462.00R296/4273: Telegram
The Ambassador in France (Edge) to the Secretary of State
405. The following text of a basis of agreement was worked out at tonight’s meeting from a text agreed to at the French Council meeting this afternoon. It is a complete acceptance of the 12-year repayment principle and the formula for aid to Central Europe. You will see that we have relegated the questions of deliveries in kind and of the utilization of the money released to the German budget to the same position as we succeeded in accomplishing with the guarantee fund question which previously caused difficulty on the interpretation of which the French have received informal assurance of the concurrence of the B. I. S. In other words these are entirely referred to the interested powers without any commitment by the United States [Page 142] whether or not the decisions of the experts in these matters would be within or without the principle of the President’s proposal cannot be judged in advance. In the meantime the proposal would be operative.
There will be a meeting for a final decision on this text Monday at 3 p.m. Any substantial modifications will require another French Council meeting.
1. All inter-governmental obligations relating to Germany including debts shall be released and relief debts shall be postponed from July 1, 1931 to June 30, 1932 on the express condition that the Reich pay the unconditional annuity amounting to 612,000,000 marks this payment under article 89 of the Young Plan not being postponable.
2. In conformity with the request of the American Government the payments from Germany known as the conditional payments which shall not be payable by the Reich over the above mentioned period shall be demandable in 12 annuities beginning from July 1, 1931, the first 2 annuities to fall due on July 1, 1932, and July 1, 1933., without interest and the refunding to be distributed over the 10 last years.
The 12 annuities referred to above shall be distributed among the creditor powers in proportion to the respective parts of each in the conditional annuity postponed in the year 1931–32.
Interest shall be calculated in principle and conditional upon certain necessary technical adjustments on the basis of the rate of interest payable by the creditor governments on their public debt over the most recent budgetary period.
3. The annuities due on war debts which shall be suspended from July 1, 1931 to June 30, 1932, shall be repayable under the identical conditions provided above, the interest to be based on the rates of interest paid by the creditor governments on their public debts over the most recent budgetary period.
4. To emphasize its desire for an agreement the French Government for its part agrees that payments to be made by the Reich on the unconditional part falling due between July 1, 1931 and June 30, 1932, and paid over to the B. I. S. shall be held by the latter institution after the sums required for the requirements of the Young loan are deducted, and invested in German Railway Bonds (Reichsbank), guaranteed by the German Government and the Reichsbank or in place thereof in certain financial institutions to be determined later. These bonds shall be subject to the same interest and refunding conditions as provided in paragraph 2 above; the corresponding annuities shall be convertible and shall be distributed between the creditor governments in the proportions applied by the Hague Accords to the distribution of unconditional payments;
The creditor Governments, the Government of the United States of America, the B. I. S. and the Reich agree to facilitate their immediate conversion to the profit of the powers having rights in these payments.
The French Government expects other governments creditors of the Reich to adopt the same policy with respect to their part in the unconditional annuities. If, however, anyone of these powers adopts a different policy it shall not under any condition prevent the carrying [Page 143] into execution of the above provisos in so far as they relate to the French part.
5. The American Government declares itself disposed to intercede with the Federal Reserve Board in view of the creation at the B. I. S. of a special fund of 30 million dollars to be set up conjointly with the Bank of France and if it shall agree with the Bank of England each of the three institutions taking due note of their statutes, to accept a one third part. This special fund shall be administered and invested in the discretion of the B. I. S. priority to go to the countries of Central and Eastern Europe specifically affected by the postponement of German payments.
The French Government shall approach the Bank of France to the same end; the manner of creating and employing this special fund shall be determined by the Central Banks acting in accord with the B. I. S. with due note of the priority provision referred to above.
6. The French Government conditions its final adherence to President Hoover’s proposal and to the stipulations of the present accord, on the approval of the B. I. S. of the following formula governing the creation of the guarantee fund provided for in articles 196 and following of the annexes of the Young Plan.29 Paragraph 199 of the annexes referred to above has left it [to] the B. I. S. to decide under what conditions France shall deposit the sums called for under this article, it being understood that each of the powers other than France shall receive monthly payments in cash equal to the amount it would have received if the non-postponable annuity had been distributed in the same proportions as the total annuity.
The B. I. S. shall come to an agreement with the French Government that the payments to its account shall be made on a monthly basis, and not in advance, to the extent necessary to provide the other powers with sums to which they will ultimately have a right under the provisions of the articles referred to above and of the corresponding articles of the Hague Trust Agreement.30
7. The French Government refers to its previous reservation conditioning its final agreement on the execution of existing contract[s] for deliveries in kind, and it emphasizes that these contracts, entered into by private persons, do not come within the scope of intergovernmental obligations.
The American Government declares that it cannot commit itself on this point. It maintains that the further study and solution of this question shall be referred to a committee of experts representing the interested powers.
8. The French Government refers to the terms of its note relative to the assurances which it expects from the Reich with reference to the utilization of the sums which shall be released to the German budget; assurances upon which its final accord shall be conditioned.
The American Government merely takes note of this position.