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STRONG PAPERS, Norman to Strong, copies of correspondence with others and confidential memos
(List created 6/2004)


Undated; "The Austrian Trade Balance," from Sir William Goode to M. Norman.


March 11, 1922; "Austrian Loans and Liens: The Present Position of Affairs," from Sir William


March 17, (1922?), copy of cablegram from Sir William Goode to Sir Basil Blackett.


March 22, 1922, copy of cablegram from Sir Basil to Sir William Goode.


March 22, 1922, copy of cablegram from Sir William Goode to Sir Basil Blackett.


March 11, 1922, "Austria's Future Loan," from Sir Willaim Goode (w/ attachements, "Austrian
Import Customs Revenue", "Approximate Cost of the Customs Breanches Administration in


March 16, 1922, S.R. Res. 160, Joint Resolution.


March 30, 1922, "Memorandum Regarding American Visit: Postponement of Liens" from Sir
William Goode.


Undated, "International Conference" re: M. Poincare. No indication as to whom or from whom
the memo was written.

The following documents were removed from this set of documents (1116.3, Folder 4) and placed
with letters to which they relate in 1116.3, Folder 2. As noted below, all were originally
enclosures in letters from Norman to Strong:



January 27 letter & enclosure to Norman from Victor Moll, Stockholm (enclosure to
letter of February 6)
February 7 letter from Norman to president of Banque Nationale Suisse (enclosure to
letter of February 20)
February 6th extract from letter to President Havenstein from Norman(enclosure to letter
of March 6)
March 2nd & March 3rd letters to/ from Sir William Goode (enclosure to letter of March


March 4 letter from Havenstein (enclosure to letter of March 9)
March 3n1 letter from Paul M. Warburg(enclosure to letter of March 30)

Strong Papers Key for years 1922, 1927, 1928:
) = Document is in Papers but prior to now had not been photocopied and included in research binders
[ ] = At earlier date, item was listed as present but no original or copy is now in Papers
{ } = Photocopy exists but original is missing


With compliments from Sir William Goode.






W. 2.



be kept in mind
Federal Reserve Bank of St. Louis

that Austria has a particularly groat amount

home market has taken a large part of the supplies.
easily explained
Federal Reserve Bank of St. Louis

This is

by the fact that the great masses of the

goods require previous thports of raw materials.


But on the

other hand, the above-mentioned invisible exports must be drawn
into account too, and there is no doubt that some of the greatest

Austrian industries could easily increase their exports by 50
and even 100 per cent. provided that the present lack of liquid
capital and certain other hindrances can be overcome.

It must also be considered that the first half of 1921 was
a time when Austria first seamed to recover after two years of
direct plight.

At last the working clases could live on their

wages and the value of the Austrian currency was still much
higher than later in the year.

Only in the second half of the

year the Mark began to go down and finally collapsed which reacted
on the Austrian currencies too and sent the Krona down from onehundredth to one-thousandth of its pre-war value. This, of course,
caused new great privations to the people and it must also have
strangled all imports not strictly necessary.

The total effects

of this tremendous fall in the currency do not appear in the
above statistics which cover only the first nine months of the







The Present Position of Affairs.

Austria received in February a loan of £2,250,000 from
the British Government against the security of the Gobelin tapestries
which had been specially released for such a purpose by the Reparation.

Of this amount £250,000 was for the repayment of a

British loan given five months previously.
the loan is for two million sterling.

In practice, therefore,

It is for one year, renewable

at the option of the lender for a further twelve months, with interest
at the rate cf six per cent per annum.

The British Government agrees

that the Gobelins shall also be available as security pari passu for
such other interim loans as Austria may obtain.

(The Gobelins, if

required, can be removed from Austria, but this is not likely to be

The valuation of the Gobelins by Allied experts is roughly

about four million sterling.)

The loan, which is regarded as an

interim advance against the credits that Austria expects to raise

when her assets are freed, is to be repaid out cf the first lean that
Austria receives "without conditions."

The only other stipulation is

that the loan be used in support of the Austrian Krone and in carrying
out the Austrian Government's self-help programme, the specific
expenditure to be approved by a representative of the British Treasury.
The Czecho-Slovak Government have also arranged to provide
Austria with a twenty year loan of 500 million Czech Kronen,
the equivalent of £2,200,000.

roughly -

The details of this transaction are

somewhat complex but, broadly speaking, it provides for the postpone-

ment of a debt of 214,000,000 Czech Kronen which Austria will owe to
Czecho- Ciovakia by the end of March as her accumulated unpaid share

of the inter-State railway traffic clearing-house.

The balance,

286,000,000 Czech Kronen, will not become available to Austria until


ipthe Czecho-Slovak Government concludes negotiations for its own loan
in London


probably April


and will be ear-marked for purchases

that Austria must in any case make in Czecho-Slovakia.

The Czech

loan was negotiated previous to the British loan and the terms pro-

posed were that it should have all advantages granted to an interim
loan from any other Government, with specific security for the first

year's interest, and, in the event of no comprehensive international
loan for Austria being forthcoming by January 31, 1923, that Austria's
revenue from the inter-State railway traffic should then be ear-marked
as security for the Czech loan.

The British Government suggested to

the Czech Government that they should waive the question of these
special securities and make their loan against the same security
as the British, i.e. the Gobelins.

When I left London on March 4

negotiations between the British and the Czech authorities as to a
common security for their respective loans had not teen concluded.
The French Government have also introduced a Bill to advance
to Austria 55,000,000 French francs, or, roughly £1,140,000.


I left England the Ftench Government were hopeful of getting this loan
through within a month.

No definite arrangements had been made as to

security but it had been suggested that the loan should be made on the
same lines as the British Government loan.
The Italian Government have also notified the Austrian
Government that they will be prepared to lend them 70,000,000 lire, or
roughly, £840,000, to be available on June 4.

Up to the time of my

leaving England no details as to the terms of this loan had been

The Austrian Government, in agreement with all their
political Parties, have just decided that the British credit of two

million sterling and such other Government interim credits as may be
received shall form a fund to be used exclu§ive13; for the purchase of






TrvAviall, LoNieN, MARCH

rorgars feel metters not sufficiently advenced to justify them

arr maythemselves in
tut in Irinciple they are

in committin

interested in situation and desirous of hanaling matter here if
tLey can satisfy themselves that propose:1 loan would to safe not, only

as to Its rrecise sec,fity but in connection with permanency of
hole Austrian situation.

In event of five million aterlini., loan

bein: arranged to conform to ti,eee principles, ':organs 4cula be moat

halpy to ierticip-te ith the British group, composition to be
satisfactory to tern and ter.r.s, of course, to le suci. as would be

eccertable to both markets.
1 ier

i1 :t

Foreoin, of Ct.21SP, on assumption that

hive been postponed before art.!,

such loans are Rrrangea.

Also that entire lroceeas of loans aoula Le evailable for constructive
iurposes to be agreed u1 on with the lenaers and that reoemltion of
recent or forthcoming advances by Elitist, aria other C.overnmente be

otherwise Iroviaed for.

Also thet both Austria ana Leooue of Notions

you'd agree to such oupervision and control as lenaers mny consider

7Torgars are cabiinr their London house to see Governor as

to co-operetino lxitis/1 houses.

Car I assume that these assurances

of rorgans' attitude not meet the case?

before any loar could be

floated on 7-2 et :.ere t:exe must Le extensive

7opaganaa to dispel

existing imiression that Austria is a ruineu country.

Iefore sailing

on 25th I hope to mnie arrangements for startinL this propaganda
immeaiately liens are postroned, toerefoxe I am larticularly anxious
to receive eeri: answer to tY,ia cable rarT..

ToUla you kindly

communicate fcrevoing, which Morgans Leve seen, to Governor and







Ilea-sure ffom your cable that J.7).

Comrary ere in rrinciTle aesiroua of handling an Austriar loan
after rostronement of liens shall have tear duly arranged.
P3 !e ere not committed in an:,. Vt; to ary Parties in Lort.or,
me a ,FLest that. "essra. J.P. Morgan '

Co. should make their on

arrarFerrants for such co-oreration as the3 'nay desire, cut while Ne

trerefore, tae no action in tLia connection,

:e have reason

to believe that other emisuaries than yourse4f are interesting
njyarently on behalf of Auatrinr Government in the
cv,ekition of raisine.; e loan.

must leave it to you to ,judge #hether assurances you have
received from J.P. "organ.


Co. sill satisfy requirefrerts of your

rrincirals in Vienna, aLa as to the question of iroyaganda.
Coly of .I0U1 cable ar!o of this leyly are beini: Riven rienckerstein.

k:NYY C



^harks fcr telegram.

Lamont ara Araer5on,

I hove ai-cuseed matte], Errive Paris midale of Airil ard :411 to
Lica to continue converstionJ there anti later in London.
advisinE; fustrien Government to await theii arlival.
Cearic 25th.

I am

I sail

Kina4 communicate to Governor and Franckenateir.




On the assumption t
Austrian assets will, in the

discussions have been taking

loan or loans to be raised on

The majority of th

London and Vienna appear to f

not to exceed five million st
and American issuing houses,
other European groups.

The r

would be the security for int

would be experienced in arran

of the lenders, of the Custom

supervision of Austria's fina

vital to their interests, tho

of the League of Nations woul

The value of the Customs rece

justify the issue of a larger
well-informed authorities as
and Mr. Keynes strongly urge
five million sterling.

It ha

further issue might later be

when, in the judgment of Trus

say by four times, the additi

option to Austria to redeem t

(There are those who believe,

Austrian lank and recently Fi

Government, that 10 million st
Austria on her feet.)




for the months January of this year, which was rather below the

monthly average of 1921, $even million gold Kronen would result.
Assuming that the revenue of January was maintained throughout the
other eleven months of 1922, there would be an annual revenue
roughly equivalent to $16,800.000.

However, when the Customs are

raised to a gold parity basis it will doubtless be necessary, in
certain cases, such as fundamental industries, to reduce the tariff
and also to make allowance for a decrease in general imports.
Assuming that the gross receipts decreased by one half, which is
improbable, there would still remain a revenue of $8,400,000, less

administration expenses calculated at 6.1 per cent, to cover the
service and sinking fund of a loan not exceeding, say, $24,000,000.

Austrian Trade balance.

The latest Trade figures available give the imports and
exports for the first nine months of 1921 but by weight only.


Austrian Ministry of Trade, however, has made an approximate
estimate of values on a basis of Ire -war prices in gold Kronen.

From this it would appear that the imports for these nine months
amounted to 1137 million gold Kronen (roughly $227,000,000), and
exports to 726 million gold Kronen (roughly $145,000,000), the
deficit being 411 million gold Kronen (roughly $82,000,000), or
about 36 of the imports.

Yguo Slavia could only cover one-third

of her imports by exports in 192o and only about one-half in 1921,

whereas Austria, under much less favourable conditions, has now
been able to cover two-thirds of her imports by her visible

It should also be remembered that in these estimates one

of the most important factors of Austria's existence, namely, her
invisible trade, is not included.

I shall be glad to provide, if

desired, an analysis of these trade figures which has just been
drawn up for me by Dr. Friedrich Hertz, one of Austria's foremost
Federal Reserve Bank of St. Louis


Food Subsidies.

Government food subsidies in Austria have been reduced to
practically nil and will be totally abolished by the end of April.
Food supplies, xhich hitherto have been responsible for about half

of the Budget deficit, will from then on be provided through private

Krone Circulation.

At the beginning of March of this year the total Kronen
circulation amounted approximately to 260 milliards, or the equivalent at the then rate of exchange (6,200 Kronen to the dollar) of
Quantitatively, this amount of currency at this

about $42,000,000.

external value is insufficient for a country with Austria's population and trade.

A rise in the value of the Krone would, of course,

remedy the quantitative deficiency, but as most authorities estimate
the internal purchasing value of the Krone now to be in the neigh-

bourhood of 5000 Kronen to the dollar, as opposed to an external
value of 6,200, there is not much margin for an immediate rise in

Sudden improvement beyond the internal purchasing value

would create new economic difficulties and is generally agreed to
be unwise.

The general assumption is that the present British and

Czech Government credits and other possible Government credits, in
conjunction with the Austrian Government's endeavour to b&lance the
Budget by increased taxation and internal loan, will automatically
keep the Krone somewhere in the neighbourhood of 5000 to the
dollar, that is to say, that the internal and external purchasing
power will gradually be approximated.

When the consequent readjustment

in industrial and economic conditions, particularly as regards prices,

has passed the critical stage and when the permanent foreign credits
have been arranged, stabilisation can be effected by the agency of

a new Bank

of Issue.





Total for
the yeaf

of which Nov. and Dec.
1921 accounted for



" material






Expenditure on staff



" material






Expenditure on staff









P. BPS. 1(.:0




:lard. 16, 19f;,,

Peferrea to the Committee on 14,&;:13 anu ,;eanki.

the extension, for

Authoriz ink

jeric.: of not to exceeu twenty-

five .eara, of the time for the ya:/ment of ti,e jrincliel and
interest of the nett incurri,a L;y ALAsitliS for the j.urchabse of

flour from the United State,i Grain Corroratior., aru for other

Yereas the economic structure of Aut:tris ia ajjlonchini, collajae

anu great numtera of the leojle of Austriv ale, in conseTence,
in imrrinent annvei ol stnrvation anu ttrettered 1.; alueaseJ
ou-- of extreme jlivation arc: starvation;


7-heren., t:ia Government ii.ea to coorerate in relievir


from tLr, iwnediate luraen cieated Ly her oututaaiinE dente:

Therefrre be it

Pesolved ty the Senate aru llowse of Relresentativeu
of the Unite- Statea ol Afnerico in Conil,lea,s tdauetiesa,
That the Eecretr:; ci

Treaaury iz;

vutLoTizea to


extra, for P leriod not to exceed twent-five .esru, the


time of lonyment of the ilinci)111 ana interest of the debt


incurrea by AuLtria fox the purchase of flour from the United

110States Groin Coiloration, anu to release Austrian assets
pledged for the layment of such loan, in isole or in part,

as may in the judbment rf the Secretary of the Tieusury be


neoesser; for thf, accomplishment of the purioses of this




other creaitox nations, to witc


France, Greet 4ritain, Greece, hollund, Italy, Nolway,

Provide, however, T.Liat substantially ell the
Czecnoslovakie, Lenmork,

r.imania, F!:;eden, Vmiteerland, an

Yut:oslavia, snail take


action ,:ith retard to ti,eir resiective u.kaims against Austria


similar to that herein set forth.


Treraury shall be outhoriseu to decide when this poviso has


beer substantially co 'lied with.

The Secretary of the

T'essed tLe Senate ttarai 9 (calendar div, ''arch 15),



1. M. RCSv,

As3istant Secretary.

416r,, FIT. -iLLIr- GOUT.


Postponement of Liens.
Lodge Peeolution.

The Lodge Teaolutior, aa eacsed Le tee Senate (for Lext see
Arnex Al author/Rif.) the Fecretare of the Treasury tc extend for a

reriod not to exceed 25 ;gears the time of Ieyment of the Trincieal and
interest of the Austrian aett of tee! ,055,70E.92 Trovidine he aettsfies

himaelf that "subetantially ell* teoae other creditor nations mentioned
in the F:eaolution hnve "substantially" taeen action similar to that

outlined in tne Lodge Resolution.

The Resolution ooee not enive interest.

The interest acceuee.

The resolution includes no unuertaking to poutione a losaible
claim by the United State* for re,aration.

I discueaeu this roint

both at the State Leyartment and at the Treasury end ceee to the conclusion that it hic no eractical or. other imeortance eu, if the existing

triorities are retained, no eaymonte on, account of reparation car Le

merle to an country until the

0 ,ears eoeteonement of relief loena

has exeiree.

Lepertmental views in -auhin,ton as to 'what erocedure should
le tp*f.,..

fter the Lodge resolution had beer Tassee both by the Senate

end the House, were indefinite.

The Treasury seeeee aomeehmt inclined

to think that the United Stetee could not move until Austria bad give
an aesurance that ell the other Powers had substantially arreed uro
unconaitional rostponement for 20.-eears.

oirtea out,

evert these aseurancea must-first be Oven to the e,
clone are entitled

release Austriee


that in el


,tior. Co


After con traatione

*-4te eariouo officiPreaee in the state repartment, all of vhom
`te eindliest arxiete- tc eeeedite matters,

I advlsed Vr. Prochnie, the

Charge d lAffaireo at raehincton, to write to the Secretary
State as seen ee the Lodge Resolutior Lad taeaea the Louse
and reluest



early action ty the Secretary of the Treaeury.

I ale' advisee

iklchnik to submit a list of those Powers that had elreee


aereee to

poatione and to communicate the conditions of such 1;oat1 onement, namely,

the Lonaon eereement of Uarch 17, 171,1, Letneen the Governments of
Great Lritain, 'Fleece,

Itel:, snd Jelar.

Priority of relief over reiareticn
release by Americo.


This agreement Treeervee the
a condition ixecedent to any

I further sueeeeteu to :r.. Prochnik. to in lude

in hie note a releest that the United Staten Government inform the
PeTaration Commission of ouch action 1143 it iroeoeed to tape and also

that the Austrien Government be informed au to cry exchange or alteration
of bong a es might ellear necessary- to the United Statee Treasury. The

Unite() States Treasury seem irciined to teink the "bw Felief bonds
muet be changed.

If that vies is correct, all countries holding "L"

Austrian Lends .till aluo to entitled to exchange them.

A resolution L

the Reearation Commission recerdine the consent

ef n11 the Powers rflreeented on that touy ird of ticee neutrals eno
1-reviously anointed the Commission as their Trustee for

relief loans,

mould seem to be all that is necessary 'to roeteonement and release, exlvet

in the case of the United Statee.

Au the:, are onle unofficially relre-

sented on the Commiesicn and as they also :elve a Treaty

of Peace


concluded with Austria, it sill erotably LP necessary for the United
:Mates to exchange nit:, 'e Austrian Government selarete aeeurences as
to poetronement, in eodition to unofficial larticiration in release of
assets by the Peearction Commission.

before I left Washineton, the British Char

d'Affeireu and

te. tuatrian Charge d'Affeiree had, at ee suggestion, telegraied

3 Active Government,; aekine for the leteet definite information

o' sech atieuran

au hr- Leer officially received from the va-ious

countries regarding
d'Affeiree very kind
illenquiries to Vr. Pr

lad beer imeosaitle

ement of Austrian Tiers.

The British Charge

seunioute the result of his

Taint in Taehineton that it

attitude of soma of the

Statements repeatedly punished,

Governments towards poatponeent.

ilarently on the authority of LeaLue of ilationa officials, had been
found to be consistently untrue.

At the time T left Washington, the

State rerartment alrevred to be doubtful as to th.e ultimo to consent of

Yugo Slavic and Roumania and to te in some ferilexity se to vhether
the Italian and Creek agreee'ents 3ere unconditional.
I aulsea, Loth at the State Lerartment and at the Treasl-ry,
--that the wishes of the United States eere likely to le recardin.,

for the suspended lien interest and tte new

joint or other. Trusteeel,ii




mat) told that no oiinion whatover

question was raised in mare lractical form.
was exiressed in DepartTenta

Le exrressed until .the

definite oajeetion

circles to a Tiustee being noinated by

the League of Nations, it was fainted out that it was quite impossible
at the Toment tc any Aliether or no

to such a rrorosal.

It was sul,-).ested by a Eenatoi -rho is in close touch

.vita the Advninistration anu

the United States would be ak,reeatle


ctners that 1:.e pos6iLilit:x of

difference in views 86 to Trusteeshii mii_h1 Le oiviatea if the

Trustee .?:ere a


in consultation with


11..._.not 1- the Lea - ue of Nations.



em hasises

that1 in ari. evert, Austria's assets at the end of 20 ,ears would at,a11-

revert to the Re aiation Cotpmision
League of Nations would

nd that a Trustee nominated t- the

ae facto, only be 711..stee on i.ahalf Of the

,FerTrption Corrimier...4.Ir2-;refLILLczconsicleratia
It was, of course, recognised that the Unites States, equld,

if it so desired, apioint its o-n Trustee for its on suspenaed interest,
for instance, the American Ministel in Vienna, Jut it



felt that a Tultirlicetion of Trustees would to unfortunate, Tartieularly
if new loans were to ie partly subscribed by the Amertcart p4bli
yrorosr'l to flont such loans in the United S ates
aryrovel of the erashirgton AdTinistretion.


tie ovtllete





;Ban's Attitude.
Discussions reoirding the new loan are epitomized by my
cablegrams of ''arch 17th Frna ':u.roh 22nd (Annexes 1r and C).

no aoutt in

organ's mind as

their ability to


There is

eel half of a five

million sterlin6 loan for Austria in the United Etates if they think
it wise to do so.

It was new and actuall

startling to them that

Austria was in r position to make an alleal to the public except ad

Morgans, if ',hey pursue the project, mill desire to

satisfy themselves by investigation on the slot as to Austria's
ability eventually to become self-supporting.
':'organs dia not feel that matters were sufficiertl


advanced to uiscuss details as to the term. or interest and sirking fund
of the loan.

Au re6ards the TrusteesAI, Anderson, of :.r.organs, offhand

emiressed the view that tl',e appointment t

the League of Nations of a

Trustee who would also be the nominee of tie lenders would to socertable.

But the point was met


into clo3ely. ?Sr. Lamont was of the

opinion that nothing; more ccula Ye done until he arrived in Paris on


Fumours that the Austrian Government sere conduct

other negotiations in London, of which I Lau nr.t been notified, made

it imrosaible for me to take any other course.

If t:pse rumours are

confirmed "Vorgans, quite Iroperly, ail l have nothing mo7e to do with

any Austrian loan.

both in New York and

ashint,ton I was advlsed by ola friends

.with and ever oosed to

organs that it was of the k,reates

importarce to secure rorgan's influence for Austria's first attemit to
establish cxe it in kreiica.

There Austria is rearded as a horeless

Practically, the on1;,' news that aylears in American: newspoper

atout Austria refers to American relief Norf. or to tine

Of the country.

.oleles3 conditi

The retort of the ',Inance Committee, or the strength

of which the V.enate unanimously aliroveu the Lodge Fesolution,



leased on a. Flea to avert starvation in Austria ahici.. was icacribed as
11161r& .riolet then ever.

7o correct such impressions sr fficiertly to

raise e loan, the biggest financial guns must obviously- to brought int(



cc-oerating, force I /lave arranged *vita friends

influence yublieity



nd to Austria's aelf-telF

her financial rouse in

. Loover's tmerican relief

f tue fact tnat A7erican


'his will visualise

nything else, that

itute county;


rs other than itiorgana,

s of Kuhn, Loeb k Company,

ew )ork, althoueh resulting

ar to preclude fre from

question of an Austrian

mpany was slightly different.

een aiscussed with their

e unseretanding that they

nty Trust Company sill,

organs in the


evert of t :e

deral Reserve Lank, to ahem

gana (Annexes L and T.) trd

ived and tient, expressed

Austrian loan.

A.s re arda

that there should to



t hate for an American banker in the Trusteeship in the
event of the Trusteesbit not being delendent on or involved
Ath the League of :iationsf


If the 77.1:ateeship were in the hands of the T-eague of rations,
that the Americer bankers interested Shoul i hive t voice in
the approval of the ap.ointment.

As reards the iroloses Austrian lank of Issue, Governor
Ytrong. was of t: ,e oiinion t;.at t efore the loan under discussion was

arranged, a scheme of control for such a Lark, :Aving reasonable autonomy
should be egreea between the Austrian icvernment and the lenders.
:.vred the view that the lank. of


Tesue sheuld only be established as end

tfer, toe concerned were agreed, but laic: 3tress u!on the desirrillity
of the rlans for it being arranges; in advehce, lartics.iarly with f. view

to divorce the Government, an far es Icesitle, from the issue of crrencyJ
Governor Strong tido asgi,estes the uesirability of an understanaing at sr eerly stage tet-aeen the lenders of the ne:t lour and the

Lritisn, Czecn, or other Covernmtnts who might hve made interim advances
to Austria, M4 to the jaiciities of ti.eir repIective loans.

his view

was that if Austria, et a later uate, issued loans to pa3, off existing
interim Government credits, such loans should be either wholly GovernTent or wholly private loans and that in any event the arrangements
for the repayment of these interim Governmert advances should Le clearly
defined -refore an Americar housn issued an Auatrien loan.
Governor Strori, I think, oonziaered my Austrian 0-olossl as

an example of the iractjcal -ay in which to er.liet the co-operetion of
United States in re-establiehing economic equilibrium in Furore.
Or these lines American cankers mere 4L1 to willing to &e t, tOt he

pointed out that if American co-oierttion were really desired, it ,vas

moYe likely to be olt&ined if American iarkers -!rere erprcached
simultaneously instead of LIfIer committment hod definitel.) beer rrade with

aome issuing house in 7uroke.

March :Xi 19:2.




M. Foincare's idea is apparently to propose an arbitrary
reduction of the reparation liability cn condition t'_-at
(a) the French share of reparation is increased by the recog-

nition of a priority for material damages.
(b) interallied debts are written down or written off,

material security is given by Germany an

close allied

control established over German finances.
';ossip credits 1.!i- with being prepared for 1 reduction to

40 milliards gold narks provided Great Britain will forgo her
share of reparation altogether and cancel the inter-allied debts
ovIng to her.

The objections to this policy are (a) The arbitrary fixation of the Gernan liability at any
figure which -61-e French would be willing to accept would not now
advance a settler..ent.

Germany would default in respect of the reduced obligation
at a very early date and Great Britain would be then committed to
coercive action with as little prospect as ever of such action
producing financial results of any value.

We should have sacrificed our share of whatever it may

prove possible to extract from Gerrany and abandoned our claims
in respect of inter-allied debts for ro advantage whatever.

We should -aste a good deal of time in vrangl'ng with

Germany over securities which if we obtained then would prove
useless and obtaining controls which would not work in practice
and for the financial urproductIveness of which the Allies themselves would be responsible.

Until the mark has been stabilised, budget equilibrium
established and German internal credit restored, it is no good
trying to fix a reparation total,
Until we 1-now how much can be recovered from Germany

it would be premature to declde how it is to be divided.


Until we know how much France will recover it is
impossible to say what concessions are required in regard to interallied debts.

It is suggested that either the Reparation Commission
or the Allied Governments should appoint a Corly7'.ttee of Bankers

to formulate a plan for stabilizing the mark indicating clearly
the concessions on the part of Germany's reparation creditors
which are necessary to its success, and that tho proposed conference sl,ould not be held until this report has been received and

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