462.00R296/4191b: Telegram
The Acting Secretary of State to the Ambassador in France (Edge)
302. For Mellon from Mills. See telegram No. 301.89 The following was handed to me this morning by the British Ambassador, from the British Treasury:
“June 27, 1931.
Following are Treasury views: French reservation about payment of unconditional annuities seems to Treasury radically to alter proposal of President Hoover which His Majesty’s Government accepted and have offered to carry into effect.
[Page 95]If Germany has to pay unconditional annuities in any form she will not obtain relief required for situation and effect in Britain will be very dangerous. Fact of case is that Germany cannot pay. London is financing Reichsbank and must withdraw money if complete suspension of reparations payments is not accepted unreservedly.
In view of Treasury, French proposal that payments should be lent by B. I. S. to Germany or other countries is no good. Insofar as money is lent to other countries obviously Germany gets no relief at all. If it is re-lent to Germany, Germany only gets short term credit and she will have to pay at the end of the year both postponed payments and full payment for next year which is obviously impossible. France will therefore have Germany at her mercy.
France’s loss is exaggerated by French press which loses sight of fact that under existing agreements, if Germany paid full unconditional annuities but adopted moratorium for conditional payments under Young Plan, France would have to pay considerable part of her war debts which she has no right to suspend and also pay over sums due to the other creditor Governments out of French guarantee fund so that she would only retain comparatively small proportion of unconditional annuities for her own budget.
But, as Germany cannot in any case pay, suspension of payments is a mere recognition of a necessity. Choice for France is not between getting full payment and getting no payment, but between suspension of all payments and having to meet her debt liabilities while not receiving payments from Germany.
Further, Treasury points out that any distinction between conditional and unconditional annuities must create very awkward precedent for future. It admits right of France to draw unconditional payments from Germany even if debt payments are suspended. Implications such a precedent may involve for the United States and for this country are obvious and need not be emphasized.
If any special arrangement were adopted for unconditional annuities it would clearly raise difficulties as regards other inter-governmental obligations particularly relief debts.
At meeting of relief bonds committee Dutch representative stated that his Government’s acceptance of suspension was conditional on suspension being applied to all inter-governmental obligations including unconditional annuities.
The only certain way to save situation is to get France to accept President’s proposal for suspension of all German payments for one year. French could be told that this suspension is an emergency measure and that at the end of the year full rights of all creditor powers in respect both of conditional and unconditional annuities revive in full.
Treasury realize that insistence on complete suspension will perhaps make an immediate settlement more difficult but in their considered view acceptance of French reservation would at best only postpone and might well make it more difficult to solve in the long run. The only effective course is to tackle difficulty made by the French firmly and at once and get it over.”
- Dated June 28, 4 p.m.; not printed.↩