868.51 War Credits/569

The Chargé in Greece (Morris) to the Secretary of State

No. 2266

Sir: With reference to the Department’s telegram No. 42 of September 28th and my telegram in reply, No. 111, dated October 13th,23 I have the honor to enclose herewith a copy of the French text and an English translation of the memorandum handed me by Premier Veniselos. As suggested in my telegram, I feel confident that this Memorandum which summarizes the verbal statements of Mr. Veniselos embraces only the personal views of the Premier in regard to the matter of the debt settlement. In an informal conversation which I had with the Minister of Finance, Mr. Varvaressos, subsequent to my conversation with Mr. Veniselos, I was able to draw the conclusion from the statements made to me by Mr. Varvaressos that Mr. Veniselos clings tenaciously to his view-point that the second part of the debt settlement made in 1929 should be considered as a war debt because he feels that if the United States grants any concessions in respect of war debts this particular debt should benefit thereby even though its settlement has already been arranged for in a definite manner by the Agreement of May 10, 1929. It is probably for this reason that Mr. Veniselos uses in his Memorandum the term “compromise agreement”—French text, “formule transactionnelle.”

In my conversation with Mr. Veniselos, although I asked point blank on what ground the Greek Government proposed to pay 30% to the holders of the Stabilization Loan without offering at least equal treatment to the United States for its debt which was on the same footing as the Stabilization Loan, I could not draw from him an answer to this question. He evaded answering by stating that [Page 402] the debt to the United States was a war debt and must be looked at as such.

From my conversations with Mr. Varvaressos and two officials of the Foreign Office who have been engaged in this matter, it is evident that they do not share Mr. Veniselos’ view-point and probably endeavored unsuccessfully to have him look at this question in its true light. The explanation of Mr. Veniselos’ attitude is to be found largely in the fact that the Stabilization Loan arrangements were made by Mr. Kafandaris and it is well known here that all of the financial arrangements made by Mr. Kafandaris have irked Mr. Veniselos very greatly. It is probably as much for this reason as for his desire to have the second part of the 1929 debt settlement regarded as a war debt for any future advantage that that might imply, that Mr. Veniselos maintains so emphatically, as he did in his conversation with me and as he has with his financial advisers, his conception that the second part of the debt settled in 1929 must be regarded as a war debt and must not be looked at from the actual terms of the settlement. In a few words, he is trying to wipe out what Kafandaris did and what he does not approve of.

I enclose a copy of my note to the Greek Government24 setting forth the Department’s view-point as contained in its telegram No. 42 of September 28th.

Respectfully yours,

Leland B. Morris

The Greek Prime Minister (Veniselos) to the American Chargé (Morris)


The Greek Minister in Washington addressed himself on the 24th of September to the American Government to request it, in taking account of the extreme gravity of the economic and financial situation of Greece, to consent to facilitate provisionally this situation by accepting that the payment due to the American Government the 10th of next November in connection with the second part of the Greek debt to the United States should not be paid when due but should be put off to some future date. The Hellenic Government suggested, by way of an indication, the granting of a suspension of two years and a half, according to the mechanism provided in the Greco-American agreement for the first part of the debt of Greece towards the United States; or, if such a suspension was not judged possible [Page 403] by the American Government, the finding of another solution which would permit a temporary accommodation.

The American Government in answering this request not only does not show itself disposed to grant the request of the Hellenic Government, but, notwithstanding the fact that the next payment of Greece does not become demandable until the 10th of November, addresses to it a protest by anticipation against any treatment of the holders of the Hellenic Stabilization Loan of 1928 more favorable than that given to the American Government for the second part of the debt of Greece towards America.

The attitude of the American Government in respect to the first part of this debt has been quite otherwise. In effect, it lent itself willingly, in conformity with the clause of the first part, paragraph 2, of the agreement of May 10, 1929, to the suspension during two years and a half of the semiannual payment which should have been paid to it on the 1st of July.

Evidently the American Government, by the difference of its attitude in respect of the two parts of the debt of Greece, shows that in its opinion, although they were simultaneously settled by the agreement of the 10th of May, 1929, these two parts none the less constitute two debts entirely independent one from the other and different by their nature. Certainly the two parts of the Greek debt towards America are not governed by the same dispositions, the payment for the first part benefiting by the clause of suspension and being funded in 66 annuities while those of the second part do not benefit by this clause and are spread over 20 years only and, above all, are placed under the control of the International Financial Commission. But in reality the second part of the debt does not differ from the first, neither by its origin nor by its nature, nor by the objects for which it has been used; although in the final settlement it took the form of a loan advanced to Greece in 1929, it was none the less an execution—and a partial one at that—of the obligation towards Greece assumed by the United States during the war for the pursuit of their program as belligerents.

In order to leave no doubt on this point it suffices to recall herein-under the history of the Greco-American financial relations during the war and the conditions in which the settlement of the Greek debt was effected. By the agreement of February 10, 1918,26 the three Principal Allied and Associated Powers—the United States, Great Britain and France—in order to assure to Greece the necessary resources [Page 404] for the mobilization and equipment of her Army and her Navy, and her participation in the military operations, engaged themselves to grant to the Hellenic Government for the expenses of the year 1918 advances amounting to a total of 30 million Pounds Sterling, a third of which was assumed as a charge by each one of the three powers. The agreement was signed for America by the accredited representative of its Treasury Department, Mr. Oscar T. Crosby. The part of these advances falling upon the United States, expressed in dollars, amounted to $48,236,629. During the duration of the war these advances could be utilized by drawing upon one or the other of the loaning states in the case where the credit abroad of the Hellenic Treasury and of the National Bank should fall below 100 million francs. Six months after the conclusion of peace the balance of these advances might be made use of without restriction. In the meanwhile, these advances were to serve as cover for the issues of the National Bank of Greece which could be utilized when needed for the military requirements of the Hellenic Government and at its request, after agreement with the two interallied commissions—the one financial and the other military—set up for that purpose.

In conformity with the above dispositions of the agreement of the 10th of February, 1918, Greece proceeded to incur war expenses which absorbed the total of the advances foreseen. These expenses were always regularly entered into after the previous consent of the two interallied commissions. On the recommendation of the American delegate on these commissions, the account of Greece between the 20th of June, 1918, and the 31st of July, 1919, was credited by the Treasury of the United States, with the approval of President Wilson, with a sum equal to the part of the interallied advances falling upon the United States; that is, $48,236,629. Corresponding credits were opened in the favor of Greece by the British and French Treasuries. These credits altogether constituted the cover of the issues made in Greece in conformity with the agreement of February 10, 1918, the sum of these issues being equal to the credits opened. However, although the total of the sums thus issued might have been regularly expended for its military needs, Greece had not, until November, 1920, drawn on these credits except in a moderate manner. By reason of the favorable situation of its exchange which was of greater value than the franc, she did not have recourse to the French credits, the total of which remained due to her. She drew on Great Britain £6,540,000 (or $31,826,910), and thus had a right still to receive the balance. On the United States she made three drawings: the 15th of December, 1919; the 16th of January, 1920; and the 24th [Page 405] of September, 1920; drawing in all a total of $15,000,000. There remained therefore to her to receive from the United States $33,236,629.

Such was the situation when, following upon the events connected with the domestic political life of Greece, and in particular by the decision of the Hellenic Government which issued from the elections on the 13th of November, 1920, to restore King Constantine to the throne, the Governments of Great Britain and France notified Greece that “in case King Constantine again mounts the throne, Greece will not receive from the Allies any financial help.” Great Britain and France, basing themselves on this notification which furthermore did not in any manner authorize them to confiscate credits already existing in favor of Greece, refused to permit the Hellenic Government to draw upon the credits to which it had the right. Following their example, the Government of the United States, although it did not oppose the return of King Constantine and thus as a consequence could not even invoke the pretext of the warning made by the two other powers, none the less did not proceed to the payment of the $33,236,629 which it still owed to Greece.

Thus considerable sums issued by Greece and guaranteed by the signature of the American Government and completely expended by the Hellenic Government in accordance with the agreement of the 10th of February, 1918, for the common war objects of the Allied and Associated Powers, became deprived of their security and remained a charge on the Hellenic Treasury. It is accurate to recognize that that was indeed a source of disastrous consequences for Greece. The retention of the American credits as well as credits due by the two other powers certainly constitutes one of the factors of the Hellenic disaster in Asia Minor and the determining cause of the breaking down of the Greek currency system between 1920 and 1923. Moreover, without this retention, Greece would not have been compelled to adopt the policy of exterior loans on a large scale which she was forced to practice, and in particular the Stabilization Loan of 1928 would not have been necessary, to which the United States insisted in linking—and still today links—the second part of their claim against Greece.

From 1920 Greece did not cease to invoke her rights by claiming the total of the American credits, and, as the United States did not show herself disposed to meet this demand, no agreement could be brought about between the two countries until January 1928, when a compromise arrangement could at last be arrived at: the American advances to Greece would be increased by $12,167,074 which, added to the $15,000,000 already advanced up to 1920, representing on the 1st of January, 1928, with interest at 5 percent, the sum of $19,659,836, [Page 406] would bring up the total of the American advances to $31,826,910; that is, to a sum equal to that which Greece had actually received from Great Britain. Thus the American advance became equalized with the British advance. By reason of this advance Greece renounced the balance of its credits on America. It was at the same time stipulated that this new advance would be paid in 20 annuities and not in 66 as the first part of the debt; that it would be effected, as Greece proposed, to the establishment of the refugees of Asia Minor, and that its service would be placed under the control of the International Financial Commission on a parity with the Stabilization Loan of 1928, a loan which furthermore it must be recalled only became necessary because the retention of the Allied credits had brought about the breakdown of the Hellenic currency.

It is true that the stipulations of the Greco-American agreement concerning the advance of $12,167,074 added supplementary guarantees in respect of this advance, but as it appears clearly from the history set out above, this advance none the less constitutes a part of the Greek war debt to America. If the United States had consented to pay the whole balance of the credits—that is, $33,326,629—there could have been no doubt that this payment would have represented for Greece a war debt. The fact that Greece was only able to obtain a part of this balance cannot alter the war debt character belonging to its obligation. This character is not further altered by the fact that the sum advanced by the United States in 1929 was employed by Greece for the work of settling the refugees, which moreover constituted the most pressing need which came to it as a legacy from the war. What is of true importance is that the war expenses for which the credits for 1918 had been agreed to were really incurred during the hostilities for the total of the credits. The partial payment of their balance by the United States in 1929 was no more than a reimbursement. This point of view is furthermore confirmed by the report of Mr. Mellon, submitting to the President of the United States on the 4th of February, 1928, the stipulations of the Greco-American settlement.27 In this same report it is explicitly stated that if the American negotiators fixed the amount of the sum advanced in 1929 by the United States as $12,167,074, thus equalizing the part of the United States with that of Great Britain, this was done precisely because they considered that it would not be equitable for the United States to impose upon Greece a settlement more unfavorable than that which she had concluded with Great Britain. Now, today, by its refusal to grant Greece for [Page 407] the second part of its debt which does not benefit by a suspension clause, an accommodation which Greece is forced to solicit by reason of the gravity of its economic and financial situation, the United States imposes not only a treatment less favorable than that of the British settlement but even less than that which they have granted to other rich and prosperous debtors.

The Hellenic Government cannot indeed refrain from recalling that whilst, to obtain the reimbursement of a third only of the credits which remained owed by the United States and which had been expended in conformity with an international agreement in the service of a common cause, a small and poor country like Greece was forced to accept a schedule of payment incomparably more heavy and more burdensome than that for the other war debts, at the same time one of the richest powers in the world was able to arrange that a commercial debt arising from the purchase of American supplies which were on her territory at the end of hostilities should be included in the settlement of her war debt and paid in 66 annuities with all the facilities which such an agreement implies. That indeed is not the only example of this nature which may be brought forward by Greece. Still more recently—in July, 1932—another power, Belgium, smaller but no less rich than the one cited above, which if it suffers at the present time from the world-wide depression, is far from having felt the deep shock which has come to Greece, has been able to cause the recognition—not this time by the United States but by Great Britain—of the war debt character of two commercial debts,—one of nine and a half million Pounds Sterling for national reconstruction contracted in 1919, and the other of three and a half million Pounds Sterling for the Congo.

The Hellenic Government can only entertain the firm hope that the American Government in accepting to reexamine the question of the second debt of Greece in the light of the observations which have just been made, will not wish to hold to considerations of form but, looking at the question in all its aspects, will deem it equitable to grant to Greece the facilities which are appropriate to its particular situation.

  1. Latter not printed.
  2. Not printed.
  3. File translation revised.
  4. Printed in Greek Debt Settlement: Hearings before the Committee on Ways and Means, House of Representatives, 70th Cong., 1st sess., on H. R. 10760 (Washington, Government Printing Office, 1928), p. 51.
  5. For text of Mr. Mellon’s report of February 4, 1928, see Annual Report of the Secretary of the Treasury … 1929, p. 317.