Memorandum by the Under Secretary of State (Castle)

The German Ambassador came in with a long telegram from his Government in answer to a telegram he had sent describing a recent talk with Mr. Mills, in which Mr. Mills told him that the President would include in his message to Congress a recommendation as to a change in priority of payments of the claims. The German Government is very much exercised over this because of the relations of the special German Claims settlement with the War Claims Act. The Security accepted by the United States in this agreement was the full faith and credit of Germany. If now the President, in his message, should suggest a change in priority, the German Government feels that this would be a very dangerous thing for German credit in general, since it would be an intimation that Germany never will be able to pay. The Ambassador says that the only reason the Germans cannot pay now promptly is the lack of foreign exchange; he feels, furthermore, that if the German Government, at the expense of other services, should find this foreign exchange to make the full payment to the United States Government private creditors would immediately ask why, if Germany could afford to make this substantial payment, it could not afford, also, to make some of the private payments. The German Government feels that, of course, every effort must be made to pay the American claimants as quickly as possible, just as an effort should be made, under the equal treatment provision, to pay the German claimants; the German Government would, therefore, be willing to have the American claimants paid in dollars from the special account in the Treasury and not ask that the dollars in the special account be transferred to Germany, but that instead the money should be established to the credit of the German Government here, the German Government to pay the various claimants in marks.

The Ambassador tells me that an agreement has been drawn up between the American and German claimants, suggesting some such solution as this. He says that a large part of the money to be paid, especially if the Sabotage Claim is decided in Germany’s favor, will go to the shipping companies, that the shipping companies which [Page 335] would like foreign exchange, have, nevertheless, stated to the German Government that they are willing to take payments in marks. The Ambassador feels, as his Government evidently feels, that to put a statement in the Presidential Message would create intensely bad feeling in Germany against this country, in addition to making the whole situation more difficult. He thinks that, on the other hand, with the agreement which has been worked out between the German and American claimants, the time has come whereby the whole claims matter could be pretty well settled, it being understood that Germany would make payments as exchange becomes available. The German Government, therefore, feels very keenly that, instead of actually stating that priority should be changed, thus injuring the credit of the German Government through announcing that we did not believe payments would ever be made, it would be better to say that discussions have been inaugurated to enable the Treasury and the German Government to come to a conclusion which would be strictly fair to the American claimants. The Ambassador points out that if it should finally be decided that a change in priority was necessary, this could be worked out through a bill in Congress which could be suggested by the Treasury, that it would thus not be a public statement which would cause extreme irritation in Germany and be taken as a political act of the American Government. He said that he was instructed to discuss this matter with the Secretary as promptly as possible and also to see Mr. Mills. He asks that he be given an appointment to see the Secretary tomorrow.

W. R. Castle, Jr.