The Ambassador in Germany (Sackett) to the Secretary of State

No. 1397

Sir: Confirming telegrams Nos. 5 of January 7, 4 p.m., 7 of January 9, 11 a.m., 8 of January 9, 7 p.m. and 10 of January 12, 4 p.m.,78 I have the honor to transmit herewith copy of a memorandum79 giving the substance of a conversation on January 8 between Ministerialdirektor Dr. Ritter, of the Foreign Office, and a member of the Embassy staff. In the aforesaid conversation, Dr. Ritter outlined the plans, activities and policy of the German Government in respect of reparations and gave his views on the present economic situation of the Reich. A second memorandum, which gives the substance of a conversation of January 9, with Ministerialdirektor Dr. Dieckhoff, is also enclosed.79 During the course of the interview with Dr. Dieckhoff, the member of the Embassy staff was permitted to read the précis of the conversation which had taken place at noon on January 8 between Dr. Brüning and Sir Horace Rumbold, the British Ambassador. The substance of the précis is reported in the aforesaid memorandum. As a final enclosure, there is transmitted herewith, in copy and translation, the text of the Chancellor’s communiqué79 given out on the evening of January 9 by Wolff’s Telegraphisches Bureau.

The substance of these accompaniments to this despatch has already been reported to the Department. In conversation this morning with the Chancellor, he confirmed to me the fact that they present a complete and accurate picture of the present situation in so far as Germany is concerned.

It seems clear that the domestic-political situation and German policy towards reparations had developed and presumably will continue to develop along parallel lines; the one is ancillary to the other. The general line of German reparation policy, as now formulated, is based on the conclusions of the so-called Basle Report, and may be summarized briefly as follows: Insistence 1) that since the [Page 644]economic basis on which the Young Plan was drafted no longer exists, the Plan itself must be put aside; 2) that economic conditions in the Reich do not allow of any payments on reparation account for any foreseeable time; 3) that the economic rehabilitation of the world requires the cessation of political payments by Germany, i.e., the complete cancellation of reparations, and 4) that a lump sum agreement in final settlement of reparations is not at this time acceptable to Germany. In respect of the qualification of the last statement, it may be significant that it does not definitely close the door to the future possibility of a global settlement.

German expectations regarding the course of developments seem pretty clearly to be as follows: The Conference at Lausanne will serve as the stage for an immediate German move for entire cancellation of reparations. There is presumably no real hope entertained that a positive result can be achieved at this time; German efforts will be largely tactical and made with eyes fixed also on the domestic-political situation. The first objective will presumably be to achieve the actual or theoretical demise of the Young Plan. To this end determined efforts may be expected to arrange for the existing moratorium to be converted on July 1st into a provisorium. The German thesis is that a moratorium implies an interim which constructively continues the status of the past while a provisorium carries the implication of an interim between two entirely different situations and thus would not constitute an acknowledgment of the Young Plan for the future. Germany clearly desires that the conference should speedily adjourn and reconvene only after the French and Prussian elections, and hopes are entertained that the results of the French elections may favor a final settlement of the reparation problem along lines more satisfactory to Germany than is at present feasible. It will be observed in enclosure 1, that Dr. Ritter does not anticipate that the reparations’ slate can be washed clean before the end of the present year or the beginning of 1933. It may be assumed that he reflects the viewpoint of the Government in the premises and that it is a hopeful augury against precipitous action by the German Government.

The major problem in the field of domestic politics which confronts the Government is, of course, the obvious one of maintaining itself in power in the face of almost overwhelming Opposition strength. This task is approached on the basis that Hitler, the leader of the National Opposition, will not attempt or even desire to enter or take over the Government while negotiations for a final reparations settlement are still pending. Indeed, the Government foresees that by side-stepping a prolonged moratorium or other [Page 645]provisional settlement, which could be interpreted by the National Opposition as acceptance by implication of continued or future German liability under the Young Plan, its life may be prolonged until the final settlement is actually effected. If this proves to be the case, the nature of the settlement, when made, and the economic conditions obtaining at that time, will presumably shape subsequent domestic-political developments.

It is argued abroad that the present reparation policy of Germany is one of “blackmail” of its debtors; that these are faced with 1) the constant threat of a political crisis in Germany from which would evolve a new government committed to outright repudiation of political payments and revision of the Treaty of Versailles; and 2) the menace that Germany at any given moment may declare a complete moratorium on all foreign debt payments, with disastrous consequences for important banks abroad.

In analyzing the foregoing objectively, the following conclusions may be drawn: 1) the German Government doubtless feels morally free to use the various factors of the existing situation in the German national interests. Germany argues that the commitments in respect of reparations were accepted under pressure and clearly believes that they can be thrown off only by recourse likewise to pressure. 2) If the Brüning Government accepts liability for future reparation payments under the Young Plan, irrespective of how far such payments are scaled down, the National Opposition seems actually ready to precipitate the “threatened” crisis and to repudiate reparation payments. It is moreover allegedly willing to accept all consequences. 3) The precedent for the declaration of a moratorium on foreign debt payments has already been set elsewhere. The possibility of Germany’s having recourse to this drastic measure has undoubtedly been conducive to British cooperation with Germany, from motives of self-interest, to the end of moderating French reparations policy.

The chief line of argumentation—in addition to that of existing economic considerations—which Germany may be expected to emphasize in order to justify her moral claim to the entire cancellation of reparation payments, will be that total French costs of actual reconstruction have already been exceeded by German reparation payments and deliveries in kind in favor of France. The German arguments will form the subject of a separate despatch.

Economically the Government is clearly willing to sacrifice the advantage of immediate economic relief in the greater interest of a postponed but final settlement. The German Government, however, is convinced that the present critical situation of Germany’s [Page 646]major industries, in the light of altered circumstances in the home market and adverse changes in the export field, makes a favorable solution imperative. The Chancellor informed me today, in respect of the textile, iron and steel, and coal industries and the returns of the State railways, that five or ten years must elapse before any appreciable improvement can be expected; that the question of accepting any further charges on the Reichsbahn was out of the question.

The domestic-political situation has been previously reported at such length to the Department that it requires no further elaboration at this time. It must, however, be appreciated abroad that the advent of National-Socialism in the government would, with its irresponsible and radical Left wing, be fraught with grave dangers for the subsequent political trend in Germany. It may be assumed that Dr. Brüning, from his categoric statements, has now decided that a conjunction of the domestic-political situation, the acute crisis in Germany as well as the world depression in general, make it imperative for him to stand or fall on the issue of a definitive and favorable settlement of reparations. I do not believe that he will yield his place to Hitler or compromise with the National Opposition as a tactical maneuver in order to chasten the French point of view; he will, I am sure, resolutely endeavor to maintain his position until he has played his last card.

Dr. Brüning’s assurance to the British Ambassador (vide enclosure 2) that the German case would not be stated at Lausanne in such a way as to injure French feelings is significant. It may be expected that he will keep the discussions on a plane of argumentation; not of repudiation. Danger of French recourse to The Hague is therefore not to be foreseen as yet. In the present sharp crystalization of German reparations policy, the attitude of France is of particular interest. The first reflections of this attitude are not too gratifying to Germany. Political pressure will undoubtedly be exercised on the Chancellor in connection with the prolongation of the B.I.S.81 credit of $25,000,000. Moreover, the German Government has begun to experience a series of lesser difficulties with France in the economic field.

The developments of the general situation will be closely followed and promptly reported to the Department.

Respectfully yours,

Frederic M. Sackett
  1. Nos. 7, 8, and 10 not printed.
  2. Not printed.
  3. Not printed.
  4. Not printed.
  5. Bank for International Settlements.