462.00R296/6013: Telegram
The Ambassador in France (Bullitt) to the Secretary of State
[Received May 27—3:35 p.m.]
689–690. I had luncheon today with Blum, Herriot, Auriol, Minister of Finance and Dormoy, Minister of the Interior. After luncheon Auriol asked Blum to give him instructions with regard to the reply he should make to certain proposals of Schacht who is now in Paris. Auriol said that Schacht was insisting that Germany would not sign the new treaty of commerce with France which has been under preparation for many months unless France should consent to a reduction in the rate of interest on the Dawes and Young loans from 7 to 5 percent—the remaining 2 percent to be placed in a sinking fund for the retirement of the loans.
Auriol said that Schacht had asserted flatly that he had the full approval of Morgan and Company who represented the American holders these bonds for a reduction in the interest rate from 7 to 5 percent. Blum then asked me if this was true.
I replied that I had no information on the subject, that so far as I knew Morgan and Company were not empowered to speak for the holders of the Dawes and Young loans, that I did not believe that Morgan and Company had made such a statement and that Morgan and Company did not today represent the Government or the people of the United States whatever might have been their position in the past.
Blum then gave orders to Auriol to say to Schacht this afternoon that France would not consent to the reduction from 7 to 5 percent, that the question was one which concerned not only French holders of the bonds but also the holders in all other countries; that the new treaty of commerce offers much greater advantages to Germany than to France and that if Germany chooses to reject it Germany may do so.
Blum went on to say that he had had a conversation with Schacht in which Schacht had been little short of insulting. Schacht had argued with him that France should consent to a reduction of the [Page 107] interest rate on the Young and Dawes loans from 7 to 5 percent with the statement “a reduction of all interest rates is I understand in accord with the best Socialist principles”. He, Blum, had replied that he understood that an abolition of interest rates and default on all obligations was in accordance with the best Nazi principles.
Schacht had then said that in any event it was very difficult for Germany to consider making any commercial agreement with France in view of the fact that France had already undergone two devaluations and was about to devalue again. At this point Dr. Schacht had whinnied.
Blum said that he had replied with all the severity of which he was capable that he did not consider Dr. Schacht’s remarks in good taste or a laughing matter. France had no intention of devaluing further and would not devalue further.
Subsequently I asked Auriol how he expected to be able to avoid devaluation. He said that before the critical days of the month of June arrive he expects to bring in a proposal which will establish a real equilibrium in the French budget. I asked him how he proposed to do this and he was about to explain when we were interrupted.
I should be greatly obliged if you would telegraph me at once if it is true that anyone authorized to represent the holders of the Young and Dawes loans has informed Dr. Schacht that the American holders will accept a reduction of the interest rate from 7 to 5 percent.
Blum in discussing the general situation said that while he saw no immediate threat of war he also saw no chance of constructing peace. He felt that Schacht was definitely less conciliatory than he had been on a previous visit to Paris and he expected no constructive results whatsoever.
With regard to Spain, Blum said that he was not altogether without hope that after a series of refusals on the part of both conflicting governments in Spain they might after some weeks be forced to accept mediation.
Incidentally both Blum and Auriol expressed the conviction that they could wriggle through the monetary difficulties of June and July.