863.51 Relief Credits/544: Telegram

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

607. Embassy’s 584, July 3, 7 p.m. In conversation today with Heath, Puhl said that in his meeting in Brussels on July 4 he had suggested to Lamont as a possible solution the exchange of Austrian 1930 dollar bonds for German bonds. Puhl told Lamont that he would endeavor to obtain the agreement of the other agencies alluded to to this procedure which he said would have the advantage of being a “purely banking transaction” and thereby avoid making Germany publicly accept responsibility for the payment of Austrian obligations for which it argues “in principle” it is not liable. He remarked that although it would be difficult he hoped to be able to obtain German agreement to the procedure provided there were no “further surprises in relations”. Puhl said that his tentative proposal of an exchange of Austrian for German obligations was based on the Reichsbank’s understanding that only two or three million dollars of the bonds still remained in American hands so that the cost of servicing them would not be great. Lamont on the other hand thought that 10 million dollars were outstanding in the United States and Puhl informed him that in the present state of the Reich’s exchange resources it would be difficult if not impossible to make payment of service on such an amount. Puhl said that Lamont promised to ascertain the amount of Austrian 1930 bonds still in American ownership and to report to him. Lamont had suggested that the Austrian bonds might be exchanged for Dawes plan bonds to which Puhl replied that the German Government did not hold enough Dawes bonds to effect the exchange. Lamont had held out for 5% interest whereas Puhl stated 4% as the maximum which the German Government would pay but it was agreed that discussions of the interest rate would be resumed if the general agreement of the German Government to the bond exchange proposal were obtained.

Repeat to Treasury.