863.51 Relief Credits/497: Telegram
The Secretary of State to the Chargé in Germany (Gilbert)
209. Your 634, November 18, 11 a.m. Please address the following note to the German Minister for Foreign Affairs:
“I am instructed by my Government to make the following reply to Your Excellency’s note of November 17 which was itself a reply to the American Ambassador’s note of April 6 notifying the German Government that the Government of the United States will look to it for the discharge of the relief indebtedness of the Government of Austria to the Government of the United States, and setting forth the expectation of the Government of the United States that dollar bonds of the Austrian Government and other Austrian debtors in American hands would be fully recognized and their service continued by the German authorities.
“In my note of June 9, my Government took cognizance of the reported position of the German Government that it is not under a legal obligation to take over the external debts of the Austrian Federal Government, and stated its dissent from the position of the German Government as to legal responsibilities of the latter in the premises. My Government hereby for all legal effects and having particular regard to its status as creditor in respect of the relief indebtedness of the Government of Austria, reaffirms its position as to the responsibility of the German Government for the payment of the indebtedness of the Government of Austria, and its intention to look to the German Government for payment thereof. This inter-governmental indebtedness, incurred to obtain food for the Austrian people at a time of distress and lack of means or ordinary credit for the most necessary payments, and specifically secured on assets and revenues of Austria, has not disappeared or been annulled by the fact of the taking over of these assets and revenues by the German Government.
“With respect to other funded indebtedness of the Austrian Government, note is taken of the statement in the communication under acknowledgment that the German Government has concluded negotiations with England, France, and Holland, under which the creditors of certain Austrian Government loans receive payments, and that the German Government has been seeking a way which would make it possible for it, in spite of its fundamental rejection of any legal obligation, to give consideration to the American creditors in a similar manner but that in view of the dissimilarity of the German balance of trade with the United States and with the other countries named, a similar adjustment for payments to American creditors can naturally not be made. The United States Government has also observed the offer of the German Minister of Finance published in the Deutscher Reichsanzeiger und Preussischer Staatsanzeiger, No. 249, October 25, 1938, which refers to an extensive list of bonds of the Austrian Government and after stating that the capital and interest service of these bonds is suspended after October 2, 1938, offers to indemnify holders by exchanging 4½% bonds of the German Government, payable in Reichsmarks, for the Austrian Government bonds, at specified rates, [Page 498] e. g., 262 Reichsmarks par value of the German Government issue for each $100 par value of bonds of the American tranche of the Austrian Government loan of 1930. In so far as concerns bonds of this issue, which is the only issue now outstanding floated (in part) in the United States and payable in dollars, it appears that this offer of indemnification is open to holders irrespective of their nationality or residence provided that they deliver the Austrian Government bonds to a German credit institution before January 31, 1839, under cover of a form letter obtainable from the credit institution.
“It appears therefore that with respect to bonds of the Austrian Government which are held by citizens or residents of the United States, the German Government while disclaiming legal responsibility is prepared to make de facto provision for payment as a charge on the German Government, and that it has caused the suspension of capital and interest payments by the agencies charged therewith prior to October 2, 1938. This confirmation of the position that holders of the bonds of the Austrian Federal Government must look to the German Government for the discharge of these obligations might reduce the question of legal responsibility to an academic question were adequate provision, acceptable to the bondholders, made for the payment of the obligations. Unfortunately, under the foreign exchange laws and practices of the Reich, the Reichsmark securities of the German Government tendered by the offer of October 24, 1938, as the terms of the offer are interpreted by my Government from the published text, could be accepted by residents of the United States only at the cost of a prohibitive sacrifice of the market value and income yield of securities they hold, while the German Government states in its note under acknowledgment that it has not been able to find an adjustment providing for payments in the United States comparable to the provisions made for other foreign holders of Austrian bonds.
“Your Excellency’s note does not specifically mention the treatment of dollar bonds of Austrian political subdivisions and corporations. It is presumed that under the German laws extended to Austrian territory the respective debtors continue to pay the reichsmark equivalent of contractual interest and amortization payments into the Konversionskasse, but it is not known whether any provision whatever has been made with respect to the rights of individual American holders of the obligations, and my Government has been unable to answer inquiries of this sort. Holders of these securities, as well as holders of the Austrian Government Loan of 1930, had been receiving full interest service in dollars up to the time of the absorption of Austria into the German Reich.
“My Government notes Your Excellency’s statement that the German Government is continuing its investigations as to whether it might not be possible to make in favor of the American creditors some adjustment of a different type from those made with other countries. It sincerely hopes that these studies may produce in the near future a positive result so that the American holders of Austrian securities will not long remain the only important group of holders of Austrian bonds for which no provision for payment has been made.
“In connection with this matter I am instructed to suggest that the German authorities charged with the study of the foreign indebtedness of Germany must by this time be well informed as to the amounts of [Page 499] Austrian dollar obligations now owned by holders in German territory. The estimates available to the United States Government indicate that the subtraction of such amounts and of the amounts held in other countries with which Germany has payments agreements would show that the transfer of bond service to American holders would not be a large or difficult problem. It would cost little for the German Government to provide payments for the bonds of the Austrian Government actually outstanding in American hands such as it already provides for its own dollar bonds in the United States.
“My Government has frequently stated its position with reference to the negotiation of adjustments of defaulted foreign bonds. It is not its practice in such situations to conduct adjustment negotiations with foreign debtors for American bondholders or other private creditors. It uses its good offices when it appropriately can to promote and facilitate such negotiations between the creditors and the debtors. It most seriously protests and objects to acts or policies of foreign governments which discriminate against American creditors and give other foreign creditors more favorable treatment than Americans.
“My Government has received numerous complaints from its citizens who have suffered through the sudden interruption of service of Austrian bonds, and the ensuing uncertainty and absence of any recourse either for information or payment. It hopes that the matter has now so far developed that the German Government will feel that it need no longer postpone effective attention to their legal and equitable claims.”
Telegraph any formal charges [changes?] you deem it necessary to make and any changes made in note of October 19 from Department’s 182, October 18, 6 p.m. Department is planning to publish these with German note of November 17.75
- See Department of State, Press Releases, December 3, 1938, pp. 375–379 for texts of notes, which are substantially the same as telegrams printed.↩