Papers Relating to the Foreign Relations of the United States, 1931, Volume I

462.00R296/4219a: Telegram

The Acting Secretary of State to the Ambassador in France (Edge)

Washington, June 30, 1931—10 p.m.

313. For Ambassador Edge and Secretary Mellon. You are authorized to present the following note to the French Government at your meeting tomorrow, July 1st:

The American Government recognizes with appreciation the cordial spirit of the French reply to the President’s proposal of June 14th [20th] and now desires to review the situation which has grown out of the American proposal, the French Government’s note in reply of June 24,⁵ and the subsequent negotiations which have taken place between Ambassador Edge, Secretary Mellon and the French Ministers.

While the President’s offer was the direct result of the crisis in Germany which, from all reports appeared imminent and is still imminent, I am sure the French Government will realize that the purpose of the United States was to give general relief to the world. The President believed that it would prove an important step in advancing world recovery from the present economic depression. The plain purpose was, by relieving one element of strain in world economy, to give the forthcoming year to economic recovery, and to help free the recuperative forces already in motion, thereby contributing to the relief of unemployment throughout the world, and to lighten the burdens of unduly low prices to agriculture. The offer met with a world-wide response. What it meant in the way of restoring confidence is reflected in the rise of commodity and security prices throughout the markets of the world.

All of the interested governments have signified their acquiescence.⁶ France, however, suggests certain conditions which, if we understand their import, seem to us to withhold the intended relief to Germany and not to conform to the spirit of the President’s proposal which contemplated a complete suspension of all payments on inter-governmental debts during a period of 1 year. In order that we may now cover one point left open in the original proposal, we may add that it is our view that all postponed payments should be funded over a long period of say 25 years, and to bear interest at the average rate paid by the creditor governments on their own public debt at the end of the preceding fiscal year.

It is, of course, an essential part of the President’s proposal that payments under all existing agreements shall be resumed at the end of the year. Thus the continuing force of these agreements is in no way impaired.

In this proposal to postpone for the forthcoming year the payments due under its own international agreements, the American Government will be contributing a total of $262,000,000, which is the largest contribution made by any Government. It recognizes, however, that substantial sacrifices will be called for by other governments, including that of France. It is obvious that on the success of the plan Germany will be the largest immediate beneficiary, since the payments which she is obligated to make during the coming year on account of inter-governmental debts are about $400,000,000. Other nations and dominions will also benefit by various sums in addition to this $400,000,000. It must be remembered, however, that Germany is in the most difficult economic situation of any country. We feel that in a larger sense all the nations will benefit from the improvement in their economic life which will follow the adoption of the President’s program.

Our Government welcomed the statement of France on the 24th of June, expressing her keen desire to collaborate and especially the specific statement that France “would abstain as a provisional measure and during a period of 1 year from retaining any payment sent by the German Government.” In this connection we emphasize again the “provisional” character of the President’s plan.

The French Government insists, however, as a matter of principle, that unconditional reparations amounting to approximately $131,000,000 [during] the year should be paid, in order that there might be no interruption of the continuity of the payment of unconditional annuities. Our Government is willing to recognize this point of view to the extent of agreeing that the payments should be made to the Bank for International Settlements, provided they be immediately reloaned to the German Government. This would maintain the principle of continuity of payment and at the same time constitute no drain on the German general economy. We seem then to be agreed on two all-important points:

First, that France will forego the retention of any payments from Germany for the period of 1 year, and

Second, that the principle of continuity of payment of unconditional annuities is recognized while complete relief to Germany is afforded.

There would seem to remain four points of difference:

First, we understand that the French Government desired to have the B. I. S. reloan the sums paid to German industrial and finance concerns rather than to the German Government. We feel this would be incompatible with the President’s proposal of relief to governments, as the French suggestion would give no direct relief to the German Government.

Second: The French Government suggest that $25,000,000 of the unconditional payments paid into the B. I. S. should be made available for loans to Central European countries, more particularly those whose budgets are affected by the suspension of reparations payments.

The diversion of this sum from Germany is a violation of the broad proposal of the President to suspend all payments of inter-governmental debts. Moreover, the practical disadvantage of this exception to the President’s proposal is that if any of the other countries who have already accepted the President’s proposal should make a similar suggestion with reference to loans to particular countries, the reconciliation of all these differences would be practically impossible. Could not the principle of the President’s proposal be preserved and this relatively small amount of relief be given to particular countries through cooperative action of the Central Banks or through the B. I. S.?

Third: The two governments differ as to the time over which the suspended payments should be funded. Without at this time modifying our suggestion that 25 years is the proper length of time, we do not believe that it would be impossible to reach an agreement on this point provided the other questions could be disposed of, especially if no repayments are to be made in the next 2 years as suggested by the French Government. But, of course, the same length of time will apply to the payment on account of the American debt.

Fourth: The question involving the greatest difficulty is that referring to the guarantee fund. We recognize that, under the terms of the Young Plan, France is obligated, in case of suspension by Germany of conditional reparations, to pay into the Bank for International Settlements on demand the sum of approximately $120,000,000, to be applied in part to increasing payments to be received by other creditors during the period of suspension.

There are two aspects of the suggestion of France with reference to the Guarantee Fund:

A. France desires to be sure that the suspension of payments during the forthcoming year shall not throw upon her the obligation to pay into the Bank for International Settlements the Guarantee Fund. We sympathize with France in this aspect of the question. We think this fear is groundless because if all governments agree to the American proposal, then there can be no demand of a creditor government for payment. If France, however, has a real fear on this subject, then the other governments concerned should expressly free France from this anxiety.

B. The other aspect, however, of the question with reference to the Guarantee Fund is more serious. Not only the spirit of the President’s proposal, but the express provision thereof is that the offer of the American Government is conditional on a like postponement for 1 year of all payments on inter-governmental debts owing the important creditor powers. It appears to us also to seriously impair the spirit of the declaration of France to the effect that she wishes no benefits from the payments. The French Government apparently desires her postponement of unconditional payments to take the form of a payment into the B. I. S. and a loan back to Germany. This naturally contemplates that those loans back to Germany should be on the same footing so far as length of time of postponement, etc. as similar arrangements made by any other government. When, however, the French Government couples with this suggestion the further suggestion that the loans back to Germany shall be considered exactly as though cash payments had been made by Germany to France and cash loans had been made back by France to Germany and that these loans should be considered in all future times as funds available to France to reduce or satisfy her guarantee as to subsequent years, she is departing substantially from not only the spirit but the substance of the President’s offer.

To state the problem a little differently. France appears to be insisting that the funds paid by Germany into the B. I. S. during the year of suspension and reloaned to Germany must be credited to the guarantee fund just as if France herself had actually made the deposit, thus relieving France of any future obligation in respect of the guarantee fund. This seems to us to be inconsistent with the suggestion that the payment by Germany into the B. I. S. during the period of suspension is a mere matter of form, in order to assure the continuity of unconditional payment. What was regarded as a matter of form in the first instance is now evidently to be treated as an actual payment. In any event, it seems clear that this particular proposal involves a modification of the Young Plan, which we understand the French Government was particularly anxious to avoid. The American Government not being a signatory of course cannot undertake to negotiate change.

The American Government feels that perhaps there is some misunderstanding on the part of France as to the sacrifices which would be required from her under the plan proposed. We must assume that with the present situation in Germany and the failure of the American proposals, then Germany will unquestionably give notice for the postponement of all conditional reparations as provided in the Young Plan, and that this portion of inter-governmental payments will not be forthcoming.

Therefore, in measuring the sacrifices necessary there can only be considered the effect of the unconditional payments if Germany is able to find a foreign exchange necessary to meet these payments. In this connection we cannot ignore the fact that one-half of the $100,000,000 credit advanced a few days ago by the Central banks is already half exhausted.⁸ If the American proposal shall fail and if unconditional payments are postponed under the provisions of the Young Plan, and even assuming that unconditional payments are maintained, France would receive from these unconditional payments, after priorities have been accepted, approximately $105,000,000. She would be obliged to pay:

(a) The guarantee fund of $106,000,000 under the Young Plan.

(b) $110,000,000 to Great Britain and the United States approximately.

Whereas her receipts from the unconditional reparations, even if they be maintained, would be less than one-half of this sum. Thus if the American proposal should fail and the suspension provisions of the Young Plan be invoked by Germany then France will be the loser during the forthcoming year of general postponement by over $100,000,000.

There is no escaping the fact that the world will not emerge from the present depression without temporary sacrifices by all. Our Government believes that cooperative action in the carrying out of a well conceived and agreed on program will not only diminish the burden but contribute materially to the restoration of normal conditions which all of the nations so earnestly hope for. In the light of this major objective the American Government hopes that the French Government whose cooperation is so essential will find a method to reconcile existing differences so as to permit a concerted effort by all in the carrying out of the President’s program.

Castle

5. Ante, p. 62.
6. See pp. 175 ff.
8. This sentence was deleted from the published version at the suggestion of M. Flandin on the ground that its publication might further injure German credit (462.00R296/4224).