462.00R296/4285: Telegram
The Ambassador in France (Edge) to the Acting Secretary of State
411. M. Flandin proposed in our conversation this morning that the settlement of the controversy over deliveries in kind be referred to the committee of experts to consider all the technical details involved; otherwise, this will reach a state of impasse. He recognizes on the side of the American Government that we shall not accept any solution which is not in harmony with the President’s proposal, i. e., that deliveries in kind be considered the same as cash and be reloaned to Germany. On the other hand, he contends, as outlined in the French note (reference)42 that the French conferees and the French Council are under pledge to Parliament that unexecuted contracts of deliveries in kind shall be carried outside of the reloan to Germany.
In order to meet President Hoover’s demand that the entire reparations fund shall be reloaned to Germany during the year of suspension M. Flandin agrees that all existing contracts for deliveries in kind not financed which amount, as previously stated, is about 120,000,000 reichsmarks will be postponed until after the year of suspension, that is, June 30, 1932. The French already have about 105,000,000 marks on deposit at the B. I. S. for the purpose of financing other unexpected contracts which, being financed, would not enter into the matter.
The practical result of this proposal would be that France would, as insisted upon by the President, reloan to Germany during the year of suspension the full amount of Germany’s unconditional payments to them as per the Young Plan.
This in effect was the substance of Mr. Mellon’s telephone conversation with Mr. Mills at 2:30 Paris time today.
[The files of the Department of State do not appear to contain a full record of the final stages of the negotiations which led to the Basis of Agreement with France of July 6, 1931 (text printed on page 162). At a session of the American and French negotiators at the Ministry of the Interior beginning at 3 p.m. Paris time, July 6, the French negotiators were given the text of the final American note. (See part II of telegram No. 335, July 5, 10 p.m., to the Ambassador in France, page 150). Later in the afternoon of July 6 a draft text of the Basis of Agreement [Page 161] was drawn up by the French Council of Ministers. This text, submitted by the French negotiators to Mr. Mellon and Mr. Edge at about 8:30 p.m., is identical with the agreement as finally adopted, except that a phrase in paragraph (b) of the draft agreement reads “in accordance with the acknowledged rights of the creditor states,” instead of the final form “in accordance with the needs of the Bank for International Settlements.” (The text of this draft agreement is in the Department files under 462.00R296/4291.) An official French communiqué issued on July 6 by M. Laval, President of the Council of Ministers of France, states: “Mr. Mellon and Mr. Edge transmitted by telephone to President Hoover the proposed text of the basis of agreement. At the resumption of the meeting at 10 p.m. the American negotiators gave the adherence of their Government. They announced that President Hoover had declared that the accord concluded today meets the American proposal in its spirit and that it remains, naturally, subject to the approval of the other interested parties, on whose behalf the President cannot speak.” The Basis of Agreement was initialed at 11:30 p.m. Paris time (462.00R296/4293).]