862.51/3935
Memorandum by the Economic Adviser (Feis)
Mr. Pierre Jay, Mr. Reuben Clark, and Mr. Traphagen called upon Under Secretary Phillips by appointment to discuss the problems that might arise in the meeting between the creditors of Germany which is to be held shortly at Basel, preparatory to a meeting between [Page 349] the creditors and representatives of the German Government. Mr. Clark is temporarily acting as President of the Council of Foreign Bondholders, Mr. Traphagen is a member of its Executive Committee, and Mr. Jay is going to the conference to represent the Council.
The discussion ranged over the whole of the prospective meetings, touching particularly on the following points:
(1) What attitude the Department might take towards the attempts of the German Government to bring about a reduction of service on bonds held by Americans.
Mr. Phillips indicated that no general Statement could be made in this regard. Obviously the Department will be eager to protect the interests of the American bondholders; on the other hand, in view of the exchange situation in Germany, it would probably be unwise to resist all concession. The matter will have to be left to judgment as the situation shapes up.
(2) Mr. Jay inquired as to whether the Department had any views as to the inclusion of the Dawes and Young Plan loan bonds in discussions dealing with debt service. Mr. Phillips indicated these loan issues were connected with intergovernmental agreements to which the American Government is not a party. It was likely that if their service were brought into question (and Mr. Jay definitely expected Schacht to bring them into question) the governments concerned in the original intergovernmental agreement will take a hand in the matter and an intergovernmental conference might result. It was explained to Mr. Jay that the question was a difficult one for the Department, because it might involve the difference of interest between different groups of American bondholders. It would appear to be wise policy, if the matter arose, to let the representatives of those countries who were parties to the Dawes Plan take the lead in the discussion. If as a result of the discussion the Dawes and Young loans would receive preferential treatment it was not likely that this Government would do anything about it, because of the substantial fraction of both loans in American possession.
(3) Mr. Phillips informed the visitors of the outcome of the discussions that have been taking place with the German Government regarding the debt of the German Government to the American Government due on March 31.46 He read to them a copy of the aide-mémoire which the American Embassy had presented in this connection to the German Government,47 and in the course of which the Department had dwelt upon the bad effect produced on American opinion by Schacht’s statement that the German debt was mainly “political” and thereby implying that it lacked merit and ill treatment could be accorded it.