462.00R296/4261b: Telegram
The Acting Secretary of State to the Ambassador in France (Edge)
322. With reference to our memorandum of the 30th of June, transmitted in telegram No. 313, which was delivered to the French Government yesterday by you, and with reference also to your conversations with French officials today, as told us on the telephone, it is our understanding that you believe that France will accept the proposition if the following matters are regulated:
1. Regarding the guarantee fund, the French Government now feels after a re-examination of the Young Plan that this issue can be dropped from the discussions, especially if their interpretation is the same as that of the other signatories of the Young Plan. As we are not directly concerned in this matter, the French suggestion would be acceptable to Washington.
2. Concerning the French demand that about $25,000,000 of the unconditional payments into the B. I. S. for loans be held available for use by the states in Central Europe, it is our understanding now that France will give up this demand if she is satisfied that the principal European Central Banks and those of the United States will agree together on a scheme for opening a credit of about this amount for the benefit of such of those states as may find it necessary.
Although the American Government cannot speak in the name of the Federal Reserve Banks, which are independent completely of any influence or control by the Government, we understand that the New York Federal Reserve Bank would, if the request were made and if the plan were approved by the Federal Reserve Board, be willing to arrange for a deposit of not more than $10,000,000 in the B. I. S. for use in accommodating the states in Central Europe which require help, on the condition that the Bank of France and the Bank of England [Page 127] would participate each to an extent not less than the American bank. This information is for you and Secretary Mellon and for the French officials concerned.
It will naturally be understood that this matter cannot be adjusted through a governmental agreement. The working out of such an arrangement would have to be through direct negotiations between the B. I. S. and the Central Banks and would necessarily have to be subject to any limitations on the action of the Central Banks which may exist.
3. It is our understanding that the French Government proposes now that the Young Plan payments which are required of the German Railway Company into the B. I. S. should be paid as formerly and that that part of such payments which is for distribution to the different governments benefiting thereby is to be reloaned to the German Railway Company and will be available for whatever use may be determined by the Railway Company, including direct or indirect loans to the German Government.
From this proposal we understand that, during the moratorium year, the German Railway Company will continue payment to the B. I. S. through the latter’s account in the Reichsbank the yearly contribution of 660,000,000 reichsmarks, as provided for in the terms of the German Railway Company’s certificate deposited with the B. I. S. The Young Plan provides for a non-postponable annuity payable by Germany at the B. I. S. to the account of the creditor powers, amounting to 612,000,000 reichsmarks. This covers service of the 1930 German international loan (Young loan), but it does not cover service of the 1924 German external loan (Dawes loan) which is to be paid independently by Germany. For the purpose of maintaining intact the continuity of payments on the unconditional annuities, the payment by the German Railway Company in the year of postponement shall be made into the B. I. S. and shall be on account of Germany’s liability to make the unconditional payment. Any balance of the 612,000,000 reichsmarks that may be left after service of the 1930 German international loan is to be loaned to the German Railway by the B. I. S. for the period agreed upon. The loan thus contemplated is to be made for the account and risk of the creditor powers which share the unconditional annuity according to their interests therein. Presumably the difference between the 660,000,000 reichsmarks and the 612,000,000 reichsmarks above-mentioned, is to be used on the service of the 1924 German external loan. (It is to be understood, furthermore, that Germany is to provide by separate means the necessary additional amounts to carry out payments on the 1924 German external loan.)
[Page 128]4. Regarding the length of time for funding the conditional and unconditional payments which are suspended, we feel still that it is preferable to agree on the period of 25 years rather than a shorter one. Mr. Hoover’s proposal of June 20 very definitely stated that any governmental debt payments were to be postponed during the fiscal year beginning July 1st on the condition that a like postponement for 1 year would be agreed upon on all payments of intergovernmental debts owing the important creditor states. Consequently you will understand that the length of time provided for in the funding of the payments by Germany will fix the length of time for funding all payments to the American Government during this fiscal year, not only from France but from all other debtor states.
It is well at this point to indicate to the French that if the period of repayment by the Germans is fixed at a small number of years, the period of repayment granted to Europe as a whole by the United States will necessarily likewise be limited.
Nevertheless, in our effort to reach an agreement, we would be willing to accept the following: Suspended payments to be paid beginning not sooner than 2 years after the termination of the suspension year and after that the suspension payments to be funded by annual or semi-annual installments over a 10-year period. With respect to Germany this would apply both to unconditional and to conditional payments that are included in the suspension. As regards the rate of interest, the American suggestion has already been made.
5. As for the balance on current contracts covering payments in kind in the year from July 1, 1931, to June 30, 1932, we trust that France will take up this matter immediately with Germany and the other creditors of Germany who receive payments in kind with a view to a solution of the matter. In this connection our sole consideration is that whatever arrangement is made will accord with the general object of the American proposition.
In case it turns out that your belief that the French Government will reach an understanding with you on the points as outlined above is correct, we trust that you will close the matter with them at once and that they will agree then to transmit to the American Government through diplomatic channels a reply of acceptance to Mr. Hoover’s proposition. The only conditions, in our view, which it would seem should be mentioned in the note of acceptance are those which have to do with the period of funding and the payments into the B. I. S. and reloans back to the German Railway Company.
Please repeat this to the American Ambassador at Berlin as Department’s telegram No. 107.