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

462.00R296/4272½

Memorandum of Trams-Atlantic Telephone Conversation³³

July 5, 1931, 12:30 p.m.

Mr. Edge: Ogden, I am just a little in the air, and Mr. Mellon is right here by me, about that counter proposal. We got the telegram this morning, No. 332,^33a telling us to call off the negotiations unless the French Government would accept the article in Section 5³⁴ of [on] the deliveries in kind. We go up there and tell them that and Mr. Mellon has told you they had another counter proposal which is pretty close to what you would imagine would be acceptable, and you have given a counter proposal through Claudel. When was that done?

Mr. Mills: That was done five minutes before Mr. Mellon called up.

Mr. Edge: You want to give it to us by telephone because we won’t get it until tomorrow morning.

Mr. Mills: We are going to give it to you by telephone and by cable and we thought it would not do any harm if it came from the French side. You will get a long cable from us the first thing in the morning. That cable we sent you last night was just a preliminary warning because the house is on fire; we cannot go on negotiating any longer.

Mr. Edge: Unless they agree—it was an ultimatum with our version of deliveries in kind—we were through. That is it exactly. The instructions were very clear that we should give him this memorandum. The only point I make is that it is a little embarrassing. This was prepared by Claudel or by the Department?

Mr. Mills: We were discussing this morning what is meant by the spirit of the President’s proposal. I said that if the French Government would be willing to re-loan the money to the Reich I thought that came within the spirit of the American proposal.

Mr. Edge: We had instructions earlier in the day to call the whole thing off. Flandin is out in the country waiting for an answer.

Mr. Mills: We have never departed—

Mr. Edge: Our position is final and unless accepted by the French Government we propose to break off negotiations Monday morning. We told them that.

Mr. Mills: We did not tell you to show him the memorandum.

Mr. Edge: We did not show him all of it; but we showed him enough of it.

Mr. Mills: We do mean it now; you need not have any concern on that score; we mean that very definitely because we cannot wait any longer.

Mr. Edge: The only point I am making is the reason I called you back just now is I want to be sure that we got this counter proposal absolutely straight because we want to notify Flandin that there is a counter proposal on the way through Claudel which takes the same position. We have been working very hard over here and we have been getting these telegrams off to you about 3 a.m. every morning.

Mr. Mills: So have we, when it comes to that.

Mr. Edge: See if I get this correct. Your proposal now is that the German producer will be paid for the stuff which he is exporting to France by the German Government. The purchaser in France will pay for the purchase [at] the contract price to the French Government. The French Government will deposit this amount in the B. I. S. to reloan to Germany.

Mr. Mills: That is the substance of it.

Mr. Edge: I have a stenographer here if you have it in full.

Mr. Mills: I have a stenographer here, too.

Mr. Edge: We are going to get Flandin on the phone in order to tell him your reaction to his proposal and we cannot get him until tomorrow, that is we won’t get your telegram until 10 or 12 o’clock so I should like to get it by telephone. I am putting Mr. Pell on with a stenographer.

Mr. Mills: First, as to Mr. Flandin’s counter proposal.³⁵ In making the reference to the Committee of Experts, it fails to specify that the solution must be within the spirit of the President’s proposal; second, we told Mr. Claudel this morning that in interpreting what we meant by terms within the President’s proposal we would consider that if the French Government would re-loan to Germany the sums put at its disposal through existing contracts for deliveries in kind we would consider such a solution as falling within the spirit of the President’s proposal.

Now, in the memorandum which I have just dictated to you my No. 1 paragraph refers to the counter proposal referred by phone this morning.

(circuit broken—15 minutes delay)

1:20 p.m. from Paris (continued):

Mr. Mills: Hello, Walter, will you read that memorandum over to me again?

Mr. Edge: The memorandum you dictated?

Mr. Mills: Yes, will you give it to me?

Mr. Edge: This is the way it reads: In making the reference to the Committee of Experts it fails to specify that the solution must be within the spirit of the President’s proposal.

Mr. Mills: I was referring to the counter proposal made by M. Flandin to you and Mr. Mellon this morning.

Mr. Edge: I understand that. That is very true. They have not and won’t insert in the paragraph about the Committee of Experts; they will not insert the words that it must be within the spirit of the President’s proposal. All they say is to leave it to the experts to work it out and the future would have to decide whether the decision is in the spirit of the President’s proposal.

Mr. Mills: The President won’t budge on that point.

Mr. Edge: That point, however, becomes — unless the President will consider the proposal Mr. Mellon gave you an hour ago.

Mr. Mills: Which proposal?

Mr. Edge: France then loans the unconditional payments back to Germany and if necessary cancels or abrogates the delivery in kind transactions. Don’t you understand?

Mr. Mills: I understand it is bad business for all parties to abrogate the payments in kind contracts.

Mr. Edge: The whole hope of it is that France and Germany will come to an agreement entirely outside but we have gotten them to agree about the initial contracts that France will not grant deliveries in kind on the unconditional payments and they reserve—in other words, it must be paid in cash by Germany just as they pay anyone else. I realize that is not all we want.

Mr. Mills: Now, wait a minute.

Mr. Edge: Now I will notify Flandin not later than 8 o’clock tomorrow morning, when he comes in from the country, whether that is acceptable or not. Of course we told him today very frankly that we could not move from your section No. 5 of the Memorandum No. 339 [329] which we officially delivered to them all yesterday. Now he comes back with the idea of not breaking off these negotiations; he is very earnest about it and I am glad that I had the authority to call off the negotiations. Now he comes back with a proposition we have given you. The point of the Committee of Experts doesn’t mean anything at all, but he admits the principle of the President’s proposal.

Mr. Mills: See if I understand you. The French now say that they are willing to abrogate all contracts covering deliveries in kind.

Mr. Edge: That’s right. In other words, they prefer to deal with the French producers because, as you probably know, it costs them from 10 to 12 percent more to request deliveries in kind on account of the reparations.

Mr. Mills: I can tell you right now what our answer will be. I understand all that. I can tell you what our answer will be; that we are not interested one way or the other whether these contracts are carried out or not. I think we will tell you that we are not interested one way or the other whether these contracts are abrogated or not, but if they are carried out then, within the spirit of the President’s proposal, the creditor government must not profit.

Mr. Edge: But if they are not abrogated, then under the proposal we would—

Mr. Mills: We do not care whether they are abrogated or not. That is none of our business, but if they are not abrogated, if they are carried out, they must be carried out within the spirit of the President’s proposal. In other words, the French budget must not profit from deliveries in kind.

Mr. Edge: In other words, they would be outside unconditional payments.

Mr. Mills: I dictated a point, No. 2, with reference to reloaning the money back to Germany.³⁶

Mr. Edge: Yes, I will read it to you as we got it. (Here reading) The proposal we have referred to—you put it down as Mr. Mellon read it to you.³⁷

Mr. Mills: I have it now.

Mr. Edge: Are you clear as to what it means?

Mr. Mills: I do not think it is at all clear as to what it means. I think I have rarely read a statement that is more clouded. It is impossible to tell what it means. It is very difficult to understand what it means.

Mr. Edge: You put down your interpretation of it and put it on the wire as soon as you can, so we can check it sometime tonight.

Mr. Mills: Does this proposal that you telephoned us mean that they are willing to abrogate all these contracts?

Mr. Edge: Yes, exactly what it means. But they have put a proviso in there which I did not give you this morning. They are prepared to abrogate all their contracts but they have difficulty in doing it legally; there are difficulties in doing it. Then they propose, as I understand it, they still propose to—

Mr. Mills: I have got it. You might also tell them that the Reichsbank has formally notified the German Government that there is no exchange available for making payments on July fifteenth.

Mr. Edge: We have not the official notification but we imagine from the reports that that is so, but we think it worried him.

Mr. Mills: They are not going to get anything anyhow.

Mr. Edge: They are going to get all the worst of it if they do not get in. I thought it would be unwise today, whether you meant it or not, to practically call off the negotiations tomorrow. Mr. Mellon and I agreed with it when we talked last night and I believe it is somewhat ambiguous and should like to have your definition of it. We practically threatened him, to tell him what we felt all along that we will not—

Mr. Mills: But listen, the agreement which they gave you last night³⁸ is so full of jokers that it is perfectly impossible to accept. They are [It is] absolutely loaded—every paragraph.

Mr. Edge: We realize that, absolutely impossible. You have that before you?

Mr. Mills: Yes, they have loaded every paragraph,

Mr. Edge: We only sent it to you because they delivered it to us as a result of the Council meeting. We worked until two o’clock in the morning until we almost went to sleep. It was impossible, but don’t get entirely discouraged about it. If you can get these deliveries in kind straightened out I have not the slightest idea but that the section will be stricken out and the expert language there can be changed and come back with—But you give us a full telegram on it and put it straight from the shoulder and let us have the telegram tomorrow morning that we will deliver an absolute ultimatum. I think tomorrow morning’s telegram must not be one for us alone but it must be one we can hand to them.

Mr. Mills: Yes, I understand. That is all.

(Conversation ended at approximately 1:30 p.m.)

33. Between Mr. Edge in Paris and Mr. Mills in Washington, July 5, 12:30 p.m.
34. July 4, 12 p.m., p. 140.
34. Of telegram No. 329, July 4, 2 a.m., p. 133.
35. See telegram No. 407, July 5, 8 p.m., from the Ambassador in France, p. 144.
36. Ante, p. 147.
37. Transcription apparently inadequate. Reference at this point appears to be to the “basis of agreement” transmitted to the Department in telegram No. 405, July 5, 3 a.m., from the Ambassador in France, p. 141, and apparently telephoned to Washington earlier by Mr. Mellon.
38. See telegram No. 405, July 5, 3 a.m., p. 141.