862.51/3789: Telegram

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

153. The British Government informs us that its Ambassador in Berlin has been instructed to make a communication to the German Government in the following sense:

“His Majesty’s Government have learned with surprise and regret of the unilateral decision taken by the Reichsbank on December 18 to reduce during the next six months transfers in respect of the service of German loans other than the Dawes loan and the Young loan. His Majesty’s Government regard it as an essential principle that if any temporary modifications in loan contracts to the detriment of the creditor are required under present circumstances they should be discussed and agreed upon between debtors and creditors. Failure to observe this principle must tend further to undermine the credit of Germany as a whole and will make it increasingly difficult to maintain international credit operations on which the financing of commerce largely depends. In particular the recent decision ignores (1) the protest of the representatives of the creditors against the principle that payment in Reichsmarks satisfies a debt in foreign currency and (2) their considered view that no sufficient case had been made out for making any change in existing arrangements to the detriment of creditors during the next six months.”

British Ambassador in communicating the foregoing to us adds:

“I am desired to express the hope of His Majesty’s Government that the United States Government will instruct their representative in Berlin to make similar representations to the German Government.

“I am to add that His Majesty’s Government have taken this opportunity of reiterating to the German Government a protest they had already made regarding differentiation to which British creditors have been subjected in the administration of the present system by reason of special arrangements concluded by the German Government with the Netherlands and Swiss Governments.”

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Please present a written statement to the German Government identical mutatis mutandis with that of the British.

You may add orally in your discretion that the successive curtailments of service on the German debts held here have created a distinctly unfavorable impression, and that American investors are unconvinced that the necessities of the German situation compel the increasingly drastic losses to which they are imposed. American opinion is all the more keenly alive to these losses because of its sense that its capital contribution played so vital a part in rebuilding Germany in the post-War period.

In addition when presenting this communication please ask the German Government if it could furnish you adequate and detailed information as to the amount of funds made available during the past 2 years for the repurchase of German securities issued in the United States. The American press of December 26 carries the announcement, for example, that the Housing and Realty Improvement Company of Berlin will, through an American investment house, invite tenders for the repurchase of their 7 per cent bonds at a price of $450 per $1,000 bond, subject to the condition that at least $500,000 principal amount of the bonds be tendered for sale on or before January 20, 1934. The use of German funds for the repurchase of securities, above the legal amortization schedule or before the regular call date, at prices depreciated mainly because of the action of the German Government in halting or reducing service, seems to the Department a diversion of funds properly due the American bondholder.