550.S1 Washington/467
Memorandum by the Economic Adviser (Feis) of a Conversation Between American and German Reprsentatives
There were present, Dr. Schacht, Ambassador Luther, and his assistants, Secretary Hull, Senator Pittman, Mr. Bullitt, Mr. Feis, and Mr. Tugwell.
For the Germans Dr. Schacht did all the talking. Discussion was resumed at the point where the last group meeting had left off. Dr. Schacht dwelt on the difficulties of Germany in securing needed exchange to meet its obligations. He had at the last meeting said that he would have certain positive suggestions to indicate, and he was invited to do so. In addition to the idea of trade preferences for debtor countries (which had already been brought up and regarding which we had said we could see nothing but difficulties), he presented the idea that Germany be given economic access to certain colonial areas. The discussion naturally veered on this point again to the question of Germany’s external indebtedness and the extreme difficulty which the German Government was experiencing at the present moment in meeting it at all, and the intimation that Dr. Schacht had thrown out at the previous meeting that the German Government was about to declare a complete transfer moratorium.
Senator Pittman and myself undertook to set forth at greater length what the American sentiment and judgment would be towards any such action as Dr. Schacht had intimated. We pointed out that entering into the American attitude was a long series of actions:
- (1)
- We had taken no reparations.
- (2)
- We had furnished the capital that enabled Germany to struggle through the difficult post-War period and reconstruct itself.
- (3)
- The American investors had done that in part not so much out of careful financial consideration, but out of faith in German capability and honesty.
- (4)
- The declaration of the Hoover moratorium30 had helped to preserve the German State at a critical time.
- (5)
- That there were probably hundreds of thousands of small bondholders in this country whose fortunes would be severely injured.
- (6)
- All of these would mean that the American people would feel themselves cavalierly and injuriously treated if, in a sort of tone of helplessness which would strike them as light, the German Government just now declared it could do nothing about the situation. The effect both on public opinion and Congress would be strong and distinctly critical.
As for the exchange problem facing the Reichsbank, it was pointed out that it had long been recognized that it was serious. It was said that if the German Government had merely said towards its creditors we are in difficulty, we must talk over with you this or that adjustment of the debt openly and freely, the shock in this country would not have been great, but an abrupt unilateral action would produce great shock. As for the Reichsbank’s difficulties, it was pointed put that the Reichsbank could command funds from foreign sources: (a) the current flow of German exports provided foreign resources; (b) German enterprises certainly had some measure of external resources that could be used to carry through a critical period—a period certainly long enough to reach a mutually acceptable agreement with the creditors.
Dr. Schacht said he agreed in substance with all of this, that it was not the German Government that was taking action, that it would be the Reichsbank, because it did not have the funds available. Senator Pittman replied that governments had to be responsible for the action of their central banks, that our public would certainly not understand it. Dr. Schacht said that all he would ask of the Government was an order by which the German Government would pay in marks (and not stop payments). We did not point out that such blocked accounts almost universally choked themselves in a short time. But there was another difficulty. He could speedily get in touch with the banking interests; he might invite representatives of the American and other foreign bankers to come to Germany at once; he was faced with the great difficulty of how to reach the bondholders, and would welcome any suggestion we might have on that point. The Secretary stated that the United States was not involved with these private debts of the German Government.
It was suggested that the Treasury and Federal Reserve Board might be informed of the conversation, in order to see what suggestion they might have—not as advice to the German Government, but as a practical suggestion. It was reiterated that the American Government wished as far as possible to keep clear of the transaction. We had merely felt it our duty to point out as strongly as possible the results of the type of unilateral action that Dr. Schacht had contemplated.
Dr. Schacht said that he felt fully disposed to try to work out some measure of consultation with the creditors; but he reiterated that time was the very essence, and was extremely short.
Dr. Schacht is lunching with Governor Harrison of the Federal Reserve Board, and will probably take up the subject with him.