Memorandum by the Counselor of Embassy in Germany (Gordon), Temporarily on Duty in the Department

I strongly endorse the substance of the suggestion made by the Ambassador in this telegram.11 For a long time, and ever more concretely during the past year, it has been increasingly apparent that the principal European creditor Powers were becoming imbued with the idea that we were so deeply interested, as a result of our investments in Germany, in preventing the breakdown of the German financial and economic régime that we would feel compelled to go to any lengths to avoid it. While this is true, to a certain extent at least, in England, and Italian policy, as expounded by Mussolini’s Popolo d’Italia editorials, embodies this belief in a thorough going manner, the French application of it is at the present time far more aggressive vis-à-vis the United States and more obstructive to a general solution of the problem.

As a result of that belief it is probably fair to assume that the French still have a hope that in spite of our declarations of policy up to date our fear of a German collapse might induce us to remit on war debts an amount equivalent to the remission of reparations. Consequently any statement, so put out as to carry conviction, which would dispel the idea of our being actuated by such a fear, could only have the effect of increasing our independence and thus improving our trading position.

As no French Government is going to agree to unconditional complete cancellation of German reparations, a definite conviction that France would have to reach a final and durable agreement with Germany on her own, would render her more reasonable vis-à-vis Germany in negotiating such an agreement.

Moreover, it is not only the three Powers above mentioned who have been counting on America’s being so deeply committed in Germany as to be willing to do anything to avoid a collapse there. I think that Germany herself feels this very strongly and in formulating her policy has laid great weight on this calculation. A statement of the nature suggested would shake what might be termed this complacency. It may be argued that this would have the result of further disastrously complicating the financial and economic situation in Germany; I believe, however, that it would rather have the effect of in turn impelling the Germans to be more reasonable in [Page 670]negotiating with France for the reaching of a comprehensive agreement.

In reaching such an agreement moreover it would seem proper that the portions of the December report of the Basle Committee which recognize that the present period of depression will not be permanent and enduring should be given full effect. Aside from the economic issue there is a moral issue involved, and it would seem only logical and equitable that if it is generally recognized by the creditor Powers concerned that conditions obtaining when the Young Plan was put into force a scant two years ago have so changed that the necessity of its radical revision is admitted, it should equally be admitted by the debtor nation that the “trough of depression” conditions now existing will not endure forever and should not form the basis and premises of a new and supposedly permanent international agreement. There is nothing inconsistent in this with the position taken by Congress in December when ratifying the President’s moratorium declaration.

The assumption on which the Ambassador’s suggestion was made is explicitly that our banking system can stand a collapse of Germany, but I am rather inclined to think that he was also taking into consideration the general effect on our economic structure of such a collapse, and in this connection it is not apparent to me that a statement of this kind would necessarily be equivalent to a general writing off of private German investments. Of course I am not in a position to express an opinion as to the soundness of this assumption and my observations above set forth are only predicated upon such an assumption being correct.

G[eorge] A. G[ordon]
  1. Telegram No. 26, February 8, 10 a.m., from the Ambassador in Germany, supra.