The Secretary of State to the Ambassador in Germany (Sackett)
31. Your 60, March 18 , 3 p.m. The Department has carefully discussed the German Aide-Mémoire with the Treasury. You are instructed to secure an immediate interview with the Chancellor and put before him the following considerations. The Department is presenting the same views in the form of an Aide-Mémoire to the German Ambassador here.
- There are two separate problems involved in Germany’s obligations to the United States. The first is with respect to the payment for costs of Army of occupation and the second with respect to the Mixed Claims Awards. These will be considered separately.
- With respect to the army of occupation payments the proposal of the President which has been already accepted by Germany and the other nations contemplated the inclusion of the German obligations as an intergovernmental debt under the terms of the debt suspension as agreed upon in London. Pending the execution of the required agreement Germany took advantage of her power to postpone under the Treasury Agreement of 1930,46 but in so far as the Army costs were concerned, it was definitely understood that this was a temporary measure. In fairness to all the nations which have accepted the Hoover plan, Germany should now carry out the technical requirements to legalize an understanding specifically agreed to last Summer. The execution of such an agreement will immediately eliminate the alternative necessity of any interest payment on the suspended Army cost annuity. The signature to an agreement by Germany regularizing the postponement of the Army costs annuity in accordance with the Hoover proposal will merely put the United States in the same position as the creditor signatories of the London protocol of August 11, 1931.47
- [sic] The second problem has to do with the postponed annuity in discharge of the Mixed Claims awards. These have not been treated as intergovernmental debts within the terms of the Hoover plan. This was clearly understood at the London Conference. In respect to these also Germany has invoked its rights under the 1930 Treasury Agreement to suspend the annuity due. The Treasury has absolutely no power to suspend payment of interest due March 31st on the postponed amount. This interest, therefore, must be paid or Germany will be in definite default. In this connection the United States Government wishes to recall that in Paragraph No. 4 of said agreement the American Government agreed to accept “the full faith and credit of Germany as the only security and guaranty for the fulfillment of Germany’s obligations hereunder”.
- The interest due is an extremely small sum. There is no way in which the Treasury can grant postponement. The amount involved is so small that the German Government could pay it without arousing comment or creating a troublesome situation.
- In connection with the first problem stated above unless Germany regularizes the suspension of payment on army costs under the general debt suspension proposal the Treasury will also have to insist upon the interest payment that would fall due at the end [Page 617]of this month on the suspended army costs annuity. But this payment would be subject to criticism as has been suggested in the German Aide-Mémoire, because it was contemplated that the army costs annuity would be included in the Hoover plan. The same criticism would not apply to actual payment of interest on the deferred annuity of the Mixed Claim Awards.
- To summarize, if the German Government declines the suggested agreement covering army costs within the Hoover proposal, it will repudiate its acceptance already given to that proposal. If Germany declines to make the interest payment in respect of the postponed Mixed Claims annuity it will be in default on the Treasury Agreement of June 23, 1930.
- By its present insistence, the American Government in no way seeks to establish any novel claim of priority for payments due to the American Government as compared with other obligations that the German Government owes. The reason for treating mixed claims under the Treasury Agreement and therefore requiring the March 31st interest payment is not any assertion of priority for these annuities, but arises out of the fact that they are not ordinary intergovernmental payments.
- If the German Government should now refuse to take the formal action proposed by the American Government, and necessary to give effect to the arrangements to which Germany consented last summer, the American people and Congress would interpret this evasion harshly and bitterly. It would be construed as a breach of faith and as a striking lack of appreciation for the American initiative of last June. Such an act of repudiation toward the United States on the part of the prime European beneficiary of the President’s initiative of June 20, 1931, would have a most serious effect upon any possibility of American cooperation in future European emergencies. Fairly or unfairly, the onus of American criticism and disappointment in connection with the debt settlements would be projected against Germany for taking toward the United States the first step in repudiation.
- The preceding considerations involve grave matters of general policy which the German Government should most carefully consider. In addition, its attention must be called to the fact that should it now not meet its obligations under the Treasury Agreement such course of action might unfavorably affect future payments to German nationals on mixed claims and alien property accounts. In this connection it should be remembered that even during the moratorium year the American Government has made substantial payments to German nationals on mixed claims account. [Page 618]This fact would make non-payment of the interest due March 31st more damaging from the point of view of American public opinion, while it would serve to answer any possible objections to the payment of interest which might be raised from the point of view of the other creditors of Germany.
- The American Government, therefore, formally asks the German Government to take the necessary steps to sign the necessary agreement dealing with army costs and to pay the March 31st interest installment on postponed mixed claims in accordance with its formal undertaking under date of June 23, 1930.