550.S1/741: Telegram

The Chargé in Great Britain ( Atherton ) to the Secretary of State

113. From Davis. I desire to lay before the President and you my views of the situation as I find it here in England since I consider a careful analysis of the factor involved is vitally important to you in preparation for the Economic Conference.

In all my recent dealings with the British I have found that while they recognize the desirability and importance of cooperating as closely as possible with us in dealing with world problems as a whole they have had only one real preoccupation in their economic and financial relations with us, namely, the war debt issue,7 until recently when a new element was introduced by the depreciation of the dollar.

In this connection please see MacDonald’s broadcast on last Friday night8 where he said that if the Economic Conference was to achieve results the vexed question of war debts must be settled one way or another as quickly as possible, certainly before the Conference ends. He added that upon this we (that is, the President and he) were in agreement. Then in the same broadcast in summing up the results of his conversations he added that one of the results of the Washington discussion had been:

“The personal exchange of information regarding war debts and an agreement that on their settlement depends the success of the work of the Economic Conference. As we both pledged ourselves to leave no stone unturned to make that Conference a success, this agreement means that we are to use every means in our power to find a way to settle those debts”.

In this subtle manner the British are endeavoring to build up a case which would be reenforced by our silence that we agree with the cry which they are trying to persuade the world, and particularly the countries linked with sterling, to accept that war debts are and until settled will remain the chief cause of our economic difficulties. The consequence they draw from this is that debts are the primary question to be solved if the Economic Conference is to be successful and that our failure to cooperate in a solution—and to them a solution means only one thing, namely, substantial cancellation—we will bear the onus for any failure of the Conference.

The British will talk about agreeing with us upon the broad policy of economic cooperation to be adopted at the World Conference but [Page 598] I fear that the Cabinet with the possible exception of MacDonald has now little real faith or interest in achieving this. MacDonald is the facade which they use in order to work out a proper setting for dealing with us on the war debt issue and while MacDonald is doing this the group which negotiated and backed the Ottawa agreements are working to achieve what the average Britisher still considers to be England’s right, namely, a position of supremacy in the world of finance and trade; at least within the so-called sterling block of countries, a block which they hope to widen by their pending trade agreements.

They feel that the restoration of England to its proper position in these fields is now blocked by only two things, namely, war debts and the fluctuating dollar. They feel that with Ottawa and the other preferential treaties that they have negotiated or are now negotiating they would be in a position to face the future with equanimity apart from these two obstacles even if the Economic Conference proved a failure or its practical benefits were long delayed. I am therefore of the opinion that in order to get their support for the adoption of a broad program of international cooperation in the economic and financial discussions they must be shown that this cooperation is essential to any mutually satisfactory solution of these two questions.

In fairness to the British we must recognize that the position which most of them thus take is largely a result of the shortsighted and mistaken policy in international, economic and commercial affairs which we have adopted during the past 12 years. For example, Runciman who was a liberal and a free trader became converted to Empire preference and quotas mainly because he lost all hope of curbing the growing economic nationalism and decided that Great Britain in self-defense must abandon her traditional policy. He and his friends now point out that when the British proposed a tariff truce in 1928 they got no support and our response was the Hawley-Smoot Tariff Bill.9 MacDonald told me last week that some of his associates felt it was rather unreasonable for us with our present high tariff and fluctuating currency to ask them to “stop now” and do nothing to protect themselves.

A private letter written a few days ago by one of the officials of the Federation of British Industries (the most influential organization of its kind of Great Britain) and which I was not intended to see, sets forth as follows the general economic policy which I believe the majority of the Cabinet and of British industry now proposed to follow:

“For the better or for worse the Federation has taken the view that there is no world solution for the present crisis, and in so far as there is a remedy, it lies in Great Britain arriving at agreements with Empire [Page 599] countries and countries carrying out trade activities which, broadly speaking, are complementary to those in this country. No solution, therefore, involving cooperation with America and France would be regarded as satisfactory to the main objective”.

The real success of the Economic Conference and world-wide economic restoration through broad general measures will require a change in this British policy and the particular question before us, it seems to me, is to consider by what means we may best get them to recognize the necessity of such a change and to adopt an attitude of real cooperation such as MacDonald professes but as to which his most influencial colleagues are still lukewarm.

  • First, we should take advantage of the very questionable tactical position in which the British have placed themselves by taking the initiative in calling a World Economic Conference following this with the Ottawa agreements and then endeavoring to rush through on the eve of that Conference a series of commercial agreements which make it so much more difficult for them to adopt any broad policy of cooperation with the United States and other countries. Hence, in my 105, May 7, noon [midnight],10 I stressed the importance of a protest on the Argentine treaty. Fortunately there is considerable opposition both in Parliament and in public opinion to the policy represented by this and other treaties and our protest may give the Cabinet pause.
  • Secondly, the leverage which we will have through the possibility to depreciate the dollar permits allied countries to face the British with the very difficult alternative of either engaging in a race with us for international trade through devaluation or on the other hand cooperation with us on broad lines through mutual stabilization.
  • Thirdly, we have a weapon capable of effective use in the war debt issue. I appreciate the extraordinary political difficulties which this presents but unless the President has some liberty of action to use the adjustment of the war debts in connection with broad economic negotiations we cannot effectively employ our best weapon to bring about success of the Economic Conference. Not knowing the developments in the political situation at home since I left I hesitate to volunteer suggestions. From this angle it would seem good strategy if the President could get authority not to grant a debt moratorium but to determine to what extent demand should be made for payments accruing on debts during the period of the Economic Conference, such determination to be based upon his judgment as to the present ability of the debtors to transfer payments accruing without a further derangement of exchange and without jeopardizing the success of the broad program envisaged for the World Economic Conference. I [Page 600] got the impression while at home that what Congress was most reluctant to do was to grant a moratorium. If therefore he should state that he desired authority not to establish a general moratorium or to alter existing debt agreements but merely to regulate the demand for payment during the transition period as the interest of the United States and of world recovery may dictate this might help to meet domestic political difficulties.

While it seems essential to the successful development of our policy and the protection of our interests that we frankly recognize the problems created by the present tendencies and policies of the British Government with a view to taking steps to meet the situation, it is of course important to avoid an impression getting about that any serious differences exist as that might make it all the more difficult to get the authority necessary to deal effectively with the situation. At the same time if we are to bring the British around to a policy of real cooperation the utmost frankness and candor seems to me necessary in dealing with the officials here and with Lindsay in Washington. They must be brought to realize the choice which lies before them either of cooperating with us to make a success of the Economic Conference or of continuing their present policy of building up a “sterling bloc” of countries through preferential arrangements which are inconsistent with the purposes of the Conference and which will render more difficult cooperation with us in the task of working for general economic rehabilitation as well as in dealing with other world-wide questions which are of common interest and concern. [Davis.]

Atherton
  1. Telegram in three sections.
  2. For correspondence concerning Anglo-American negotiations relative to intergovernmental debts, see pp. 826 ff.
  3. See despatch No. 862, May 6, 1933, from the Chargé in Great Britain, p. 493.
  4. 46 Stat. 590.
  5. Not printed; for correspondence relating to Anglo-Argentine (Roca) Agreement of May 1, 1933, see vol. iv, pp. 722 ff.