868.51/1279: Telegram

The Ambassador in Great Britain (Mellon) to the Secretary of State

320. Department’s 275, October 21, 5 p.m., and my 318, November 2, 2 p.m.35

Foreign Office has confidentially handed me a draft of the British Government’s proposed instructions to the International Financial Commission regarding the execution of the arrangements between the Greek Government and the bondholders of the Greek external debt as follows:

The International Financial Commission is authorized to give effect to the temporary agreement between the Greek Government and the representatives of foreign bondholders as set forth in the letter from the Greek Minister in London to the Foreign Office dated September 14, 1932, and the communiqué enclosed therewith, and to release assigned revenues in accordance with and on the conditions of that agreement, insisting upon the following detailed provisions.
For the purpose of this arrangement the interest due on the old gold loans will be reckoned at the full nominal rate and not at the rate resulting from the calculation of the ‘plus’ value under the arrangement of 1898.36
The release of funds by the I. F. C. will take place when the Greek Government has provided in appropriate foreign currencies (or so far as regards coupons payable in Athens, in drachmas at the current rate of exchange), the following sums:
Thirty percent of the annual interest service of the loans controlled by the I. F. C. on which no interest has yet been paid in the current financial year. This sum to be payable in the usual way to the Commission’s bankers;
Thirty percent of the annual interest service of the loans not controlled by the I. F. C. on which no interest has yet been paid in the current financial year.
These sums to be paid through the usual paying agents and the Commission to be informed when they have been paid to these agents.
The sum of 3,767,548 French francs payable in equal shares to the British and French Governments, the Commission to be notified by those Governments when this sum has been received.
If in respect of any of the loans, the service of which is claimed by the bondholders to be payable on a gold basis, the Greek Government tenders payment of the 30 percent of the annual interest service on a sterling basis, this payment will be accepted without prejudice to the bondholders’ claim. In this event the I. F. C. will retain and maintain an amount in drachmae equivalent to the difference between 30 percent of the interest service on a gold basis and on a sterling basis and release only the balance. The amount so retained to be released to the Greek Government if and when either (a) it establishes by the appropriate machinery its view that the service of such loans is payable only on a sterling basis, or (b) it increases the payments made in the appropriate foreign currencies to the amount due on a gold basis.
The sum to be accumulated by the I. F. C. between September 1, 1932 and March 31, 1933 is to be the equivalent in drachmae of 35 percent of the total annual interest service of the Greek external debt during the financial year 1932–33; such sum will be accumulated by approximately equal monthly installments, varying from month to month only in accordance with the exchange value of the drachmae in relation to the amounts to be accumulated. It is understood that this does not imply any extension of the functions of the I. F. C. in regard to the payment of the service of loans not under its control.”

Paragraph 6 of the draft contains a list of the loans regarded as included in the Greek external debt for the purposes of the arrangement, among them being the 1924 refugee loan, the 1928 stabilization loan, and the 1929 American loan. (It was pointed out that paragraph 4 is a tentative proposal still under discussion as a means of meeting a doubt that does not arise in the case of the 1929 loan.)

The Foreign Office states orally that if its draft instruction, which provides for pari passu treatment, meets the view of the United [Page 415] States Government insofar as the 1929 loan is concerned, it feels it essential to have an early assurance that the Greek Government for the latter’s part will make it possible for the I. F. C. to carry out the instruction, since without the Greek Government’s cooperation transfers cannot be effected by the International Financial Commission.

The Foreign Office added that it understood from the Greek Minister in London that the Greek Government is unwilling to make the transfer of 30 percent on the American loan because the Greeks regarded this loan as a war loan, and that the Greek Government has proposed as an alternative that the International Financial Commission should be instructed to retain in drachmae 100 percent of the service of the loan pending direct negotiations between the United States and Greek Governments. Failing an agreement between the two Governments extending to the American loan the 30 percent treatment, the Foreign Office states that it feels that the only other adequate method to safeguard American interests would be to instruct the International Financial Commission to hold 100 percent in drachmae, which the British Government would be prepared to give.

Foreign Office is awaiting the Department’s further advices.

  1. Telegram in three sections.
  2. Latter not printed.
  3. British and Foreign State Papers, vol. xc, p. 403.