Memorandum by Mr. John H. Spencer of the Division of Far Eastern Affairs

I. The Texts of the Replies of the Debtor States (1936).17

The notes despatched by this Department on November 25, 1936 to Belgium, Czechoslovakia, Finland, Hungary, Latvia, Lithuania, Poland, Rumania, Italy, Great Britain and France,* concerning the amounts due and payable to the United States on December 15, 1936 in accordance with the debt agreements between the United States and the above-mentioned countries, in no wise departed from the form previously adopted by this Department with regard to the notifications [Page 576] which it has addressed twice yearly to the above-mentioned debtor States.

The notes of all but the last three of the above-mentioned States sent to this Department in reply to the said notes of November 25, 1936 do not appreciably depart from the terms used in the previous replies sent by these countries in this matter.

However, certain modifications have been introduced in the replies of Italy, Great Britain and France, to the notes of November 25, 1936 which distinguish the said replies from those sent by the same three States on June 7, 1936 (Great Britain) June 8, 1936 (Italy) and June 13, 1936 (France).

In the case of Italy, the reply of June 8, 1936 contained the phrase “my Government regrets to be unable at the present time to submit any proposals etc.…”, which phrase was modified in the reply of the Italian Government of December 11, 1936 to the said note of November 25, 1936 to read “… regrets to be still unable at the present moment, to submit …” (underscoring added). Such a modification would seem to imply the possibility of proposals by Italy in the not distant future.

The reply of the British Ambassador of December 10, 1936, to the said note of November 25, 1936 differs from the previous reply of June 7, 1936 by the omission of paragraph two of the latter note, which paragraph reads as follows:—

“His Majesty’s Government explained in their note of the 4th June, 1934, the reasons for which they were reluctantly forced to suspend payments under those agreements. Those reasons are unfortunately no less valid now than they were then.”

The omission of this paragraph in the note of December 10, 1936 would appear to imply a greater willingness on the part of the British Government to undertake negotiations concerning the settlement of the said debt question.

Finally, the reply of the French Government, dated December 14, 1936, marks a considerable departure from the phraseology adopted in the previous replies sent by the French Government with respect to the said debts.

In its reply of December 14, 1935, the French Government declared that “it desires in turn, … to repeat that it is prepared to seek, as soon as circumstances permit, a settlement of its debt on bases acceptable to both countries.” In the reply of June 13, 1936, this phrase was modified to read, “… it desires on its part to make it absolutely plain that it is prepared to seek etc.…” (underscoring added).

The reply of December 14 of this year follows textually the first two paragraphs of the notes of December 14, 1935 and June 13, 1936 as well as the first sentence of paragraph three (which forms a single [Page 577] paragraph in the reply of December 14, 1936.) However, at this point, the following two paragraphs have been added.

“Therefore, desirous of promising only what it will be able to perform, it regrets profoundly that the distressing economic depression which the country has just undergone and the state of world economic relations do not permit it as yet to present any proposals. Such proposals, in view of the disequilibrium of the balance of trade and of the balance of payments, might have an influence on its effort toward recovery and might compromise the beneficial effects of the international monetary understandings in which it has been happy to participate recently.

“It hopes that these cooperative understandings, together with the improvement of world economic conditions and also the triumph of the democratic thesis which it is endeavoring to sustain by the limitation of armaments, will permit it to open through normal diplomatic channels negotiations with a view to an arrangement acceptable to both countries which would strengthen their bonds of friendship and of confidence to the benefit of the welfare and the peace of the peoples.”

These two paragraphs, which did not appear in the previous replies of the French Government in regard to the said debts, although somewhat noncommittal, would, by the mere fact of their addition to and modification of the texts of the preceding notes appear to imply that the French Government is more favorably inclined than in the past to envisage the possibility of a final settlement of the debt question.

II. Import of the Modifications Introduced into the said Replies.

Such are the impressions which would appear to be created by the texts of the notes of the three above-mentioned countries. In the case of Great Britain, however, the tenor of the note of December 10, 1936 which is slightly more conciliatory than the previous notes of the British Government, has not been supported by any other statements or actions, on the part of the British Government. Consequently, the above-mentioned modification of the previous note sent by the said government is probably of no great significance.

The Italian note of December 11, 1936, slightly more conciliatory in tone than the previous notes sent by that Government in regard to debts, was in fact, preceded six months ago by an informal conversation between representatives of the United States and officials of the Italian Government but, no formal diplomatic conversations have taken place. Consequently, the modifications of text which distinguish the note of December 11, 1936, of the Italian Government from that Government’s note of June 8, 1936, would appear to be of but slight significance.

Finally, the considerable modification introduced by the note of December 14, 1936, into the text of the usual reply of the French [Page 578] Government in the matter of debts may be said to be indicative of a change in attitude on the part of the French Government for political as well as financial reasons. The desire of the French Government to regain the good will of the citizens of the United States in order to obtain an understanding with or assistance from the United States in case of war in Europe as well as the desire of the said Government to obviate the restrictions imposed by the Johnson Act18 have been factors of importance in this respect.

On November 28, 1936, a conversation was held between Ambassador Bullitt and Mr. Delbos, French Minister for Foreign Affairs, concerning, among other subjects, the debt.19 In the course of this conversation, the French Foreign Minister expressed a desire on the part of the French Government to arrange a settlement of the debt but he did not offer any suggestions as to the time, manner and form of negotiations and settlement, nor have any formal proposals been subsequently made by the French Government.

The announcement in the New York Times of December 23, 1936, of the acceptance by Mr. Bonnet, former Minister of Finance and of Commerce, of a six month’s (?) mission to the United States as French Ambassador would tend to confirm the desire of the French Government to open diplomatic negotiations with a view to the settlement of the debt question.

In conclusion, one final remark may be pertinent. In view of the inter-governmental loans extended to France by Great Britain, and in view of the fact that the British Government still entertains the hope of an eventual repayment, at least in part, of these same loans, and in view of the further fact that the British Government is, at present, determined not to provide in its annual budget for the repayment of British inter-governmental debts to the United States, the British Government would insist upon a settlement of its debt to the United States which would, in accordance with the principle enunciated in the Balfour note of August 1, 1922,20 enable it to pay off its indebtedness to the United States with the sums received from the French Government in payment of the loans extended to it by the British Government. Consequently, should the French Government insist upon a reduction of its indebtedness to the British Government proportionate to that reduction which it may obtain or seek to obtain as regards its indebtedness to the Government of the United States, then the British Government would seek to obtain a proportionate reduction of the debts which it, in turn, owes to the Government of the United States.

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Finally, notwithstanding the inter-governmental wartime loans extended by Great Britain to Italy, there would appear to be no reason for holding that any settlement which might be reached concerning the war debts owed the British Government by the Italian Government would operate to affect the settlement sought by the British Government of the debts owed by it to the Government of the United States, for the reason that the British Government has practically abandoned the hope of obtaining repayment of the war debts owed to it by the Italian Government.

  1. For citations to texts of correspondence mentioned herein, see p. 566.
  2. The correspondence with Estonia and Yugoslavia is not yet published. [Footnote in the original.]
  3. Approved April 13, 1934; 48 Stat. 574.
  4. See telegram of November 28, 1–6 p.m., from the Ambassador in France, vol. ii, p. 578, specifically the section numbered 1164, p. 580.
  5. Enclosure to despatch No. 1550, August 4, 1922, from the Ambassador in Great Britain, Foreign Relations, 1922, vol. i, p. 406.