462.00R296/4192: Telegram
The Ambassador in France (Edge) to the Acting Secretary of State
373. Reference is made to our telegram No. 372, June 29, 1 p.m. At this morning’s session three questions were under discussion:
- 1.
- The period of time over which the payments shall be funded.
- 2.
- What disposition should be made of the payments on the unconditional annuities which are turned over from Germany to France to the Bank for International Settlements.
- 3.
- Whether France might apply the payments to the building up of the Young Plan guarantee fund if Germany should declare a moratorium after July 1, 1932.
A solution of the first question was suggested by Mr. Mellon at the beginning of the meeting. His suggestion was: (a) that 25 years should be the period for the funding of all debts, repayments to be made in equal annual installments; (b) that the unconditional payments which come due during the period July 1, 1931, to July 1, 1932, and which are reloaned in toto to Germany should also be repaid in 25 equal annual installments, with interest.
Mr. Mellon explained that 25 years would represent a reduction of 10 years over the 35-year funding period which had been the basis for the negotiations with other powers. A 25-year funding period would be the minimum to which the American Government could reasonably assent.
Premier Laval in reply stated his willingness to lay this proposal before the French Cabinet at an emergency session which was called for this afternoon. Laval expressed much doubt that he would be able to persuade the Cabinet to agree to the American proposal on the funding period question. However, he indicated that it might be possible that some further concessions in the direction suggested by Mr. Mellon might be attained with much persuasion.
The Minister of Finance pointed out that it was to the advantage of the German Government to pay back the 600,000,000 reichsmarks during the 5-year period suggested in the French proposal. On Laval’s prompting he nevertheless intimated that some formula might be discovered, perhaps, under which Germany would make a first payment at the end of the “Hoover” year and the remainder [final payment?] at the end of the 38th year.
Mr. Mellon stressed that it would be difficult for the United States to make any further concessions on the question of time, particularly since it would be necessary to fix the funding period in agreement with all the other governments immediately concerned. These governments had already stated their willingness to accept the proposal of the United States Government in regard to the period of repayment. Mr. Mellon added that as a matter of fact even the concession which we were making and which recognized in principle a continuity of payments had received the opposition of some other governments. Mr. Mellon also remarked that the American Government had already made a considerable concession to the French Government in accepting this principle of the continuity of payments through the Bank for International Settlements for reloaning to Germany.
[Page 103]With regard to the second question Laval stated that France would have to obtain recognition from the United States Government of the principle that a small part of the unconditional payments should be loaned to countries other than Germany, especially in the Balkans and in Central Europe. The Prime Minister explained that there were two reasons for this, a moral reason and a material reason. He declared that the moral reason was that the other Central European states are in just as bad a state as Germany. The finances of these countries will be so disastrously affected by the postponement of the Young Plan payments that general chaos may result. If Germany alone is helped the collapse of these countries will certainly take place, with a resulting ill effect on German finances. These other states must be assisted as well as Germany. Laval felt that opposition to the whole of the President’s proposal in the French Parliament would be insurmountable if the proposal were not tempered by some promise of assistance to the friends of France in Central Europe. This was the material reason.
In reply Mr. Mellon stated that while he understood the position of France and of the French Government he nevertheless had to say that the proposal to apply a part of the fund deposited at the Bank for International Settlements for loans to European countries other than Germany was unacceptable. The only question involved is the postponement of intergovernmental debts, in the opinion of the United States Government. Mr. Mellon suggested, however, that if the French Government should accept the general principle of President Hoover’s proposal, it might be possible to work out some other means of aiding the Balkans and the Central European countries.
In addition, Mr. Edge and Mr. Mellon questioned the practical benefit to the Central European countries of the 25 million dollars which would be the amount of one-fifth of the French payment. They stressed the fact that in any event the general economic situation of the whole world would be so improved by the gesture of an unqualified and prompt acceptance of President Hoover’s proposal that the countries of Central Europe and the Balkans would thus be indirectly assisted.
Laval stated as a conclusion that if Mr. Hoover would define a program of assistance to the countries of Central Europe which were financially weak and make a precise counterproposal including such a program, he might be able to persuade the Cabinet and Parliament to agree to more comprehensive concessions.
As a specific suggestion for the relief of Central Europe Flandin proposed a fund in which France and the United States would participate. Mr. Mellon again objected, however, that this issue was not vital at the moment.
[Page 104]The third question was left for discussion later on, since Mr. Mellon explained that the American representatives were anticipating vital supplementary material from Washington.
Laval emphasized the importance which France attached to the guarantee fund question. He explained that Germany’s suspension of payments under the moratorium would require a payment equal to 500 million reichsmarks by the French treasury to the guarantee fund. Since this process would have to be repeated in the second year France would have to pay from her treasury a total of some 6 billion francs. The effect that this would have would be catastrophic. With regard to the third French proposal Mr. Mellon commented that it would be a departure from the Young Plan which the United States and France were equally desirous of avoiding. Flandin replied that the turning over of the unconditional payments from Germany to the Bank for International Settlements and the reloaning of them to Germany was a variation of the Young Plan to which the American Government had already agreed. Therefore, he suggested, the argument had little merit.
After some discussion it was agreed to suspend any decision on the guarantee fund question, with a reservation from the French that this question was directly related to the first question and that consequently a French acceptance of a satisfactory formula on the time question would depend largely on the acceptance by the American Government of the guarantee fund principle. Laval stated that in submitting the question to the Cabinet he would have to emphasize the fact that these two questions were interrelated.
Near the end of the meeting Laval remarked that the financial condition in Germany as of today directly resulted from large withdrawals of American capital. Mr. Mellon stated in reply that the chaotic economic condition in Germany caused the withdrawals and insisted that a generous application of the Hoover formula would end the crisis. Flandin observed that France and the United States, so far as this question was concerned, had different conceptions of cause and effect. He repeated that the crisis had been precipated by the American withdrawals, and declared that the-Bank of France had intervened to prevent French withdrawals. It was suggested that so did the United States Federal Reserve Board.
Mr. Mellon then drew the attention of the negotiators to the seriousness of the situation which now threatened disaster. He set forth the considerations given in section 4 of the Department’s telegram No. 289, June 26, 6 p.m.
Laval was asked the specific question of whether the French Government had information suggesting that the German economic situation was as serious as had generally been represented. He made a [Page 105] non-committal reply. Flandin, however, threw doubt on the danger of an imminent collapse of the Reichsbank.
Laval declared that he was much surprised by the attitude of the German Ambassador and Germany’s apparent lack of interest in taking part in the negotiations.
At this point Mr. Mellon urged the French to declare their acceptance of the President’s proposal at least in principle so as to give assistance to the American Government in its attempt to stem the worldwide economic disaster which threatened. If that could not be done he asked that the French Government accept the first and second points and leave the third point for later discussion.
Laval flatly asked what the alternative would be in the event that France could not accept the President’s proposal. Mr. Mellon’s reply was made by setting forth the contents of paragraph No. 7 of the Department’s telegram No. 298, June 27, 10 p.m.
It should be understood that this was presented as a frank answer to Laval’s question and not in the nature of a threat. No comment followed, but the reply seemed to have definite effect on the French negotiators.
- Telegram in seven sections.↩