Foreign Relations of the United States Diplomatic Papers, 1935, The British Commonwealth; Europe, Volume II

868.51 War Credits/685

The Acting Secretary of State to the Greek Chargé (Lély)

Washington, March 2, 1935.

Sir: I refer to the Legation’s Note No. 2738, dated December 31, 1934,¹⁹ which acknowledged the receipt of a statement of amounts due from your Government under Part I of the Debt Agreement of May 10, 1929,²⁰ and the Moratorium Agreement of May 24, 1932.²¹

In his note under acknowledgment Mr. Simopoulos cited the Legation’s Aide-Mémoire of July 17, 1933,²² as containing an exposition of the reason the Government of Greece was not in a position to resume the service of its debts to the United States Government, and added that since that time no new factors have intervened to make such payment possible. The Minister further reaffirmed that the Government of Greece has not the slightest intention to contest its debt but is compelled to suspend its payment on account of the unprecedented economic and financial difficulties with which it is faced.

I take note of these statements of the Minister but in doing so I feel it necessary to call attention to the Minister’s further statement:

“The incapacity of Greece, from an economic and budgetary point of view, is such that as long as the suspension of the reparations continues, it finds itself reluctantly unable to pay its war debts.”

This statement has no counterpart in the Aide-Mémoire of July 17, 1933, and in so far as it seeks to make the payment of the Greek debt to the United States depend on payments to be made by other countries to Greece, it embodies an entirely inadmissible contention.

It is a matter of the widest notoriety that the United States Government has consistently declined to concede to any of its debtors a so-called “safeguard clause” establishing any relationship between indebtedness due to the United States and indebtedness due to the debtor from other governments. Throughout the period during which the debtors of the United States Government entered into agreements funding their indebtedness, this was a matter of great international interest in view of the obvious aspiration of these debtors to make their payments depend on payments from third countries to them so that default, suspension or cancellation of the debts of the latter should excuse the former from paying the United States. The position of the United States has been clear and consistent and no country has signed a funding agreement with the United States without full knowledge that its obligations thereunder were unrelated to reparations or any other indebtedness payable to the debtor. The continuing position of the United States Government in this connection was restated in the President’s message to Congress of June 1, 1934, in the following terms:²³

“I have made it clear to the debtor nations again and again that ‘the indebtedness to our Government has no relation whatsoever to reparations payments made or owed to them and that each individual nation has full and free opportunity individually to discuss its problem with the United States.”

The Legation’s Note of December 31, 1934, is presumed to concern only payments under Part I of the Debt Agreement of May 10, 1929, and under the Moratorium Agreement of May 24, 1932, having no application with respect to Part II of the Debt Agreement, under which partial payments continue pursuant to the clause:

“In the event of there occurring in any year a default in the payment of the service of this new loan by the United States, the ratio in which it is to share the same securities as the Greek stabilization and refugee loan of 1928 provided for in the international loan agreements dated January 30, 1928,²⁴ shall be the same as that which the amount of the annual service charge due the United States bears to the amount of the annual service charge due the holders of the bonds issued in accordance with the above-mentioned international loan agreements of January 30, 1928.”

With respect to the payments in arrears and payable hereafter under Part I of the Debt Agreement and under the Moratorium Agreement, this Government is fully disposed to discuss, through diplomatic channels, any proposals your Government may desire to put forward in regard to the payment of the indebtedness, and such proposals will receive careful consideration with a view to eventual submission to the American Congress. The question of the capacity or incapacity of Greece, from the economic or budgetary points of view, advanced in the note of December 31, 1934, to pay its debts, is a question of fact determinable by evidence. Any differentiation between the so-called “war debt” to the United States and other foreign indebtedness of the Greek Government must rest on grounds unrelated to “reparations”.

Accept [etc.]

William Phillips

19. Ibid., p. 549.
20. U. S. Treasury Department, Annual Report of the Secretary of the Treasury, 1929, p. 306.
21. For correspondence, see Foreign Relations, 1932, vol. i, pp. 584, 626–627; for text of agreement, see Annual Report of the Secretary of the Treasury, 1932, p. 291.
22. Foreign Relations, 1933, vol. ii, p. 545.
23. Department of State, Press Releases, June 2, 1934, pp. 344, 350.
24. Between the Greek Government and certain private financial groups; see note of September 30, 1935, to the Greek Minister, p. 509, quotation from section 2, part II of the Agreement of May 10, 1929.