462.00R296/4251: Telegram
The Ambassador in France (Edge) to the Acting Secretary of State
396. According to the arrangement, the Minister of Finance, M. Flandin, met with Mr. Mellon and myself at the Embassy residence at 3:15 p.m. today. At the outset he revealed a very much more receptive and promising attitude than he exhibited yesterday afternoon at our last general conference with Laval and others. He remarked at the very first that he felt that we could reach an agreement. He was calling to give us the reaction of the French Council to the memorandum which they had had under consideration at their session this morning so that we would be familiar with their viewpoint before this evening’s conference.
He then went on to discuss the disputed points, stating that he was representing, with some exceptions to be noted later on, the view of the Council.
The first point relates to the wish of the French to have the Bank for International Settlements authorized to make reloans of the unconditional payments to German financial and industrial concerns rather than to the Government of Germany. Flandin said that on this question the Council of Ministers was willing to compromise to [Page 124] the extent that the payments made by the German Railway under the Young Plan should be reloaned to the German Railway rather than to financial and industrial concerns as originally stipulated, and that these loans should be secured by 5-year bonds of the Railway guaranteed by the German Government.
The second point refers to the French demand that distressed countries other than Germany should have distributed to them through the B. I. S. one-fifth of the French portion of the unconditional annuities for the year of postponement. Flandin indicated that the Council of Ministers unanimously opposed any modification of this point, that the Government had promised in the debate in both Houses of the French Parliament that any arrangement entered into by France would contemplate help to these distressed countries when necessary, and that this was an internal political situation which could not be overcome. He then made reference to the American memorandum contained in the Department’s telegram No. 313, June 30, 10 p.m., and to its suggestion that the comparatively small amount of relief required by particular countries could be given by the B. I. S. or through the cooperative action of the Central Banks. Flandin stated that a more definite proposal amplifying this suggestion would be necessary. Mr. Mellon then suggested that possibly the Bank of England, the Bank of France, and the Federal Reserve Bank could reach some understanding committing themselves to advance the comparatively unimportant amount of credits to take care of the situation. Flandin then suggested that he would be given a splendid argument and talking point to present to the Council of Ministers if these three banks could agree to underwrite $10,000,000 each to Rumania, guaranteeing a total of $30,000,000. In his opinion such a plan would be even better than the French proposal because it would provide approximately 5 million dollars more. He wanted to make it clear that this was only his own personal opinion, that the Council of Ministers had not discussed such a plan and was against any compromise. We informed him that we would be glad to send his suggestion on to Washington.
The third point is the question of the time of refunding. In this connection the Finance Minister raised a new point which was apparently prompted by the latter portion of your discussion of point 3 in your telegram No. 313, June 30, 10 p.m., wherein it was said that the length of time chosen for repayment would also apply to payments on account of the American debt. Flandin said that he considered that the French position in this regard was different from that of any other country; that France had a surplus of $100,000,000 in the interchange of intergovernmental debts during the year of suspension. In other words, the French receipts would be approximately [Page 125] $200,000,000 and their payments to the United States and Great Britain $100,000,000, leaving a surplus of $100,000,000. This amount practically represented the unconditional payment from Germany which France was reloaning to Germany. France did not understand why it should have to repay its deferred payment to the United States in 5 years while other countries had 25 years, since France was loaning its own money, its own surplus, to Germany as a distinct transaction. France could not be as generous as the United States and wanted its surplus back in 5 years.
Flandin admitted that if the shoe were on the other foot and France were to receive less than it paid out it would be quite ready to accept 25 years in which to repay. We indicated to Flandin that we wanted France to be as generous as the United States and that his proposal was quite contrary to the inspiration and spirit of the President’s broad, general plan. We were giving 25 years for the repayment of the $209,000,000 owed us and unless the French loan to Germany were on the same basis we did not see how the matter could be satisfactorily adjusted with all the technicalities which would be introduced. Otherwise there would be conflict with the repayments to us. Nevertheless, you will recall that the French negotiators have proposed a period of possibly 25 years in cycles of 5 years. When we meet tomorrow we shall discuss this point further.
Point 4. If the conclusion arrived at by Flandin is correct it would seem that the guarantee fund question, which has appeared to be the most difficult of all, has been eliminated from the controversy. Flandin stated that his Young Plan experts had drawn his attention to annex VIII, article 199 of the Experts’ Plan. Under the terms of this provision the French experts felt sure that France would not be compelled to make an immediate deposit of 500,000,000 reichsmarks into the B. I. S. in the event of a moratorium being declared by Germany. The interpretation of Flandin and his experts was that France would need to pay into the guarantee fund only such sums as the directors of the Bank for International Settlements decided it should pay out. In other language, the countries sharing in this guarantee fund at the time of such payments would need only a portion of the total of the guarantee fund at its maximum. Flandin stated that they were making further investigations, but that the objection to the payment into the guarantee fund as quoted in the French note would be completely withdrawn if the above interpretation was correct.
Owing to the necessity of securing Washington’s reaction to these several developments, it was thought best to delay the conference scheduled for 9:30 tonight until sometime tomorrow. We have not yet been definitely informed as to the time of our next conference.16
[Page 126]Mr. Mellon has conferred by telephone with Mr. Mills since this telegram was dictated. Mr. Mellon informs me that Washington has an amended view on the funding period question and believes that a straight 10-year period would be preferable to the suggested cycles of 5 years. However, I assume that if a 10-year period is agreed to, France will be expected to pay its deferred payment to the United States in 10 years according to our interpretation of point 3 of your telegram No. 313 previously referred to. Flandin would particularly like a clarification of point 3.