Notes to Part VIII, Articles 231 to 247—Continued

Debt certificate of the German Reich;

Certificate of the Deutsche Reichsbahn-Gesellschaft;

Revision of the German bank law;

Amendment of the law and statutes of the Deutsche Reichsbahn-Gesellschaft;

Assignment by way of collateral guaranty of revenues of the Reich to meet service on the German external loan, 19241;

Form of Trust Agreement;

Regulations for deliveries in kind;

Agreement of Berlin, January 2, 1930, for amending administration of the British Reparation Recovery Act and agreement of The Hague, January 18, 1930, for amending administration of the French Reparation Recovery Act;

Securities for the German external loan, 1924;

Arbitration rules of procedure.

Arrangement relating to the concurrent memorandum accompanying the Experts' report, January 20, 1930, with concurrent memorandum annexed.

Convention respecting the Bank for International Settlements; Constituent Charter and Statutes annexed.

Arrangement as to the financial mobilization of the German annuities.

Transitory provisions.

Financial agreement with Belgium, Brussels, July 13, 1929.

Agreement on the amnesty evacuation, Coblenz, October 5, 1929. German-American debt agreement as initialed December 28, 1929; finally signed June 23, 1930.

Liquidation agreements on property, rights, and interests: with Belgium (Berlin, July 13, 1929, and Brussels, January 16, 1930); with Poland (Warsaw, October 31, 1929); with Great Britain and Northern Ireland (London, December 28, 1929); with France (Paris, December 31, 1929); with Canada (The Hague, January 14, 1930); with Australia (The Hague, January 17, 1930); with New Zealand (The Hague, January 17, 1930); with Italy (The Hague, January 20, 1930).

1 The international agreement in regard to the German 5%1⁄2-percent loan, 1930, was signed at Paris June 10, 1930 and determined the text of the general bond between Germany and the Bank for International Settlements (United Kingdom, Foreign Office, Treaty Series No. 7 (1931), Cmd. 3761).

Notes to Part VIII, Articles 231 to 247-Continued

Agreement between the creditor states respecting Germany, January 20, 1930.

With others:

Agreement with Austria, January 20, 1930.

Agreement with Bulgaria, January 20, 1930.

Agreement with Hungary, with annexes embodying general agreement relating to the Agrarian Fund "A" and fund "B", etc.; put in final form at Paris April 28, 1930.

Agreement with Czechoslovakia, January 20, 1930.

Arrangement between the creditors respecting Austria, Hungary, Bulgaria, and liberation debts, January 20, 1930.

The German laws for carrying out the treaties of the Hague conference of 1929 and 1930, to amend the bank and Reichsbahn laws, and to give effect to the German-American debt agreement were enacted on March 13, 1930 (Reichsgesetzblatt, 1930, 1, No. 7).

The New (Young) Plan entered into force on May 17, 1930 with retroactive effect to September 1, 1929. It superseded the provisions of part VIII of the treaty of peace. The Reparation Commission, with respect to its functions under all four treaties, was in liquidation. In the view of the United States Government, the New (Young) Plan jeopardized the priority which it had obtained for its special claims to payment. The "unofficial observer" informed the AgentGeneral for Reparation Payments (Reparation Commission, Annex 4142A) that "the United States of America reserves all of its rights under existing treaties and the Paris Agreement of January 14, 1925" and that acceptance of payments would not "indicate an acceptance by this Government of the Young schedule of payments or the waiving of the priority which the United States enjoys at present in respect of army cost payments."

The Agent-General notified the Reparation Commission on May 15, 1930 of this statement. The agreement between Germany and the United States of June 23, 1930 (see p. 942) reconciled American interests with the New (Young) Plan.

INTERGOVERNMENTAL DEBTS AND REPARATION

An important feature of the New (Young) Plan was the inclusion in the annuities of "out-payments" which consolidated the overlapping debts and credits of the various creditors of Germany. The Committee of Experts made provision for these "out-payments" in

Notes to Part VIII, Articles 231 to 247-Continued

a "concurrent memorandum" issued simultaneously with, but not a part of, their main report. The governments of Belgium, France, Great Britain and Northern Ireland, Greece, Italy, Portugal, Rumania, and Yugoslavia concluded an arrangement on January 20, 1930 (104 League of Nations Treaty Series, p. 421) with the German Government to carry out the recommendations of the memorandum. The memorandum and arrangement recognized that there was a network of intergovernmental indebtedness in existence as a consequence of the war of 1914-18, and that the ability of the states creditors of Germany to pay the debts of their governments was related to their receipts from Germany and its former allies on the reparation account. Further, the experts were aware that the service of intergovernmental debts involved payments across the international exchanges which were not offset by commercial transactions and which consequently created a constant abnormal strain upon the international exchange system. The memorandum and arrangement constituted a first effective step of debtors to the United States Government to connect their obligations to pay the United States with the German obligation to pay them.

The President of the United States on June 22, 1921 submitted to the chairmen of the Ways and Means Committee of the House of Representatives and of the Finance Committee of the Senate a draft proposal for settlement of intergovernmental debts prepared by the Treasury (S.2135, 67th Cong., 1st sess.) which read:

An Act To enable the refunding of obligations of foreign governments owing to the United States of America, and for other purposes.

"Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury, with the approval of the President, is hereby authorized from time to time to refund or convert, and to extend the time of payment of the principal or the interest, or both, of any obligation of any foreign Government now owing to the United States of America, or any obligation of any foreign Government hereafter received by the United States of America (including obligations held by the United States Grain Corporation), arising out of the European War, into bonds or other obligations of such, or of any other, foreign Government, and from time to time to receive bonds and obligations of any foreign Government in substitution for those now or hereafter held by the United States of America, in such form and of such terms, conditions, date or dates of maturity, and rate or rates of interest, and with such security, if any, as shall be deemed for the best interests of the United States of America, and to adjust and settle any and all claims, not now represented by bonds or obligations, which the

Notes to Part VIII, Articles 231 to 247-Continued

United States of America now has or hereafter may have against any foreign Government and to accept securities therefor."

This bill was reported to the Senate by the Committee on Finance (S. Rept. 264, pts. 1 and 2, 67th Cong., 1st sess., serial 7918) on August 20, 1921. The committee's majority approved the proposal "as affording the best and most practicable method of handling the matter". It noted that in proposing to accept obligations of countries other than the debtor countries, the Treasury did not intend "to accept any German bonds unless it becomes necessary or desirable to do so in some now unforeseen special cases". A minority of six Senators said the bill ought not to pass. "Considerable misunderstanding" existed as to the purpose of the legislation as a consequence of the ensuing debate, which resulted in the introduction of H. R. 8762 in the general form of the legislation realized. "The popular belief," said the report from the Committee on Ways and Means upon that proposal (H. Rept. 421, 67th Cong., 1st sess., serial 7921) dated October 20, 1921, "seems to be that authority is sought by the Secretary either to exchange the obligations of one country for the obligations of some other country or to cancel a portion or all of the principal and interest due". A minority again argued for legislative rather than executive action.

The legislation which was eventually approved on February 9, 1922 (42 Stat. 363) differed materially from the original proposal. It created the World War Foreign Debt Commission, the members of which, except the Secretary of the Treasury, as chairman, were to be appointed by the President by and with the advice and consent of the Senate. The commission was authorized within three years to refund or convert obligations of foreign governments held by the United States (including obligations held by the United States Grain Corporation, the War Department, the Navy Department or the American Relief Administration) arising out of the war of 1914-18, into bonds or other obligations of such foreign governments "in such form and of such terms, conditions, date or dates of maturity, and rate or rates of interest, and with such security, if any, as shall be deemed for the best interests of the United States of America: Provided, that nothing contained in this act shall be construed to authorize or empower the commission to extend the time of maturity of any such bonds or other obligations due the United States of America by any foreign government beyond June 15, 1947, or to fix the rate of interest at less than 414 per centum per annum."

Notes to Part VIII, Articles 231 to 247—Continued

Section 3 of the Act prohibited "the exchange of bonds or other obligations of any foreign government for those of any other foreign government, or cancellation of any part of such indebtedness except through payment thereof." The authority of the commission was to cease with the refunding or conversion of obligations and the commission was to transmit to the Congress copies of refunding agreements entered into, with the approval of the President.

The passage of the American law had a reaction on August 1. 1922 when the British Foreign Office addressed a despatch to the representatives of France, Italy, Serb-Croat-Slovene State, Rumania, Portugal, and Greece, which together owed £3,400,000,000 to the United Kingdom, which in turn owed the United States £850,000,000. The Balfour note (United Kingdom, Misc. No. 5 (1922), Cmd. 1737) reverted to this "unexampled situation" because recent events left "little choice in the matter". The United States Government was exercising undoubted rights in requiring the United Kingdom to pay the accrued interest, to convert an unfunded into a funded debt and to pay it by a sinking fund in 25 years. This debt was not an isolated incident but was one of a connected series of transactions and "if our undoubted obligations as a debtor are to be enforced, our not less undoubted rights as a creditor cannot be left wholly in abeyance". The debts were incurred and the loans made "not for the separate advantage of particular states, but for a great purpose common to them all." Among the current economic ills "must certainly be reckoned the weight of international indebtedness, with all its unhappy effects upon credit and exchange, upon national production and international trade." Though also a creditor on balance, "the policy favored by His Majesty is that of surrendering their share of German reparation, and writing off, through one great transaction, the whole body of inter-allied indebtedness."

The British note stated that "half the £2,000,000,000 advanced to allies were provided, not by means of foreign loans, but by internal borrowing and war taxation." With reference to the arrangement with the United States, it was asserted "that, though our Allies were to spend the money, it was only on our security that [the United States] were prepared to lend it." The role assigned to Great Britain in the "cooperative effort . . of infinite value" was scarcely "one of special privilege or advantage”.

A copy of this dispatch was transmitted to the Department of State (file 800.51 W 89/28), and communicated to the Treasury Department.