862.51/4153
The German Foreign Office to the American Embassy in Germany68
Note Verbale
In reply to the Aide-Mémoire of July 16, 1934, and referring to the note of the Government of the United States of America of June 27, [Page 381] 1934, in reply to the German transfer note of June 15, 1934, and for the purpose of clarifying certain points which might facilitate an agreement on the transfer question, the Foreign Office has the honor to transmit to the Embassy of the United States of America the following explanations:
1. The difficulties which the service of the German foreign indebtedness meets with are generally conceded. Germany’s internal capacity to pay is not decisive in this matter, but solely the transfer difficulty; a fact which has also been internationally admitted, most recently at the Berlin Transfer Conference.
2. The German Government concurs in the opinion that the German transfer problem is the result of many complex influences. Its solution is not exclusively contingent upon a change in the policy of the creditor countries, although it is to a very great extent contingent thereupon. On the other hand, the arguments concerning the German situation which are set forth in the note of the Government of the United States, cannot be concurred in, nor the opinion that there is need only of remedial measures on the part of the German Government to make it possible to carry out debt transfers to the United States on the same basis as is now being arranged with individual countries. The solution or mitigation of the German transfer problem requires the cooperation of the creditor countries. It is also in the interest of the world economic situation because the German transfer problem, due to its extent and its acute effects, may involve a general collapse of normal international currency and credit measures to a far greater extent, lacking such cooperation, than is assumed to be the case with regard to the transfer of intergovernmental debt payments.
3. No one can deny that the particular difficulties of the German transfer problem are due to an indebtedness of a peculiar kind, i. e., an indebtedness which was the result of the imposition of reparations far exceeding Germany’s actual capacity to pay. It would be a mistake, however, to conclude from this that the German Government means to imply that the payment of German foreign debts requires less attention for that reason. The repeated official German statements preclude doubts of this nature. The German Government looks upon loans floated in the market, irrespective of whether they served directly or indirectly for reparations, as commercial debts and respects the obligations entered into in connection with them.
4. The difficulties which prevail in connection with the practical performance of these obligations and with the solution of the transfer problem are of unforeseen dimensions. They apply to all creditor countries and to all debt relations. The German transfer problem has become so acute only through the commercial and monetary policies of the creditor countries, not least through the commercial policy hitherto [Page 382] followed by the United States itself. Germany was not able to effect the additional exports of commodities and services necessary for the transfer of her debts. The natural circumstances and the economic constitutions of the countries concerned stood in the way of doing so, as the Government of the United States explained in its Note of June 27, 1934.
No country in the world has made greater efforts to pay its debts to other countries than Germany. The depletion of the German currency and capital reserves is merely a particularly visible, outward illustration of this fact. Germany has made transfers to the utmost and will continue for a long time to suffer the consequences of this process. The fact that the German Government will continue its active efforts to solve the debt problem by its own exertions requires no solemn assertion; they are in Germany’s own interest.
On the other hand, Germany has noticed but little if any positive cooperation of the main creditor countries in the transfer problem. Each one appeared to take it for granted that other countries could assume the duty of taking additional goods from Germany or of making commercial policy concessions of some other kind, in order to furnish foreign exchange for the payment of the debts. It was particularly disastrous to expect the solution of the German transfer problem to be brought about through willingness of third countries to absorb goods, since their purchasing power was proved to be far lower than the purchasing power of the creditor countries themselves.
Compared with other countries, the United States claimed but insignificant political payments from Germany direct. The reparations were collected by the other countries to be used for paying their own debts to the United States and they were passed on to that country. The economic yield of German payments flowed in this way into the American economic system. Parallel thereto Germany’s considerable commercial debt to the United States ensued. Without trying to make a comparison in figures between the alleviations necessary to that end and German payments, it can be stated that the high duties and the other commercial policy measures of the United States (since 1923 Germany has taken 9 billion marks worth of goods more from the United States than vice versa) certainly have done nothing to facilitate the German transfer problem, even if the acuteness thereof was temporarily relieved by the above-mentioned loans.
5. Furthermore, it must not be overlooked that above everything else the knowledge that the German transfer problem was rapidly heading for a crisis caused the run of foreign creditors on Germany. At first Germany merely tried to withstand this run by unexampled surrender of her reserves and by promoting exports by deflationary means. The international palliative measures which were devised in [Page 383] 1931 and later were based on the desire, shared by Germany, to retain German business as an active economic fact or within the general framework of international trade. A permanent solution of the transfer problem failed as a result of the failure of the World Economic Conference.69 At any rate, this led to recognition of the fact that the international exchange of commodities could not be set in motion again until a strengthening of national economies had been achieved. Even though not agreeing in detail, it cannot be contested that Germany has devoted herself with the greatest energy to this most immediate problem and has in this way produced a very essential condition precedent for the future reconstruction of the world economic situation.
Such reconstruction can only be prepared, under prevailing circumstances, by agreements between country and country. Such bilateral arrangements are the necessary consequence of the above-described development in which the German Government itself, as everyone knows, has been placed under compulsion of a special nature. The German Government is far from wishing to prejudice third countries by its bilateral agreements. These agreements actually do not constitute such prejudice, as the additional exports or the maintenance and increase of excess German exports granted Germany by the contracting countries serve the end of making German transfers possible.
6. These bilateral agreements relative to trade and foreign exchange must necessarily take into consideration the transfer problem, as debts can only be paid with goods and as no third countries have been found so far that would be prepared to receive goods for the transfer of the service of debts of other countries. This does not mean that the German Government will in future make the fulfillment of the individual debt obligations contingent upon concrete promises of commercial policy alleviations. On the other hand, however, it is obvious that transfer of interest can only take place if current foreign earnings as a whole permit the debtor country to raise the necessary foreign currency.
7. Creating these general prerequisites for debt transfers, especially under existing circumstances, is less a matter for private creditors than for governments. Almost all governments have come to recognize this.
The German Government gathers from various statements of high authoritative source and from the note of June 27, 1934, that the Government of the United States also admits the necessity not only of shaping its commercial policy towards Germany in a more liberal manner, but also of increasing the volume of mutual trade to the utmost and in so doing of taking into special consideration the requirements of Germany as the debtor country. The German Government [Page 384] is of the opinion that if further losses to both countries are not to occur, an agreement must be reached at the earliest possible moment as to the manner in which this end can be attained as quickly as possible. The German Government has not failed in the past to make urgent representations of this kind and as early as March 1934 proposed sending a German delegation immediately to carry on negotiations on the subject.
8. Neither does the German Government intend to prejudice individual creditors. It makes available to all creditors alike, as a matter of principle, the foreign exchange yielded currently in accordance with the measures having to do with transfer policies which were approved by the creditors at the Berlin Transfer Conference, unless such foreign exchange is necessary for vitally important demands of the German economy. In doing so, the German Government cannot, however, assume responsibility as to whether, through the assertion of justified or alleged priorities and their establishment through threats, unfair treatment of individual groups of creditors occurs in that some of them temporarily receive full transfer of interest and others receive nothing or only a small percentage of their interest claims. To be sure, the German Government, aside from its own interests, feels so far responsible to the creditors as a whole, that it appeals to the creditors of specially privileged loans and of loans bearing an unreasonably high rate of interest under present-day conditions to reduce their interest claims. The German Government believes it can assume that this point of view is approved not only by statesmen in the creditor countries concerned but also by a large part of public opinion and of the creditors’ representatives themselves. The standpoint of certain creditors that such loans ought to be transferred without consideration of consequences, seems incompatible with the living requirements of nations. It is in the interest of the creditors themselves to adjust contractual claims to the economic possibilities of the present time.
9. The German Government is aware of the fundamental attitude of the Government of the United States of avoiding direct debt negotiations on behalf of its citizens who are creditors of foreign loans. But the German Government requests that the fact be taken into consideration in this connection that, as it has explained, the present case is one involving a special problem that cannot be compared with the problems of indebtedness of other countries. Methods of negotiation applied so far for the treatment of this special problem, which is the result of so many complex influences, have proved inadequate. The questions concerning the transfer of debts exceed the powers of the private creditors’ representatives. As far as the Dawes and Young Loan is concerned, their trustees declined to enter into negotiations with the German Government. The representatives of [Page 385] the American creditors officially introduced to the German Government by the Government of the United States have done the same. Nothing therefore remained for the German Government to do but to appeal to the Governments which for their part are in a position to contribute to the solution of the transfer problem by adopting suitable commercial policy measures. Nearly all Governments have declared their willingness to enter into discussions with the German Government.
The German Government also appealed to the Government of the United States, on the assumption that it would be prepared to discuss remedial measures with a debtor who is in manifest transfer difficulties. The German Government did not expect that the Government of the United States, in view of the situation explained, would merely be of the opinion that all that was required was an effort on the part of the German Government in order to satisfy the American creditors and to assure them the same treatment as the creditors of other countries, although the Governments of those other countries have opened up special possibilities for transfers to those countries and although the actual conditions precedent for transfers are different in those other countries.
The German Government is of the opinion that it might be possible along the line of joint efforts to find a way that would also take into account the wishes of the American creditors. Since this is a vast problem and since the above-mentioned parties appealed to (Instanzen) were not prepared to enter into negotiations, it (the German Government) therefore repeats its suggestion to find ways and means, through discussions between the two Governments, to facilitate transfers of the service of American private claims also and to realize their claim to equal treatment.70
- Transmitted to the Department by the Chargé in Germany in his despatch No. 1117, August 3; received August 10.↩
- See Foreign Relations, 1933, vol. i, pp. 452 ff.↩
- Translation of this paragraph revised on basis of despatch No. 1132, August 8, from the Ambassador in Germany (862.51/4162).↩