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Notes to Part VIII, Articles 231 to 247-Continued

On May 2, 1923 a German memorandum proposed a total obligation of 30,000,000,000 gold marks raised before July 1, 1930 "by a bond issue at normal rates of interest on the international money market" (Foreign Relations, 1923, 11, 57). On June 7, 1923 Germany asked for a conference to determine its capacity to pay, which "depends on the character of the settlement as a whole", and included limited proposals. The note declared that "Germany acknowledges her liability to make reparation" (ibid., p. 62). There followed an extensive production and exchange of analyses and proposals (United Kingdom, Correspondence with the Allied Governments respecting Reparation Payments by Germany, Misc. No. 5, Cmd. 1943).

The United States Government was not oblivious of these developments. On October 17, 1922 the Secretary of State suggested to the Ambassador in France "that the question of German reparation should be considered immediately by a committee of business men with approval of the Governments." But "any suggestion looking to a discussion of debts would cause violent opposition here and render a conference futile" (Foreign Relations, 1922, 1, 169). The French Premier was "characteristically non-committal". On December 27, 1922 the President wrote to the chairman of the Senate Committee on Foreign Relations that a proposed amendment to the pending naval bill requesting him to call an economic conference to deal with conditions in the war-torn nations of Europe was "undesirable". He regarded a conference as futile until it was understood that it would be welcomed "within the limits of discussion which the expressed will of Congress compels this Government to impose" (Congressional Record, Dec. 28, 1922, p. 982).

He specified:

1. That Congress had not given its consent to the United States being represented on the Reparation Commission, as the reservation to the treaty restoring friendly relations required;

2. That the first practical step to facilitate the United States really dealing with the European situation was to free the hands of the Executive, the explicit terms for rates of interest and ultimate time of payment of intergovernmental debts being cited as hampering restrictions created by law;

3. That the United States could not assume to say what reparation should be paid or accepted, though adjustment of reparation was "quite generally accepted" as underlying any economic rehabilitation of Europe;

Notes to Part VIII, Articles 231 to 247—Continued

4. That it was inconsistent for the United States to initiate a conference in which foreign governments would insist that European debts to the United States and reparation were connected and the United States was denied all authority by act of Congress to negotiate on that contention.

The Secretary of State on December 29, 1922 delivered an address before the American Historical Association which was telegraphed to Paris, London, Brussels, Rome, Lausanne, and Berlin (Foreign Relations, 1922, п, 199). After reviewing the economic situation in Europe, on which statesmen were not agreed, he asked:

"Why should they not invite men of the highest authority in finance in their respective countries-men of such prestige, experience and honor that their agreement upon the amount to be paid, and upon a financial plan for working out the payments, would be accepted throughout the world as the most authoritative expression obtainable?"

He commented that "I have no doubt that distinguished Americans would be willing to serve in such a commission".

"The extremely critical economic position that has arisen in Europe owing to the failure to discover any solution to the reparation problem" actuated a resumption of correspondence in October 1923 (ibid., 1923, 11, 68 ff.). Beginning in conversations between the British Embassy at Washington and the Secretary of State on October 13 and 15, the negotiations culminated in the adoption by the Reparation Commission on November 30 of the following resolution (Reparation Commission, Official Documents, XIV, 1):

"In order to consider, in accordance with the provisions of Article 234 of the Treaty of Versailles, the resources and capacity of Germany, and after giving her representatives a just opportunity to be heard, the Reparation Commission decided to create two Committees of Experts belonging to the Allied and Associated countries.

"One of these Committees would be entrusted with considering the means of balancing the Budget and the measures to be taken to stabilise the currency.

"The other would consider the means of estimating the amount of exported capital and of bringing it back into Germany."

The two committees sat from January 14 to April 9, 1924. Charles G. Dawes, a national of the United States, was chairman

Notes to Part VIII, Articles 231 to 247—Continued

of the First Committee, and its report came to be known indifferently as the Dawes Plan and the Experts' Plan. Reginald McKenna, United Kingdom, was chairman of the Second Committee, consisting, as its sister body, of nationals of the United States, United Kingdom, France, Italy, and Belgium. Both reports were published by the Reparation Commission in its Official Documents, xiv.

The Dawes Plan confined its recommendations to the means of balancing the budget and the measures to be taken to stabilize the currency. Approaching these questions from the standpoint of business, the committee found itself under the necessity of determining the foreign debt obligation of the German Government and of devising means of recovering the required annual amounts from the German economy; of providing for the transfer of payments to the creditors; of devising methods of financial and currency reconstruction; and of insuring economic guaranties for the continuance of the payments stipulated, consistent with German financial autonomy. The plan provided for—

1. The establishment of a new Reichsbank and new currency, with the aid of an external gold loan;1

2. The fixation of annuities, the payment of which was to "comprise all amounts for which Germany may be liable to the Allied and Associated Powers for the costs arising out of the War, including reparation, restitution, all costs of all armies of occupation, clearing house operations, to the extent of those balances which the Reparation Commission decide must legitimately remain a definitive charge on the German Government, commissions of control and supervision, etc.;"

3. The assumption by the creditors of any exchange hazard. Payment in German currency into the Reichsbank to the credit of the Agent-General for Reparation Payments was "the definitive act of the German Government in meeting its financial obligations under the plan";

4. The sources of the annuities were defined. One half of a standard annuity of 2,500,000,000 gold marks was to come ultimately

1 The general bond of the 800,000,000 gold marks German loan of October 10, 1924 is printed in Reparation Commission, Documents, XIV, 318. It met the greater part of the first annuity of 1,000,000,000 gold marks.

The four additional annuities, in gold marks, were: September 1924-August 1925, 1,220,000,000; September 1925-August 1926, 1,200,000,000; September 1926-August 1927, 1,750,000,000; September 1927-August 1928, 2,500,000,000.

Notes to Part VIII, Articles 231 to 247-Continued

from the German budget, this payment being collaterally secured by the produce of certain assigned revenues subject to control by a commissioner appointed by the creditors. A second portion of the annuity was a specified amount from a direct tax on transport. A third amount was raised by transferring the German Government railway system to the German Railway Company, which transferred its own bonds to a commissioner appointed by the creditors. A final portion of the annuity consisted of debt service on "industrial debentures". Under complicated processes a debt liability was accepted by industrial corporations, and against this obligation as security were issued industrial debenture bonds in favor of the commissioner of the creditors;

5. The dependence of the reparation payments on the service of the German railway and the industrial debenture bonds created a basis for "commercializing" a part of the reparation debt;

6. In behalf of the creditors a Transfer Committee was established to manage the transfer of payments across the exchanges;

7. The whole system was supervised by the Agent-General for Reparation Payments, S. Parker Gilbert, Jr., whose very efficient. organization contributed materially to coordinating the system into a smoothly running machine with benefits to the German fiscal system and advantages to the creditors;

8. The entire system being specific and fully worked out, the Dawes Plan indicated, and the agreements of the London conference provided in detail for, the smoothing out of all friction concerning it by appropriate arbitral methods, 19 separate types of jurisdiction being provided. The most important of these was the Arbitral Tribunal of Interpretation between the Reparation Commission and the German Government;

9. The Reparation Commission, while continued in existence, was substantially superseded, except for its functions with regard to Austrian, Bulgarian, and Hungarian reparation.

The Second Committee of Experts also made a report on April 9, 1924 that allayed concern over the two subjects with which it dealt. The report analyzed the conditions which attend the migration of capital and found that its so-called flight in the German instance "was in the main the result of the usual factors". Speculation had been markedly a contributing factor. The committee reported that the normal remedies for the situation were the only ones that were applicable to Germany, namely, the attainment of stability and the restoration of confidence.

Notes to Part VIII, Articles 231 to 247—Continued

The results under the Experts' (Dawes) Plan were gratifying. The Agent-General for Reparation Payments, S. Parker Gilbert, Jr., the commissioners for railway and industrial debentures, and the Transfer Committee performed their assigned functions efficiently and their semi-annual reports gave evidence that the objectives of the Plan were being realized. The annuity under the Plan increased yearly and for the year beginning September 1, 1929 reached its intended level of 2,500,000,000 gold marks, the only change thereafter to be by application of the "prosperity index". The Plan itself put no term to the annuities unless they were to cease upon the full liquidation of the A, B and C bonds of the Schedule of Payments. Their original total of 132,000,000,000 gold marks was, however, deemed unreal even in 1921 as a realizable joint claim upon all four of the reparation debtors and the C bonds, amounting to 82,000,000,000 gold marks, required a fresh decision to become an active obligation, except for cancellation by credits of capital transfers or of Austrian, Bulgarian, and Hungarian payments. Minor liquidations from those four sources were not expected to reduce the outstanding total of those bonds to any notable extent. On the other hand, the creditors, in view of their own claims and their obligations for intergovernmental debts to the United States, were not willing to contemplate the full payment of the A and B issued bonds, 50,000,000,000 gold marks, as automatically liquidating reparation at some future date.

The Agent-General for Reparation Payments raised the question of a final settlement in his report of December 10, 1927 where he


"As time goes on and practical experience accumulates, it becomes always clearer that neither the reparation problem nor the other problems depending upon it will be finally solved until Germany has been given a definite task to perform on her own responsibility without foreign supervision and without transfer protection."

In his report of June 7, 1928 (Reparation Commission, Official Documents, XVII, 108), he stated that "fundamentally, what the Plan has done is to re-establish confidence and to permit Germany's reconstruction as a going concern. In so doing it has marked the turning point in the reconstruction of Europe, and it has also achieved its primary object, by securing from the very beginning the expected reparation payments and transfers to the creditor powers." He continued by calling attention to the fact that the Plan was not an

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