No. 68.
Mr. Washburne to Mr. Fish.
Paris , May 24, 1876. (Received June 7.)
Sir: Last Friday, Mr. Naquet, a radical deputy from the Bouches-du-Rhône, introduced in the assembly a resolution which created quite a sensation and has had a disastrous influence on certain stocks. Mr. Naquet’s proposition, for which he claimed urgency, was to the effect [Page 115] that a committee of five members of the chambers be appointed to inquire into the portfolio and the operations of the Crédit Foncier of France, in order to enable the government to take such measures as the financial interests of the country may necessitate.
Mr. Léon Say, the minister of finances, promptly answered that the operations of the Crédit Foncier had not escaped his attention, that they were found unobjectionable, and that the government understood its duty well, and would not fail to perform it when called upon. The urgency was therefore refused, but the motion had its effect, and the shares of the Crédit Foncier went down suddenly from 747.50 francs to 650 francs. The stocks of the other financial societies connected with this powerful establishment also suffered very severely, and the Egypitan securities fell from 220 francs to 196 francs.
To understand the meaning of this move, it must be stated that the Crédit Foncier, which is one of the largest financial establishments of France, placed in certain respects under the supervision of the government, is known to have speculated widely in Egyptian securities, which have lately passed through so many dangerous fluctuations, and is suspected of having done so to an extent and on terms not authorized by its charter.
How far these operations are illegal or imprudent is not known to the general public, but it is certain that the Crédit Foncier has invested an immense capital in the treasury-bonds of the Egyptian government, and that for more than six months this establishment, backed by men of high standing, has been struggling with the Khédive to bring him to terms.
As this question is now one of the principal topics of the day, and as the French government has taken a deep interest in the matter and has followed a course which brought it for a moment in direct competition with the British government, I have thought that a general summary of this Egyptian muddle would not be uninteresting to you. Perhaps the personal experience I have had in that country, where I had the opportunity of seeing for myself as much as is usually seen by casual visitors, will enable me to give this statement a little more accuracy.
Since the time of Mehemet Ali, whom the government of Louis Philippe supported against the Sultan, the influence of France has been predominant in Egypt. Though the French colony there is not as large as the Italian colony, its action is much more widely felt. Among the educated classes the French language is spoken, French literature, fashions, and arts are particularly sought for; their ideas, their mode of thinking, are popular; in short, it can be said that it is to France chiefly that modern Egypt owes its peculiar bent toward civilization.
For years French capital found a legitimate and profitable investment in that rich country. But when the present ruler, in his haste to introduce the improvements of modern times, found himself involved in schemes and enterprises which compelled him to call for repeated and heavy loans, the French capitalists imposed upon him ruinous terms. At first he submitted, but was finally loaded with such a burden of annual interest that it became imperatively necessary to remedy the situation by some radical measure. It was evident that, if the Egyptian government continued to borrow money at extortionate rates to pay the interest of its debt, it would soon be compelled to resort to some kind of repudiation. There was only one way to get out of this dangerous path; it was to find a financial combination by which the whole of the Egyptian debt would be consolidated, and which would inspire such confidence [Page 116] in the European public that money would be furnished at once on reasonable terms.
The Viceroy first applied to French bankers, but found in them no disposition to second his intentions; he then applied to the British government, which responded promptly and liberally.
The first result of these overtures was the purchase by the Disraeli cabinet of all the shares the Khédive had in the Suez Canal. This transaction, which gave preponderance to British influence in the management of that great channel of communication between Europe and India, was carried out in such a secret and decisive manner on the part of the English cabinet that the French were taken by surprise and alarmed. They saw in a moment that the promised land in which their capital and activity had found, for so many years, a profitable field, was about to pass from their hands into those of the English, and when the mission of Mr. Cave was announced they determined to oppose strenuously the progress of British influence.
At that moment two groups of financiers, one English, the other French, were making propositions to the Khedive for the re-organization of his finances and for the consolidation of the Egyptian debt.
Each group was pressing its own plan with much vigor and ability, but, as the English capitalists seemed to have the preference, the French foreign office sent a special envoy to the assistance of the French bankers. This gentleman was Mr. Outrey, who had been formerly consul-general in Egypt, and who has since held important diplomatic posts in the east, and is an able and accomplished man. His ostensible mission was in relation to the carrying out of the judicial reforms, but he availed himself of the opportunities he had to advise the Viceroy strongly against the English propositions, to impart a decided political coloring to all the proceedings of the English in Egypt, and to press somewhat imperatively the French propositions.
How far Mr. Outrey pushed his remonstrances is not well known, but many rumors are afloat in relation to the difficulties he encountered with the Khédive, resulting, it is said, in complaints being made to the Duke Decazes as to the attitude he had assumed in Egypt.
In the mean time, however, the situation had undergone some changes. The English, who at first had taken so deep an interest in the financial affairs of Egypt, had become almost indifferent. That government withdrew quietly from the prominent position it had taken in the first instance, and the English capitalists held back. This change, which can be accounted for by disclosures subsequently made in the financial difficulties of Egypt, left the French nearly masters of the situation, and, at the beginning of this month, they succeeded in coming to a perfect understanding with the Khédive.
The result was the new organization of the Egyptian finances, of which you have probably received the substance by telegraph. This organization, created by two decrees of date the 2d and 7th of this month, consolidates the whole of the Egyptian debt into 7 per cent. bonds, redeemable in sixty-five years. The interest on these bonds, together with the sinking-fund, will amount to £6,370,000 sterling a year, payable in gold in Cairo, at Paris, and London, on the 15th of January and the 15th of July every year.
To secure the payment of this interest, the Khédive has created a Caisse d’Amortissement,” or public-debt department, to be administered by foreign commissioners, designated by the European governments, but appointed by himself, and to which will be intrusted the [Page 117] task of receiving special revenues exclusively devoted to the service of the debt.
I will not attempt here to discuss the soundness of this scheme or to point out where it may fail. When men of such experience in financial matters as Mr. Rivers Wilson, Mr. Scialoja, and Mr. Vilette, the English, Italian, and French commissioners to Cairo, have come to the conclusion that it is wisely planned if carried out properly and honestly, it will succeed, there is strong reason to believe that their judgment is well founded, and that the immense capital invested by Europe, particularly by France, in Egyptian securities will not finally turn out to be a dead loss. I have myself seen enough of Egypt to share those hopes. No country in the Old World offers more resources, and its ruler, whom I had the pleasure of meeting more than once, is a man whose clear mind is open to any practical suggestions which may further the development of his country.
Over thirty millions of dollars a year is, however, a very heavy load for a little state like Egypt, and public opinion seems inclined to the belief that it will not be able to carry it, for the Egyptian securities, very far from having gained anything after the new decrees were promulgated, still continued to go down.
By a strange and very unexpected misfortune, it thus turns out that the Crédit Foncier, the Crédit Agricole, the Anglo-Egyptian Bank, (a French establishment, notwithstanding its name,) and all the other French banking companies which have struggled so hard to impose their terms upon the Khédive, find themselves in a worse position after having carried their point than before.
It is hoped that this state of things will improve before long, and there are signs which confirm this hope. The Austrian and Italian governments, for instance, have nominated for appointment by the Khédive two prominent financiers to act as commissioners of the “Caisse d’Amortissement,” and the French government has announced officially that it would soon do the same. Besides this, the official report of Mr. Scialoja has just been published, and it shows conclusively that the new measures adopted are essentially based on the suggestions made by Mr. Cave, which have met with the approval of all competent men in such matters.
Since this publication, the Egyptian securities have gone up a little, and so have the bonds of the Crédit Foncier; but the improvement is slight, and may not amount to anything substantial.
I have, &c.,