800.51W89 Great Britain/476

The British Ambassador (Lindsay) to the Acting Secretary of State

Sir: In reply to the Note handed to me by the State Department on June 9th, I am directed by my Government to make the following communication to you:—

It will be recalled that the general views of His Majesty’s Government in the United Kingdom on war debts and on their relation to present world difficulties were explained in notes exchanged in November and December last.33 His Majesty’s Government at that time decided to make payment of the amount due on December 15th but they indicated clearly that this payment “was not to be regarded as a resumption of annual payments contemplated by the existing agreement” and they announced their intention of treating this payment “as a capital payment of which account should be taken in any final settlement”.

Finally they pointed out that the procedure adopted “must obviously be exceptional and abnormal” and they urged upon the United States Government “the importance of an early exchange of views with the object of concluding the proposed discussions before June 15th next in order to obviate a general breakdown of existing inter-governmental agreements.”

His Majesty’s Government in the United Kingdom adopted this procedure because they recognized the peculiar position in which the then United States Administration was placed, and the impossibility of their undertaking any effective discussion of the problem at that time. His Majesty’s Government acted, however, on the understanding that the discussion would take place without delay, upon the provisions of the existing agreement in all its aspects, so as to arrive at a comprehensive and final settlement and in the belief that payment on December 15th [Page 840]would greatly increase the prospects of a satisfactory approach to the whole question.

Negotiations were accordingly started even before the new Administration was inaugurated; and His Majesty’s Government in the United Kingdom have been most anxious to pursue them as rapidly as possible. On the occasion of the Prime Minister’s visit to Washington the President and his advisers made preliminary explorations as to the basis of a clearer understanding of the situation. For reasons not within the control of either Government, however, it has not yet been possible to arrive at a definite conclusion of these negotiations.

A speedy conclusion is, however, urgently needed. The treatment of inter-governmental obligations must closely affect the solution of the problems with which the World Conference has to deal, because they cannot be separated from influences which have brought the world to its present plight. For instance it is generally agreed that one of the first and the most essential of our aims should be to increase the general level of commodity prices. It may be recalled that after the Lausanne Conference34 there was a marked tendency for prices to rise but that this tendency was reversed when the prospects of a final settlement of inter-governmental obligations receded, while the December payment was accompanied by a sharp fall in prices which was felt in America at least as much as in Europe. Experience, therefore, appears to show that the effect of these payments upon prices is very direct.

In the opinion of His Majesty’s Government it is essential for the success of the Conference that the delegates should not be hampered and harassed by doubts about the possibility of a satisfactory settlement of war debts. Payment of a further instalment of the debt at this juncture would inevitably be judged to mean that no progress whatever had been made towards such a settlement and would therefore deal a damaging blow at the confidence of the delegates.

In the circumstances and in view of their action last December, His Majesty’s Government had hoped that the United States Government would have been able to accede to the request of His Majesty’s Government to postpone payment of the June instalment pending discussion of war debts as a whole. Since, however, this does not appear to have been found possible, His Majesty’s Government are obliged to decide upon their course of action.

Such a decision must in any case be of an extremely difficult character and in considering it His Majesty’s Government have felt their deep responsibility not only to their own people but to the whole world which is awaiting the deliberations and recommendations of the Conference with the utmost anxiety.

[Page 841]

The conclusion at which His Majesty’s Government have arrived is that payment of the June instalment could not be made at this juncture without gravely imperilling the success of the Conference and involving widespread political consequences of a most serious character. In their view the instalment should be considered and discussed as part of the general subject of war debts upon which they are anxious to resume conversations as soon as they can be arranged.

In the meantime, in order to make it perfectly clear that they do not regard the suspension of the June payment as in any way prejudicing an ultimate settlement, His Majesty’s Government propose to make an immediate payment of Ten million dollars as an acknowledgement of the debt pending a final settlement. If, as they trust, the Government of the United States is thereafter prepared to enter upon formal negotiations for an ultimate settlement of the whole war debt question, His Majesty’s Government would gladly be informed of the time and place at which the United States Government would desire such negotiations to be begun.

I have [etc.]

R. C. Lindsay