The Secretary of State to the Chargé in the Netherlands ( Wilson )
21. The representatives of the Bondholders Protective Council (which is a disinterested American body formed by private interests with the encouragement of this Government) who are in Basel representing the American holders of German securities report to the Department that the representative of the Dutch bondholders is insisting that the German Government extend to Dutch bondholders preferential treatment based on the favorable balance of German trade with [Page 351] the Netherlands and linked with the so-called system of extra purchases of German goods.
Will you please at once see the appropriate Dutch authorities and make known to them the following views held by this Government:
- That if various creditors bring special pressures on the German Government for preferential treatment on the German debt all other governments will be driven to pursue similar leads.
- This would create a whole new area of controversy between countries. It is likely to create great dissension among diverse creditors to their mutual injury. You may point out that the United States has abstained from taking any such position in various situations in which it might have been able to press an advantage to the detriment of other creditors.
- That any contention that the special agreements are not discriminatory because the special payments arise out of the application of exchange coming from extra purchases of German goods is a doubtful contention. It is in fact impossible to segregate a small segment of bilateral trade from the rest of the international trade process and to claim special debt payment on the basis of this small segment without creating discrimination and without giving new stimulus to the erection of barriers for bargaining purposes.
- In fact such an approach ignores the invisible items of trade and also ignores the results of triangular trade. For example, purchases in third countries, e. g. American purchases of rubber from the Dutch East Indies may create purchasing power in the Netherlands for the purchase of German goods.
- The introduction of special arrangements in this field is likely in the long run to tend to deteriorate the German credit situation and the position of all creditors.
- It will furthermore tend to hinder the revival of international capital movements and work to the disadvantage of all creditor countries.
Will you therefore tell the Dutch authorities that this Government hopes that it will give full consideration to this matter and will decide to work with the American and British creditors and the American and British Governments in dealing with the whole German debt situation on terms applying alike to all creditors. We believe that this will prove most advantageous to all.
For the Minister. The Swiss Government took the same position as the Dutch but we are informed are showing a disposition to change and to consent to the elimination of special agreements which now exist. The report is that the Dutch bankers will urge the policy of preference upon the Dutch Government. The Department does not know whether the Dutch Government is committed to support of the Dutch bankers or not.
Department has instructed Legation at Bern to take similar action vis-à-vis the Swiss Government.