462.00R296/4200: Telegram
The Ambassador in France (Edge) to the Secretary of State
377. This evening Mr. Mellon and I were asked by Flandin to call on him at his home at 9 o’clock. This was half an hour before the scheduled meeting of the group of negotiators at the Ministry of the Interior. During our conversation Flandin explained that the Council of Ministers had refused to accept the proposal which Laval this morning had said he would submit to it. The proposal related to a change in the repayment time from 5 to 25 years. Flandin explained a bit about the circumstances of this meeting and said that the French reply as approved by Parliament was the absolute limit to which the Cabinet was willing to go.
At the meeting itself Laval put forward in a formal way the points already presented by Flandin and stated that he had been defeated in the Council of Ministers and that the Council of Ministers felt that the 25-year period was excessive. Equally unacceptable, he also pointed out, was the American proposal with respect to the guarantee fund. [Page 106] He expressed his regret at having to make such an unsatisfactory reply but hoped that the reasons for it would be made clear to the President. The French Parliament has discussed the French reply to the American proposal and Laval’s Government won approval on that basis through the support of the Socialists in the Chamber of Deputies and only with considerable difficulty.
On Tuesday afternoon an interpellation is to be made in the Senate on this matter by Senator Lemery, and although Laval feels very sure that he can gain a narrow majority there for the French reply as it now stands, he is very certain that he could not get support for any of the concessions which are demanded. He reiterated many of the points which he had made before: that the French situation is different from that of any other country, that France suffered most from the war, and that the French reply had indicated the large concessions which France was willing to make in the interest of the economic recovery of the world.
It was again suggested by the Ambassador that France was not the only country making a sacrifice. The Ambassador inquired whether the French Parliament did not recognize that the American Government, facing a budget deficit of one billion dollars, was adding by one quarter to that deficit without a quibble. This would take the form of $250,000,000 which the United States will relinquish in the coming year solely for the purpose of aiding in the financial stabilization of the world. All the Ministers said that they were using this fact in their appeals for support and that it must not be overlooked.
As for the question of the period for repayments the Prime Minister said that the French Government wished to make a counterproposal. It was set forth by Flandin as follows: The French Government agrees that after 5 years and if the Young Plan remains intact, it will consider favorably the possibility of extending the reloans for additional periods of 5 years each, thus enabling assistance to be given to German economy. Flandin stated in reply to a direct question of the Ambassador that by this method the 25-year period might be attained in cycles of 5 years each. Flandin felt that this plan would aid in bringing about a review of the situation from time to time and while it was not wholly in accord with President Hoover’s principle, it would make it unnecessary to carry the debt beyond 5, 10, or 15 years if the conditions in Germany at the end of a period made it unnecessary. The sole comment relative to the proposal made by us was that it would be very difficult to adjust provisions of this sort with the other countries involved and extremely difficult to work out the American debt suspensions on a like basis.
The second point, referring to the French proposal for using unconditional payments for the relief of Central European countries, [Page 107] was discussed very little. The Prime Minister, however, said that the Cabinet felt it could not give up this plan for the reasons already stated many times. It was again brought out on our side that the sum involved was inconsiderable and also that the President had suggested an arrangement for financial aid to Hungary through the combined action of the B. I. S., the Bank of England, the Federal Reserve Bank, and possibly the Bank of France. Mr. Mellon pointed out in addition that President Hoover would do all that he could to help the countries adversely affected. Laval said that the French would be very glad to hear any proposal which the President might make toward this end. This would suggest that the French must have some assurances on this subject for political reasons.
There was absolutely no change in the French attitude with regard to the third point. If a moratorium should be declared the credit of the German debt arising from the Hoover proposal for reloaning the unconditional annuities must be made available to the French for the guarantee fund. Laval indicated that France could not face the possibility of being required to loan Germany $160,000,000 now with the possibility that an additional $100,000,000 would have to be deposited in the guarantee fund within a year or, for that matter, later on, but before any considerable repayments had been made.
Mr. Mellon repeated the argument which had been made earlier on the other side of the question: that this issue would greatly complicate the situation with other countries which were similarly affected. He pointed out that it was obvious that during the year of suspension there could be no payment, but that in the following years the French Government could not be worse off than in a normal Young Plan year, since it would receive its regular unconditional annuities from Germany. Flandin believed that in the event of an immediate moratorium France was not likely to be required to pay twice since it would merely pay into the guarantee fund about the same amount as it would receive from Germany in its July 15 installment. In reply Mr. Mellon said that with the danger of a failure to reach agreement it would seem quite likely that Germany would not be able to pay these installments and that then France would be in the very situation she feared under the Hoover proposal of being required to make a deposit into the guarantee fund without having received a payment from Germany.
It was the French view that there was no reason why they should not have the right to call a loan if their debtors failed in their obligations and when they were required to place guarantees for that debtor. They felt that this right should not be impaired by whether or not the debtor could reimburse them.
Having thus disposed of the three points so far as the Cabinet decision had dealt with them, the Prime Minister then once again appealed [Page 108] to Mr. Mellon to make it certain that President Hoover appreciated the sincere regret of the French Government that it was unable to proceed along the lines which he desired. Laval then pointed out as an illustration of their good faith that the Minister of Marine tomorrow afternoon in the Senate will state, in presenting the naval appropriation for the coming year, that the construction of a 23,000-ton cruiser which was included in the original appropriation will be abandoned, provided that the German Government likewise agrees to halt its construction of vessels of the Deutschland class. Laval believed that this evidence of French good will should have great effect in the world at large in the interests of both disarmament and economy.
Once again Laval reviewed his difficulties with Parliament and said that under no circumstances did he wish to break off negotiations. He even suggested that the duration of the negotiations would demonstrate to Parliament the difficulty of them and that this would simplify his task. He wanted the next meeting to be held after the Government had weathered its interpellation tomorrow in the Senate. Even though he felt certain of a majority he did not want to complicate matters with another meeting prior to that time. The Ambassador and Mr. Mellon agreed to suggest to the President that no statement be issued and no action taken before the meeting to be held on Wednesday. They realized, however, that press speculation could not be prevented, but felt that this point was essential if an agreement were to be reached, however slight that possibility now might seem.
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