Memorandum by the Secretary of State
The German Ambassador76 came in to explain the situation which has arisen in reference to Chancellor Bruening’s recent statement. He said there had been misunderstandings in the press which led to false impressions; that in the first place he did not understand how Dr. Bruening’s views had come out at all and they seemed to have come out as given to Great Britain, whereas as a matter of fact Dr. Bruening had spoken to the representatives of all of the different countries; and in the next place his statement was not a repudiation but a mere statement on his part of what he thought was the real meaning of the Basle report of the experts. The Ambassador [Page 641]said Dr. Bruening’s view, based on this report, was that doing away altogether with reparations was the best line of conduct in the interest of everybody—not only Germany, but the others; that he thought a temporary postponement was not satisfactory because the revival of business which would take place under such circumstances could at best be only temporary and the shadow of the renewal of the payments would constantly hang over them; and furthermore that he did not like the suggestion of new bonds being issued by the German railways.
The Ambassador told me of course I was to understand that Dr. Bruening did not mention the allied debts at all but was speaking only of the reparations to be paid by Germany and the situation which that created, and from the political standpoint he thought no German government could promise now to take up the payments of reparations again.
The Ambassador said that so far as the Lausanne meeting was concerned, Dr. Bruening’s suggestion that it should be interrupted and adjourned until after the French elections was only made as a compromise or alternative policy—the method he most preferred was to go ahead now and finish up as rapidly as possible.
I broke in to remind the Ambassador that the Basle report in itself had not excluded the promise of ultimate German recovery; that there was language in it which indicated that the present situation was abnormal, and that in normal times Germany could resume payments. The Ambassador agreed that that was so, but said that the language of the report seemed to be only an expression of a hope and everybody had to agree that the calculations made by the Young Plan77 had proved fallacious.
I replied that that was true, but that we must agree it would be just as wrong to regard the situation in the present depression as normal and permanent in one direction as it was wrong to regard the situation in May, 1929, as normal and permanent in the other direction. The Ambassador agreed.
I asked about M. Flandin’s statement to the effect that there should be no Lausanne Conference at all. The Ambassador replied that he thought this was based on a misunderstanding by Flandin; that at the time when he said this he did not realize what Bruening had actually said and had not waited to hear François-Poncet’s report. The Ambassador said that in summary what Dr. Bruening wants is a definite solution and thinks that is the best solution.
I replied that he could hardly expect to achieve a solution by [Page 642]which Germany escaped all reparation payments hereafter. I called attention to the situation in Germany and asked if it was not a fact that German industry had escaped a large part of its domestic indebtedness in the crash of the mark in 1924. I said that if Germany now escaped reparations would not that really leave Germany and German industry in a rather unduly favorable condition as to all other nations. The Ambassador admitted that he had heard this argument. He said we must not forget that German industry was not altogether free from debt because they had made these short term obligations. I said I realized that they had had to borrow their capital on rather more difficult terms than if they had had better credit and borrowed it on long term bonds, but that was rather a small matter in comparison with their escape from the earlier domestic indebtedness.
As he had evidently completed what he had come to see me about, I reverted to the general situation and asked him whether he had received the aide-mémoire which I sent him on December 29th of the talk I had had with Claudel. He said he had. I pointed out that while the situation was very difficult people were mistaken in saying that there had been any change in the attitude of this Administration; that we stood in exactly the same position as we had in October with M. Laval, and it was entirely wrong to indicate that the situation was like the one which confronted President Wilson in 1919. Furthermore, I pointed out, that Congress in its rider to the debt moratorium bill had not excluded a possible suspension of debt payments, but only cancellation or reduction, and furthermore that even this statement made in the early weeks of the sessions of a new Congress might possibly be subject to modification afterwards, although it undoubtedly was a very difficult position.
I said that this government now was devoting its primary attention to strengthening its defenses at home with its domestic legislative program; that it had found not only from the attitude of its own Congress but from the divergent and discordant feelings of the different countries abroad that it was very likely that a successful defense against foreign disaster might be too slow in organizing to be successful and therefore we had adopted the method for the present of concentrating our primary attention on our home legislation, but we had not abandoned our intention to work as intelligently and in as conciliatory a way as possible for the amelioration of the world situation. I said that it was going to be a very difficult winter for everybody and I was trying to inculcate in all [Page 643]matters where I had any influence the extreme importance of restraint and conciliation, because it was a time when the economic situation would require those qualities.