Memorandum by the Under Secretary of State (Castle)

The German Ambassador came to say that he was instructed to present to the American Government exactly as it had been presented to the French, British and Italian Governments the German attitude on the conference at Lausanne.

The German Government believes that there are two matters before the conference, one of which they call negative, the other positive. The negative consists in bringing about definite liquidation of reparations, meaning, of course, cancellation; Germany wished the conference to be held in January and at that time the German situation was a little better than it is now; the French prevented this on account of the coming French elections; the reason why Germany now demands definite liquidation of reparations is because of greatly diminished exports; in fact, the average of the excess of exports over imports during the first four months of the current year would not produce enough even to pay the interest and amortization on private debts; this amounts to one and one-half billion of marks a [Page 678]year and unless there is an improvement in the trade situation it will produce only one and two-tenths billion during the current year; the German Government believes, however, that there would be given such an impulse to business should satisfactory agreements be reached at Lausanne that the psychological effect in it would increase production and exports. The positive aspect of the Lausanne Conference is, in the opinion of the German Government, the discussion of the economic difficulties under which the world is staggering. Here the real work should begin; this the German Government believes consists primarily in three phases, one the stabilization of currency, two a study of the question whether private debts should continue in these depressed times to pay the present rate of interest and three the restrictions in foreign trade and particularly on monetary exchanges.

W. R. Castle, Jr.