to call particular attention to the Department's telegram No. 170, dated September 2, 6 p. m.3 54 As set out in my telegram No. 156, dated September 5, 5 p. m.,55 the German authorities have stated that the German Government is opposed to the indiscriminate contraction of loans by German municipalities, but that otherwise the press report of September 2 was incorrect. I added, for the Department's confidential information, that a group of municipalities, advocating the policy indicated, had approached the representatives of the National City Bank here in an endeavor to secure loans, but that the bank had refused to consider their proposition. 55 I have discussed this matter with a number of the higher German officials and many of the leading industrialists and financiers, (see my despatch No. 147, of August 6, 1925), and their opinion, without exception, has been that, if American capitalists continue granting considerable loans to German municipalities, the result will be disastrous for the future of German Economy and will eventually lead to interference, on the part of the Transfer Committee, with the Transfer out of Germany of the interest charges involved. The Government has attempted to put a curb on the borrowings; but, on account of a lack of a dependable majority in the Reichstag, the German Cabinet must play more than the usual amount of politics and is not always able to take a firm stand under the provisions of the law which requires that municipalities must receive the previous authorization of the Government before contracting loans (An additional step in this direction has recently been taken by the Prussian Government: See my despatch No. 251 of September 4 55). It is fully realized by German business men that, if reparations are to be paid and interest charges on loans now being contracted are to be met, it is necessary to take steps, without more delay, to bring about a change in the status of Germany's balance of trade. To do this, it is obviously necessary to build up German agriculture and German industry; and it is extremely difficult to build them up at this juncture on account of high interest rates prevailing as a result of a lack of liquid capital (not to mention other well-known difficulties, growing out of the application of the Treaty of Versailles, so frequently described in the international press by Germans and German partisans). With this in mind, these men of business say that the only thing that can save them is the ability to borrow abroad (and abroad, "The telegram reads as follows: "Press September 2 reports that German Government has adopted policy that municipalities will not contract any more individual loans but will unite to seek consolidated loans to be apportioned as required. Telegraph brief report and mail details." "Not printed. of course, means America). They feel that they, and not the greedy municipalities, should have first call on all money loaned to Germany. I take it for granted that American concerns which lend money here desire to be eventually repaid, and for this reason I am taking special occasion to ask consideration of the whole question. There are two points of view about lending money to Germany. One is that German industry, commerce, agriculture and finance are in a hopeless condition; reparations will never be paid; money loaned to Germany is thrown away. The second is this: it is a fact that economic conditions in Germany are not good at present, but they can be improved by letting Germany have enough money in the shape of loans to enable her to get back on her feet again. Once she is back on her feet again economically, she will find the necessary markets for her exports and be able to pay reparations and repay the money she has borrowed. The recent loan made by the National City Bank to the Rentenbank, for agricultural purposes, is a case in point. (See my telegram No. 159, dated September 14, 3 p. m.57) It does seem clear that the first essential is for agriculture, and, after agriculture, industry, to be given a chance; and they will get the chance if they are able to borrow moderate sums abroad; but it is essential to bear in mind that they should not be permitted to borrow more than they can repay, and each application should certainly be scrutinized most carefully as to its merits. With these factors in mind, I believe that the demands of the municipalities should be relegated to the background; and I have come to the conclusion that we can do no better service to Germany and to ourselves than to discourage the further placing of German municipal loans in America. I have [etc.] 862.51/2060 JACOB GOULD SCHURMAN The Ambassador in Germany (Schurman) to the Secretary of State No. 329 BERLIN, September 23, 1925. SIR: Concerning the efforts of German municipalities to borrow money in the United States, and especially to the last sentence of my telegram No. 156, dated September 5, 5 p. m.,57 I have the honor to transmit herewith an original copy of a pamphlet recently prepared by the Transfer Committee and entitled: "The American Loan of the Rentenbank Credit Institution and the Negotiations of the Girozentrale", and to refer to the second section of that document. "Not printed. 1 As is therein set out, it is no secret that the Girozentrale, which is the Bank of the Deutscher Sparkassen und Giroverband, has been in negotiations with the National City Bank for some months past with a view to floating a loan in America, the proceeds of which would be apportioned among certain Communes in Germany. According to the press, the National City Bank had expressed its readiness in principle to place this loan, but, before doing so, was anxious to know what the attitude of the American market would be to the loan of the Credit Institution of the Rentenbank. At the same time, I desire to ask attention to press reports here, which describe the successful floating in New York of a recent loan of about ten million dollars to the City of Bremen and which, according to the evening edition of the Boersen Courier of September 23rd, was oversubscribed. The same journal contained the following statement in connection with the placing of further loans to the United States: "In view of the success of the Bremen loan in New York, it is probable that a Bavarian State loan of about 25 million dollars will be floated. It is said that a syndicate composed of the Guaranty Trust Company, et al., will offer this loan on about October 1, 1925. It is further stated that an American banking group will arrange a loan of five million dollars for the city of Posen (now Poland)." With the situation as described in my confidential despatch No. 295, dated September 15, 1925, in mind, I have the honor again respectfully to emphasize the inherent dangers of this policy, and again to point out that American financiers are running risks that do not seem to me to be justified, in advancing these large amounts to German municipalities. I am told that the reason why the bankers are ready to handle municipal and state loans is that these bonds find a more receptive market in the United States than do bonds of industrial or commercial concerns. The reason for this lies in the fact that the muncipalities and states, in most instances, can advertise the fact that, as a result of inflation, they have wiped out practically all, or nearly all, of their indebtedness. (They, of course, do not mention that this was a species of repudiation). While I realize that the factor just mentioned would unquestionably add to the attractiveness of an issue, I still believe that the other factors involved (those set out with my despatch No. 295), are of much more serious import, and therefore I desire again to go on record as discountenancing the granting of loans by American capitalists to German Communes and Communal associations. I have [etc.] JACOB GOULD SCHURMAN 862.51/2061 The Ambassador in Germany (Schurman) to the Secretary of State No. 344 BERLIN, September 29, 1925. SIR: Referring to my confidential despatches Nos. 295, of September 15, and 329, of September 23, 1925, on the Credit Question, I have the honor to say that I desire again to go on record as issuing a warning on the present policy of American financiers in lending money in Germany. The Vossische Zeitung of this morning states that the Bavarian loan was oversubscribed shortly after it was offered on the New York Stock Exchange. This loan, of course, belonged to the class that is being so roundly denounced by leading Germans. This whole question was recently fully discussed at the Bankers' Annual Congress, where the opinion was expressed, on all sides, that "foreign loans should be avoided as far as possible and should be contracted only when they will speedily and directly increase national production, and, in particular, increase the production of goods that are sure of an export market, so enabling interest and principal to be paid." It is a commentary upon present conditions that representatives of American financial interests here in Berlin have actually been competing against each other in an effort to get some of the loans recently contracted. I have [etc.] JACOB GOULD SCHURMAN 862.51/2057: Telegram The Ambassador in Germany (Schurman) to the Secretary of State BERLIN, October 16, 1925—7 p. m. 173. From Gilbert 59 for your information. I have been receiving repeated inquiries within the past few days from representatives of American banking houses as to the attitude of the Transfer Committee toward service of the German loans floated in the United States. Practically all these inquiries have duplicated inquiries on the same point which were made nearly a year ago and one banker has said that occasion for renewed inquiry was that the Department of State had advised his New York office to make such inquiries of the agent general for reparation payments. He said further that State Department has included advice to this effect in its formal 5 S. Parker Gilbert, agent general for reparation payments. letters to bankers indicating Department's attitude toward several recent German loans. If the Department is in fact giving this advice to bankers I should very much appreciate sample testimonial by cable. Our consistent answer to all such inquiries from the beginning of operations under the experts' plan 60 has been that neither agent general nor the Transfer Committee can give any assurances whatever with respect to the service of loans which is [are] floated abroad by German states or municipalities or industrial or other undertakings, and bankers and others interested have been referred to the experts' plan and the London Agreement 1 for a statement of the powers and responsibilities of the agent general and the Transfer Committee in respect to the foreign exchange and the transfer of reparation payments. There has been no change in the situation so far as the Transfer Committee is concerned and its attitude in the matter remains unchanged. 61 SCHURMAN 862.51/2057: Telegram The Secretary of State to the Ambassador in Germany (Schurman) WASHINGTON, October 17, 1925-7 p. m. 184. Your 173, October 16, 7 p. m., regarding German loans. The Department is replying as follows to American bankers consulting it regarding proposed flotation of German loans in American market, and you may so inform Gilbert: 60 "Since the flotation of the German external loan provided for by the Dawes plan, offerings of German loans in the American market have aggregated, according to the information before this Department, more than $150,000,000, and it appears that a considerable volume of additional German financing is now in contemplation. In addition to the public offerings referred to above, the Department is informed that a large amount of private bank and commercial credits has been extended to German interests during the past year. "In these circumstances the Department believes that American bankers should examine with particular care all German financing that is brought to their attention, with a view to ascertaining whether the loan proceeds are to be used for productive and self-supporting objects that will improve, directly or indirectly, the economic condition of Germany and tend to aid that country in meeting its financial obligations at home and abroad. In this connection I feel that I should inform you that the Department is advised that the German Federal authorities themselves are not disposed to view with favor the The Reparation Commission, The Experts' Plan for Reparation Payments (Paris, 1926), p. 2. "Ibid., p. 130. |