462.00R296/4181: Telegram
The Ambassador in France (Edge) to the Acting Secretary of State
371. Our 370, June 28, 2 p.m. As arranged Monsieur Flandin, Minister of Finance, called at the Embassy at 9 o’clock tonight. Mr. Mellon and I discussed your 295, June 27, 1 p.m., [298, June 27, 10 p.m.] with him for 2 hours. We presented your counterproposal contained in section 4 [paragraph No. 6] as follows:
“All conditional payments during the 12 months’ period shall be funded over a period of 25 years payable in equal installments.
The unconditional payments clue during the 12 months’ period to be paid to the B. I. S. and to be reloaned in toto to Germany are to be repaid over a period of 25 years in 25 annual installments with interest.
The question of the payment of balances under current contracts for deliveries in kind not covered by previous payments must be left open for future discussion by the interested governments”.
Monsieur Flandin at once raised the question whether this proposal would deny the privilege demanded by France at Saturday’s conference permitting it in case Germany declared a moratorium during the period of 25 years to call the payments in question and apply the sums thus called to the establishment of the guarantee fund provided for in the Young Plan. As you stipulated that this privilege was unacceptable we advised Monsieur Flandin to that effect. While he frankly intimated that he felt it would be impossible to secure the acceptance by the Prime Minister and his other colleagues of the 25-year funding plan nevertheless he laid much stress upon the denial to France of the right to this advantage should Germany at any time invoke the moratorium provided for in the Young Plan. We explained that when the President had made the concession and had recognized the insistence of France that the unconditional payments remain inviolate and their continuity be preserved likewise France should recognize the necessity of retaining all other features of the Young Plan including the right of Germany to declare a moratorium.
The world’s financial situation was thoroughly reviewed including the disadvantage France would be subjected to in the event of a failure to reach an agreement. The actual financial difference to France under the President’s proposal as compared to the break-up of negotiations and the inevitable moratorium which would be declared by Germany with the necessity for France to continue war debt payments was thoroughly and completely outlined. Monsieur Flandin admitted as he had likewise done on the floor of the Chamber of Deputies Friday [Page 100] night that from the sole internal financial standpoint the difference either way was not material and agreed that the reason sought by the President for world’s financial confidence was beyond criticism but always came back to the domestic political situations accentuated by the parliamentary debate which he felt would make impossible the acceptance of the counterproposal.
He further advised us that it had been arranged that the Senate would on Tuesday discuss the same proposal and that the situation in the Upper House was even more disturbing than in the Chamber of Deputies. From a practical political standpoint he admitted that the Socialist vote in the Chamber of Deputies had saved the Government but in the Senate this vote was negligible.
We insisted that time was [of] the essence and unless at our meeting scheduled for 7:30 tomorrow morning this counterproposal could be accepted there was nothing more we could do. In fact we intimated tactfully as per instructions in your 298 that if at our meeting tomorrow this agreement could not be reached it was quite possible from all the information we had that the President would feel that the financial situation in Germany and other countries was so critical that as regrettable as it would be if France could not join in the general international effort to stabilize financial confidence it might be necessary to appeal individually to the other major nations to join the proposed relief necessary in this crisis.
[Paraphrase.] It might be helpful, if you can find a way, to give assurance that the United States would unite with France in a method to obtain from Germany an understanding that she would not invoke a moratorium in the 25-year period. The Minister of Finance seemed to find this the greatest obstacle in obtaining acceptance of the extension of the term from 5 to 25 years.
Flandin promised that the counterproposal would be submitted to the Prime Minister tomorrow at 9 a.m. so that the American viewpoint would be known by the French conferees before the session opened at 10:30. Flandin frankly admitted that because of the political situation and Laval’s commitments the outcome was doubtful, although he indicated his own desire to secure acceptance. He was very depressed. He made continual references to the Senate test on Tuesday. His feeling, as indicated by an analysis of his statements, seems to be that it is quite doubtful whether the Government could stand whatever position might be taken. It seems that in order to secure Ministerial power either House of Parliament is quite ready to attack the Government, either for failure to defend France’s internal selfish interest or failure to be a part of the proposed international movement. Contributory to this situation, of course, is their natural antipathy to Germany. In other words, it is a case of damned if she does and [Page 101] damned if she doesn’t. Flandin’s frank admission gave us a chance to pound home all the harder the opportunity France had of doing the right thing. The prospects are not encouraging, although Flandin is ready to do his best. [End paraphrase.]
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