863.51 Relief Credits/514: Telegram

The Secretary of State to the Chargé in Germany (Gilbert)

10. Tour 9, January 4, 3 p.m. Please deliver the following note to the German Foreign Minister:

“Pursuant to instructions of my Government I have the honor to make the following communication in reply to the Foreign Office note of January 3, in further clarification of the question of Austrian dollar bonds.

The American Ambassador’s note of April 66 took up three categories of bonded obligations affected by the absorption of Austria into the German Reich:

The relief indebtedness of the Federal Government of Austria to the Government of the United States in the total principal amount of about $26,000,000;
Bonds of the Austrian Government International Loan of 1930, which are reported to be outstanding in the amount of $20,575,000, a large part of which, however, is no longer owned by American citizens or residents of the United States, and the total outstanding amount of which is being reduced by conversion by German and possibly by other holders into 4½ percent bonds of the German Reich, under the offer published in the Deutscher Reichsanzeiger of October 25, 1930;
Dollar bonds of Austrian political subdivisions and corporations reported to be outstanding in a total amount of approximately $18,000,000, of which, however, a great many are no longer owned by citizens or residents of the United States.

In the note under acknowledgment it is stated that in all the agreements which the German Government, irrespective of its legal interpretation that no obligation exists for it to assume the foreign debts [Page 561] of the former Austrian Federal Government, has concluded with the governments of interested countries with regard to an indemnification for the creditors of Austrian loans, the Austrian relief debts have been left out of consideration because of their specific nature. The German Government, stating that it has no intention to discriminate against American creditors as compared with other foreign creditors, expresses willingness to enter into negotiations with the Government of the United States for an arrangement for a reasonable indemnification of American holders of Austrian loan bonds, but adds that such an arrangement, while differing from the arrangements with other governments, which are based on the premise that the foreign exchange necessary for the payments on the bonds can be raised out of the excess of German exports to the particular country over its imports from such country, must nevertheless take into account the relation between exports and imports in the German trade balance with the United States and must presuppose cooperation on the part of America.

The Government of the United States cannot accept the legal interpretation that no obligation exists for the German Government to assume the foreign debts of the Austrian Federal Government, and perceives no reason why the intergovernmental relief debt should be left out of present consideration. The Government of the United States would be fully disposed to discuss any proposals which the German Government may desire to put forward in regard to the payment of this indebtedness, and to give them careful consideration with a view to eventual submission to the Congress of the United States, in which is vested the power to dispose of such assets of the United States.

As to the privately held Austrian foreign bonds, my Government is familiar with the arrangements made between Germany and the Governments of several other countries so far as these arrangements have been officially published. The creditor governments which are parties to these arrangements have been interested in the adjustment of the Austrian debt situation not only on behalf of their citizens but because these governments have been to a greater or less extent guarantors of one or more issues of bonds of the Austrian Federal Government and have been under obligation to pay the service of such bonds up to specified amounts or percentages in case of default of the debtor government. These governments have also had bilateral clearing or payments arrangements with Germany since shortly after the declaration of Germany in 1934 that the payment of German obligations to residents of foreign countries must be related to the balance of trade between Germany and the particular creditor country. On the other band, the Government of the United States has not ceased to protest against the principle then implicitly proposed that the responsibility of a debtor government for its debts can be made by the debtor to depend on the balance of trade between the debtor country and the country of residence or citizenship of the bondholder.

The present occasion is taken further to reiterate what seem to this Government three pertinent and decisive considerations bearing upon the right of American bondholders to anticipate treatment no less [Page 562] favorable than that extended to holders of Austrian bonds of other nationality:

That the original loan obligation contracted by the Austrian Government pledged the same treatment to all holders and made no distinction on the basis of nationality. It is believed that the full weight of this pledge is still incumbent upon the German Government;
That these securities were being fully serviced prior to the absorption of Austria into greater Germany, which development was accompanied by the taking over of the sources of revenue pledged to the service of these securities. The bondholders cannot but feel injustice in being deprived of these pledged revenues and having their prospect of payment made dependent upon the negotiation of complex intergovernmental economic arrangements;
That payments to citizens and residents of Germany for all types of goods and services are permitted by the United States Government without check or control and the full sum of these is available to the German authorities to meet obligations, and is many times as great as would be required to meet these obligations.

The German Government states that it does not have the intention to discriminate against American creditors as compared with other foreign creditors. While this statement must be read in the light of the actual practices of the German Government which result in wellknown discriminations against American creditors, the amounts involved in the case of the American holdings of Austrian bonds do not appear to be such as would cause any serious difficulty for the German Government should it be disposed to extend to American holders treatment as favorable as it gives those who are citizens or residents of the most favored nation. It may also be assumed that in the existing circumstances American holders would be disposed to consider an adjustment of the rates of the loan service, provided that the German Government make manifest its intention not to discriminate against them as compared with other holders receiving the most favored treatment.

My Government would, of course, be glad to see an adjustment of the service of these and other bonds which are affected by the trade and payment policies of the German Government, on terms satisfactory to the bondholders and not involving discrimination against bondholders on the basis of their American citizenship or residence. It would be disposed to facilitate in every appropriate way the attainment of such an adjustment. However, it does not see in the circumstances of the Austrian bond situation any need or reason for it to depart from its long established position that such adjustment of indebtedness toward private citizens is a matter for negotiation between debtor and creditors rather than between the government of the debtor country and the Government of the United States.”

The Department will desire to publish the German note of January 3 and this reply as soon as possible. Please notify the German Government of this and obtain the necessary informal clearance.

  1. See telegram No. 35, April 5, 1938, 7 p.m. to the Ambassador in Germany, Foreign Relations, 1938, vol. ii, p. 483.