462.00R296A1/189: Telegram

The Consul at Basel (Cochran) to the Secretary of State

For Castle. In lieu of completely wiping out reparations British have proposed a compromise whereby Germany would pay annually 50 million dollars for 15 years to begin after complete moratorium of 3 or 5 years. So far the Germans oppose this plan as do the French, the latter considering the payment too small.

Germans think today or tomorrow likely to see a crisis in Lausanne discussions stating that in the 3 days’ talk between the Germans and the French the vital question whether reparation payments should be continued was not touched upon and this must be determined soon. Since the belief is becoming widespread that Germany will make no more payments that could be considered tribute, especially in view of the British attitude of generosity towards Germany, the French are going further with alternative plans. Avenol has amplified the relief pool plan mentioned in my telegram June 23, 4 p.m. Into this Germany would be expected in return for wiping out of reparations to pay the largest share but other European countries would contribute a certain percent of their customs revenues for 3 years, these funds to be paid into the [Page 680]B. I. S. or some other trustee. B. I. S. would partition the funding among needy countries for, firstly, monetary reconstruction and secondly, liquidation of standstill and other indebtedness. As a price therefor the beneficiary countries would give up restrictions on foreign exchange and foreign trade and would lower tariffs. Repayment through the trustee would be spread over perhaps 15 years. Funds for this plan would only accumulate within 3 years. Since certain countries need assistance immediately and since practically all European treasuries face deficits and the governments could not advance funds without borrowing it is suggested that the central banks of certain countries discount the obligations of the governments and in turn have assigned to them the custom revenues involved and also enjoy a joint guarantee from the respective governments. This would give business to the central banks such as Bank of England whose recent dividend shows a need for profitable activities. This plan has the approval of all of the principal countries except Great Britain. In the first place British will be faced in July with requests for loans on the part of practically all of their dominions. These requests could not be easily refused if Great Britain should agree now to lend assistance to various Danubian countries. Secondly, this pool would place Great Britain in the position of providing support for France in her alliance with the Danubian states. Germany and Italy favor pool idea, even Italy hoping to benefit therefrom. The outcome would probably be that the principal contributions at the beginning would be from England and France and to a lesser degree from the Netherlands and Switzerland. There is some doubt as to whether a plan is wise which merely continues existing credits by introducing fresh money to repay the old indebtedness. Some observers feel that the present liquidation should be permitted to continue. The French prefer that a committee of the treasuries act as trustee for such a fund rather than B. I. S. Italy opposes the French idea saying that this would leave the matter in the political realm. Since the central banks would be directly providing the funds these banks through the B. I. S. should control.

Another plan of one wing of the divided French delegates is that Young Plan should be left in force after placing the word non immediately before the word payments where it occurs in the Plan, that is unconditional payments would become unconditional nonpayments and conditional payments would become conditional nonpayments. The idea is that Germany would be expected to pay only what might have to be paid to the United States.