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CONFIDENTIAL

INTERNATIONAL PAYIEN TS RESULT IN G FROM TIE 11AR .




TRANS F-742 COi LiI TTEE

ECONOMIC SERVICE

CONFIDR,,TTIAL.

PRIVATE E

No >1

For Lembers of
sfer Committee only

41

TRANSFER COMMITTEE
ECONOMIC SERVICE,

Berlin, December 10, 1926:

INTERNATIONAL PAYMENTS RESULTING FROLZaWAR,
In the following tables we have endeavoured to present a statement
of those payments from one State to another on account of war debts or
reparations, which have been or are to be effected during the period of
twelve years from 1924 to 1936, under the various agreements already in
force or awaiting ratification.

The first series of tables refers to the payments to be made by
Germany, under the Experts° Plan
The second series shows the payments to be made on account of
interallied debts, chiefly effected by the various Powers, to the United
States of America and Great Britain.
The third series shows the net situation of the different Powers,
assuming the
year period.,




sethement of debts and reparations during this twelve

LIST OF TABLES.
Page
1.

Distribution of the German Annuity
for 1924/25

3

11

n

n

11

n

1925/26

4

3.

II

II

II

II

n

1926/27

5

4.

If

/I

II

II

II

1927/28

6

5.

n

11

"

"

H

1928/29

7

6.

"

"

f1

"

1929/30

8

7.

n

n

1930/31

9

8.

11

II

II

1931/32

10

9.

H

n

"

10.

n

2.

nr

"

II

H

II

n

II

11

"

"

1932/33 and 1933/34

11

"

1934/35 and 1935/36

12

11.

Summary of the German Payments from 1924 to
1936 (in gold marks)

13

12.

Summary of the German Payments from 1924 to
1936 (in dollars)

14

13.

Statement showing Payments from Great Britain
to the United States (1924 - 1936)

16

14.

Statement showing Payments from France
to the United States (1924 - 1936)

17

15.

Statement showing Payments from Italy
to the United States (1924 - 1936)

18

16.

Statement showing Payments from Belgium
to the United States (1924 - 1936)

19

17.

Statement showing Payments from Poland
to the United States ( 1924 - 1936)

20

18.

Statement showing Payments from Ozecho-S). vakia
to the United States (1924 - 1936)

21

19.

Statement showing Payments from Jugo-Slavia
to the United States (1924 - 1936)

22

20.

Statement showing Payments from Rumania
to the United States (1924 - 1936)

23

Statement showing Payments from Eethonia
to the United States (1924 - 1936)

24

21.



2

22.

Statement showing Payments from Latvia
to the United States (1924 - 1936)

23.

Statement showing Payments from Lithuania
to the United States (1924 - 1936)

25

26

24,

Statement showing Payments from Finland
to the United States (1924 - 1936)

27

25.

Statement showing Payments from Hungary
to the United States (1924 - 1936)

28

26.

Summary of Payments to the United States
(1924 - 1936)

29

27.

Statement of Amounts owing to Great Britain
as at March 31, 1926

30

28.

Statement showing Payments from Italy to
Great Britain (1924 - 1936)

32

29.

Statement showing Payments from France to
Great Britain (1924 - 1936)

33

30,

Summary of Payments from France to Great
Britain (1924 - 1936)

39

31.

Summary of Receipts and Payments of
Great Britain (1924 - 1936)

42

32.

Summary of Receipts and Payments of
France (1924 - 1936)

45

33.

Summary of Receipts and Payments of
Italy (1924 - 1936)

49

34.

Statement showing Net Balances of Receipts
and Payments by the Respective Powers

51




I.

a

PAYMENTS TO BE MADE BY GERMANY.

In determining the sums to be paid by Germany, full payments and
transfers under the Experts' Plan are assumed for purposes of analysis,

except for the fact that possible payments under the Index of Prosperity
have not been taken into account.

The tables also show the distribution of the payments amongst the
various Powers.

The figures for 1924-25 and 1925-26 give the distribu-

tion actually applied to the first and second Annuities, while those for
1926-27 show the distribution actually in course of application during
the third Annuity year.

For the succeeding years, the tables of distri-

bution have been drawn up on the following assumptions:
(1)

That the costs of the Armies of occupation will be maintained dur-

ing the whole period of occupation contemplated by the Treaty of Versailles
(that is to say, until the end of 1934), at the present figure of 160
million gold marks.
(2)

This is probably an over-estimate.

For the service of the German External Loan, a round sum of 90

million gold marks per year has been taken for the whole of this period.
Throughout the tables, the sums payable for the service of the
German External Loan are excluded from the figures showing the German
payments, for the reason that the payments for the service of the Loan
take the form of payments to the bondholders and do not, in fact, represent
payments from Germany to the creditor Powers.

On the other hand, it

must be remembered that the sums required for the service of the Loan
are included in the annuities payable by Germany under the Experts' Plan,
and are transferred through the medium of the Transfer Committee.




2

The general tables show the total amounts of the payments to the
various Powers, without distinguishing between the different categories
under which the payments are received by the Powers:

e.g. Armies of

Occupation, Restitution, Belgian Debt, Reparation, etc.

Moreover, the

payments are shown in gold marks, or their equivalent, without regard
to whether they are received in cash or in the form of deliveries in
kind.

The following series of tables shows the payments required of
Germany under the Experts' Plan during the period from September 1, 1924,

to August 31, 1936, with their estimated distribution among the respective creditor Powers:




gob
FINAL DISTRIBUTION OF THE FIRST ANNUITY UNDER THE EXPERTS' PLAN (1924-1925)
(In thousands of Gold Marks)

P OWERS

1. United States
2. British Empire
3. France

Arrears due Current exon account of penses of
Army Costs Armies of
Occupation

86.06

25,000,00

5,338.34

Japan
Serbia
Portugal
Rumania
Greece
Poland




Restitutions

(2 1/4 re of 682,633.88 W.. available for Reparations)
4,837.50
14,308.80
100,43
25,000.00
6,412.50
4,454.04
16,663.17
110,000.00

4. Italy
5. Belgium
6.
7.
8,
9.
10.
11.

Belgian Debt

2,227.06

Reparations

TOTAL
SHARES

15,359.26
146,800.42
346,982.80
(
(Dr. 30,000.00
66,727.46
53,381.97
(
(Cr. 30,000.00
5,004.56

71.68

454,512.51
66,813.52

115,947.37
5,004.56
33,435.41
5,004.56
7,533.70
2,669.10

35,36-3.73

193,68

15,359,26
191,047.15

5,004.56
7,540.02
2,669.10

129.12

129.12

667,274.62

11,250.00

160,000.00

36,310.31

7,262.07

682,633.88

897,456.26

Interest received and rrain in exchanF,e (less discount paid)
included

254,77
897,201.49
25,819.62
76,978.89

Costs of Inter-Allied Commissions
Service of German External Loan .......
TOTAL

......

1,000,000.00

The French claim for Reparations has been reduced by 30 million gold marks
which amount has been attributed to Belgium in accordance with the
provisions of Annex 2301-A approved by Reparation Commission Decision No.3111.

REVISED DISTRIBUTION OF THE SECOND ANNUITY UNDER THE EXYERTS'PLAN (:925-1946)
(In thousands of Gold Marks)

F 0 V E R S

Arrears
on account of
Army. Costs
(See Note)

7.

United States

2. British Empire

3. France
4. Italy

Belgium
Japan
7. Serbia
8. Portugal
9. Rumania
10. Greece
11. Poland
5.
6.

Current
expenses
of Armies of
Occupation

Belgian
Debt

Restitutions

2 1/4 % of 870,038.66 G.M. available for Reparations)
25,000. -8,017.85
18,237.03
128.01
110,000.
21;437.73
5,676.84
109.68
25,000.-2,836.45
6,603.69
111r.

91.35
.246.85

Reparations

19575.87
187,101.81
436,240.65
85,046.26
74,037.03
6,376.47
42.523.14
6;376.47
9,355.09
3,401.85

164.57

TOTAL
SHARES

19,575,87
238,484.70
583,78.1.61

85,155.96
108,679.37
6,378.47
42,614.49
6,378.43

9,60194
3,401.8F
164.57

850,462.79
18 ; 646 76

360 000.--

46 276.65

9,255.73

870 038.66

j

Interest eaned and gain in exchange included in the above distribution

Costs of Inter-Allied Commissions
Service of German External Loan
Discount on Railway Interest 1.

3,157.40
1,101,061.80
19,293.69
92,234.10
7,410.41

x

:

TOTAL
NOTE: The allowances in respect of arrears on
account of Army Costs have been reduced by
G.M. 582.15 for the British Empire and
G.114. 771.69 for France, these amounts hav-

ing been paid by the Reparation Commission
to the respective Governments out of receipts

arising outside of the Annuity,.


1,104,219.20

:

I

1,220,000,-

ESTIMATED DISTRIBUTION OF THE THIRD ANNUITY UNDER THE EXPERTS_MAL11926-1,427'
(In thousands of Gold Marks)

POWERS
1. United States(

2,
3.
4.
5.
6.
7.
8.
9.
10.
11.

Cash payment
Arrears
on account of on acccunt of
the U.S.Army Army Costs

Belgian
Debt

Restitutions

55,000,00
VIt % of 1,075,050.74 available for Reparations)
10/750.00

/M50.00

25,000.00
110,000.00

22,534.32
26,242.10

25,000.00

British Empire
France
Italy
Belgium
Japan
Serbia
Portugal
Rumania
Greece
Poland




Current
expenses
of Armies of
Occupation

8,407.13

tions

24,186.54
158.17
014.48
135.52
3,507.30

112.88

MEN

Repara-

aim

305.02

245,271.79
583,913.62
94,564.04
47,288.79
8,039.34
47,277.51
7,991.98
11,606.55
4,70E1.18

203.34

050 862,10
55,000.00

25.000,00

160,000.00

57,183.55

11,436.71

1,075,050.74

TOTAL
shAnss

79,18:1).54

304,414.2d
741,,420.20

94.699.56
84,203.22
8,03).34
47,39C.Z9
7.991.46
11,911.87

ESTIMATED DISTRIBUTION OF THE FOURTH ANNUITY

THE

(In thousands of Gold Marks)
,asLi i)ayment on

Powers
1. United States

account of the
cost^ of the
U.S. Army of
Occupation

Current exArrears on
penses of
account of
Armies of
Army
Occupation
Costs

2. British Empire

312,851,000,
12,900.--

G.M. available for Reparations)

Italy
Belgium
Japan
Serbia
Portugal
Rumania
Greece
Poland

25000.-- 27,518.90

193.16

110,000.-- 32,046.83

3. France




Restitutions Reparations

TOTAL
SHARES

x5,000. -(2 1- 5) of

4.
5.
6.
7.
8.
9.
10.
11.

Belgian
Debt

8,566.07

25,000.--

0,266.77

165.50
4,283.11
137,85

372.49

29.539.15
2874027.14)
13,353.38)
681,512.25)
31,562.54)
115,481.52
57,749.03
9,817.64
57,735.25
9,759.80
14,174.27
5,139.03

248.32

84,539.15
365,992.58
880,787.69
115,647,02
97,298.91
9,817.64
57,873.10
9,759,80
14,546.76
5,139.03
248.32

1,283,311.85
55,000.--

30,000. --

160,000.--

9,832.50

13,966.50 1,312,851.--

,641,650.--

Costs of Inter-Allied Commissions

18,350.--

Service of German External Loan

90,000.-TOTAL

1,750,000.--

ESTIMATED DISTRIBUTION OF THE FIFTH ANNUITY UNDER THE EXPERTS' PLAN (1928-1010
(In thousands of Gold Marks)

Poore2

1. United
States

Cash payment
on account of
the costs of
the U,S.ArrAY
of
ati no

Arrears on
account of
Army
Coate,

Current
expenses
of Armies
of
Occupation

Belgian
Debt

Restitutions

55,000,--

(2 * % Reparations'

Share)

42,296,52

504,33

EMpre
110,000,--

3. France

49,255,96

22,Z66.--

432,13

4. Italy
5

25,000,-

Belgium
Japan
Serbia
8. Portugal
9, Rumania
10. Greece

15,780,02

11,18318

6

359093
972.56

434,303.58
20 372.23

30,000.--

160,000.-- 107,332,50

535,7516
)

1,028,883.50 )
48,152 55 )
190,935,10
88,103.30
14,830.63
88,067.30
14,786,61
21,580.39
7,835.81

648.37

11. Poland
55,000.--

100,000

4 A222_=-L

25,000

2. Brician




TOTAL
SHARES

Reparations

36,466.50

1,275758,01

191,36?,2,

1400066,6
14,830(6
88,427,20,

14,786.6
22,552,9
7,835.8
648.3
2,391,650,

Costs of Inter-Allied Commissions.....
Service of German External Loan.......

18,350. 000.-

TOTALOOOOOOOOOOOOOOOO 0000P

2,500,000,-

ESTIMATED DISTRI?.UTION OF THE SIXTH ANNUITY UNDER TH7, EXPERTS' PIAN (1229-1930)
(In thousands of Gold Marks)

Cash Payment
n account of
he costs of
the U.S. Army
f Occupation

Powers
1. United States
2. British Empir

55,000.--

3. France

4. Italy
5-. Belgium

6.
7.
8.
9.
10.
11.

Japan
Serbia
Portugal
Rumania
Greece
Poland

Reparations

55,000.--

Total
Shares




P OXERS

.

000,
194.72

088.4.

217.23
066.50

78103

c.0

417.21
751.56
538.40
834.35
Digitized
648.38 for FRASER






ESTIMATED DISTRIBUTION OF THE NINTH AND TENTH ANNUITIES UNDER THE EXPERTS' PLAN
(1932-1933 & 1933-1934)

(In thousands of Gold Marks)

Powers
1. United States

2. British Empire
3. France

ns Share)
,000.-

4. Italy
5. Belgium
Belgian
Restitutions
Debt Japan
6.
7. Serbia
8. Portugal
9. Rumania
10. Greece
11. Poland
508.48

,000.-

49,944.32

22,550.-

,000. -

16,000.56

435.68
11,275.18

,000.-

Cash Payment on
Current
account of the
expenses
costs of the U.S.
of Armies
of
Army of Occupation
Occupation

Reparations

TOTAL
SHARES

45 000,439,360.07)
20,665.67)
,040,081.90)
48,846.12)
198,605.10
89,372.29
14,995.05

362.89

89,336...

980.56

14,965.15
21,876.46
7,947.19

653.71

100,000.42,887,62
528,421.84
1,271,422.34

199,040.78
141,648.03
14,995.05
89,698.89
14,965.15
22,857.02
7,947.19
653.71

,986,051.-

108,832.50

36,766.50

2,031,051.-

2,391,650.-


Costs of Inter-allied Commissions
http://fraser.stlouisfed.org/
Service
Federal Reserve Bank of St. Louis of German External Loan ....
.

18,350.90 000

10

its
D S'R

OF THE

AND _TWELFTH ANNUITILLITDER THE EXPERTS' PLAN (1934-19:55 AND 1935-1936i
(In thousands of Gold Marks).

Power s.

Cash payment on
account of the
cost of the U.S.
Army of Occupa-

Belgian Debt

Restitutions

Reparations

TOTAL
SHARES

tjon.

1. United States

2. British Empire

55,000.-(2 * % Reparation Share)
46,040.18

530.61

53,615.60

23, 531,33

3, France

4.
5.
6.
7.
8.
9.
10.
11.

Italy
Belgium
Japan
Serbia
Portugal
Rumania
Greece
Poland




17,176.72

454.64
11,765.85
378.68
1,023,23

45.000.-472,631 71,
22,230.64,
1,118,844.53:
52,545.15;
213,645.10
96,140.30
16,130.58
96,102 43
16,098.42
23,533 12
8,549.02

682.16

100.000,-541,433.14
1,248,536.61

214,099.74
125,082.87
16,130.58
96,481.11
16,098.42
24,556.35
8,549.02
682.16

,136,451.--

55,000.--

116,832.50

38,366.50

2,181,451,--

2,391,650.--

Cost of Inter-Allied Commissions

18,350.--

Service of German External Loan

90,000.-TOTAL

2,500,000.--
















17'




Statement showing payments from
t o

the

11\1__LTILD11LaaaQFMR111. (1924-1936)

Total debt to be repaid




Date

. E L G I U M

171 780 000 Dollars pre-Armistice
and 246 000 000 Dollars post-Armistice

Suns still out- Sinking Fund
standing before Payments of
maturity of
the Debt
Sinking Fund
Payments
PrePoet
PrePost

Annual

Interest

Debt

Pre-

Post

total.

Interest
Total
Sinking
Fund
Armis- Armistics
tics
1

2

-

-

1924 Dec. 15
1925 June 1.5

1924/25
1925 De0.15
1926 June 15 171 78C 243 00.
1925/26
1926 Dec, 1.
1927 June 1 170 78C 244 90.
1926/27
1927 Deco 1
1928 June 1-' 169 78C

1927/28
1928 Dec.
1929 June
1928/29
1929 Dec,
1930 June
1929/30
1930 Dec.
1931 June
1930/31
1931 Dec.
1932 June
1931/32
1932 Dec,
1933 June
1932/33
1933 Dec.
1934 June
1933/34
1934 Deco
1935 June
1934/35
1935 Dec,
1936 June
1935/36

243 8

1 250 1 200

15
15 168 53* 242 60

1 750 1 200

15
15 166 78. 241 40. 2 250 1 200
,

15
15 164 53

240 200 2 750 1 300

15
15 161 780 238 900 2 900 1 300

15
15 158 880 237 600 2 900
15
15 155 980 236 300 2 900 1 400
15
15 153 080 234 900 2 900 1 400
15
15 150 180 233 500 2 900 1 600

S

0

Statemert
t o

dhowing paymelatd froT WAJEQ

the 1)4LWLWgSLIILLEA

(1924-1936)

178 560 000 Dollars

Total debt to be repaid

Annual

Sums still °IASinking
Interest
matured Pund
interest Pay-

standing before, Bate of

Date

--turity of
Sinking Pund

I M

__IMINIIIIINI
-- - -4

1924 Dec. 15
1925 June 15
1924/25

178 000

1925 Dec. 15
1926 June 15
1925/26

177 075

1926 Dec. 15
1927 June 15
1926/27

176 125

1927 Dec. 15
1928 June 15
1927/28

175 150

1928 Dec. 15
1929 June 15
1928/29

174 150

1929 Dec. 15
1930 June 15
1929/30

173 125

1930 Dec. 15
1931 June 15
1930/31

172

1931 Dec. lb
1932 June 15
1931/32

171 000

1932 rec. 1.5
1933 June 15
1932/33

169

1933 Dec. 15
1934 June 15
1933/34

1,7S

1934 Dec. 15
1935 June 15
1934/35

167

1935 Dec. lb
1936 June 15
1935/36

166 425




total,

nterest
Sinking

5

.01 DC 1:-;

3 %
3

Total
3 + 4

925

%

2 670.-- 3 595.00
2 656.12 2 656.12

6 251.12

3 %
3 %

950.

2 656.13 3 606.15
2 641.87 2 641.87

6 248,--

3 %
3 %

975

2
2

641.88 3 616 88
627.25 2 627.25

6 244.13

3 %
3 %

1

000

2 627.25 3 627 25
2 612.25 2 61225

6 239.50

3 %
3 %

1

025

2
2

612 25 3 637.25
596.88 2 596.88
6 234.23

3

%

1 050

3 %

596.87 3 64688
2 581,13 2 581.13
2

6 228.01

%
3075
3 %

1

075

2
2

581 12 3 656.12
565,-- 2 565.--

6 221.12
3

%

7

%

1

100

2
2

565,-- 3 66E.-548.5 2 548.5

6 21350
9.-3

775

3 %
51%
%

1 125

6 627.06
1

3%
7-i- %
625

2 548.5 3 675.5
2 953 56 2 953.56

150

2 953056,4 103.56
2 933.44 2 933.44

7 037.00
1 200

7.-- %

2 933.44 4 133.44
2 912.44 2 912.44

7 045.
lei %

51 %

...-

1

225

2 912.44 4
2 891.-- 2

13744
391.--

028,44










ESTHONIA

Statement showing Payment from

to

the

U N I T E D

Total debt to be repaid

Date

S T A T E S

A bi E R I C A

(1924-1936)

13 830 000 DoA.ars

Sums still outstanding before
maturity of
Sinking Fund
Parn:nts,

Rate of Sinking
matured Fund
Interest
interest Payments
4

3

2

1

O F

Total
3 + 4
5

Annual
total
Interest +
Sinking
Fund
6

in 1 000 Dollars
1924 Dec. 15
1925 June 15
1924/25
1925 Dec> 15
1926 June 15
1925/26
1926 Dec. 15
1927 June 15
1926/27
1927 Dec. 15
1928 June 15
1927/28
1928 Dec. 15
1929 June 15
1928/29
1929 Dec. 15
1930 June 15
1929/30
1930 Dec. 15
1931 June 15
1930/31
1931 Dec. 15
1932 June 15
1931/32
1932 Dec. 15
1933 June 15
1932/33
1933 Dec. 15
1934 June "5
1933/34
1934 Deo. 15
1935 June 15
1934/35
1935 Dec. 15
1936 June 15
1935/36




13 761

%
%

3

71

206.42
205.35

277.42
205.35

73

3

205.35
204.25

278.35
204.25

482.77
13 690

482.60
13 617

3
3

%
%

75

204.26
203.13

279.26
203.13

13 542

3

%

78

203.13
201.96

281.13
201.96

%
%

80

201.96
200.76

281.96
200.76

82

200.76
199.53

282.76
199.53

85

199.63
198.26

284.53
198.26

196.v4

286.93
196.94

90

196.93
228.18

286.93
228.18

92

228.18
226.57

320.18
226.57

95

226.57
224.91

321.57
224.91

98

224.91
223.20

322.91
223.20

482.39
3

483.09
13 464

3
3

13 384

3

482.72
3

482.29
13 302

3
3

13 217

%

3

5

482.79
88

3

483.87
17.

129

3

%

4%

515.11
13 039
%

546.75
12 947

ro

546.48

12 852

546,11

S
L A,T V I A_

Statement showing Payments from
t o

the

LELaajzgujajLag_g_gggaLaA (1924-1936)
5 775 000 Dollars

Total debt to be repaid

Sums still outstanding before Rate of
matured
maturity of
interest
Sinking Fund
layments

Date

Annual

Sinking
Fund
Payments

Interest

in 1 000




3
3

%

3
3

%

3

Dollars

15
15

5 718

29

86.20
85.77

115.20
85.77

30

85.77
85.32

115.77
85.32

%
%

31

85.32
84.86

116.32
84.86

3

%

32

3

5 747

Interest +
Sinking

L...-[..---.§..-

3

15
15

total.

il3LKI

1.----.1.---g.---1.--.---4

1924 Dec.
1925 June
1924/25
1925 Dec.
1926 June
1925/26
1926 Dec.
1927 June
1926/27
1927 Dec.
1928 June
1927/28
1928 Dec.
1929 June
1928/29
1929 Dec.
1930 June
1929/30
1930 Dec.
1931 June
1930/31
1931 Dec.
1932 June
1931/32
1932 Dec,
1933 June
1932/33
1933 Dec.
1934 June
1933/34
1934 Dec.
1935 June
1934/35
1935 Dec,
1936 Juno
1935/36

Total
3 + 4

%

84.85
84.38

116,85
84.38

%

200.97

%

201.09

15
15

5 688

15
15

5 657

15
15

5 625

3
3

%
%

33

84.37
83.88

117.37
83.88

15
15

5 592

3

%

34

83.88

3

5

83.37

117.88
83.37

15
15

5 558

15
15

5 523

201.18

201.25

201.25
35

3

%
%

83.37
82.85

118.37
82.85

3

%

36

3

%

82.84
82.31

118.84
82.31

3

201.22

201.15

15
15

5 487

15
15

6 450

%

37

82.30
95.38

119.30
95.38

%
%

38

95.37
94.72

133.37
94.71

%

3

39

94.71
94.03

133.71
94.03

%

40

9403

134.03
93.33

3i %

214.68

15
15

5 412

3

228.08

2%

227.74

15
15

5 373

3%

93,33

227.36
........

111

atement ahowtog kaymens from
to

the UNITED STATL5 OF AMERICA (1924 ..1936)

Total debt to be repaid

6 030 000

Sums still outstanding before
maturity of
Sinking Fund
-2=2)140._

Date

t Y T'HUANIA

Dollars

Fate of Sinking
Iaterest
Fund
matured
Interest Payments

1 000

n

1924 Deo. 15
1925 June 15
1924/25
1925 Deo. 15
1926 Jutne 15

1925/28
1926 Deo.
1927 June
1926/27
1927 Deo.
1928 June
1927/28
1928 Deo.
1929 June
1928/29
1929 Deo.
1930 June
1929/30
1930 Dec.
1931 June
1930/31
1931 Deo.
1932 June
1931/32
1932 Deo.
1933 June
1932/33
1933 Deo.
1934 June
1933/34

3 %
3 %

8 000

3 %
3 %

30

Dollar
90.45
90.45

90.45
120.45
210.90

90.-120.--

30

210.--

15
16

31

5 874

3 %
3 %

32

88.61
88.60

88,61
121.80

88.13
88.21

88.11
122.11

87.5
87.6

87.60
122.50

87.08

5 907

3 %
3 %

89.09

35

5 939

3 %
3 %

89.09
89.08

34

3 %
3 %

89.56
20,55

33

5 970

89.55
89.55

87.08
125,01

210.10

15
15

210.17

15
15

210.21

15
15

15

210.22

3%

15

5 840

3 %

5 805

3 %
3 %

2M2r)
15
15

38

87.0

3'?"

86.54
86.53

39

85.98
85.98

210.15

15
14

3 %

5769

3 %

8e.54
210.07

15
15

5
1934 Deo.
1935 June 15
1934/35
1935 Deo. 15
1936 June 15
1935/55




6.030

e

4

3

1

Tctal
3 + 4

Annual
total
Interest +
SInking
Fund

3%
5 732

3 %

224.98
210.98

5 693

%
%

40

99.63
99.5.

99.63
139.83
239,28

5 853

3f %

42

98.93
98.95

98.93
140.93
239.88



Statement

?'r
showing Payments from

FINLAND

S

2

HUNGARY

Statement showing Payments from

to
Total

he

URIIED STI.Tt:S

et to be repdi-1

1

Si.nkirg Fund
Parients

,

iiRLIIGA(1924-1936)

ezio 00C Dollars

Sums still cutstanding before
maturity of

Date

OF

Rate of
matured
interest

Sinking
interest
Fund
Fayments

Total

3 44

6

1

in

1924 Joe, 15

1

1. 000

Dollar

29.08
28.94

3 %
3 r

.e.19.-

115 June lb
1924/25
1925 Dec.
1925 June
1925/26
12F: Dec,
1P27 Jure

38,68
28.94

28.94
28.79

38.74

67.62
15
15
15
15

9.8

1 929.4

1 919.c,

3 %

28.79
67.53

28.79
28.54

28.64

10.2

28.64
28.49

38,84
28.49

10.4

15

28,49
28.34

38.89
28.34

lb
15

3
3

11.-

28.33
28.17

39.33
28.17

3 i

31,6

28.17
as,-

39.67
28.-

Li,-

28.27.82

40.27.82

12,-

27.82
27,64

39,82
27.64

12,5

27,64
Z2,03

40.14
32.03

12.6

32,02
31.81

44,52
31.81

31,61
61.58

44.81
31.58

3

10,-

j.

3

67.43

1926/27

1927 Deo. lb
3948 June 15
1927/28
Doe. lb
192

Juno
1928/29
192e Deo.
1930 June
1929/30
1930 Deo,
1931 June
1930/31
1951 Dec,
1922 June
1931/32
1932 Dec.
1933 June
1922/33
1933 Deo,
1934 June
1932/34

:

909.c

3 ,r;
.3

7.

67.33
6

1

;

67.23

1 en.-

67.50
15
15

878.-

16
15

1 856.5

15
15

354,5

15
16

1 842.5

194 Dec. lb

1 5.50,-

3

67.67

3 $
3 %

67.82

A %

67.46

1936 June 15
1934/35
1935 Deo, 15
1936 June 15
1935/25




Annual
total.
Interest
Sinking
Fund

,) A
3 ira

72.17
3 1/4
3 1/2

;

76.33
1 817.5

3
3 1/2 ;-

.01.7

,-

76,39

4

SUMMARY OF PAYMENTS to THE 11

Dates
1924, Dec. 15
1925, June 15
1924/25

91,655
68.310
159.965

1925, Dec. 15
1926, June 15
1925/26

92,310

3,595
2.656
6,251

870

3,606

.7

1,500

I

.
92,950
67.57

1926, Dec. 15
1927, June 15
1926/27

;60,525

Dec. 15
1928, June 15
1927/28

67.200
159.775

1928, Deco 15
1929, June 15
1928/29
1929, Dec. 15
1930, June 15
1929/30
1930, Dec. 15
1931, June 15
1930/31

92,575

94,200

36,795
160.995

93,795
(0.39.9

160,185

94,390

1931, Dec. 15
1932, June 15
1931/32

1932, Dec. 15
1933, June 15
1932/33

3,673

1933, Dec. 15
1934, June 15
1933/34

4,104

1934, Dec. 15
1935, June 15
1934/35

1,500

.

6 6 7

3,000

1,600

1.500
3.000

1935, Deco 15
1936, June 15
1935/36
Payments made tc, the United States before the comAueion of funding




S
UNITED STATES OF AMERICA

(1924-1938)

Esth=

ebi;

i

1 QQQ

Lithu-

Lat-

',

.

i:

Fin"

GRAND

Rte=

';...1..

=! 'l

1

179

211

313

6a

90

181

39
29

T til L

39

..-

.:- 7411'

.

: SO ,-4 ."

.

----..1.--11L---0

115

278
20

86

4822_QI
200
200

200

20_

279
204
483

200
200

300
300

279
203
482

118
85
201

200
200

400
400

281
202
483

117
84

282

117

0

:,;

200
200

:18

In

85
201

21,0

314

3

e

651

120
214 686

_611.

4,66

1O p854.

89

182

121

13!2

210

1

39
28
61

89

182

3'i,'

210

344

67

89

133

1710149

40

,"
121

20 128

233.218
201

-%

..

Orman

_Au_
283

2*

:y

200

600

:.:

482

201

itp

311

285

118

88

185

225
225

700

483

201

410

800
800

287
197
484

119
82
201

123

184
128
312

281

119

276
275

AM.

228
51*

0

ail_

1 900

:

1,20.

$

100

reements are not inoludsd.




;:.-

2.

k10

:

7

aga---

%
;;:a

1.17

..y

186

03

99
k9

211

---1;;

134

26 .524

,

14-

604
1

33Z

SS

13Z

4

1.<'00

M.

87
123
21Q

1.2t

:,....7

321

21,0

210

320
. 7
3.,,292

IIMMIN

241.496

I_

250
250

4809

2

',-.7!

4Z.

:09

33-I

9.7

B. baumats12Armita.
The following table of the amounts owing to Great Britain as at
March 31 1926 (1)

,

makes it possible to ascertain the relative importance of

the agreements already concluded by Great Britain with her debtors:

Allied War Debts.
a)

Funded

:

Italy

...

Rumania

274 750 000

31 250

306 000 000

b) Not funded

:

France

.,.

647 106 000

Russia

aa.

794 505 000

Jugo-Slavia

31 400 000

Portugal

23 733 000

Greece

...

21 167 000
1

General total

517 911 000

1

823 911 000

Relief and Reconstruction loans.
a)

Funded

b)

Not funded

GO02080a0000

20 369 000

14 558 000
34 907 000

Other Debta.
a)

Funded

b)

Not funded

044.00404000
000.1y*Q0

3 344 000
1 488 900
4

Grand Total

(1) Financial statement 1926 -27,




1

832000

863 650 000







33
British Debt Agreement with France.

The agreement concluded with France provides the following payments:

Statement showing payments from LILLW

awzDgLzAI_A

t o

Date

(1921-1936)

Sum to be paid

in 4 1 000
1924 Sept. 15
1925 March 15
1924/1925

-

_AAA

1 000 *

1 000

n

-

1925 Sept. 15
1926 March 15
1925/1926

Annual total

=-

-

-

-

1926 Sept. 15
1927 March 15
1928/1927

2
2

1927 Sept. 15
1928 March 15
1927/1928

3

1928 Sept. 15
1929 March 15
1928/1929

4 000
4 000

1929 Sept. 15
1930 March 15
1929/1930

5

1930 Sept, 15
1931 March 15
1930/1931

6

1931 Sept. 15
1932 March 15
1931/1932

8
6

1932 Sept. 15
1933 March 15
1932/1933

6
6

1933 Sept. 16
1934 March 15
1933/1934

3

14 600
14 600
19 468
19 466
38 932

5

000
000

24 333
24 333
48 666

250

6 250

30 416
30 416
60 832

260
250

30 416
30 416
60 832

250
250

30 416
30 416
60 832

6
6

250
250

30 416
30 416
60 832

1935 Sept. 15
1936 March 15
1935/1936

6




000
000

29 200

6
6

$ 4.86656 = £ 1.

9 733
9 r33
19 466

1934 Sept. 15
1935 March 15
1934/1935

*

000
000

250
250

30 416
30 416
60 832

6

250
250

30 416
30 416
60 832

In addition to the payments Which France has to make to Great
Britain under the funding Agreement, there are obligations assumed under
previous agreements, to make repayment of the advances from the Bank of
England and to pay for War stocks ceded by the British to the French
Government.

These obligations are quite substantial in the course of the

next few years.

ADVANCES

BY

THE BANICagNGLAN210

The advances by the Bank of England were made during the War to
the Banque de France for account of the French Government, and were
secured by the deposit of gold up to one third of the sums advanced:

The advances are represented by bonds carrying interest at one

per cent more than the Bank of England discount rate, and in ants, n2t
less than 6 per cent.

The amount of the advances was originally fixed at £ 60 000 000.
It was subsequently raised to £ 72 000 000, and later reduced to
L 65 000 000 througb drafts on the proceeds of the 4 per cent loan issued
in 1918 on the English market.

The amount of the gold deposit has varied

accordingly.

The advances by the Bank of England were originally to have been
amortised by a series of payments extending over the period from September
1922 to August 1923.

At that date £ 10 000 000 were repaid, and the gold

deposit was reduced to & 16 350 615_

10' the same time, an arrangement was

made for the repayment of the balance of the debt, aggregating
as followsl.




In millions
1924
1925
1926
1927
1928
1929
1930

5
6
7

8
9

15

55

56 000 000

If interest is

These figures show only the capital of the debt.
included, the payments appear to work out as follows: (1)

9.1
903
10.0
15.5
5,0

1926
1927
1928
1929
1930

We have not been able with the documents available in Berlih, to ascertain
exactly the dates on which the payments from the Bank af Prance to the
Similarly, we have been unable to find the

Bank of England fall due-

In order to be able to draw

exact amount of the interest paid in 1925-

up a general table going back to 1925, we have assumed, on a basis of cht

payments for following years, that the interest for 1925 amounted tc
£3 000 000.

It would appear from the fragmentary- information at OUT disposal that

the payments fall due in February and August-

If this is so, the payments

effected during a Reparation Annuity year would coincide with those eff_;ted
daring the calendar year

On this basis, the payments falling due within

the Reparation years would be as follows:-

Annuityyear
1924-1925
1925-1926
1926-1927
1927-1928

In millionsgLAAtgrling
9

9.1
9.6

1928-929
1929-1930

(1)




10
1R-6
5

Table F of the Annex to Chapter 6 of the French Experts' Plan_

; t,

The Agreement made in 1923 between the Bank of England and the
Banque de France also included provisions in regard to the return of the
It is tc, be returned as follows:

gold deposited as security,

Ll 000 000

On May 31 1928
From May 31 1928 to
November 30 1928
From November 30 1928
to May 31 1929
From May 31 1929 to
November 30 1929
From November 30 1929
to May 31 1930
From May 31 1930 to
November 30 1930

2

000 000

3

000

000

4 000 000
5 000 000
3 350 615
3......1711=[..--SeNmIallIa

£18 350 615

In practice these refunds may be looked upon as amounting to reduot-

ioneinthe sums to be paid by the Banque de France

Assuming for purposes

of comparison, that the period from December 1 to November 30 contemplated
by the Agreement roughly corresponds to a Reparation year

the refunds of

gold to be made during the coming Reparation years work out as follows5£3 000 000
7 000 000
8 350 615

1927-1928
1928-1929

19291930

The net payments from the Banque de Franle to the Bank of England
then




would work out as followef(In thousands of E sterling)

Year

1924-1925

19251926
19261927
1927-1928
1928-1929
1929-1930

Sum to be
paid by
Banque de

Gold to
be

Net sum to
be paid by
Banque de

Net sum to
be paid to
Banque de

2raaGaE201=a-aaan
refunded

9 000
9 100

9 000
9 100
9

600

10 000
15 500
5

000

9

3 000
7 000
8 350

600

7 000
8 500

3 350

37

Zrgxg)_.2o_t_tgGssat ..;13=g12

on

Tsgszt: jiiirStss)sk.

A distinction must be made between two kinds of stocks ceded to France
by Great Britain after the War:1)

On the one hand, deliveries were made to various French

Minit....atee

by a contract concluded on July 8, 1920, the price of these
This debt bore interest at the

deliveries was fixed at £2 226 0690 100 1.

rate of_Latts,2110_04201122a1Ain19 60
2)

Other stocks were ceded by Great Britain to the French Office for

Industrial Reconstitution;

the absence of any inventory and the fact that

no prices had been fixed were obstacles in the way of an agreement in regard
By agreement made in March,

to the terms for the purchase of the material.

1923, the total price (capital plus interest) was fixed at 6 mi,ion Lunde
sterling, which was to be repaid in instalments as follows:1924
1925
1926
192?
1928
1929

£750
750
1 250
1 000
1 250
1 000

000
000
000
000
000
000

On the assumption that calendar years correspond roughly to

Reparation years, the total payments by Frnce to Great Britain for the
cession of war stocks would appear to be as follows:-




Annuity years
1924-1925
1925-1926
1926 -1927

1927-1928
1928-1929

£2
1
1
1
1

976
250
000
250
000

069
000
000
000
000




138




40

a

Special attention should be given to the following Article
of the Agreements concluded by Great Britain with Italy and France
(Art. 5 of the French Agreement and Art. 6 of the Italian Agreement):

"If at any time it appears that the aggregate payments
effectively received by Great Britain under Allied War Debt
Funding Agreements and on account of Reparations or of Liberation Bonds exceed the aggregate payments effectively made by
Great Britain to the Government of the United States of America
in respect of war debts, an account shall be drawn up by the
British Treasury, interest at 5 per cent being allowed on both
sides of the account; and if that account shows that the receipts
exceed the payments Great Britain will credit France (Italy)
against the payments next due by France (Italy) under Article 1
of this Agreement with such proportion of that excess as the
payments effectively made by France (Italy) under Article 1 of
this Agreement bear to the aggregate sums effectively received
by Great Britain under all Allied War Debt Funding Agreements.
Thereafter a similar account will be drawn up by the British
Treasury each year, and any further excess of the receipts over
the payments shall each year give rise to a credit to France (Italy)
of a proportion of such excess calculated in the manner indicated
On the other hand, any deficit shall be made good by an
above.
increase in the payments next due by France (Italy) up to a
similar proportion of such deficit within the limit of the total
amount of the credits already allowed to France (Italy) under this
Article.
"For the purpose of this Article any capital sums which may
hereafter be realised by Great Britain in respect of Reparations
or of Liberation Bonds will be taken at their annual value, taking
account of amortisation."




41

1Iz

0TALMPO PitUegi.P
DEBT6 AND REPABAZ
It now remains to indicate the net position of the principal
creditor and debtor Powers, during the period under consideration_

Germany is only a debtor country

Her payments are those fixed

by the Experts' Plan and vary from $ 213 680 000 in 192425 to
$ 329 445 000 in 1926-27, and $ 589 440 000 from 1925/29 onwards.

katagtats.--2LAMLICA° °
The United States is only a creditor country,

The sums receivable

during the twelve years under consideration are as follows;




1924/25
1925/26
1926/27
1927/28
1925/29
1929/30
1930/31
1931/32
1932/33
1933/34
1934/35
1935/36

-

-

-

$ 171
214
229
233
238
241
257
267
290
319
324
336

000
000
000
000
000
000
000
000
000
228 000
255 000
949 000
149
685
497
218
964
496
512
524
794

Great Britain
Great Britain is b)th a creditor and debt:,

33ialtry.

The balance sheet

for her receipts and payments for the twelve years under ::onsideration woAld
be as follows:
(In thousands of dollars)
Sums to be received
rom

-I

YEARS

France

Italy

GRAND
TOTAL

Germany

of

Receipts

Sums to
be paid
by Great
Britain
to the
United
States

Surplus
avail

of
payments

able for
Great

Britain
-

45 487

103 769

159 965

56 196

9 733

782

116 884

160 260

13 376

71 052

19 466

72 479

162 997

160 525

-

1927/28

69 348

19 466

87 141

175 955

159 775

-

16 180

1928/29

85 165

19 466

127

232 471
102

160 995

-

71

1929/30

32 363

19 466

125 142

176 971

160

-

1930/31

60 832

19 466

124 118

204 416

1931/32

63 832

19 486

125 175

205 473

1932/33

60 832

20 041

125 815

688

171 500

206 35 188

1933/34

60 832

20 041

125 815

688

183 340

206 23 348

193A/35

60 832

20 141

128 912

209 785

182 220

1935/36

60

041

128 912

209 785

le.

1924/25

58 282

-

1925/26

50 769

1926/27

832

20




2

472

107

185

16 786

160

360

44 056

159

- 520

45 953

:,03

27 565

28 685

The following diagram shows more graphically the position of Great

itair-

56




GREAT BRITAIN
(in millions of dollars)
250

225 -

Sums to be received

200 175

-

150

-

-' Sums to be paid

125

100 75
I-.
0
/V

r-

0
N

1-,

0
N
0

""..

M
"N.

'N.

CA

a),

-.2

re:.

N

eV

M

1-,

I-,

tV

M

to

--.1

-N
IV
a)

to
CO

"N.

N
to

1--,

1-,

'\

01

to
N
to
01

0

to

0

'N.
04

1-

p-,

0
01
I-Z
01

iv

I-,

to
04
N
N.,,...
04
04

-,

I-.

01
04

01
14

to
N...,..

01
141.

to

-4
to

N.,

M
N.,

0i
al

01
01

M

During the first two years the payments made by Great Britain were
greater than her receipts.

It is only in the year 1926/27 that her

receipts exceed her payments and thereafter there will be a substantial
annual surplus if the Experts' Plan is carried out in full.

There seems

to be no great liklihood however, that her debtors will very soon benefit
by any reduction in their payments in accordance with the terms of the
Agreements concluded, since the surplus sums received must first go to
cover the deficits of the years which have elapsed since the conclusion
of the British Agreement with the United States.

It should here be noted that any reduction in Reparation payments
would affect twice over the Powers which are debtors of Great Britain
and at the same time creditors of Germany.

It would affect them

directly by the reduction in their own receipts from reparations, and
or restricting
indirectly by removing/the possibility of reductions in their own payments
to Great Britain, which they might hope to realise in a few years' time if
the Experts' Plan is carried out in full.




France.

The balance sheet for France would be as follows:
(In thousands of dollars)
Sums to

Years

be

_acei.jvt4_.iimstolotsaicl_

United
Great
AgEAmIL--_,.liULUNL-__ Britain

Total

Available
balance

58 282

58 282

49 935

30 000

50 369

80 369

58 627

176 529

30 000

71 052

101 052

75 477

1927/28

209 711

32 500

69 348

101 848

107 863

1928/29

303

500
32752

85 165

117 665

186 087

1929/30

304 950

35 000

32 363

67 363

1930/31

305 974

40 000

60 832

100 832

205 142

1931/32

303 945

000

60 832

110 832

193 113

1932/33

302 719

60 000

60 832

120 832

181 887

1933/34

302

75 719
000

60 832

135

1934/35

297 271

80 000

60 832

832

156 439

1935/36

297 271

90 000

60 832

150 832

146 439

1924/25

108 217

1925/26

138 996

1926/27

-

237

832

166 887
140

On the assumption that the Experts* Plan is carried out in full,
France would thus receive during the coming years large surpluses which
would reach their maximum amount in 1929/3O
the position graphically:




The following diagram, shows

410

0
0
te)

-____I

0

LC

lr

I
I

0
CV

L

0
O
cv

I6

I

LCD

c--I

$

0
0
e-4

ge

V

I

0
V)

0

1935/36
1934/35
1933/34
1932/33
1931/32
1930/31

1929/30
1928/29

1927/28
1926/27

1925/26
1924/25

0




France also has franc claims against her former Allies
and certain European countries, resulting from cash advances,
advances in the form of delivery of securities or opening of
book credits, and the cession of material.

These claims stood

as follows on June 30 1924:

(In French francs)

Russia (old regime)

6 023 300 000

490 000 000

Russia (various
Governments)

Belgium

(1)




(1)

3

067 295 000

Including bonds for 1 474 000 000 francs discounted at
the Banque de France,

48

Jugo-Slavia

1

738 566 000 (1)

Rumania

1

132 000

000

Greece

537 514 000

Poland

895 400 000

Czecho-Slovakia

542

Italy

(2)

350 273 000

000

Portugal

9

000 000

Esthonia

3

500 000

Latvia

9

000 000

Lithuania

2

200

300 000

Hungary

800

Austria

331 926 000

000

15 133 074 000 (3)

If we deduct from this total the claim against Belgium, which was
taken over by Germany under the conditions laid down at the Conference of
Finance Ministers, and the claims against Russia, Which may be considered
to be specially doubtful, the total of these capital claims is reduced to
5 552 479 000 francs, or (at 25.5 francs to the dollar) about 21$ mill on
dollars.
(1)

Including:
1,
2.

book credits for
an advance of
Montenegro,

399 380 000 francs
13 300 000 francs to

(2)

Including book credits for 330 000 000 francs,

(3)

Of this total 1 518 000 000 francs are covered by budgetary credits.
The claims in foreign currency have been converted into francs at
the rate of June 30, 1924.




49
Itakx.

for Italy would be as follows:-

The balance

(In thousands of dollars)
Sums to
Years

bqDISZLEVI
Germany

Available
balance

Sums to be paid
U.S.A.

Great
Britain
-

Total

-

15 908

1924/25

15 908

-

1925/26

20 275

5

000

9 733

14 733

5 542

1925/27

22 548

5 000

19 466

24 466

Dr. 1 918

1927/28

27 535

5 000

19 466

24 466

3

1928/29

45 563

5

000

19 466

24 466

21 097

1929/30

46 718

5

000

19 466

24 466

22 252

1930/31

46 718

14 621

19 466

34 087

12 631

1931/32

47 138

14 706

19 466

34 172

12 966

1932/33

47 391

14 791

20 041

34 832

12 559

1933/34

47 391

15 076

20 041

35 117

12 274

1934/35

50 976

15 460

20 041

35 501

15 475

1935/36

50 976

15 944

20 041

35 985

14 991

069

By comparison with the others, the figures for Italy are relatively
small.




The following diagram, shows the position graphically:

50

ITALY
(in millions of dollars)
55

50 -

Sums to be received,///

45 -

40 35 Sums to be paid

,'

30 .
25

__ __--/

4.

20 15 .

ti

10

c

to

C-

CV

CV

CV

grr
Cu

CV

ri

CO
CV

0%

$14 'is
0

CV

10

CO

tO

CV

cr)

1...

N

CV
cre

r-1

r-I

r.4

e-1

r-4

f-I

tO
1.,

o
to
Os
9.4

CV

PO

tO

to

r-I

01

ri

44

M CV

Os
I-1

ce,
(47

t,
tr)

01
6-4

tr)

01

r-4

to

Oa

BECAPITUIATIVE TABUS.
In conclusion, it may be well to summarise the foregoing
data in the following tables and charts, which show for each year the
net balance of receipts or payments for each of the principal Arvers.




- 51

41

SOOTEMENT SHOWING NET BALANCES OF RECEIPTS AND PAYMENTS FOR THE RESPECTIVE; P07.1
A.

United
YEARS

States

POWERS WHOSE RECEIPTS ARE GREATER THAN THEIR PAYMENTS.
France

Great
Britain
(

Italy

I

Belgium

JugoSlavia

Other
Powers

In thou .ands of dollars)

15,908

27,606

7,961

5,542

22,036

9,946

-

15,948

11,083

-

3,069

18,466

13,579

71,107

21,097

27,899

20,854

3,433

257,587

16,786

22,252

27,149

20,854

3,315

257,512

205,142

44,056

12,631

26,049

20,829

3,221

1931/32

267,524

193,113

45,953

12,966

25,634

20,993

3,257

1932/33

290,794

181,887

35,188

12,559

25,276

21,082

2,654

195V34

319,228

166,887

23,348

12,274

24,576

21,057

1,970

1934/35

324,255

156,439

27,565

15,475

20,232

22,647

2,827

1935/36

336,949

146,439

28,685

14,991

17,110

22,622

2,644

1924/25

49,935

1925/26

214,685

58,627

-

1926/27

229,497

75,477

2,472

1927/28

233,218

307,863

16,180

1928/29

238,964

186,087

192G/30

241,496

1930/31

e

171,149

B,

YEARS

POWERS THOSE PAYMENTS ARE GREATER THAN THEIR RECEIPTS.

Germany

Great
Britain

Italy

Other
Powers

1924/25

213,680

56,196

2,633

1025/26

269 909
-,

43,376

4,551.
,

1926/27

329,445

-

1927/28

390,869

=

-

1928/29

569,440

-

-

1929/30

569,440

-

-

1930/31

569,440

-

1931/32

569,440

-

-

-

19a/33

569,440

-

-

-

1933/34

569,440

-

1934/35

569,440

-

1935/36

569,440

-




1,918

3,134

1,506

-

-

-

-

-

-

-

_

ITALY

411. lArrA IN

ITALY

600
OTHER 1.0,f1

BR. BRITAIN

500

GERMANY
T
400

UNITED STATES

10C)

19 I-4ks- 19334 1916127 191V2s 191119 19"/9.30 193131

20




193132. 193.433 *14 1 ips 1931/46

19205- V2 6 192(7(21 mks 1228b9 1929.h0 1913;19132 1932/33 vsy.4-1130- 193%36

aAAAL.1

0-4U_
AAAtAlk,

I

r".""

I.I.9.444

a - DOC. 231
TRANSFER COMMITTEE
ECONOMIC SERVICE
BERLIN, January 30, 1927

!

JURISDICTION AND ACTIVITIES OF THE ADVISORY
OFFICE FOR FOREIGN LOANS.

(This document is a translation of a Memorandum published by the Finance Minister of the Reich on "the
jurisdiction and activities of the Advisory Office for
Foreign Loans" from January 1 1925 to September 30 1926).

I.

Reason for
the action
taken by
the Government of
the Reich

11

INSTITUTION AND WORK OF THE ADVISORY OFFICE.
1.

During the war and post-war periods most of the

German communes and associations of communes were not in a
position to carry out work for the extension or technical
improvement of the industrial undertakings run by them, more
particularly gas, water and electricity works and tramways.
During the war the necessary labour was not available.

After

the war the spread of inflation and the consequent disappearance of reserves and renewal funds meant a shortage of
capital;

only relatively few communes learnt to profit by

the depreciation of the mark and, like some private indus-

trialists, extended and improved their apparatus of production
and procured new purchases.

After the war new tasks fell to the communes and
continued to do so until quite recently, the result being a




a - DOC. 231

240
40

further heavy strain on the communal finances.
In view of the considerable demand for capital

which thus arose, it was to be feared that the communes would
make the fullest use of the first opportunity for long term
foreign borrowing which was afforded by the opening of the

foreign capital market, and would fail to observe that restraint which consideration for the German balance of payments
and ultimately for the currency rendered necessary.

Apart

from the great danger thus inherent in communal borrowing,
a further disadvantage might have been that the not un-

limited funds of the foreign capital market were withheld
from industry and agriculture and granted for the most part
to communes and associations of communes, since these, backed

by their power of taxation, could offer the foreign lender
better security than private undertakings, and consequently
a greater inducement to the investment of capital.
Similar considerations naturally applied to the
Federal States.

These also, after the long period of

shortage, required capital and endeavoured to satisfy their
requirements on the foreign market.

In the case of some

States an additional incentive was supplied by the fact that
they were urged by concerns of medium and small size to

borrow abroad in order to pass on the funds obtained in the
form of loans to industrial undertakings.




a - DOC. 231
3

The Government of the Reich, which is jointly
It

responsible with the Reichsbank for the maintenance of the
currency, found itself compelled, in view of the wild rush
on the foreign capital market which was to be expected, to
lay stress upon general economic and currency requirements
and to take steps to ensure the regulation of the loan policy
of the Federal States and the communes on uniform lines.

As the negotiations for agreement among the Governments of
the Federal States in regard to the procedure to be observed
required ample time, owing to the novelty and difficulty of
the matter under consideration, and as the circumstances
called for a speedy settlement, the contracting of foreign
loans by the States, communes and associations of communes was
in the first place made dependent on the consent of the

Finance Minister of the Reich, by a decree of November 1 1924
The enactments in
force, Law
of March 21,
1925 and the
Regulations.

on the contracting of foreign loans by the States, communes
and associations of communes issued by the President of the
Reich (Annex I).

The decree of the President of the Reich

was not to remain in force after January 31 1925;

in the

meantime the Federal States, which in principle had recognised the justification for the attitude adopted by the
Government of the Reich, were to agree on a uniform procedure for the contracting of foreign loans.

In addition

the Governments of the States, where they had not already a
right under their respective legislations to influence the



a - DOC. 231
- 4 -

loan policy of the public associations and credit institutions,
were to ensure the extension of their right of control.
Agreement on the procedure to be observed was

obtained at the beginning of January 1925 and was drafted in
the form of "Regulations for the contracting of foreign
loans by the Federal States, communes and associations of
communes".

The extension of the right of control of the

communes on the other hand was not enforced by the due date
in all the States.

As the result of the Regulations the consent of
the Finance Minister of the Reich provided in the decree of

November 1 1924 immediately became unnecessary for loans of
the States and for those of the communes and associations of
communes which already required the consent of control
authorities for the contracting of foreign loans.

Conse-

quently the decree of November 1 1924 had only to be retained
for communes and associations of communes whose foreign
borrowing was not subject to control by a Federal State.

The new arrangement was brought into force by the decree on
the contracting of foreign loans by the communes and
associations of communes issued by the President of the Reich
on January 29 1925 (Annex II).

The underlying idea of this

decree, the application of which was limited to February,

was finally embodied, since the right to control the communes
was still not extended in various States, in the Law of




a - DOC. 231
5

March 21 1925 on the contracting of foreign loans by the
communes and associations of communes, which came into
force as from February 1 1925 (Annex III).

The Law brings

the decree of January 29 1925 into line with the Regulations,
in the first place by making not only the contracting of

foreign loans and the issue of loans abroad, but also the
assumption of guarantees and the granting of security for
foreign credits and loans by communes and associations of
communes (in so far as these are not already subject to
control) dependent on the consent of the Finance Minister
of the Reich.

Further, the Law places communal Giro

associations including their banking institutions on the
same footing as associations of communes, in so far as they
contract foreign credits or issue loans abroad the proceeds

of which are destined for the States, communes or associations
of communes.

Both the Law of March 21 1925 and the agreement

in regard to the Regulations are still in force today.
The agreement applied in the first place until June 30 1925;

after that date it is prolonged for periods of three months
unless denounced four weeks in advance by any State.
2 of the Law of March 21 1925 gives the Finance

Minister of the Reich the right to transfer the right of
authorisation to the supreme authority in the Federal State.



a - DOC. 231
6

Immediately after the promulgation of the Law the Finance
Minister made use of this right.

In practice therefore the

Governments of the States have in all cases to-day to give
their consent to the contracting of foreign credits and
loans, the assumption of guarantees and the granting of
security in the cases prescribed above, even where under the
legislation of the State in question the communes and
associations of communes are not subject to control.

Con-

sequently the Government of the Reich has no legal right today to control the foreign borrowing of public institutions.
By mutual arrangement however the Governments of the

Federal States are bound not to approve the foreign loans of
communes, associations of communes, communal Giro associations
etc. unless they conform to certain conditions, and to obtain

the opinion of the Advisory Office for foreign loans where
these conditions are not fulfilled on every point.
Exeoutory provisions, which the Finance Minister
of the Reich is authorised to issue with the consent of

the Reichsrat under § 3 of the Law of March 21 1925, have
not been promulgated, since in the first place the Regulations proved adequate, and the Governments of the States

were prepared to amend them when alterations became
necessary.
Amendment
of the
Regula-

At the beginning of 1926, when giving its opinion
on several joint communal loans for large amounts, the

tions.




a - DOC. 231
7

Advisory Office was faced with the difficulty that in many
individual cases local requirements were put forward which
appeared to be without value for the nation as a whole.

In

order to remove any ambiguity to which the text of the

Regulations might give rise and also to ensure the greatest
possible restriction of such loans in the event of their
accumulation, the Advisory Office in February 1926 proposed
the amendment of the Regulations.

At a meeting held on

February 10 1926 the amendment proposals, which also referred
to the Appeal procedure, were for the most part approved by
the Governments of the Federal States and have since come

into force with the consent of all the States in a form
which takes into account certain wishes subsequently put
forward by the Prussian Ministry of the Interior.

The essential change in the Regulations lies in
the clearer interpretation given to the term productivity.
The investments made with the proceeds from foreign loans,

either by increasing exports or by restricting imports or
in some other way, should directly or indirectly serve to

promote the economic interests of the Reich as a whole; local
interests in themselves are not sufficient justification.

Loans which do not need to be submitted for the opinion of
the Advisory Office (see page 18) are absolutely conditional
upon the observance of this principle, which must also receive
proper attention when loan schemes are under consideration




a - DOC. 231
8

by the Advisory Office.

Ilk

Under the amended form of the

Regulations, the Advisory Office has further to consider
whether the total amount of foreign loans approved or the

number of applications submitted has reached a figure which,
in the interests of the currency or of the loan terms which
it is desirable to obtain, should not in the meantime be
exceeded.

These amendments to the Regulations have considerably restricted the sphere of judgment of the Advisory
Office, to which in the first place great freedom was left.
2.

Private
loans.

The heavy demands made on the foreign capital

market by private enterprise in 1925 brought forward the
question of the necessity for controlling this class of
foreign borrowing also.

In addition to the danger to which

the currency may be exposed as a result of the foreign
borrowing of trade and commerce, in cases where the loan
capital coming into the country is put to a use which is
unsuitable on general grounds,

there is the prospect of an

effect on the loan terms to be obtained, especially as with
few exceptions the terms obtained by trade and commerce are
un
more/favourable than those granted to the Federal States
and communes.

By a decree dated December 10 1925 Italy has
subjected private borrowing also to control, in so far as




a - DOC. 231

the loans run for more than one year.

11"

In Germany direct

intervention in the conclusion of private loans has been
avoided, since the return to State control, which is to a

certain extent inherent in the supervision of foreign loans
contracted by private individuals, seemed in principle
undesirable.

Indirectly a certain influence could be

brought to bear by the arrangement whereby the Finance

Minister of the Reich could refuse exemption from the
restricted liability to taxation under § 115 of the Income
Tax Law of August 10 1925 and the reduction of the
Securities Tax under § 29 paragraph 5 of the Law for a Tax

on the Movement of Capital as amended by the Law of August
10 1925, for which application is probably made in every
case.

Where tax privileges of the kind were under con-

sideration, the Advisory Office took part (see below) whenever there was a question of the mortgage bonds of Landschaften, Stadtschaften, mortgage banks etc.;

where loans of

other undertakings were under consideration, a certain connection with the Advisory Office was maintained in that
various members and reporters of the Advisory Office took
part in the discussion in virtue of their chief office.

As

the loans were almost without exception concluded before the
submission of the applications for tax privileges, the
rejection of the applications was bound to lead to difficulties.
In order to overcome these (and not least in the interest of




a - DOC. 231

10the borrowers) the Finance Minister of the Reich has urged
ilk

the Reichsverband der deutschen Industrie and the Deutscher
Industrie and Handelstag to take steps to ensure that
industrial undertakings etc. submit the proposed loan terms

for consideration by the Finance Ministry before the final
conclusion of the loan agreement, in order to ascertain
*

whether tax privileges are likely to be granted.
3.

A further question arose as to whether the

Regulations should not be extended to cover at least the
foreign loans of concerns in which the Federal States,
communes or associations of communes are interested to the
extent of more than 50 per cent, to the foreign loans of

private mortgage banks, Landschaften and landowners' credit
institutions, the foreign loans of Stadtschaften and the
Ecclesiastical loans to be issued abroad.

* In the meantime, in view of the improvement on the home
capital market and of the fact that as early as its
meeting of May 19, 1926 the Sixth Committee of the Reichstag decided in future to show greater reserve in the
granting of tax privileges for foreign loans, the Finance
Minister of the Reich declared on December 4 1926 that
for the present he would not be in a position to advocate
tax privileges for foreign loans to the Reichsrat or
At the meetings held on December 8/9 and 14
Reichstag.
1926 the Reiohsrat and the Sixth Committee of the Reichstag
approved this declaration by the Finance Minister.
Further, the Sixth Committee of the Reichstag passed a
resolution expressing the hope that in future no tax
reductions would be granted for foreign loans.




a - DOC. 231

The inclusion of the loans of undertakings whose

Loans of
undo

takii

which are
partly
publicly
and partly
privately
owned.

capital is entirely or for the most part held by public institutions was thought to be impracticable for the present, as it

was held that they should not be treated otherwise than as
private undertakings.

There are however reasons for con-

sidering the question as not yet finally settled.

The

question as to whether the conversion of a communal concern
into a joint stock or limited liability company at the time

when a foreign loan is contracted is to be looked upon as an
evasion must be considered according to the circumstances of
each individual case.

Loans of
institutions
under
public Law
such as

In regard to the loans of institutions under public

law, such as Landschaften and Stadtschaften, and the loans of
private mortgage banks, an arrangement has been made with the

(Land schaf ten,

Reichsrat, which together with the Committee of the Reichstag

Stadtschaften)
Mortgage
banks etc.

is consulted by the Finance Minister in regard to applications
for exemption from taxation, whereby the opinion of the
Advisory Office on the proposed sale abroad of mortgage bonds
is submitted to the Reichsrat together with the application
from the credit institution.

Ecclesiastical
loans

It is only possible for the opinion of the Advisory

Office to be obtained in regard to ecclesiastical loans to be
issued abroad in cases where the Government of a Federal State
has the right to approve the contracting of ecclesiastical
loans.




In Prussia this is the case.

The Prussian Minister

a - DOC. 231
12

for Science, Art and Education has in principle declared his
140

readiness to hear the opinion of the Advisory Office before
giving his consent to ecclesiastical loans.

The Governments

of the other Federal States do not all follow the same course.

For the most part however they have promised to use their
influence with the ecclesiastical departments concerned in
order to induce these voluntarily to obtain the opinion of the
Advisory Office before issuing a loan.

Up to the present the

Advisory Office had been consulted only once in regard to an
ecclesiastical loan.

It then became clear that it is

impossible to apply the Regulations to ecclesiastical loans,
so that special Regulations would be required if the Advisory
Office had to express its opinion on such loans.

It would

however be difficult to draft such regulations.

II.

MEASURES TAKEN TO RESTRICT THE FOREIGN
LOANS OF PUBLIC INSTITUTIONS.
1.

loans to which the restrictions apply.

Under the Law of March 21 1925 and the Regulations
(Annex IV) the following are subject to special restriction:




a)

the foreign credits and loans of the Federal
States, communes and associations of communes,

whether these are procured directly or indirectly
through currency institutions under public law or

a ® DOC. 231

-13
through private currency institutions or in some
other way;
b)

foreign credits and loans of the communal Giro
associations, including their banking institutions,
which are destined for the Federal States, communes
or associations of communes and similar loans of
other credit institutions whose special function
is to satisfy communal credit requirements or
to administer mortgage credit;

o)

the guarantees and securities assigned by the
Federal States, communes or associations of communes for foreign loans in favour of third parties.

Foreign
loans and
credits
in German
currency

Foreign credits and loans in the sense of the above

list also include loans, the interest payments and redemption
of which are to be effected in German currency, since the

Advisory Office holds the view that so far as the effect on
the currency is concerned it is immaterial whether foreign
media of payment have to be obtained in Germany or whether
Reichsmarks have to be sold abroad.

The issue abroad of

part of a home issue also comes under this category.

In so

far as separate blocks of the loan are issued abroad the
Advisory Office is undoubtedly competent.

which issues of the kind have become known to it it has
emphasised its competency and protested against evasions on




a - DOC. 231
14

the part of the Governments of the Federal States.
The Advisory Office has always taken the term

,Guarantees
',based on

laws, statutes or
agreements
with the
borrower

security in the sense of the Regulations-to include every
general guarantee based on laws, statutes or any agreement

Consequently communal Giro associations,
with the bo

State banks, Stadtschaften etc. have to submit their foreign
loan proposals to the Advisory Office in so far as the loans
are backed, even in the last resort, by the liability of a
commune, circle (Kreis) province etc.

The Governments of

some Federal States take a different view based on the

wording of letter A of the Regulations which speaks of
guarantees and security assigned for the benefit of third
parties by the State, commune or association of communes.
They hold that no guarantee has been assumed and no security

assigned where, either through a separate legal transaction
not connected with the foreign loan, or in virtue of the
structure of the institution contracting the loan, a purely
internal liability of a commune or association of communes
exists as against the debtor.

It is in their opinion

essential that direct legal relations exist between the com-

munes or associations of communes as guarantors on the one
hand and the foreign lenders on the other hand.

This inter-

pretation is not in keeping with the lines on which the
Regulations and the Law of March 21 1925 were built up.




In

a - DOC. 231

-15 the sense of the negotiations which led to the drafting of
the Regulations it is immaterial whether the security is
directly expressed to the lender or only to the borrower or

whether the guarantee is merely a general one previously
assumed.

The action taken by public associations on behalf

of third parties was, as already stated, one of the primary
causes for the creation of the Advisory Office and the
importance attributed to action by the taxation authorities
on behalf of third parties is most clearly shown by the

provisions of letter C, which denies that any cases in which
guarantees are granted or security assigned can be looked
upon as unobjectionable.

In its widest sense the expression

"security" should include all cases in which foreign credits
and loans for third parties receive the support of a public
association.

The fact that the restriction of guarantees

and security to third parties directly concerned was not contemplated is immediately clear from the Law of March 21 1925,
the object of which is to fill in any gaps in the system of
communal supervision and which speaks only of guarantees and

security and not of guarantees and security assigned in
favour of third parties.

Foreign
loans of
the State

There may be some doubt as to whether and how far
the foreign loans of State banks are subject to the control

banks.

of the Advisory Office.

The final protocol concluded in

connection with the agreement on the Regulations (Annex V),




a - DOC. 231
- 16

point 2 of which deals with the application of the Regulations
to the foreign loans of State banks, is not free from

Whereas some of the Governments are of opinion

ambiguity.

that the Regulations were not intended to apply to State
banks, the Finance Ministry of the Reich holds the view that
only short term foreign loans are excluded, but not long
term loans.

For the conclusion of long term loans is not

an essential function of the State Banks and it was intended
to grant independence in foreign borrowing only within the
limits of regular business.

Up to the present the dispute

has been purely academic.

The Regulations likewise express no view on the
contracting of loans by the Reich.

Nevertheless, in the

above mentioned final protocol, the Reich gave an assurance
that in the event of recourse to foreign borrowing the Govern-

ment would proceed in accordance with the principles laid
down in the Regulations.

2.

Unobjectionable foreign
loans and

Right of the Governments of the Federal
States to give their consent without
consulting the Advisory Office.

The conditions on which the Federal States may
settle questions connected with the contracting of foreign

credits.

loans without application to the Advisory Office are explained
in letter B of the Regulations.




a - DOC. 231

-17
According to the Regulations the material points

'At

to be considered are the form, the maximum charge, the
utilisation and the guaranteeing of the loan.

Short term
loans of
the States.

a)

Short term foreign loans contracted by 111

Federal States for not more than one year are to be looked upon
as unobjectionable, in so far as they are intended for the
provisional swelling of working funds and repayment is

guaranteed on maturity, so that no provision is made for conversion into a long term loan.
Long term
foreign
loans

The long term foreign loans must be contracted for
at least ten years but may be called in by the debtor after
not more than five years.

This provision is not restricted

to the Federal States alone but covers equally the foreign
loans of communes, associations of communes, communal Giro
associations etc.

The loans are required to run for long periods
(although with a restriction as to the length of time
allowed - see page 25) since in principle foreign money should
only be used for productive purposes and in general the degree
of productivity to be attained is likely to allow of only

moderate sinking fund payments in addition to the service of
interest.

Gradual amortisation spread over a long period

reduces the demand per annum and so makes it easier for the
individual debtor and the national economy to repay the




a - DOC. 231
18 -

borrowed capital to a foreign creditor.

In view however of

the high interest rates which still have to be paid on
foreign loans, the borrower must be free to profit by the
anticipated fall in the interest rate, that is, he must be
able to offer to repay the capital or to reduce the rate of
interest (conversion).

It is for this reason that the debtor

should be granted the right to repay the loan after not more
than five years.

Maximum
charge

b)

The maximum rate of the charge involved by

loans, which is fixed by the permanent members of the Advisory
Office and communicated to the Governments of the Federal
States according to the general position, more particularly
on the foreign and home capital markets, may not be exceeded
without consultation with the Advisory Office.
When the Advisory Office began to function, it
fixed the maximum rate at 8 per cent.
circumstances have altered.

In the meantime

The abolition of the prohibi-

tion on foreign loans in England at the end of the past year
put an end to the monopolistic position of America on the
capital market, while in the Netherlands and Switzerland

interest in German loans gradually grew with the increasing
economic consolidation of Germany.

In addition, the German

capital market grew stronger.

developments the Advisory Office on January 22 1926 reduced




In

a - DOC. 231
19

416

the maximum charge from 8 to 7 per cent for loan schemes not
necessarily submitted to the Advisory Office.

Utilisation
of the
foreign

c)

One of the most important conditions on which

consultation with the Advisory Office is not required for a

loans.

loan scheme is the fulfilment of the terms laid down in regard
to the utilisation of the loan.

Any foreign loans con-

tracted by the States, communes or associations of communes

must be used for the contracting party's own purposes or for
purposes of one or other of the public bodies indicated under
A of the Regulations.

In particular they shall not be

passed on to physical persons or bodies corporate under
private law.
ductive ends.

Further they must be used for directly proThe term productivity is defined as meaning

that foreign loans must be employed for such profit-earning
investments as by the direct production of the values

guarantee out of their own income the interest and sinking
fund payments on the capital invested, without having recourse
to the general income of a public body.

Under the amended

Regulations (as already explained under I 1 above) it is
said to be important that the investments, either by

Increasing exports, or by restricting imports, or in some
other way, should directly or indirectly serve to promote
the economic interests of the Reich as a whole, local
interests in themselves not being considered sufficient




a - DOC. 231
20 -

446

justification.

Further, the investments must be necessary

in the sense that the projected expenditure cannot be postponed until such time as German capital is available for
the purpose.
Pledges

d)

The last condition required if a loan is to

be considered unobjectionable is that no provision shall be
made for specific pledges of any kind and that no other
businesses shall be involved such as for example the sale
of products of Government

3.

enterprises.

The procedure for the consideration
of foreign loans.

Where the conditions explained under 2 above are

not in every way fulfilled, and where the Governments of the
States nevertheless desire to issue or approve a loan, they
are under the Regulations obliged first to hear the opinion
of the Advisory Office for foreign loans.

The Advisory

Office must always be consulted where there is any question
of assuming guarantees or assigning security.
Composi®
tion of the
Advisory
Office

The Advisory Office is a confidential committee of

the Federal States and consists of five experts and a reprosentative of the Federal State asking for advice.

Of the

experts, one is appointed by the Finance Minister of the Reich,
one by the Minister for Economic Affairs of the Reioh, one




a - DOC. 231
21

by the Direktorium of the Reichsbank and two by the Federal
States.

In the Regulations the Federal States appointed

the President of the Preussische Staatsbank and the President
of the Bayerische Staatsbank as their experts.

The expert

appointed by the Finance Minister of the Reich takes the
Chair at meetings.

The members of the Advisory Office are at present
as follows:

Regular members

:

Geheimer Regierungsrat Norden, Ministerialdirigent
in the Finance Ministry of the Reich, Chairman,
Dr. Heintze Ministerialrat in the Ministry of the
Reich for Economic Affairs,

Reiohsbankdirektor Dr. Greve, reporter to the
Direktorium of the Reidhsbank,
Secretary of State Dr. Schroeder, President of the
Preussisohe Staatsbank (Seehandlung),
Arnold, President of the Bayerisohe Staatsbank;

Deputy members

:

Dr. von Brandt, Ministerialdirektor in the Finance
Ministry of the Reich,
Geheimer Regierungsrat Karlowa, Ministerialdirigent
in the Finance Ministry of the Reich,
Geheimer Regierungsrat Dr. Reichardt, Ministerialdirigent in the Ministry of the Reich for Economic Affairs,




a - DOC. 231

-22Dr. Brae, Regierungsrat in the Ministry of the Reich
for Economic Affairs,
Reichsbankdirektor Ehrhardt, reporter to the
Direktorium of the Reichebank,
Staatsfinanzrat Breokenfeld, member of the General
Administration of the Preussische Staatsbank,
Staatsfinanzrat KObner, member of the General
Administration of the Preussisohe Staatsbank,
Staatsrat Dr. von Wolf, Bavarian deputy representative
on the Reichsrat,
Oberfinanzdirektor Moroff of the Bayerische Staatsbank,
Oberfinanzdirektor Flamme of the Bayerisdhe Staatsbank.

The management of the Advisory Office is in the
hands of the Finance Ministry of the Reich.

Appeal to
the Committee of
the
Federal
States

The views of the Advisory Office are not absolutely
binding on the Federal States.

If however a State does not

wish to comply with the opinion expressed by the Office, an
effort has first to be made to come to an agreement with the
Office, which has to reconsider the loan scheme at another
meeting to be attended if possible by special experts (without
the right to vote).

If no agreement can be reached in this

way, the applicant State, before coming to a final decision
regarding the contracting of the loan, must consult the
Committee on which all the States are represented by the
number of votes corresponding to their representation in the
Reichsrat (letter C, paragraph 2, of the Regulations).




The

w
a - DOC. 231
- 23 -

States have undertaken to comply with the decision of this
Committee of the Federal States except in cases of absolute
It is doubtful whether in practice it would be

urgency.

possible to reject the views of the Committee, since it
would be difficult successfully to contract a loan against
the finding of the Advisory Office and the opinion of the
Committee.

It has not yet been possible in practice to refrain

from consulting the Advisory Office in the matter of long
term loans;

on the other hand in two cases where short term

foreign loans were contracted by a State temporarily to
swell the working funds in the hands of its Treasury recourse
to the Advisory Office was not considered necessary.

Up to the present no appeal has been made to the
Committee of the Federal States, which is proof enough of

the harmonious collaboration between the Advisory Office and
the Government of the States.

In a few cases the Advisory

Office has been requested to reconsider loan schemes forming
part of joint loans.

In these cases the Governments of the

States were in a position to bring forward new points of

view which were not fully appreciated when the first
decision was taken.







a - DOC. 231
24 -

a - DOC. 231

-25The loan applications of the communes, which were largest

fif

in amount, were reduced by about 48 per cent.
details see Annex VI).

(For further

Of the communal loans 277 627 200 RM

fall to 1925 and 183 738 000 to 1926, while of the loans of
the Federal States 138 600 000 RM fall to 1925 and
270 600 000 RM to 1926.

For this division the date of re-

commendation has been taken, since it was not in every case
possible exactly to ascertain the date of issue of the
various loans.

On a basis of the dates of issue the figures

for 1926 would probably be larger.
1.

Form of the foreign loans.

The form of the loans submitted to the Advisory
Office was as a general rule not open to objection.
Length of
time for
which loans
have been
issued

The loans ran for periods of ten, fifteen, twenty,
twenty-one, twenty-five and twenty-six years;
the loan ran for thirty years.
is twenty or twenty-five years.

in one case

The average length of time
Since, where loans are

issued at par, the length of time influences the general
charge involved, by the distribution of the discount over
a corresponding period, but since there is no guarantee
(especially as importance is attached to the possibility of

earlier repayment) that in reality the loan will not be fully
amortised before the expiration of the period for which it

was issued, the Advisory Office thought it desirable in no




a - DOC. 231

-26case to base its calculation of the total charge on a period

41,
Dates for
repayment
of loans

of more than twenty-five years.

No loans have been submitted which could be called
in a shorter period than five years;

the Advisory Office has

however considered loans with a longer time limit for recall
which it was impossible to reduce.

Examples are the loans

of the Deutsche Rentenbank-Kreditanstalt and the Stichsische

Landespfandbriefanstalt, which are not repayable under ten
years.

Investigation of the agreements has frequently

Special
charges

brought to light special charges on the borrower which for
various reasons could not be looked upon as tolerable.

In

such cases the Advisory Office has endeavoured to obtain
alterations in the agreement.

In one case the Advisory Office had occasion to
deal with a delivery clause inserted in a subsidiary contract.

The production of the money was made conditional on the
placing of orders with the industry of the lending countries.

Although the orders required were relatively small and the
condition might have been compensated in part by a reciprocal
obligation, the Advisory Office refused to recommend the
loan on account of the importance of the principle involved.




a - DOC. 231

-27®

4

In many cases the lenders have secured options
on loans issued later by the same debtor.

In so far as

there was a danger that the freedom of action of the borrower
might thus be restricted for relatively too long a period,

the Advisory Office recommended that alterations should be
made in the draft agreement.
It was not in all oases possible to avoid assigning

Real
security
pledges;

as far as possible however the Advisory Office has

acted on the lines of letter B IV of the Regulations.

It

has approved of mortgage security only for loans which are
agricultural or industrial in character and are guaranteed
by States or communes;

in the case of purely communal loans

on the other hand it has refused its approval, since the

pledging of public property appeared undesirable, the tax
capacity of the communes should afford the lender sufficient
security, and in particular the accumulation of security for
public loans implies the danger that the terms for the loans
of private concerns will suffer.

All agreements contain the stipulation that where
real security is in future assigned for other loans the loan
under consideration will be similarly secured.

The justifi-

cation for this demand by lenders must be admitted.




a - DOC. 231

-282.

401

Maximum charge for foreign loans which
have to be submitted for approval.
Consideration of the financial consequences of

Maximum
charge

the loan forms a very important part of the work of the
The Advisory Office calculates the maximum

Advisory Office.

charge on a basis of the formulae for compound interest and
annuity calculations with the assistance of the Spitzer
tables.

The calculation is most carefully effected with the

result that the total charge calculated by the Advisory Office
is almost always higher than that computed by the banks and
borrowers

- in particular if the much used American tables

are employed.

The Advisory Office considers inter anti the

additional charge resulting from semi-annual interest and
amortisation as opposed to annual payments, as well as the
increased cost of a loan, the interest on which begins to run
from an earlier date than that on which the proceeds are
paid over, with no provision for its reimbursement.

Until the end of 1925 the total interest charge
which the Advisory Office thought tolerable on foreign loans
varied between 9 and 8i per cent.

improved conditions on the capital market in the first quarter
of 1926, the Advisory Office has since the end of March 1926
only recommended loans, the total charge on which amounted to
about 8 per cent.

In the last few months a further improve-

ment in loan terms has been noticeable.




This is clear both

a

DOC. 231

29

ott

from the nominal rate of interest and also from the net
interest paid on the loans.

Where previously the 7 per cent

loan was the general rule, the gross rate of interest has
fallen in some cases to

or even 6 per cent.

The net

charge on the loan of the Free State of Prussia, which the

Advisory Office considered on September 24 1926, amounted
approximately to only 72 per cent.

The charge represented

by the loan terms of the Free and Hanseatic City of Hamburg,

on which the Advisory Office expressed an opinion on
September 21 1926, works out at 7.24 per cent.
3.

Utilisation of the foreign loans.

The main function of the Advisory Office is
consideration of the use to which the loans are to be put.
The general conditions which must be fulfilled

by loans which are looked upon as unobjectionable and so
are not subject to approval have already been mentioned.

As stated in the amended Regulations the same conditions
are to apply when loans which have to be submitted for
approval are under consideration.
The prohibition on loans for third parties is meant

oans of
public asso:iations in
'avour of

primarily to cover loans in favour of industrial groups in

mdustrial

difficulties.

1.

Nevertheless it has repeatedly happened that

indertakings

public associations have contracted foreign loans for




a - DOC. 231

-30 investment purposes on behalf of undertakings which are
entirely or for the most part owned by theme or have guaranteed the loans of such undertakings.

Where no special

objections existed, the Advisory Office has approved such
loans since the undertakings were able to obtain more

favourable terms owing to the intervention of the public.
associations, or because the production of the money was
made conditional on such intervention.

In one case however,

that of the Sachsische Isndespfandbriefanstalt, a loan was
approved In which the State guarantee was given in favour
of a purely private industrial concern.

The Advisory

Office discussed in detail the dangers which this assumption
of liability by the State might imply, more particularly
because foreign lenders, if the practice were once begun,

might make it a matter of principle to demand guarantees of
the kind or might endeavour to force unfavourable loan terms
upon industries or industrial undertakings not publicly
supported in this way by the Reich or the Federal States.

The Advisory Office is of opinion that attempts of the kind
would fail.

It is however also of opinion that liability

should not be assumed by the States for the foreign loans of
private undertakings.

It only withdrew its objections in

consideration of the quite special circumstances which
induced the State of Saxony to intervene on behalf of its
industry and in view of the precautions taken to ensure that





the State


a - DOC. 231

-31
guarantee should apply only in the last resource.

a - DOC. 231
- 32

that only large industrial centres or places with large
individual industrial undertakings should contract forei
loans.

On the contrary small communes which are the

centres of important home industries have been given per
sion to borrow abroad.

It follows that the loan schemes

of other and larger towns had to be rejected where the s
object in obtaining foreign money was to produce higher
revenues by improving the municipal undertakings.

It m

admitted that it is difficult to distinguish between an

improvement in municipal concerns which is of benefit to
whole country and an improvement which is of benefit to

settle the difficulty fairly by putting detailed questio

the municipal representatives, by carefully investigatin
the data submitted and by hearing technical experts.
Details of
utilisation




The Advisory Office has had in individual cases

deal with loan schemes, the proceeds of which were to se

for taking over existing premises, the construction of ca

harbours and roads, the construction of bridges, the open
up of industrial territory, the laying of narrow gauge

railways and tramways, the development of the car parks o

transport undertakings, the acquisition of car depots, t

extension of hospitals, improvements to treatment applian

the installation of central heating plant, the construct

or extension of slaughter houses and markets, the acquis

a - DOC. 231
- 33 -

of cattle markets and fish markets, and the provision of
public baths and dwelling-houses.

Of these schemes the Advisory Office rejected inter
alia plans for dwelling houses as not being productive in
the sense of the Regulations.

With due recognition for the

urgent need for house building, the Office felt unable to
recognise that the necessary funds should be procured by
foreign borrowing, but thought that recourse should be had to
the home market.

Exceptions are possible, such as for

example where the construction of dwelling-houses for the
workmen of an industrial concern is an absolute necessity.

The provision of central heating plant and public
baths with the help of foreign money could likewise not be
approved.

With certain exceptions where special importance to
the nation as a whole could be proved, schemes were rejected
for the opening up of industrial territory.

One of the

reasons for refusal was that no profits were to be expected,
at any rate until later.

The Advisory Office has made it a practice to

refuse consent to the taking over of existing premises by
means of foreign money, on the grounds that from the point of
view of the nation as a whole the actual ownership of the
premises is immaterial.




a - DOC. 231
- 34 -

In regard to the transport schemes the Advisory

Office was at the outset prepared to admit that these were
at least indirectly productive, in view of the fact that

with the housing shortage in the big cities good transport
facilities might be of use to industry.

For this reason it

gave its consent, in the case of the first loan schemes submitted to it for approval, to the utilisation of foreign
money for the development of tramways.

Upon reflection

however that in this way the demand on the foreign capital
market would be very heavily augmented

- owing to the large

amount involved as a result of the inadequacy of the communal
transport system in many cities altered its practice in the matter.

the Office very soon

Nevertheless even

subsequently it did not reject every transport scheme.

Even

until quite recently it has admitted exceptions in special
cases where the interests at stake were particularly great,

and more especially where it could be definitely proved that
the means of transport to be instituted were essential for
transit between large factories and the homes of the workers.

In the case of harbour schemes a distinction was
made between those for maritime traffic and those for inland
navigation.

The Advisory Office was prepared to give full

approval to installations intended for maritime traffic (for
which in particular Hamburg and Bremen borrowed foreign
money) on the assumption that our trade balance and the




a - DOC. 231
35 -

balance of payments would thus be served.

On the other hand

reserve was displayed where the harbour schemes were for
In almost all cases the schemes were for

inland shipping.
Rhine harbours;

together they would have meant so great an

extension in the harbour space on the Rhine that there was
bound to be doubt as to their economic necessity.

The

Advisory Office, while not considering it desirable to reject
in principle all schemes for inland harbours, was nevertheless
of opinion that the investment of foreign money should be
restricted to harbour constructions in towns which in the
first place are already ports and in the second place can
prove the absolute necessity and urgency of the improvements
or extensions proposed.

Where the Office has recommended other schemes
whose productivity in the sense of the Regulations or whose
urgency might seem doubtful, special reasons were present.

Among these may be mentioned the various projects designed
to avert epidemics

- e.g. projects for drainage

few of these projects obtained approval -

- very

schemes for the

construction of slaughter houses and cattle markets and
schemes for the laying of water pipes.
The Advisory Office in one case approved the

utilisation of foreign money for the construction of roads,
since the fact that the local industry was financially




a - DOC. 231
- 36

-

interested in the scheme appeared to show that the improvements contemplated would directly serve to promote industrial
interests.
ecial
eatment
relief
hemes

In a limited number of cases which involved

relatively unimportant sums allowance was made in dealing with
the schemes of the towns of East Prussia, Silesia and the

Palatinate for the circumstance that the fixing of the frontier
without regard to economic interests, separation from the

mother country, or the burden of foreign occupation had
inflicted special losses upon the districts concerned.
kelihood
f profit
rom the
ATvestlents to
)e made

In addition to the urgency of investments, the
likelihood of profit has always been carefully considered

and in principle approval has been refused for schemes in
the case of which it seemed likely that instalments for
depreciation or amortisation would have to be met from public
funds.

Rejection
of foreign
loans
where other
funds are
mailable

3.

Even however where the constructions planned could

be shown to be productive, profitable and immediately urgent,
the need for borrowing on the foreign capital market is not
necessarily at once admissible.

of course to show

It is necessary as a matter

- and this is a condition not specially

emphasised in the Regulations -

that the applicant has no

funds which are already available or could be released or
procured in some other way in order entirely or temporarily




a - DOC. 231
37 -

to avoid the necessity for foreign borrowing.

The Advisory Office has several times had occasion
to enunciate this principle in dealing with the communes
and that with regard to past action no less than present
action on the part of the latter -

since a number of towns

have used surplus funds or money borrowed in Germany for less
urgent and valuable purposes than those contemplated for the
foreign money.

On these grounds the Advisory Office has

made its approval of foreign borrowing conditional on the
circumstance that at the time of application or during the

period of execution of the schemes to be financed with foreign
money there were no funds at the disposal of the borrowing
commune which might be used for less urgent purposes.

It

has further examined whether in the recent past applicants

for loans have carried out schemes which might have been
postponed in favour of those which it was proposed to execute
with the help of foreign money.

It has required a statement

to this effect from the Governments of the Federal States
and in addition in some cases demanded to see the draft

budget and estimates of the communes and associations of
communes.

Financing
of schemes
already
carried
out in
whole or
in part

4.

Further, the Advisory Office has displayed reserve

in cases where it has had to consider the financing of the
completion of schemes already carried out in whole or in part.
This applies more particularly to cases in which communes,




a - DOC. 231
- 38

having procured short term money from savings banks or
communal banking institutions, wish to repay the loan with
foreign money.

The following were the reasons for the reserve
displayed by the Advisory Office.

In the first place the

repayment of the short term credit did not seem urgent
enough to prevent waiting until it was possible to obtain
long term money in Germany.

A further point was that, if

in consideration of the necessity for covering a short term
loan the Advisory Office gave its consent to schemes which it

would otherwise not approve, the Bank might lend to another
commune the money thus repaid;

in which case the Advisory

Office might within a short interval be again forced to a
decision against its better judgment.

In the case of schemes which were already carried
out in whole or in part the Advisory Office was inclined as
a general rule to approve no foreign loans.

In practice

however it was unable always to apply this strict rule
especially in the case of schemes which were financed with the
help of bill credits or with assistance from regular budget
funds absolutely required at a later date for other purposes.

In particular the Office was bound to admit that it was in
keeping with a sound financial policy for the States to

advance available funds of the ordinary budget for undertakings under the extraordinary budget until the most







a - DOC. 231
- 39 -

a ® DOC. 231
40

It is the duty of the Governments of the Federal
States to see that the proceeds of loans really go to the
purposes for which they were intended.

In the few cases,

in which information has reached the Office that its opinion
has not been observed or that attempts have been made to evade

its authority, it has immediately drawn the attention of the
Governments to the matter.

During the one and three quarter years of its
existence criticism has frequently been levelled at the
activities of the Advisory Office.

Thile those who described

its work as beneficial and approved even the details of its
conduct have never been lacking, unfavourable judgments have
been much more numerous;

some have taken the line that the

Advisory Office should have been much more restrictive than
was the case, and others the opposite view that the Office
has gone too far in its disapproval of loan schemes and has
not taken the justifiable demands more particularly of the
communes sufficiently into account.

Criticism was keenest

in connection with the so-called uSammelanleihen" or joint
loans of groups of communes borrowing in combination, which
the Advisory Office had to consider.

Seven joint loans were

submitted to the Advisory Office, one each from the communes




a - DOC. 231
41 -

of Wurtemberg, Baden, Hesse, and Thuringia in 1925, and in

the first half of 1926 the loan of the Deutscher Sparkassen
and Giroverband, in which communes, circles (Kreise) and
communal utility associations in almost all German States

wished to take part and which finally covered the loan of
the Thuringian towns as well as the loans of the towns,
communes and circles of the Rhineland and Westphalia.

In

this way loan schemes were submitted to the Advisory Office
of altogether more than 600 communes, including small and
insignificant communes, which in some cases demanded sums
quite out of proportion to their population.

The Advisory

Office was forced to cut down the amounts very strictly
although in spite of this very considerable loans went
through.

The Advisory Office admits that in spite of every

restriction the total of foreign loans has become very considerable.

It must not however be forgotten

- and this

should be borne in mind by those who look on the work of the
Advisory Office as a hindrance -

that the very existence of

an Office examining the necessity and desirability of loans
has increased the inclination of foreign countries to lend
to the German communes and States.

It must be remembered

that foreign lenders have attached great importance to the
opinion given on the lines of the Regulations of the Advisory
Office and that in this way it has been easier for the towns




a - DOC. 231
42 -

to borrow abroad.

Against its will the Advisory Office has

encouraged and promoted the readiness of the foreign capital

market to take up German loans, and it is impossible to tell
what influence any cessation of the work of the Office might
have on the inclination of foreign countries to produce money.
Two factors of importance for the policy to be
followed in the matter of foreign loans have in the meantime
come to the fore viz. the re-opening of the home capital
market and the Government programme for the provision of work.
In the course of 1926 it was possible to place in Germany a
relatively large sum in loans of the States and cities.

It

must however be remembered that the money requirements of
the public authorities are still large and probably exceed
the capacity of the home market, so that the regulating
influence of the Advisory Office is still needed.

We cannot

yet permanently renounce the influx of foreign capital, but
under all circumstances vie must prevent the accumulation in

return of a hasty and disproportionate indebtedness to
foreign countries.





http://fraser.stlouisfed.org/
Annex I.
Federal Reserve Bank of St. Louis

a - DOC. 231
43 -

a - DOC. 231
- 44 -

§ 3

With the approval of the Reichsrat the Finance

Minister of the Reich may issue provisions in execution of
the present Decree.
§ 4

The present Decree will come into force on the
date of its promulgation.

It will cease to apply on

January 31 1925.

DECREE ON THE CONTRACTING OF FOREIGN LOANS
BY COMMUNES AND ASSOCIATIONS OF COMMUNES
ISSUED BY THE PRESIDENT OP THE REICH ON
JANUARY 29 1925.
(Reichsgesetzblatt

Part I, page 7).

In virtue of Article 48 paragraph 2 of the Constitution of the German Reich I hereby decree as follows:
§ 1

In order legally to contract credits abroad or
legally to issue loans abroad the communes and associations




a - DOC. 231
- 45 -

4i of communes require the consent of the Finance Minister of
the Reich, in so far as under the provisions of the legislation of the Federal States the contracting of credits or

the issue of loans is not already subject to approval by
supervising authorities.

§ 2

The Finance Minister of the Reich may transfer
his right of consent under § 1 above to the supreme authority
in the Federal State.
§ 3

With the approval of the Reichsrat the Finance

Minister of the Reich may issue provisions in execution of the
present Decree.
§ 4

The present Decree will come into force on
February 1 1925.




It will cease to apply on February 28 1925.

a - DOC. 231
- 46 -

Annex
LAW OF MARCH 21 1925 ON THE CONTRACTING OF FOREIGN
LOANS BY THE COMMUNES AND ASSOCIATIONS OF COMMUNES.
(Reichsgesetzblatt

Part I, page 27).

The Reichstag has passed the following law which
is hereby promulgated with the consent of the Reicharat,

the requirements for legislation in amendment of the Constitution being found to be duly fulfilled:

§ 1

In order directly or indirectly to contract foreign
credits or directly or indirectly to issue loans abroad, and

in order to assume guarantees or assign security for such
credits or loans, the communes and associations of communes
require the consent of the Finance Minister of the Reich, in
so far as under the provisions of the legislation of the

Federal States the contracting of credits or the issue of
loans and the assumption of guarantees or the assigning of
security for such credits and loans is not already subject to
approval by supervising authorities.

The provisions for associations of communes within
the meaning of paragraph 1 above also apply to communal Giro
associations including their banking institutions in so far
as they contract foreign credits or issue loans abroad which




a - DOC. 231
- 47 1rare to be passed on to the Federal States, communes or

associations of communes.
§ 2

The Finance Minister of the Reich may transfer his

right of consent under § 1 above to the supreme authority
of the Federal State.
§ 3

With the approval of the Reichsrat the Finance
Minister of the Reich may issue executory provisions.
§ 4

The present Law will come into force on the day
following its promulgation.

It will apply to all agreements of the kind
described in § 1 above concluded after February 1 1925.

The Government of the Reich is empowered to abrogate this law with the consent of the Reichstag.

Annqx IV.

REGULATIONS FOR THE CONTRACTING OF FOREIGN LOANS
BY THE STATES, COMMUNES AND ASSOCIATIONS OP COMMUNES.
A.

The Federal States agree that, in order to maintain
the stability of the currency and on general political grounds,



a - DOC. 231

-48
the contracting of foreign loans by public bodies should be
strictly restricted.

The States therefore mutually under-

take, when contracting such foreign loans as are urgently
required, to observe the following regulations or to see
that they are observed.

These regulations shall apply to

any foreign loans which are directly contracted by States,

Communes or associations of communes, or indirectly on their
behalf by public or private banking institutions, or are
In so far as the foreign loans

obtained in any other way.

are to be given to States, Communes or associations of
communes, they shall apply in particular to the foreign
loans of communal Giro clearing associations, communal
banking establishments or other communal credit institutions,

whose function it is to satisfy communal credit requirements
or to administer mortgage loans.

Similarly they shall

apply to any guarantee or security for foreign loans assigned
for the benefit of third parties by the States, Communes or
associations of communes.

B.

The contracting of foreign loans which conform
with the following conditions (B III paragraphs 2 and 3 do
not apply to short dated loans of the States under B I,

2)

shall be considered as relatively unobjectionable and therefore not subject to the procedure indicated under C:




a - DOC. 231
49 I.

Form of loan.
1.

long dated loans, that is to say, loans which are
contracted for at least ten years, but may be called
in by the debtor after not more than five years;

2.




Short dated foreign loans contracted by the States
for not more than 1 year, and solely for the provisional swelling of working funds (Betriebsmittel),
provided the States in a formal declaration to the
Advisory Office (Beratungsstelle)

- see under D -

guarantee that repayment will be made without fail
on maturity and that there will be no question of
conversion into a long dated loan.

The nominal

amount, the conditions and the creditor's name shall

be notified to the Advisory Office not later than
eight days after the loan has been contracted.

If

from the notifications the Advisory Office finds that

the frequency of the dates of payment, the accumulation of the amounts contracted or any other circumstance is likely seriously to endanger the currency,

it is entitled upon notifying the States to apply
temporarily, but not for longer than three months,
the procedure provided for under C to the above short

dated foreign loans, notwithstanding anything hereinabove provided.

a - DOC. 231
- 50 II.

NAXAMMEIChaEgt.

The annual maximum charge to be fixed by the

Advisory Office in accordance with D, paragraph 2, calculated
on the basis of the net proceeds after allowing for discount
upon issue and having regard to the sinking fund conditions,
commissions to intermediary parties and any other expenditure,
shall not be exceeded.

III.

Utilisation of the foreign loans.

Any foreign loans contracted by the State, Communes
or associations of communes must be used for the contracting
party's own purposes, or for those of one of the public
bodies indicated under A.

In particular they shall not be

passed on to physical persons or bodies corporate under
private law.

The foreign loans must be used for directly productive ends, that is to say only for such profit-earning
investments as by the direct production of values guarantee
out of their own income the interest and sinking fund payments on the capital invested, without having recourse to the
general income of the public body.

It is important that

the investments, either by increasing exports or by restricting
imports or in some other way, should directly or indirectly
serve to promote the economic interests of the Reich as a




a - DOC. 231
51 -

whole;

local interests in themselves are not sufficient

justification.

The investments must be necessary in the sense
that the projected expenditure cannot be postponed until
such time as German capital is available for the purpose.

IV.

Guaranteeing of the foreign loans.

The conditions shall not provide for specific

pledges of any kind, nor shall they involve any other
businesses, such as for example the sale of products of
Government enterprises.

C.

Before contracting the foreign loans which come
under A, but which do not conform with the conditions under
B, as well as before offering guarantees for security for
foreign loans, the Government of the State concerned shall,

on its own behalf or on behalf of its Communes or associations
of communes, Giro clearing houses and other credit institutions indicated under A, consult an Advisory Office, which
shall examine whether the loan in question is undesirable
for the reasons explained under A, or for the purposes to
which it is to be put.

When examining the purpose of the

loan the Advisory Office shall in principle observe the




a - DOC. 231
52 -

40 regulations laid down in B, III.

When examining the question

of urgency, it shall bear in kind whether the total amount

of foreign loans approved or the number of applications submitted has reached a figure which, in the interests of the
currency or of the loan terms which it is desirable to obtain,
should not in the meantime be exceeded.

The States are

entitled to make verbal representations to the Advisory Office
in regard to the proposed loan.

The Advisory Office shall

express its opinion promptly and shall notify the Finance

Ministry of the Reich and the Government of the State concerned accordingly.

If a State does not agree with such opinion, an
effort shall first be made to come to an agreement with the
Advisory Office, which shall reconsider the loan scheme in
another meeting, which shall if possible be attended by a
special expert (without the right to vote).

If no agreement

can be reached, the State, before coming to a final decision
regarding the contracting of the loan, must consult a
Committee, whose members shall be appointed by the Governments
of the States and on which the several States shall be
represented by the number of votes corresponding to their
representation in the Reichsrat.

The simple majority vote

of this Committee shall be decisive.

The Governments of the

Sates shall themselves decide whether and how far they wish




a - DOC. 231
- 53 -

10 to conform with the opinion of the Committee.

But at the

same time the States agree that their own interest in the
application of the principle set forth under A paragraph 1
makes it desirable to adhere to the opinion of the Committee.
D.

The Advisory Office, which shall be a confidential
committee of the States, shall consist of experts.

It shall

be composed as follows:
1.

an expert to be appointed by the Finance Ministry
of the Reich who shall act as chairman,

2.

an expert to be appointed by the Ministry of the Reich
for Economic Affairs,

3.

an expert to be appointed by the Reichsbank-Direktorium:
as experts appointed by the States:

4.

Dr. Schroeder, President of the Preussische Staatsbank,

5.

Arnold, President of the Bayerische Staatsbank,

6.

from time to time a Government representative of the
State applying for an expression of opinion.

Deputies may be appointed for the experts indicated
under 1-3.

In the event of the experts named under 4 and 5

being prevented from taking part, deputies shall be appointed
by the Advisory Office.




The Advisory Office shall draw up

a - DOC. 231
-

ves

54 -

standing orders which shall be communicated to the Reichsrat.

The management shall be in the hands of the Finance Ministry
of the Reich.

To keep pace with developments, the Advisory Office
shall constantly examine the conditions indicated under B,
consider any objection to their application which may have
arisen, and, if necessary, propose amendments to the States.

The maximum rates for the charges in respect of the loan
(B II) shall be independently fixed by the permanent members
of the Advisory Office according to circumstances.

In

addition it is one of the functions of the Advisory Office
to watch the foreign money markets and, where possible, to
supply information, for example regarding favourable opportunities and the reliability of persons acting as intermediaries
for the negotiation of loans.

The States are under obliga-

tion to keep the Advisory Office informed as to their
experiences and to communicate to it the nominal amount, the
conditions, the object and the name of the creditor in the
case of any foreign loans contracted by them or by their
public bodies, Giro clearing houses or other credit institutions indicated under A, in so far as these do not otherwise
require to be notified to the Advisory Office.

The Advisory

Office shall give the States the benefit of its experiences.




a - DOC. 231
55 -

E.

The States shall see that the above regulations are
observed by their communes, associations of communes, Giro
clearing houses and other credit institutions indicated under
A.

F.

The above agreement shall be valid until June 30

1925, and is automatically renewed as from that date for
periods of three months, unless notice of withdrawal is given
by one of the States four weeks before the expiration of such
periods.

Annex V.

FINAL PROTOCOL.
1.

At the meeting held in the Finance Ministry of the

Reich on December 23, 1924, the authorised representatives of
the Federal States agreed to observe the Regulations when
foreign loans are contracted which are intended for the
Federal States, communes or associations of communes.
2.

The representatives of the States refused to agree

to the application of the Regulations for the contracting of
foreign loans to the State banks of the various Federal




a - DOC. 231
- 56
411IrStates.

On the other hand it was understood that the State

banks may not contract unlimited foreign loans, that is to
say, without regard to their endowment capital, and that the

Federal States may not use their State banks in order to evade
the Regulations.
3.

The representatives of the States declared that the

States will comply with decisions of the Committee of the

Federal States mentioned under C, paragraph 2 of the Regulations, except in cases of absolute urgency.
4.

Should the decisions of the Committee of the

Federal States not be adequately observed, the Government of
the Reich proposes to make the intervention of the Committee
The representatives of all the Federal States,

decisive.

with the exception of Bavaria and Wurtemburg, declared that in
this they support the Government of the Reich.
5.

The representative of the Reich declared that, in the

event of recourse to foreign borrowing, the Reich would proceed in accordance with the principles laid down in the above
Regulations.




- 57 -

a - DOC. 231
ANNEX VI (1)

COMMUNAL LOAN.

I.

A2Pligqtions
1.

Wurtemberg towns

$

270 000

Kommunale Landesbank Darmstadt

Issues

$ 8 400 000

$ 8 400 000

10 000 000

Durlach

3.

Recommendations

included in
the loan of
the Baden
Girozentrale
under 10

81 000

$

000

000 3 600 000
$

1 500 000

$ 1 500 000

$ 1 500 000

Swiss frs. 1 500 000

GM. 1 200 000

GM. 1 200 000

2 000

$ 4

000

4.

Heidelberg

5.

Lindau

6.

Berlin

$

15 000 000

$ 15

000

$ 15
000 000 000

7.

Cologne

$

15 000

$ 10
000

000

000 000 000
$ 10

8.

Munich

$

10 000 000

$

8 760 000

$

8 700 000

9.

Dusseldorf

$

000 000

$

1 775 000

$

1 750 000

Baden Girozentrale

$

500 000

$

4 300 000

$
7

4 500 000

Frankfort-on-Main

$

8 000 000

$

4 000 000

$

4 000 000

Duisburg

$

4 300

$

3000
000

$

3 000 000
000

Dresden

$

15 000

$

5 000 000

$

14. Association of
Thuringian towns
)

15. Konigsberg in
Prussia

)

6

$ 000 000 000
5

Originally submitted as an independent loan,
but subsequently merged into the loan of
the German Giro Association (No. 21)

16. Community of German
GM. 15 130 000
mortgage banks

GM. 10 800 000 GM. 10 800 000

1.7. Various towns in

the Palatinate

$

5 000 000

$

3 800 000

$

3 800 000

(1) The loans are shown in the order in which they were approved.




a - DOC. 231

-58
6 000 000

6 000 000

5 000 000

$

18. Leipzig

$

.q. Nuremberg

Originally submitted as an independent loan,
but subsequently merged into the loan of
the German Giro Association (No. 21)

O. Kissingen

n. Association of
German Savings
$

63 760 500

Dutch
guilders

38 000 000

and Giro banks
22.

.

Landesbank der
Rheinprovinz

Rm.

Chemnitz

Dutch
guilders

Cloppenburg

6

$ 23 000 000

D.G.12 300 000 D.G.12 300 000

780 000

1 500

D.G.

1 000 000 D.G. 1 000 00 Ji
000

25. Province of

848 300

835 000

891 178 420

Westphalia

E

461 365 200

2

Total in RM.

$ 23 000 000

II.

835 000
459 828 000

STATE LOANS

15 000 000

$ 15 000 000

$ 15 000 000

15 000 000

$ 15 000 000

$ 15 000 000

1.

Bremen

2.

Bavaria

$

3.

Oldenburg

$

6

4.

Anhalt

$

4 000 000

5.

Baden

6.

Hamburg

$

7.

Bavaria

$

10 000 000

$ 10 000

$ 10 000 000

8.

Prussia

$

20 000 000

$ 20 000

(

$

).

Hamburg

(

E

12 500 000
2 500 000

$ 10 000 000
2 000

$ 20 000 000
$ 10 000 000

Total in RU,
a




56 800 000

Swiss frs.

5

464

000 000

$

000

000 000

000

3 000 000
000

$

3

$

2

000 000

$

2 000 000

S.F.40 000 000 zp40 000 000
$

5

000 000

508 200 000
409

$

E

5 000 000

2 000 000
000
200 000.

a - DOC. 231

-59III. AGRICULTURAL LOANS

Egcaraa.w

cationEt

1. Bavarian agricultural cooperative
societies with
the guarantee of
the Bavarian
GM. 10 000 000
Government
2. Rentenbank-Kreditanstalt

$

25 000 000

GM. 10 000 000
$

115 000 000

Total in RM.

25 000 000

$

000
000 000

$

5 000 000

$

$

4 000 000

$

Sw.
frs. 30 000 000

Sw.
frs.

15 000 000

$

2. Rhein-MainDonau A.G.

000

$

6

3. Sdchsische Landespfandbriefanstalt

000 000

5 000 000

6. Sdchsische Werke
Total in RM.

Sw.

frs. 30 000 000
$

15 000 000
238 500 000

15 000 000

$

$

5. Berliner Elektrizitdts A.G.

25 000 000
115 000 000

15 000 000

000 000

$

$

ERTAKINGS

1. SAchsische Werke

4. Bezirksverband
Oberschwdbischer
Elektrizitatswerke

Q

GM. 10 000 000

115 000 000

IV. LOANS
I

£3

$

213

000

6

000 000

5 000 000
(1st tranche)

4 000 00C

30 000 00
15 000 000

300

300 000

Translation 4040 (including 3843 - Annex IV m ) from the German:
translated BWS: checked RB and NL.
BPD




The Dawes Plan in Operation
7-"

"We recommend that a limit of five milliards be placed upon all funds accumulating in
the hands of the reparation creditors in Germany. If this limit is reached, the contributions from the budget are to be reduced below the standards set out in our plan, so that
they are not in excess of the withdrawals from the account and the accumulation is not
further increased. In this contingency, the payments by Germany out of the Budget and
the transport tax would be reduced until such time as the transfers to the Allies can be
increased and the accumulation be reduced below the limit named. We do not deny that
this part of our proposal will present difficulties of a novel character which can only be
solved by experience."
(Dawes Report, Part I, Section XIII)

The present wave of speculation as to the ultimate success or failure of the Dawes Plan largely
centers about these words in the report of the Committee of Experts. The optimists and pessimists
have kept the discussion alive for the past year or more in European centers, and recently our own
hannels of public opinion have taken up the subject from a somewhat alarmist viewpoint. Holders
f dollar bonds issued by German states, municipalities and corporations have begun to wonder what
it is all about, and, in some instances, have preferred to liquidate their holdings rather than investigate
of German securities show a rather general decline

(
r

(as compared with prices ruling a month ago, and will unquestionably go to lower levels unless the already
large body of holders familiarize themselves with the facts.
,

;During the year beginning September first, 1928, the German Government will be called upon
to make the first maximum annual payment under the sliding scale adopted in the Dawes Plan. This
(-payment amounts to two and one-half billion reichsmarks ($595,000,000) plus whatever sum may
be added by the Index of Prosperity. The government satisfies its obligation by depositing this sum,
in reichsmarks, in the Bank of Issue in Berlin to the account of the Agent for Reparations. How this
sum is to be withdrawn from Germany for division among the nations interested is left to the discretion
t of allied representatives who form component parts of the elaborate machinery set up for that purpose,
;with the reservation, however, that the sum must be withdrawn without endangering the prosperity

of Germany, and the stability of the reichsmark. Should either or both of these requisite con (ditions be threatened, the machinery of the Plan allows the Transfer Committee to hold or reinvest
eparation payments in Germany, and, should such accumulation reach a total of five billion reichsmarks, the Transfer Committee may reduce the annual payments derived from the budget and trans(port tax until the accumulation has been worked off by exchange transfers abroad.

"The success of our proposals to attain financial stabilisation depends essentially upon the
return of confidence.
Without this the return of German capital invested abroad, the a
traction of foreign capital for the purposes mentioned in the scheme and of foreign credits
for the current conduct of business, and even the proper collection of taxes, will alike be
impossible."
(Dawes Report, Part I, Section VIII)

The architects of the Dawes Plan were set an unprecedented task in modern economic history.

They were asked to restore to a devastated continent complete and immediate confidence. The
success of their work was almost immediate, and the general prosperity of Europe today is a signal
tribute to the personal confidence in which the members of the Experts Committee were held, and the



wisdom and foresight of the Plan they evolved. It is not within the bounds of common sense, however,
to expect of the Plan more than it was intended or permitted to give. The Committee of Experts was
not instructed to decide what total sum of reparations Germany must pay, what technical methods the
Transfer Committee should adopt to obtain the necessary exchange, or what volume of private German

., c

borrowing abroad could be permitted without seriously complicating the transfer of reparations.
These questions were all beyond their province, and it would seem unfortunate to prematurely condemn the structure they erected, more especially as the machinery they set up is sufficiently elastic
to obtain complete and final success, given the requisite amount of good faith on the part of all interested parties. The duty of the Committee was to determine the maximum annual sum of reparations which the Allied Powers could take from Germany without endangering her financial and
economic prosperity. They decided the sum was a maximum of two and a half billion reichsmarks,
plus a prosperity increment, and that sum will be payable annually after the present fiscal year of the
Plan.
It should be noted that the framers of the Plan fully realized that cash reparations could only
be obtained from a prosperous and solvent nation. An essential part of their proposals was designed
to restore to Germans confidence in themselves, and to strengthen the confidence of the world outside
in Germany. German funds which had been surreptitiously carried over the border during the months
of panic must be brought back, and sufficient assurance must be created to attract the investment of
foreign capital in Germany by those who would expect to receive interest on their holdings at regular
intervals and without the interference of any political sanctions. The response of foreign capital was
wholehearted, and showed the spontaneous acceptance of the spirit of the Dawes Plan.

"Without undue optimism, it may be anticipated that Germany's production will enable
her to satisfy her own requirements and raise the amounts contemplated in this plan for
reparation obligations. The restoration of her financial situation and of her currency, as
well as the world's return to a sound economic position, seem to us essential but adequate
conditions for obtaining this result."
(Dawes Plan, Part I, Section V)

While there have been occasional dissenting voices, the best opinion within Germany and abroad
indicates that no serious difficulty will be experienced by the German Government in fulfilling its part
of the Plan by making the necessary deposits in the Bank of Issue. Thanks to the Plan itself, the
amazing industry of the German people, and the volume of American capital which has been made
available to their needs, business prosperity has been restored in a much greater degree than the world
anticipated. The Agent General for Reparations has reported that during the first three years of the
life of the Plan all payments of reparations have been promptly made when due. Statistics indicate
that the payment of interest and amortization on the five billion reichsmarks of Industrial Debentures

has placed no perceptible burden on German industry, and the railways have earned substantially
more than the amount needed to cover annual charges on the eleven billion reichsmarks of bonds
created for reparations.
The remainder of the annual payments under the Plan is derived from
controlled revenues under the budget and the railroad transportation tax. Controlled revenues
last year produced two billion four hundred million reichsmarks, or a surplus of one billion, one hundred

and fifty million reichsmarks over and above the amount earmarked for reparations in the standard
year under the Plan. In fact the controlled revenues, alone, produced only one hundred million
reichsmarks less than the maximum annual payment of two and a half billion called for in 1929 under
the Plan. Certainly the calculations of the Dawes Committee as to what Germany can safely pay
have to date been fully justified, and there would appear to be no cause for alarm as to the future,
provided general budget expenditures are kept within reason.



"We estimate the amount which we think Germany can pay in gold marks by consideration of her budget possibilities; but we propose safeguards against such transfers of these
mark payments into foreign exchange as would destroy stabilisation and thereby endanger
future reparation."
(Dawes Report, Part I, Sect. VIII, d)

The situation with regard to the actual transfer of reparations out of Germany shows an equally
satisfactory position for the first three years of the Plan. The Agent General has been able to transfer
all amounts desired, either in the form of cash or goods, without calling for any emergency measures
on the part of the German Government or the Transfer Committee, and without disturbing the normal
exchange market position of Germany. The method of employment of reparation payments to June
30, 1927, is shown in the following table in million reichsmarks:

Total

Year

....

Payments
in kind

Used in
Germany (1)

Interest on
payments made
prior to
maturity

Cash transfers
to the creditor
nations (2) and
interest on

Dawes Loan

Movements in the
cash holdings
of the
Agent General

for Reparations

284

122

82

3

71

+6

1925

1,061

507

162

3

311

1926

1,197

624

91

7

446

+78
+29

727

304

39

3

340

3,269

1,557

374

16

1,168

1924

1927, January 1
until June 30th
Total
(1)
(2)

+41
+154

Costs of army of occupation and j of costs for commissions.
Including Yi of costs for commissions.

Taken by itself, there should be no question as to the continuing ability of the Agent General to
transfer the annual sum of reparations to the designated foreign recipients. This annual sum reduces
itself to a daily requirement of only $1,700,000 of exchange which is indeed a small amount for a country
of the size and international importance of Germany. The problem, therefore, is one not appertaining

to the transfer of reparations, but relating to the sound management of the German finances
and economy.

In this connection it is necessary to remove a general misunderstanding as to the powers

and duties of the Agent General and the Transfer Committee. These officials are not appointed to
manage and supervise the daily conduct of German Government finances and the German exchange
market. They are charged with the duty of collecting, investing and transferring of reparations. The
principal duty of the Transfer Committee is to advise when the annual payment under the Dawes
Plan should be reduced on account of unmanageable accumulations in Germany. The Agent General
has greater responsibility as observer and manager of reparations, and, by reason of his daily contact
with the officials of the Government, is in a position to offer advice on budget policies and any matter
which may affect the continuing soundness of the German fiscal position. His communication to
the Government under date of October 20th was in this spirit, and warned the authorities against the
growing expenditure and borrowing on the part of the Reich, the states and municipalities for nonproductive purposes. Obviously loans to German industry which, by their nature, promote employment of labor, the production of goods, and the increase of exports, are sound and desirable. The
granting of such credit to German industry in the form of American loans has been an important factor
in the quick return of healthy business conditions and has materially lightened the burden of reparation
payments during the first and most difficult years of recuperation. Mr. Gilbert's note is a timely
warning to the Reich that it has a distinct obligation to check the issue of loans for any other purposes.
The Government of the Reich has so far demonstrated its willingness to carry out the spirit of the
Dawes Plan, and the proper control of the budgets of the Reich and its subdivisions is a matter which
it can be expected to handle in a satisfactory manner.




"We repudiate, of course, the view that Germany's full domestic demands constitute a
first charge on her resources and that what is available for her Treaty obligations is
merely the surplus revenue that she may be willing to realise. But at the same time, if
the prior obligation for reparation that is fixed for Germany to pay, together with an irreducible minimum for her own domestic expenditure, make up in a given year a sum
beyond her taxable capacity, then budget instability at once ensues and currency stability
is also probably involved. In that event, an adjustment of Treaty obligations of the year
is obviously the only course possible."

(Dawes Plan, Part I, Sect. VIII)

Any argument at the present moment that reparations have priority in the exchange market
over the interest on German loans placed abroad, or the opposite contention that private obligations
enjoy priority, is beside the mark and confusing. It is difficult to conceive of a situation arising in
which all available foreign exchange would be monopolized by German borrowers who were desirous
of meeting interest payments on their foreign loans, with none left over to satisfy the interest of France
and other powers in reparation payments. Nor is it possible to picture a Germany forced into general default in the payment of interest on private foreign obligations while the allied nations paid

themselves in full out of the assets of the bankrupt nation. The first alternative would be an
injustice to the creditor nations while the second would be lacking in common sense and against
the best interests of all concerned. Any agitation, either in Germany or abroad, which has for its
end an immediate revision of the Dawes Plan is unwise until it has been demonstrated that such
revision is necessary. Up to the present time no evidence establishing that condition has been
produced. An excellent caution was recently sounded by a German writer in a leading Berlin daily

who said, "The real dangers which the Dawes Plan contains for Germany's future cannot be
averted by exhorting Germans to insist on its revision. They can only be met by harmonizing
financial and commercial policies and by facilitating in every way possible the smooth adjustment
of the Plan to what the country can really pay."

Dillon, Read & Co.
November 23, 1927.




Alm

THE AGENT GENERAL FOR REPARATION PAYKENTS

BERLIN, February 24, 1928.

FROM: The Agent General for Reparation Payments,
TO

:

The Secretary General, The Reparation Commission, Paris.

Sir:

I have the honour to transmit herewith, for the information of
the Reparation Commission, a Memorandum of this date which I have prepared for the purpose of confirming the views which I expressed at our
informal meeting on January 14, 1926.

I shall appreciate it if you will bring the enclosed Memorandum
to the attention of the Reparation Commission in regular course.
Respectfully,

(signed)

S. PARKER GILBERT

Agent General for Reparation Payments.

1 enc.










- 3 -

attempt to fix the amounts that could be transferred from year to year,

believing, as they said, that "experience, and experience alone, can
show what transfer into foreign currencies can in practice be made".

The

Experts' Plan, in other words, avoided any definitive settlement of this
question, and left the amount of actual transfers to the creditor Powers
to be determined year by year under the auspices of the Transfer Committee, in the light of practical experience.

As the Conclusions have

pointed out, it was, in fact, impossible, in the state of confusion and
disorder which existed at the time, to reach any final decision as to the
amount of Germany's reparation liabilities, without, as the Experts said,

running the danger of fixing it at "so low a figure as to be quite unacceptable to her creditors and unwarrantedly favorable to Germany", or, on
the other hand, of fixing it arbitrarily without reference to Germany's

economic surplus, and leaving the discharge of the liability "to uncontrolled events without any possible regard to exchange difficulties", in
such a way as to invite "future instability and disaster".

Under these conditions, entirely apart from the question of the
competence of the Experts to re-examine the total of the reparation debt,

the necessary basis was lacking for any consideration of the total of the
reparation debt, or for any determination of the number of the successive
Annuities to be paid by Germany in discharge of her reparation debt.

In-

deed, it was provided that even the Annuities to be paid internally by
Germany under the Plan were to be transferred to the Creditor Powers only
subject to the transfer clauses which the Experts introduced into the Plan
for the protection of the German exchange.




ti

p
-4
4.

It is necessary, in considering the operation of the Experts'

Plan, to make allowances for the inherent weaknesses of any protected
system.

The Conclusions have pointed out that "the very existence of

transfer protection, for example, tends to save the German public authorities from some of the consequences of their own actions, while, on the
other hand, the uncertainty as to the total amount of the reparation liabilities inevitably tends everywhere in Germany to diminish the normal incentive to do the things and carry through the reforms that would clearly
be in the country's own interests."

Without multiplying examples, I may

cite one such reform which is of the first importance, namely, the settlement of the financial relations between the Reich and the States and communes.

This is a question which received special notice in the Experts'

Report, and has been the subject of almost constant attention ever since
its presentation.

The need for reform has been emphasized in all of my

published Reports, and in my letter of March 17, 1927, to the Finance Minister of the Reich, and is generally admitted in all informed circles with.
in Germany.

The probabilities are, however, that no final solution of

the problem will be reached until there has been a definitive settlement
of the reparation obligations of Germany, - partly because the Reich, which
is primarily responsible for the reparation obligations, wants to know its
definitive liabilities in this regard before making any definitive engagements with the States, and perhaps even more because of the lack of the
natural incentive to introduce economies and effect budgetary reforms so
long as the total of the reparation debt remains uncertain.

This last consideration has a broader influence, which touches

the whole problem of the expenditures and borrowings of the public authorities




- 5 -

in Germany, not only of the Reich but of the States and communes.

It is

ordinarily characteristic of a debt, whether public or private, that the
debtor should know what he has to pay, and the debtor normally has a corresponding incentive to limit his expenditure in such a way as to allow for
the ultimate discharge of his obligations.
ever, Germany lacks the normal incentive to economize.

Unde
On the contrary,

as was pointed out in my Memorandum of October 20, 1927, the tendency of
recent years has been toward the growth of public expenditures and of public borrowings, both domestic and foreign.

In the long ru

cies if continued cannot fail to affect the foreign exchanges, with consequences for the transfer of reparation payments which cannot now be foreseen.

Moreover, the borrowings of the German public authorities in foreign

markets have already made heavy drafts on German credit abroad, and cannot
continue indefinitely on such a scale without impairing the ability of
foreign countries to absorb the reparation bonds when the time for selling
them arrives.

Still more broadly, the present status of Germany's repara-

tion liabilities, since it leaves uncertain the extent and duration of the
responsibilities which the various elements of the German economy must directly or indirectly assume, acts constantly as a disturbing influence in
the process of German reconstruction.

Up to the present time these various difficulties, which may be
said to be inherent in the present system, have interfered relatively little
with the current operation of the Plan,

But they have already shown them-

selves as powerful factors, and I feel sure that as time goes on, and the
Annuities rise to the standard level, they will exert an ever-increasing
practical influence.




6

I believe that in this sense the existing state of uncertainty
as to the limits of Germany's reparation liabilities will tend, sooner or

later, to interfere not merely with the capacity of the German economy to
make reparation transfers but perhaps even with Germany's ability to make
the internal payments called for by the Plan.

In other words, there will

surely come a time, and in the not too distant future, when the system of
protection established by the Plan will be less productive of reparations
for the creditor Powers themselves than a system which gives Germany a definite task to perform on her own responsibility, without foreign supervision
and without transfer protection.
5.

The Experts themselves recognized that the Plan was not a final

solution of the reparation problem, and they expressed their views in so
many words, in the final paragraph of Part I of the Report, as follows:
"We would point out finally that while our plan does not, as
it could not properly, attempt a solution of the whole reparation
problem, it foreshadows a settlement extending in its application
for a sufficient time to restore confidence, and at the same time
is so framed as to facilitate a final and comprehensive agreement
as to all the problems of reparation and connected questions as
soon as circumstances make this possible."

In effect, the Experts looked upon the protected system established by the
Plan as a means to meet an urgent problem and to accomplish practical results.

The Experts did not pretend that the Plan was an end in itself.
The alternative to the protected system, as pointed out in the

Conclusions to my last Report, is "the final determination of Germany's
liabilities, on an absolute basis that contemplates no measure of transfer
protection.

The Experts did not indicate when in their opinion such a

settlement would become possible in fairness to the interests of all concerned.




That would indeed have been beyond their power to foresee."

V
- 7 -

6.

It is doubtless true, as I understand from the declaration made

by the President of the Commission, that the total indebtedness of Germany
on account of reparation was fixed by the Reparation Commission in 1921 at
the figure of 132 milliards of gold marks.

This is a legal fact, which

still exists as such, notwithstanding the adoption of the Experts' Plan.

But in practice it is qualified, as I have already pointed out in the
preceding paragraphs, by the provisions of the Experts' Plan for
determining the amounts of the Annuities to be paid each year within
Germany, and more particularly by the transfer clauses of the Plan.

The Commission will recognize, moreover, that both the Agent
General for Reparation Payments and the Transfer Committee are concerned
only with the collection and transfer of the Annuities which Germany has
agreed to pay under the terms of the Experts' Plan.

the Transfer Committee have no responsibility under previous decisions
which may have been taken by the Reparation Commission or by the Allied
Governments as to the payments required of Germany, and are concerned in
any such decisions only if and to the extent that they affect the collection and transfer of the Annuities contemplated by the Plan, or the settlement of practical questions arising from time to time in the course of
operations under the Plan.

I have on this ground, in the Conclusions to

the last Report, drawn attention to the ultimate necessity of a final determination of Germany's obligations, for I feel sure, in the light of our
practical experience up to this time, that the present uncertainty as to
the final terms of the reparation liabilities will operate as an increasingly powerful factor of uncertainty in the execution of the Plan.







a
the system of transfer protection established by the Plan.
8.

It is clear, as a corollary to the foregoing proposition, that the

Experts' Plan continues in operation automatically, within its own provisions and limitations, unless and until something else is substituted
for it by international agreement.

It remains for experience to show to

what extent full transfers under it will be possible, and it may not yield
as much in effective transfers to the creditor Powers if the final determination of Germany's liabilities is delayed too long.

But the Plan itself

continues, according to its terms, within the framework and with the
machinery that has been provided, until the time when the final solution
Which it foreshadows has been reached by an international agreement of
equal force.

The Conclusions to my last Report have indicated that "we are still
in the testing period, and further experience is needed before it will be
possible to form the necessary judgments".

But in due time the question is

bound to present itself whether it will not be more productive from the
standpoint of the reparation creditors, and better for the interests of
all concerned, to give Germany a definite task to perform on her own
responsibility.

This is a question which will have to b3 considered at

the proper time on its own merits, and by all the Governments primarily
interested in reparations.
9.

It would be a mistake, I believe, to suppose that the final deter-

mination of Germany's reparation liabilities, when it comes, would involve
a sudden abandonment of the Experts' Plan, or of the machinery which it has
established.

The final settlement of the problem, it seems to me, should

be regarded rather as the completion of the Plan, and it would moat naturally be worked out within the framework of the Plan itself, as gradually and







V

German Railway Company or of the German Industrial Debentures until there
has been a final determination of Germany's reparation liabilities.

I

could even go one step further and emphasize that there will be no substantial possibility of selling Railway or Industrial bonds on the investment
markets until the public opinion of the world is satisfied not only that
there has been a final settlement but that the settlement has been made on
terms which are generally regarded as falling within Germany's probable
capacity to pay and transfer.

This is not a question of good or bad faith,

or of politics, foreign or domestic, or of the policy of one Government or
another toward the sale of these securities.

It is simply a question of

fact, and as such it will be recognized sooner or later as setting the
limitations to policy.

The fact is that investors the world over are not

going to put their savings into reparation securities that may be issued by
Germany until they are satisfied that Germany's reparation liabilities have
been definitely fixed, and within the limits that offer a reasonable probability of payment.

It will also be of vital importance from the stand-

point of investors that the service of the reparation bonds which they are
asked to buy should not be subject to interruption under the transfer
clauses of the Plan.

I have indicated in the Conclusions that any final

settlement should provide for putting Germany on her own responsibility and
for the withdrawal of the transfer protection, and this, I believe, may be
taken to be a necessary condition of the mobilization of the Railway and
Industrial bonds, as of any other reparation bonds that might be issued by
Germany in pursuance of the settlement.

Another question of the first importance which hinges upon the
final settlement of Germany's liabilities is the so-called question of







111

-Liar

UPI

- 13

extend additional loans or credits.
11.

In the last paragraph of the Conclusions, I took occasion to

quote the final paragraph of Part I of the Experts' Plan, in which the
Experts described the Plan as providing "a settlement extending in its
application for a sufficient time to restore confidence", and as being
"so framed as to facilitate a final and comprehensive agreement as to
all the problems of reparation and connected questions as soon as circumstances make this possible."

The words "connected questions" are,

of course, those of the First Committee of Experts appointed by the
Reparation Commission, and I should not presume to say what meaning the
Experts intended to give them.
For my part,

I believe that the settlement of the reparation

problem on its own merits is the fundamental condition of progress on




other important problems which concern the reconstruction of Europe.
Respectfully,

(signed)

S. PARKER GILBERT

Agent General for Reparation Payments.

di


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102