Memorandum by the Consul at Basel (Cochran)
European Views on the Conference
A. Identity of Experts
Several of the European Experts on the Preparatory Committee will be either B. I. S. Directors or financial and economic authorities who have cooperated closely with the B. I. S., on international committees meeting at Basel, and otherwise. All of the European countries except Spain and Portugal are now shareholders in the B. I. S., and these two States were prevented from joining the B. I. S. only by their exchange difficulties. At the Annual Meetings of the B. I. S. in May 1931 and 1932 the Central Bank Governors of more than twenty European countries assembled at Basel where they listened to and discussed technical papers upon many of the financial subjects that are likely to come before the Preparatory Conference. The B. I. S. Platform, which has been outlined, separately, was presented [Page 828] to the Directors at the regular Meeting on September 19, 1932, These Directors represented the Central Banks of: Great Britain, France, Germany, Italy, Belgium, The Netherlands, Switzerland, Sweden, and private banking groups in the United States and Japan. While each of the European countries will have its individual political viewpoint on the discussions at London, and while there are known to be differences of opinion among the various Experts who will be at Geneva, including those who have served together previously, it is likely to be found that the B. I. S. Platform, together with the pronouncements of the B. I. S. and of the International Committees hereinafter cited, will have the general support of the countries of Western Europe at the coming Conferences. The two B. I. S. delegates to the Financial Subcommittee, Messrs. Fraser (American) and Trip (Dutch), represent the best informed and most conservative element of the B. I. S.
Of the three League Experts to the Financial Subcommittee, two, Ryti (Finland) and Baranski (Poland) are Central Bank officials well known to the B. I. S., and the third, Musy, Swiss Finance Minister, has had dealings with the Basel institution. Francqui, one of the most widely known B. I. S. directors, will be one of the Belgian experts. There is likely to be associated with him, at London if not at Geneva, Paul van Zeeland of the National Bank of Belgium, who was prominent at Stresa, and whose brother is a resident B. I. S. official. Paul van Zeeland is also an alternate B. I. S. Director. Sir Walter Layton, who served at Basel on two international committees in 1931, will be one of the two British Experts. His colleague, Sir Frederick Leith-Ross of the British Treasury, has long been associated with reparation and war debt problems and is constantly in contact with the B. I. S. For the French there will be Parmentier and Professor Rist. The latter served on the Special Advisory Committee, and has rendered extensive service in studying the financial problems of many European countries. Vocke of the Reichsbank, who substitutes for Governor Luther on the B. I. S. Board, will be one of the German Experts, along with Dr. Warm-bold, the German Minister of Economics. Beneduce, the B. I. S. Vice Chairman, who is usually the Italian Expert at such gatherings, will serve along with Tassinari. It is likely that the Italian policy will be consistent with that heretofore displayed, since the Italian Conference delegation is always accompanied by a young man from the Foreign Office who is constantly in touch with Rome and keeps the delegates properly in line.
The American Experts dealing with this group of professional European Experts will be under certain handicaps. Many of those [Page 829] above mentioned have worked together at most of the important Conferences held since the War. They not only possess thorough understanding of their own national problems, and policies, but have background information on the problems, policies, and history of their neighbors. Irrespective of their high individual qualifications, the Americans will not be sufficiently “expert” to assist in developing an American position that will command respect at London unless they may be definitely instructed as to our Government’s policy.
Europe’s best experts are on the Preparatory Committee. It will be the plan of these men to go as far at Geneva as possible toward writing a complete program for acceptance at London. The qualifications of the European experts and the extent to which they are associated with Government policy should make clear the importance attributed by the European Powers to the Preparatory Conference. If the United States hopes to have appear in the final Conference Report or Resolutions any positive American doctrines, every precaution should be taken to see that the Experts at Geneva work toward this end. To begin only at London, or to be obliged there to disavow acts of our Experts at Geneva, would be disastrous. We shall come in for enough criticism at best, and we certainly should not expose ourselves to an undue amount through assuming ill-advised positions at Geneva.
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H. Attitudes of Various Powers
I. Germany. The European country which at present appears to be most active in preparing its program for the World Conference is Germany. Various plans have been advocated there for improving the financial situation of the country, now that Lausanne has gone so far in adjusting the reparation issue. It is likely to be the German position that real progress towards world recovery can not be achieved until goods move again. Goods can not move as long as existing exchange regulations are in effect. Germany can not lift its exchange regulations as long as the present standstill agreement must be observed with respect to Germany’s private creditors. The first move, therefore, is to solve the standstill problem, perhaps through some scheme to be submitted to the Conference for a longtime funding of the obligations involved. These obligations are, in their present form, usually discountable by the Central Banks, since they do not exceed the legal limit of ninety days prescribed by most of the Central Banks. Should these obligations be made long-term, there would arise, however, the question of a suitable means for [Page 830] realizing thereon. For this purpose it is possible that recommendation may be made for expanding one of the existing institutions, such as the B. I. S., or creating an institution along the plans of Kindersley or Francqui, to provide facilities for discounting the German obligations in question, as well as similar obligations in other countries. Such an institution might have some of the features of the Reconstruction Finance Corporation or of the Swiss Federal Loans Office, the latter just now being created to handle frozen paper which the Swiss National Bank can not accept. The above remarks concern Germany’s short term indebtedness. Another move will probably be to secure a reduction in rates on Germany’s long-term bonds.
Both Von Papen and Luther have affirmed the German determination to meet foreign obligations to the extreme limit of Germany’s ability. The Germans are, however, now pleading transfer difficulties. With their export balance continually declining, with unemployment large, with the Reichsbank cover low, with the official discount rate down to four per cent, with the present steps toward reducing other internal interest rates, and with a political situation which forces the Government to favor drastic steps for improving Germany economy, it is to be expected that Germany will present as strong case as possible for relief from foreign debts, other than reparations. Germany feels that her position, in assuming that a country can only meet its foreign obligations by exports of goods and services, has been strengthened by Warsaw and Stresa. Germany will strive to avoid another experience of inflation. Germany is willing to consummate bi-lateral treaties to meet the Stresa pool plan, such treaties to be given a monetary valuation, but not to contribute cash. Germany favors the return to the gold standard, particularly on the part of its customers and its industrial competitors. Germany will oppose any Danubian plan which denies her any benefits of access to the Danubian markets. Germany favors the creation of any and all institutions destined to convert short term obligations into long term obligations, or offering new middle and long term credits. Germany has taken up the quota system as a last economic resort, and in opposition to much German opinion.
II. France. France took the lead at Stresa. She is becoming reluctant to grant any further financial assistance to her friends in Eastern Europe until some plan is achieved for their economic and financial reconstruction. France is willing to contribute to pools, both for revalorization of cereals and for normalization of currencies in the countries of Central and Eastern Europe, and was the strongest proponent of the Geneva Agricultural Bank.[Page 831]
France’s objections to the Francqui and Kindersley Plans have been indicated. If she is called upon to make a big investment, she desires to be free to make her own terms as she has done heretofore. She looks upon loans as political, as well as trade means, and desires her independence of action. She is not willing to help the British or Americans retrieve bad loans, unless her own funds also are involved.
France adheres firmly to the gold standard and condemns the risks of any other standard. (See Report of Bank of France for Year 1931).
Rist, the French delegate, opposes lowering cover rates of Central Banks. His ideas on the futility of intervention toward achieving a return of prices to the 1929 level have been mentioned.
France favors bargaining tariffs and opposes the most-favored-nation idea. She utilizes preferences, quotas, et cetera, although terming quotas temporary expedients. France would like multilateral treaties that would give her united allies in Eastern and Central Europe. The French viewpoint will always be nationalistic. The French idea of security, economic and otherwise, may be extreme to us, but it is religion to them. Coercion will not be effective.
III. Great Britain. Just as France took the initiative at Stresa, Great Britain may be expected to endeavor to set the program for London. Of the three great problems, unemployment, loss of trade and cost of debt service, the British have only made headway on the last—through the recent conversion operation. Unemployment figures are still at their peak and foreign trade at its lowest. With such conditions obtaining, there would appear to be no possibility of an early return to the gold standard.
The British tariff position is uncertain, following the unfortunate experiences at Ottawa, the dissension in the present Government over this subject, and the failure of import duties to yield the expected results. There is a tendency to bargain, not only with the Dominions, but with important outside traders, such as Argentina and Denmark.
The British still complain against the maldistribution of gold and some attribute low price levels to the scarcity of the metal. They will favor the creation of new institutions for setting capital movements in operation, particularly from the gold-rich countries.
They will be disposed to make terms with their debtors, as in the recent arrangement with Greece.
They will favor every means of protecting League Loans.
They are flatly opposed to all plans for revalorization of cereals or otherwise artificially maintaining commodity prices, and will [Page 832] not contribute to pools for that purpose. They do not want British funds utilized in plans which France will dominate for aiding her Eastern allies. Only a few British authorities, such as Sir Robert Horne, favor bimetallism. Most of them think any attempts to stabilize the price of silver would be futile. What monetary plans they may have for the sterling club are not known.
IV. Italy. To overcome the world crisis Jung, the Minister of Finance, holds that it is necessary: to solve the reparations and interallied debt problems by wiping out reparations and cancelling debts; to suppress restrictions upon international trade exchanges before such restrictions strangle the trade of all countries.
This is the Mussolini policy, who also holds that high taxes with trade are preferable to low taxes and no trade. Italy favors bilateral treaties, as opposed to the multilateral ideas of France, which Italy says would tend to divide Europe into blocs.
Italy has about the same idea as Germany toward the Danube, opposing any plan that would shut Italy out from advantages of trading with her natural customers in that area.
Italy has consistently endeavored to avoid inflation of her currency, and will support B. I. S. ideas on finance. The Italians are not optimistic as to the results of the Conference if the United States adheres to its ban upon the discussion of war debts, tariff rates, et cetera.
V. Belgium. With a budget deficit, unemployment difficulties and strikes, low prices of colonial products, keen competition from Germany and Great Britain in manufacturing and in the coal trade, and threatened depreciation of its currency, Belgium will favor early stabilization of currencies and return of conditions which will permit her foreign trade to recover. Important national borrowing has been resorted to, and economic conditions are not good.
The progressive and sometimes daring ideas of Francqui have already been mentioned. He is one of the severest critics of the American attitude on war debts, and is against all long drawn out debt settlements, preferring prompt liquidation, even at a capital sacrifice.
VI. The Netherlands. Conservative; supports gold standard; desires access to foreign markets; favors facilities for capital movements. Trip’s B. I. S. paper represents the Dutch viewpoint.
VII. Switzerland. Favors gold standard; likes bargaining treaties, with preferences and quotas, but would prefer to give up quota system if better outlets for Swiss goods can be obtained. Interested in institutions for thawing international credits, Switzerland having considerable amounts frozen in Central Europe. Swiss trade suffering through depreciation of foreign currencies, especially [Page 833] sterling. Few tourists; poor export markets for luxury goods; high domestic costs; unfavorable trade balance; now experiencing considerable withdrawals from large gold supply, and unduly nervous about it.
VIII. Eastern Europe. The problems and attitudes of the European countries east of Germany, Switzerland and Italy were demonstrated at Warsaw and Stresa. They are insistent in their demands for assistance and threaten complete default in the absence thereof. The situation is so serious with many of them that starvation and strife might even enter the picture. They have all over-borrowed; most of them are chiefly dependent upon crops for which there is no remunerative market; their trade is strangled by restrictions; and their currencies held back from devalorization or collapse only by measures that can not be continued indefinitely. These countries want their economic and financial conditions improved. Means to this end were discussed at Warsaw and Stresa. From American creditors they will seek radical reductions on their debts.
IX. Scandinavia. The northern countries figure in the “sterling group” and may follow the British lead.
- The extracted portion of this memorandum refers to problems of the Conference as anticipated in the published reports of the Bank for International Settlements (1932); the Foreign Creditors Standstill Committee (2d. meeting, January 23, 1932); Final Act of the Third Regular Session of the Permanent Committee for Economic Studies of the Agricultural Countries of Central and Eastern Europe, Warsaw, August 24–27, 1932; Conference for the Economic Restoration of Central and Eastern Europe, Stresa, September 5–22, 1932.↩