862.51/3721: Telegram

The Ambassador in Germany (Dodd) to the Secretary of State

178. Department’s 132, October 18, 7 p.m. After repeated informal requests Embassy had hoped soon to receive text of German-Swiss agreement providing for full payment of scrip issued to Swiss bondholders. Am now informed by Foreign Office that text has been refused to other missions and it appears doubtful whether it will be given to us.

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According to oral information furnished by the Foreign Office Switzerland must bear the full risk of providing sufficient foreign exchange to effect the full payment of scrip at the disposal of Swiss citizens. An unusually well informed source holds the view that the Swiss Government by a guarantee has assumed the risk of the Swiss consortium handling this scrip to provide the additional amount of foreign exchange required. It is understood that Switzerland will accept goods in excess of existing quotas and additional amounts of goods not limited by quota, notably coal for the Swiss railways. The level for determining whether goods not limited by quota have attained additional character was stated to have been drawn at 50% of the trade figures of 1931. It is understood that a balance will be struck at the end of December to determine whether enough extra exports have been made to Switzerland to cover the full payment of scrip. The Foreign Office orally reiterated Schacht’s recent statement to the effect that the Swiss agreement accorded with the principle recognized at the London Conference that Germany could only pay her creditors through exports and it was intimated that if the United States desired to make a similar agreement with Germany this could probably be accomplished (see last paragraph of this telegram). No reply was made to this suggestion.

According to the British Embassy there is considerable dissatisfaction among British bondholders about the Swiss Government and the opinion was advanced that the bondholders would probably very soon ask the British Government to protest against the discrimination between creditors established by the Swiss agreement. It was stated that the present German favorable trade balance with England was about sufficient to cover full payment of scrip.

According to the Dutch Legation the German negotiations with Holland in Berlin have been suspended owing to their difficult and technical nature but they will probably be résuméd at The Hague within a few days. It appears that the negotiations concern the granting of full payment to Dutch holders of scrip in compensation for non-reduction of existing Dutch import quotas for German goods together with the purchase of additional German goods not heretofore taken to Holland, comprising chiefly materials for municipalities. If an agreement is made on this mixed basis it would appear even more discriminatory than the Swiss agreement.

While the preferential treatment granted to Switzerland might in the current connotation of the term appear in effect to place a bounty on German exports a strict analysis of the mechanism of the agreement as the Embassy understands it indicates that no subsidy, grant or aid is furnished by any governmental agency to the German industrialists [Page 456] manufacturing or producing the additional exports to be taken by Switzerland. As stated above in this telegram the Embassy’s information is that the whole risk is borne by Switzerland and therefore no agency of the German Government is better nor worse off if sufficient foreign exchange to make these additional scrip payments is or is not forthcoming. Therefore, it would seem that the German Government is giving no reward or premium to encourage an industry which would constitute a bounty in the legal sense of article 8. In consequence objection to German discrimination between creditors appears to fall within the scope of Department’s 70, June 13, and not within the scope of article 8 (see second paragraph Embassy’s 172, October 17).95

At all events I feel that concrete action upon our part, rather than representations, will alone be efficacious in the premises.

Recent press despatches from New York announcing an embargo on all foreign wines and liquors until further notice suggest the idea that the importation of such beverages from Germany might well be regarded as additional German exports not previously taken by the United States and their admission made contingent upon the payment in full of German scrip issued to American bondholders.

  1. Ante, p. 396.