851.5151/1837: Telegram

The Chargé in France (Wilson) to the Secretary of State

717. In order to round out the record for the Secretary of the Treasury I am giving hereinafter for transmission to him a brief summary of my conversations yesterday.

Shortly after 4 o’clock yesterday afternoon Bonnet telephoned and asked me to call on him at once. When I arrived Bonnet, who was visibly disturbed, said that the Prime Minister had informed him of a message received by the Finance Minister from Mr. Morgenthau which was understood to mean that unless the franc was brought back to 175 to the pound that afternoon the Tripartite Agreement would be regarded as ended. Bonnet spoke of the situation of France internally [Page 283]and externally, said that it was the intention of the Government to bring the rate down gradually to 175 but if it attempted to do so at one stroke this would defeat the purpose of the monetary operation which was to induce capital to flow back to the country. Such defeat would probably result in the fall of the Government and create a most serious situation. He appealed to me to telephone Mr. Morgenthau and explain the situation.

I said that in an effort to clear up misunderstandings I thought I ought to explain certain matters as they appeared to me. Cochran had kept me fully informed of his conversations and messages delivered back and forth and I therefore was posted on the situation. I said that according to my understanding the Tripartite Agreement called for consultation and presupposed a frank and friendly exchange of views among the parties to the agreement. Since the present Government had come into office Cochran under instructions from Mr. Morgenthau had twice sought information as to the financial plans of the Government but had received only the vaguest replies. I appreciated that this was due to the fact that the Government had been unable to determine its plans until the last minute but the fact nevertheless remained that our Secretary of the Treasury had been given no information. Then without prior consultation Mr. Morgenthau was suddenly confronted with a fait accompli in the form of a message that the franc would be devalued to 175 to the pound. After considering the matter the Secretary of the Treasury out of desire to assist the French Government in its present difficulties had accepted this devaluation and had given out a statement most friendly and helpful to the French Government. This had been done upon his understanding that the new rate of the franc would not go above 175. Contrary to his understanding, however, the franc had opened at 179. Under the circumstances it seemed to me that Bonnet could appreciate that Mr. Morgenthau found himself in a most difficult situation.

Bonnet said that he was greatly embarrassed and upset. He was not Minister of Finance and had not made the decisions in this matter. He said, however, that I could assure Mr. Morgenthau that the franc would be brought back to “about” 175 in a week or 10 days’ time. I said that before communicating with Mr. Morgenthau it might be desirable to give me the assurance in definite form. Bonnet started to write out something then said he must obtain the approval of the Prime Minister and endeavored to telephone to him. Daladier apparently hesitated and said he would have to consult the Finance Minister and the Governor of Bank of France. Bonnet then said that as soon as he received a statement from the Finance Minister which he was authorized to give me for transmission to Secretary Morgenthau he would telephone me.

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Returning to the Embassy I found Cochran talking on the long distance telephone with Secretary Morgenthau and I reported to the latter my conversation with Bonnet. The Secretary said that his message to Marchandeau was not an ultimatum. He said, however, that he was deeply shocked by the way the French had handled this matter. Out of sympathy with the French people he had gone beyond anything that could have been expected of him but there was a limit beyond which he could not go. He said that the franc remained pegged in New York and that he must insist that instructions be given to begin lowering the rate today. He insisted upon this as a sign of good faith on the part of the French. Herbert Feis then came on the telephone and said that while there had been no opportunity to discuss this development with Secretary Hull and while it was clear that we must compose these difficulties and maintain the financial relationship undisturbed he agreed fully with Secretary Morgenthau’s position. I said that I as well was in agreement and would state this position to Bonnet.

Not having heard from Bonnet by 6:00 o’clock I telephoned to him and said that while waiting to hear from him I had had a conversation with Secretary Morgenthau and I believed it would be useful if we could talk again. He said that he had the British Ambassador with him and that I should come over in a few minutes.

While waiting at the Foreign Office the Finance Minister, Marchandeau, accompanied by Cochran arrived and we went in together to see Bonnet after the British Ambassador had left. Marchandeau explained why his experts had found it necessary to start at 179 in order to realize the greatest benefit of the monetary operation but insisted that it was their intention to bring the rate down below 175. Bonnet then said that the Prime Minister had just advised him of the receipt of a message from the Chancellor of the Exchequer congratulating the French Government on the way the monetary operation had been handled, saying that while the figure of 179 appeared too high and might cause difficulties for Belgium he was happy to have received the assurance that the rate would be brought down. The Chancellor added that if he was questioned in the House of Commons he would say that the British Government was satisfied with the operation and had received assurances that the rate would be brought down. Bonnet said that this message had been most helpful and in view of the attitude of the British he failed to see why we should be so disturbed.

I said that Secretary Morgenthau had told me over the telephone that the British Treasury had informed him that they were in agreement that the rate should be brought back to 175 that day.

I then informed Bonnet and Marchandeau of what Secretary Morgenthau said to me. I added that it seemed to me that there was far more involved than a matter of a few hundred million francs. It [Page 285]was a matter of maintaining the spirit of the Tripartite Agreement and preventing difficulties of this sort from arising in the future.

Marchandeau said that he was prepared to give orders at once to lower rate by 50 centimes by the close of the day’s dealings in New York, and by another 50 centimes in Paris the following day. Next week he would continue to bring it down by smaller amounts as favorable opportunities presented themselves. Both he and Bonnet insisted that it was the Government’s intention to bring the rate below 175. Marchandeau then telephoned to the Bank of France and gave instructions that the rate be brought down in New York by 50 centimes that afternoon.

During our conversation Bonnet said that he knew the sincerity of the friendship which Secretary Morgenthau had for France and appreciated all that the Secretary had done to assist France. He regretted very much that the incident had arisen.

At the close of our talk Marchandeau said that he hoped Mr. Morgenthau would understand the great pressure and difficulties he had been working under and that he “would continue to have sympathy for the French Finance Minister”.

On returning to the Embassy I reported this conversation to Secretary Morgenthau by telephone.