not be-for the aid of the German Government budget but must be for the benefit of the German economy. The French demand is likewise expressed that one-fifth of the unconditional payments which are turned over by France to the Bank should be loaned to Central European countries other than Germany and with a special priority for those countries which the temporary suspension of the Young Plan will embarrass financially. Laval particularly insisted upon this point in the way of his [omission] in Parliament and also because he believed that it was not wise to allow Germany to continue payments to those countries or to allow the use of any of this money to finance dumping or armaments. The Government of France is most anxious to reach agreement with Germany on these matters. Therefore the French are particularly anxious to have Bruening visit Paris as soon as possible. It was pointed out for our part that our Government could not take part in these political matters nor in any circumstances be expected to pass on them. Our position was completely understood, and if and when the German Chancellor comes to Paris there will be no tripartite meetings of our three nations. Any conversations that might take place would be between two Powers at a time. Thus there would be avoided both the criticism of the French Parliament that our Government was dictating to France and the criticism that our Government was entering into political spheres in Europe in addition to purely economic matters. It is our understanding that the French are willing to credit payments in kind against the unconditional annuities. Payments in kind, in other words, would bring about a reduction of the unconditional payments.
A communiqué was prepared at the end of the meeting and, since it was believed that the whole of the proceedings should remain confidential, the communiqué merely stated that a discussion had taken place and that some progress had been made although no conclusions had been reached.
It was only when the meeting had neared a breaking point that we were able to secure a definite understanding from the French that only one-fifth of the unconditional payments going to France would be made available as loans to countries other than Germany. This amounts to about one-sixth of the total of the unconditional annuities arising from the loans to [payments from?] Germany during the Hoover year.