British Policy and European Reconstruction after the First World War

British policy and European reconstruction after the First World War

BRITISH POLICY AND EUROPEAN RECONSTRUCTION AFTER THE FIRST WORLD WAR

ANNEORDE Senior Lecturer in History, University of Durham

The right of the University of Cambridge to print and sell all manner of books was granted by Henry Vlll in 1534. The University has printed and published continuously since 1584.

CAMBRIDGE UNIVERSITY PRESS Cambridge New York Port Chester Melbourne Sydney

Published by the Press Syndicate of the University of Cambridge The Pitt Building, Trumpington Street, Cambridge CB2 1RP 40 West 20th Street, New York, NY 10022, USA 10 Stamford Road, Oakleigh, Melbourne 3166, Australia © Cambridge University Press 1990 First published 1990 Printed in Great Britain at the University Press, Cambridge British Library cataloguing in publication data Orde, Anne British policy and European construction after the First World War 1. Europe. Reconstruction, 1918-1929. Policies of British government. Great Britain. Government. Policies on European reconstruction, 1918-1929 I. Title 940.5'l Library of Congress cataloguing in publication data Orde, Anne. British policy and European reconstruction after the First World War / Anne Orde. p. cm. Bibliography. Includes index. ISBN 0-521-37150-3 1. Great Britain - Foreign economic relations - Europe. 2. Europe Foreign Economic relations - Great Britain. 3. Reconstruction (1914-1939) - Europe. 4. Great Britain - Economic policy - 1918-1945. I. Title. HF1534.5.E9073 1990 337.4104 -dc20 89-7211CIP

Contents

page Preface

vii

List of Abbreviations

ix

Introduction

1

1 Wartime planning

5

2

Armistice and peace conference

3

32

Western Europe from Paris to Brussels, 1919-20 Defining the problems The question of debts Allied cooperation and the Brussels conference 4 East central Europe: relief and reconstruction, 1919-22 Relief, reconstruction, and business, 1919-20 Credits for central and eastern Europe, 1921 Austria and central Europe, 1922

65 66 77 96 108 108 118 130

5

From Brussels to Cannes, 1920-2 Reparations and debts, 1920-1 The origins of Lloyd George's grand design

146 148 160

6

From Genoa to the Ruhr, 1922-3 The failure of Lloyd George's grand design The circle of reparations and debts

183 183 208

7 The first debt settlement and revision of reparations, 1923-4 The British debt settlement

227 227

vi

Contents Britain and the occupation of the Ruhr The Dawes plan The London conference and the German loan

237 245 253

8

The spread of stability, 1923-8 The financial reconstruction of Hungary Central and eastern Europe: credit and trade The League of Nations: Greece and Bulgaria War debt settlements Monetary stabilisation

266 266 274 284 292 299

9

Reconstructed Europe The Geneva conference of 1927 Conclusion

316 316 321

Bibliography Index

333 349

Preface

Since the French archives for the period were opened and German archives were extensively used, and United States politics were re-examined, a new picture of the international political economy of the years after the First World War has largely replaced the traditional one, especially as far as the problems and policies of France, Germany, and the United States are concerned. So far, however, Britain's role has received less fresh consideration, and the recently painted international picture thus contains an incomplete or unrevised corner - a corner that is of some importance. This study is intended tofillthat gap, and to extend the picture beyond FrancoGerman problems, by examining British policy on reconstruction in the whole of Europe, east and west, and linking together aspects of reconstruction that are often kept separate from one another. In the course of my research I have received help from many institutions and individuals. The University of Durham and the British Academy have provided grants for a number of visits to foreign archives. Colleagues at Durham have given me much encouragement and help, notably Dr Margaret Harvey and Professor W. R. Ward, Dr Ranald Michie and Dr Philip Williamson. Miss Joan Grant did the heaviest work of the typing. Elsewhere, Dr Kathleen Burk generously shared material with me. Mr Henry Gillett kindly allowed me access to the archives of the Bank of England; Dr John Orbell made it possible for me to work in the archives of Baring Brothers and Co.; Mr Desmond Harney allowed me to use material in the archives of Morgan Grenfell and Co. Mr Carl Backlund received me kindly in the archives of the Federal Reserve Bank of New York; and M. Sven Welander in those of the League of Nations. The curators of manuscripts at Amherst College, Princeton University, and Yale University most kindly identified material for me and supplied photocopies. To the custodians of all the other archives listed in the bibliography, I am also indebted for hospitality and assistance. Crown Copyright material is quoted by permission of the Controller of vn

viii

Preface

Her Majesty's Stationery Office. For other permissions I am indebted to the Baker Library, Harvard Business School (Lamont Papers); the Bank of England (Norman correspondence); the Bodleian Library (Grigg Papers); the Master, Fellows and Scholars of Churchill College in the University of Cambridge and the Earl of Swinton (Hankey Papers, Swinton Papers); Columbia University Press (Marc Trachtenberg, Reparation in World Politics); the Federal Reserve Bank of New York (Benjamin Strong Papers); the Hon. Lady Ford and Lord Kindersley (Brand Papers); The Guardian {Manchester Guardian Commercial); William Heinemann Ltd (Martin Gilbert, Winston S. Churchill); the Clerk of the Records, House of Lords and the Trustees of the Beaverbrook Foundation (Lloyd George Papers); the League of Nations Archives and Historical Collections Unit; Oxford University Press (Walther Rathenau. Industrialist, Banker, Intellectual and Politician; Notes and Diaries 1907-1922, 1985); Princeton University Press (The Papers of Woodrow Wilson); the Royal Economic Society and Macmillan, London and Basingstoke (J. M. Keynes, Collected Writings); the Royal Institute of International Affairs (Survey of International Affairs); Yale University and Mr Edward Pulling (Russell C. Leffingwell Papers).

Note: 1 billion= 1,000 million.

Abbreviations

AN ARK BB BE BFSP BL BT CAB FO FRUS FRUS, PPC HCDeb. HHStA HLDeb. LC LN Arch. LNOJ MAE MAE, PA MAE, RC MF MG Papers NA RG RIIA T

Archives Nationales, Paris Akten der Reich skanzlei, Weimarer Republik with name of chancellor Baring Brothers and Co. Ltd, archives Bank of England archives British and Foreign State Papers British Library Board of Trade Cabinet Foreign Office Papers Relating to the Foreign Relations of the United States Papers Relating to the Foreign Relations of the United States, The Paris Peace Conference The Parliamentary Debates, House of Commons Haus-, Hof- und Staatsarchiv, Vienna The Parliamentary Debates, House of Lords Library of Congress League of Nations Archives, Series 1919-27 League of Nations, Official Journal Ministere des Affaires Etrangeres, Paris Ministere des Affaires Etrangeres, Papiers d'Agents Ministere des Affaires Etrangeres, Serie Relations Commerciales, sous-serie B.81 Ministere des Finances, Paris Morgan Grenfell and Co. archives National Archives, Washington Record Group Royal Institute of International Affairs Treasury

IX

Introduction

The first total war of the twentieth century lasted four and a quarter years. It covered almost the whole continent of Europe and theatres in the Near East and Africa, not to mention the high seas. It involved many millions of fighting men, claimed some eight million lives, engaged the economies of all the belligerent countries to an unprecedented degree, cost more than it had been thought any country's finances could bear, and introduced political and social upheaval. Europe bore the main brunt of the fighting, the casualties, the damage, and the direct and indirect costs: the task of reconstruction therefore mainly concerned Europe. The war also speeded the development of a trend that had started well before 1914, the growth of major centres of political and economic power outside Europe, above all in the United States. This development affected the task of reconstruction and helped to determine international economic (and to a lesser extent political) relations for the whole of the interwar period. Later experience suggests that the task of reconstruction after the First World War was generally underestimated and misunderstood. This should not be particularly surprising. There were no precedents; the pre-1914 international system did not provide useful tools; the new political order being devised as a result of the war provided some fresh ideas, but it was not universally accepted. Europe did recover from the First World War, but unevenly; and some of the means used enhanced later difficulties. This study is concerned with Britain's role, in conjunction with other countries, from the war to the late 1920s. Britain's position was singular. She was one of the major Allies, sharing responsibility for the peace settlement and the postwar world. She had suffered little material damage, but had lost trade and financial resources and was unable to make good the loss. She both needed the recovery of Europe and was expected to contribute largely to it; but her means were limited and her will hesitant. In the story that follows attention is focused largely on government policy making. So far as there could be any policy on reconstruction at all, it had 1

2

Introduction

to be found by government and the central monetary authorities; and government was directly responsible for dealing with inter-governmental war debts and reparations, those interlinked questions that loomed so large in the international financial and economic scene of the period. Beyond this, despite continuing faith in the relatively free-market liberal capitalism of the nineteenth century, government support was looked for by all kinds of institutions involved In reconstruction. Support was sometimes given, sometimes refused; but some degree of government involvement proved almost inescapable. Private enterprise provided most of the resources. British banks and companies financed, insured, and shipped the trade of many countries. British investors put money into European loans and enterprises.1 But there was no great expansion of involvement in Europe, and private enterprise was often reluctant to act on its own where the risks were great. Its role, in particular the attitudes and aspirations of bankers, form an important part of this story. Ideas about reconstruction in Britain during the war were almost wholly concerned with domestic and imperial matters: such international schemes as were considered were based on the expectation of an inconclusive outcome, and so were irrelevant in the situation of 1918. Projects at the very end of the war for continuing, in a short transitional period, some of the Allied machinery of cooperation foundered on United States refusal to allow others any say in the use of American resources. Attempts, mainly French, to get a redistribution of costs and burdens among the Allies proved equally vain; and it was largely as a result of this failure that the French insisted on integral reparation by Germany. Britain bore as much responsibility as France for the unrealistic burden laid upon Germany. The Americans argued the drawbacks but would not give any inducement to others to demand less. John Maynard Keynes's denunciation, in The Economic Consequences of the Peace, of the Big Four for indifference to economic problems was as extreme as the rest of his polemic.2 The Four were certainly more at home with political and military questions, and the peace conference was not well organised to deal with matters outside the treaty terms; but the French did try to get financial questions considered as a whole; and the British, not least Keynes himself, put forward proposals for a combined policy on reconstruction. All were defeated at American hands. Whilst individual Americans understood the problems of reconstruction as well as any European, United States administrations of the period were firmly convinced both that the task ought to be left to private expertise and that Congress would never commit the taxpayer's money. It was this belief, 1 2

Figures of trade, lending and investment are discussed in ch. 9. J.M. Keynes, The Economic Consequences of the Peace, London 1919, pp. 211-12.

Introduction

3

coupled with a desire to avoid political engagements, that frustrated all attempts to enlist official American cooperation in reconstruction.3 British governments largely shared this outlook, becoming involved only reluctantly; but they were more pragmatic; they needed international cooperation more than the Americans did; and the prevailing economic attitude was more internationalist.4 In the field of inter-governmental indebtedness Britain was both a debtor to the United States and a creditor of the continental Allies (and a net creditor overall). The governments led by Lloyd George and Bonar Law found it extremely difficult to decide on policy about war debts, and on relating debts and reparations. Except for a brief moment in the summer of 1920 they would not consider making common cause with their fellow debtors; but they neither succeeded in making common cause with their fellow creditors nor devised an effective independent policy. Until 1923 they waited for an American initiative that never came; and when they finally settled terms with the United States neither they nor their successors made much use of the resulting greater freedom of manoeuvre. On one occasion only, in the winter of 1921-2, did a British government take an initiative to bring all the problems of reconstruction, reparations, debts, the pacification of eastern Europe and the restoration of Soviet Russia to the international comity, into one comprehensive conference. That scheme was too vast to be brought off virtually single-handed: the Genoa conference failed to settle any of the problems it was called to discuss, leaving behind only a project for international central banking and monetary cooperation. Britain's share in bringing about the provisional settlement of German reparations reached in 1924 was not decisive in itself but demonstrated what could be achieved by Anglo-American collaboration when the United States, from its own angle of interest, was prepared to become 3

4

Recent American scholarship has overturned the traditional interpretation of reactionary isolationism in the 1920s and emphasises both, in the domestic area, the associationalism or corporatism of Republican policy-makers such as Herbert Hoover and, on the international front, their pursuit of economic cooperation and partnership. See, for example, Michael J. Hogan, Informal Entente. The Private Structure of Cooperation in AngloAmerican Economic Diplomacy 1918-1928, Columbia, Mo. 1977; Ellis W. Hawley, ed., Herbert Hoover as Secretary of Commerce. Studies in New Era Thought and Practice, Iowa City 1981; Melvyn P. Leffler, 'American policy making and European stability 1921-1933', in Pacific Historical Review, 46 (1977), pp. 207-28; Melvyn P. Leffler, The Elusive Quest. America's Pursuit of European Stability and French Security, 1919-1933, Chapel Hill 1979; and, emphasising the continuity between the 1920s and the 1940s, Michael J. Hogan, The Marshall Plan, Cambridge 1987, Introduction. In some cases, seen from a British or European viewpoint, the picture of cooperation either envisaged or achieved seems overdrawn, but the general emphasis is useful. Robert D. Boyce, British Capitalism at the Crossroads 1919-1932, Cambridge 1987, emphasises in ch. 1 the preponderance of economic internationalism in this period.

4

Introduction

involved effectively. Then American and British interests were sufficiently close for the settlement to be an Anglo-American one, imposed on France; and the settlement ushered in a few years of American investment in Europe, prosperity and greater political stability, when reconstruction seemed really to have worked. As regards central and eastern Europe Britain could take some credit for pioneering, after initial reluctance to take any responsibility at all, a system of international financial reconstruction through the League of Nations. Britain provided much of the influence and British lenders nearly half the money for the League loans. They were intended for stabilisation: development was still regarded as a matter for purely private finance without guidance or blessing from other authorities; so their contribution to the economic well-being of the countries concerned was limited. It is much clearer to historians than it was to the actors at the time that after the First World War (indeed already before it) Britain as a power was in relative decline. The 1920s were a transition decade, when in some respects Britain's power had been relatively enhanced by the outcome of the war, whilst in other respects the decline was manifest but might still be thought capable of being halted. The decline and its management are themes of the story that follows. Another theme is the limited capacity, conceptually and institutionally, of the liberal capitalist order for the task of reconstruction. In tracing the details of the decisions taken and the choices made, it is important not to lose sight of the underlying fact that the domestic and the international politics and economics of reconstruction were the products of the mental world of politicians, bankers, industrialists, and citizens. That world too was in transition in the 1920s, although not perhaps as fast as it ought to have been. This book is intended not least as a contribution to its understanding.

Chapter 1

Wartime planning

Wartime planning in Britain for postwar reconstruction was neither extensive nor, in the event, very useful. Some domestic problems were identified and considered; but such thought as was given to international aspects was directed almost entirely to continuing economic warfare against Germany by the control of trade, rather than towards the task of reconstruction itself. Only at the very end of the war did some government officials and ministers show any appreciation of the European problem; but their suggestions were tentative and, in the hectic circumstances of the armistice, failed to reach the highest policy-making levels. During the first year or two of the war, planning for the postwar world was of little concern to the British government. Once it was plain that the war would be long drawn out, there was little reason to anticipate problems that were not urgent, and that threatened to raise questions of relations with Allies and neutrals, and differences within the coalition itself. Down to the end of 1916 the development of British war aims was mainly prompted by the demands of existing allies and attempts to win new ones. The resulting secret inter-Allied agreements were almost entirely concerned with territory and said little or nothing about postwar relations.1 Down to the end of the peace conference, discussion of a league of nations was mainly concerned with the problem of preventing war; but there were some references by radicals and the Labour Party to the possible role of a league in assuring access to raw materials and in economic cooperation.2 After Lloyd George became prime minister in December 1916, planning for domestic reconstruction was stimulated by the increasingly felt need to 1

2

For the overall development of war aims see V.H. Rothwell, British War Aims and Peace Diplomacy 1914-1918, Oxford 1971, ch. 1. George W. Egerton, Great Britain and the Creation of the League of Nations, London 1979, pp. 15-17, 54-5; Henry R. Winkler, The League of Nations Movement in Great Britain 1914-19, New Brunswick, N J . 1952, pp. 38-40, 177, 179, 186-90; Laurence W. Martin, Peace without Victory. Woodrow Wilson and the British Liberals, New Haven 1958, pp. 76-7.

6

Wartime planning

attend to working-class morale and compete with the radical Left. A Ministry of Reconstruction was set up in July 1917 under Dr Christopher Addison. By the time of the armistice the ministry had considered longterm reforms in areas such as housing, education, a Ministry of Health and an end to the Poor Law, much of which received legislative enactment in 1919. Little thought was given to long-term economic policy. For the transition period from war to peace, plans had been made for demobilising the army, for decontrol and for supplies; but the government had not decided a number of important questions such as policy on prices, finance, and coal.3 As far as external aspects of reconstruction were concerned, most of the discussion within Whitehall and among publicists and interest groups was taken up with securing British and imperial interests, protecting postwar trade, and promoting national and imperial self-sufficiency. Wartime experience of government control and economic management bred in some quarters and for some time an appetite for more. The principal motive was anti-Germanism. The war exacerbated all forms of anti-German sentiment, including the economic hostility that had been growing before 1914.4 Germany was now widely credited (although without any real evidence) with far-reaching plans for a commercial offensive and continuing hostilities by economic means after the fighting was over; and so the British, like the French, considered such means for waging trade war, in the postwar period, as protective tariffs, control of raw materials, support of key industries, and denial to Germany of most-favoured-nation treatment.5 The need to support certain industries in which Germany had had a virtual monopoly, such as aniline dyes and optical glass, eventually bore fruit in the Safeguarding of Industries Act of 1921.6 But even in 1916, not only did Asquith warn against getting carried away by belligerent zeal into taking steps that could harm Britain more than Germany, the Board of Trade considered that 'permanent crushing of the commercial and industrial power of Germany', even if practicable, would not be to Britain's ultimate economic advantage.7 Later, whilst ministers were not very confident that the blockade could win the war, there was a good deal 3 4

5

6

7

See Paul Barton Johnson, Land Fit for Heroes, Chicago 1968, esp. ch. 2. See Paul Kennedy, The Rise of the Anglo-German Antagonism 1860-1914, London 1980, pp.291-320. Robert E. Bunselmeyer, The Cost of the War. British Economic War Aims and the Origins of Reparation, Hamden, Conn. 1975, pp. 21—33; Rothwell, British War Aims, pp. 266—8. Sidney Pollard, The Development of the British Economy 1914-1967, 2nd edn, London 1969, pp. 193-4, 196. Parliamentary Debates, House of Commons, 5th series, hereafter cited as HCDeb., Vol. 80, cols. 1771-4 (9 Mar. 1916); Board of Trade memorandum, 27 Oct. 1916, circulated as P 12, 24 Jan. 1917, London, Public Record Office, CAB 32/1. Documents in the Public Record Office are hereafter cited by document number, class and volume number.

Wartime planning

7

of support for the idea that a threat to withhold vital raw materials after the war could force Germany to make peace.8 An important element in most discussions was imperial economic cooperation. For imperialists such cooperation would be a step towards imperial federation; but that aim was confined to a limited group in Britain and had few adherents in the Dominions. It raised the issue - free trade, imperial preference, protection - on which there had been deep political conflict before the war (not only between Liberals and Conservatives, but within the Conservative party) and on which there was a party truce for the duration. 9 Economic cooperation was discussed at the Imperial War Conference of March-April 1917. Few of those present favoured imperial federation, but there was general support for greater cooperation, and a resolution of 26 April accepted the principle of imperial preference, stating: The time has arrived when all possible encouragement should be given to the development of Imperial resources, and especially to making the Empire independent of other countries in respect of food supplies, raw materials and essential industries. With these objects in view the conference expressed itself in favour of: - 1 .The principle that each part of the Empire, having due regard to the interests of our Allies, shall give especially favourable treatment and facilities to the produce and manufactures of other parts of the Empire.10 Whilst imperialists regarded this resolution as the adoption of imperial preference, the inclusion of the phrase 'having due regard to the interests of our Allies' was largely the work of Lord Robert Cecil, Parliamentary Under-Secretary of State for Foreign Affairs and Minister of Blockade. In the discussion he emphasised the importance of avoiding discrimination, especially against France and the United States.11 Allied economic cooperation had been discussed in both Britain and France since an early stage of the war, primarily for war purposes but with some calls for postwar cooperation. The idea had been taken up by sections of business opinion in Britain, and even by some imperialists, by the time that the French ambassador delivered, on 22 December 1915, an invitation from his 8

Rothwell, British War Aims, pp. 274-7. See Alan Sykes, Tariff Reform in British Politics 1903-1913, Oxford 1979. Imperial War Cabinet minutes, 24 and 26 Apr. 1917, IWC 11 and 12, CAB 23/40. See Bunselmeyer, Cost of the War, pp. 47-50; L.S. Amery, The Leo Amery Diaries, ed. John Barnes and David Nicholson, Vol. 1, London 1980, pp. 151-3; W.A.S. Hewins, The Apologia of an Imperialist, London 1929, Vol. 2, pp. 139—43. The resolution was published in Cd 8566 of 1917, Imperial War Conference, 1917. Extracts from minutes of proceedings and papers laid before the Conference. 11 Cf. W.K. Hancock, Survey of British Commonwealth Affairs, Vol. 2, Problems of Economic Policy, Part I, London 1940, pp. 96-7; Max Beloff, Imperial Sunset, Vol. 1, Britain's Liberal Empire 1897-1921, London 1969, p. 227. 9

10

8

Wartime planning

government to join in arranging a conference to study ways of freeing the Allied countries from economic dependence on the Central Powers.12 French industry and commerce had been losing ground in world trade even before 1914, and the Ministry of Commerce was anxious about France's ability to compete at the end of the war. Germany was expected to launch an aggressive campaign to recover lost markets: almost as alarming were the world-wide resources of the British Empire and the United States and the enlargement of their capacity while France was enduring the brunt of the fighting on her own soil. In addition to promoting domestic modernisation the Minister, Etienne Clementel, concluded that the best way to deal with Germany and reconstruct France was for the Allies to pool scarce resources, allocate them on the basis of need, and continue this practice into peacetime. His policy was naturally conceived in French interests, but it contained elements of a new kind of economic internationalism.13 On the British side, although the government accepted a resolution, moved in the House of Commons on 10 January 1916 by the Conservative protectionist and imperialist MP W.A.S. Hewins, calling for immediate consultation with the Dominions in order, with their help, 'to bring the whole economic strength of the Empire into cooperation with our Allies in a policy against the enemy',14 there were difficulties and reservations even about war measures, and still more on postwar policy. Not only was the free-trade issue divisive domestically, the Board of Trade was conscious that it affected relations with important neutrals, especially the United States. The response given to the French was therefore extremely cautious. Walter Runciman, the President of the Board of Trade, told Clementel that Britain's relations with the Empire could not be discussed, nor free trade, nor her dependence on the United States and other countries for food and raw materials. He suggested that in addition to wartime measures for giving preference to Allies in allocating overseas orders and raw materials, the conference could consider extending the privileges into the postwar 12

13

14

Cambon to Grey, 22 Dec. 1915, 196991/10846/150, FO 386/1465; CAB 37/141/15; see Bunselmeyer, Cost of the War, pp. 35-6. For Clementel see Richard F. Kuisel, Capitalism and the State in Modern France. Renovation and Economic Management in the Twentieth Century, Cambridge 1981, pp. 37—48; Marc Trachtenberg, Reparation in World Politics. France and European Economic Diplomacy, New York 1980, pp. 1-10. See also ClementePs own La France et lapolitique economique interalliee, Paris 1931, pp. 67-75; but it does not say much about his longterm conception. HCDeb., Vol. 77, cols. 1299-1394. In moving the motion Hewins disclaimed any intention of talking about postwar policy. The whole thrust of the debate was on the necessity of countering a German economic offensive during and after the war, and in particular on driving German interests out of the Empire.

Wartime planning

9

15

period. In Paris at the end of March Asquith and Grey, the Foreign Secretary, showed little enthusiasm for a discussion of economic matters, and having agreed that the agenda for the conference should cover the postwar period of reconstruction and include measures for restoring the victims of destruction and spoliation, the British confined their drafting of resolutions to anti-German measures and produced nothing on cooperation in reconstruction.16 In the House of Commons on 18 May Austen Chamberlain, refusing a request for an advance definition of the government's attitude, said that the British representatives would go to the conference, not bound by any specific economic theory or fiscal policy, to see how common interests might best be pursued and strengthened and 'the fortunes of those who in this great struggle are our friends and Allies may be together increased and prospered in the future'.17 The conference in Paris, between 14 and 17 June 1916, was attended by delegates from Russia, Italy, Serbia, Portugal and Japan as well as Britain and France. Clementel proposed that the Allies should list their natural resources and compare needs; and he expounded his vision of a new economic era, one which permits the application of new methods, founded on control, on collaboration, on everything that can introduce some order into the process of production. If the Allies know how to put those ideas into practice, they will have founded a new order of things which will mark one of the great turning points in the history of the world.18 15

Grey to Cambon 19 Jan. 1916; Runciman to Clementel, 12 Feb., France, Ministere des Affaires Etrangeres, Guerre 1914—1918, Vol. 1216; conversation between Runciman and Clementel, 4-5 Feb., France, Archives Nationales, Ministere du Commerce F12 7819. Documents in the archives of the Ministere des Affaires Etrangeres are hereafter cited as MAE, with series, country or sub-series if any, and volume number. Documents in the Archives Nationales are cited as AN, with group and box number. Memorandum by Llewellyn Smith, 10 Mar., Oxford, Bodleian Library, Asquith Papers, Vol. 29. A War Office memorandum of February 1916 pointed out that some of the proposed measures for restricting German trade, such as banning the establishment-of German banks on Entente territory, were likely to benefit the United States and harm London as a financial centre: DMI memorandum, 25 Feb., W O 106/1510. See Bernd Bonwetsch, Kriegsallianz und Wirtschaftsinteressen. Russland in den Wirtscbaftspldnen Englands und Frankreichs 1914-1917, Diisseldorf 1973, p. 173. 16 Proces-verbaux of Allied conference, Paris, CAB 37/145/39; minutes by Bertie, 27 Mar. 1916, FO 800/175; Cambon to Grey, 1 May, 82655/6672/150, FO 368/1668; memorandum on the origins of the Paris conference, AN, F12 7988; draft resolutions, 16 Jun., Asquith Papers, Vol. 30. See Bonwetsch, Kriegsallianz und Wirtschaftsinteressen, pp. 174-6. 17 HCDeb., Vol. 82, cols. 1681-2. Asquith had stated on 9 March that nothing would be done at Paris that would bind the government or parliament's power to determine the country's fiscal system: HCDeb., Vol. 80, cols. 1771-4. 18 Conference economique des gouvernements allies, tenue a Paris les 14, 15, 16 et 17 juin 1916. Programme, delegations, proces-verbaux des seances, et acte de la conference, AN, F12 8104; Clementel's speech quoted in Trachtenberg, Reparation in World Politics, p. 5.

10

Wartime planning

The British delegation contained protectionists (Bonar Law, the leader of the Conservative Party and Colonial Secretary, and William Morris Hughes, the Australian Prime Minister) and free traders (Lord Crewe, the Liberal Lord President of the Council, and Sir George Foster, the Canadian Minister of Commerce). The delegation worked closely with the French but its ideas were more limited than Clementel's. Italian and Russian delegates, mindful of their countries' prewar dependence on trade with the Central Powers, insisted that the period of denial of mostfavoured-nation treatment be left unspecified (the British had suggested five years) and emphasised their need of compensatory trade facilities from the other Allies. They also got a resolution on restricting enemy countries' shipping after the war weakened, since they were reluctant to increase the advantages of British shipowners. The Russians, in preparing for the conference, had been particularly worried about British imperial preference and were opposed to giving tariff preference themselves to anyone. For all these reasons thefinalresolutions of the conference did not go as far as Clementel had hoped. The first section, devoted to measures of economic warfare against the Central Powers, essentially recommended that the other Allies should adopt measures on such matters as contraband and control of enemy businesses of a kind that had already been taken by Britain and France. In the second section, on the period of reconstruction, the Allies declared (in a French-drafted resolution) their determination to secure the re-establishment of countries suffering from destruction, promised to help them to obtain raw materials and the means to re-equip, and promised to conserve natural resources for each other. The means of doing this were left unspecified, and the Board of Trade noted some practical difficulties. The Allies also resolved to deny the enemy countries mostfavoured-nation treatment for a period left undefined and to restrict their trade. In the third section, on permanent measures, they recommended coordination of commercial transport and communications, and steps to make their countries independent of the enemy countries in raw materials and manufactures: each Allied government, however, was to decide its own fiscal policy. Finally the delegates agreed, in a form proposed by Hughes on behalf of the British delegation, that the effectiveness of the resolutions depended on speedy implementation, and recommended governments to adopt them without delay.19 19

Cd 8271 of 1916, Recommendations of the Allied Economic Conference, Paris, 14-17 June 1916; Board of Trade memorandum, 30 Jun., Asquith Papers, Vol. 30. For the Russian position see B.E. Nolde, Russia in the Economic War, New Haven 1928, pp. 152-70; Bonwetsch, Kriegsallianz und Wirtschaftsinteressen, pp. 176-90. Even after the resolution about postwar trade was softened, the Russian government only accepted the Paris Resolutions with reservations.

Wartime planning

11

When the Paris Resolutions were debated in the House of Commons on 2 August, there were attacks by free traders and applause from protectionists, but little mention of European problems: the emphasis was overwhelmingly on defeating the German 'system' and on developing national and imperial interests. Government spokesmen emphasised that Britain was not committed to any particular policy or methods.20 However, the Resolutions had some impact on the work of the Committee on Commercial and Industrial Policy, known from the name of its chairman as the Balfour of Burleigh Committee. This had been set up in February 1916, to 'plan out the economic and industrial readjustments, both at home and in relation to foreign countries and the Dominions, which will become necessary when the war is concluded'. The committee included free traders and tariff reformers, MPs, and businessmen.21 A report later in 1916 on postwar imports recommended a system of licensing for at least one year after the end of the war, with imports from enemy countries prohibited except for some highly desirable goods, and 'the possible exception of present Allies, if satisfactory arrangements could be made'; but several members thought that a prohibition would not work for long, and some wanted a tariff to be examined instead.22 In a report on exports and the conservation of Empire resources, any general ban on exports to enemy countries after the war, with rationing of neutrals, was described as impracticable and inexpedient; but it was thought that the Paris Resolutions could be carried out by a policy of joint control of certain commodities, and measures were recommended to secure for the Empire and the Allies priority for their requirements, by such means as joint and government purchasing.23 The Balfour of Burleigh Committee lost impetus after Asquith's fall in December 1916. It had not satisfied protectionists, who kept calling for the implementation of the Paris Resolutions; but doubts in other quarters about the wisdom or expediency of the Resolutions increased as time went on and circumstances changed. Whilst the Board of Trade was interested in using the Resolutions as a means of protecting newly-established key industries and securing postwar supplies of specific materials, it did not think that, in case of a conclusive Allied victory, permanent anti-German 20 21 22

23

Cabinet, 14 Jul. 1916, CAB 41/37/26; HCDeb., Vol. 85, cols. 338-450. Cabinet, 23 Feb. 1916, CAB 41/37/8; committee proceedings and memoranda in BT 55/8. GT 465, 9 Nov. 1916, CAB 24/10; published as Cd 9033 of 1918, Committee on Commercial and Industrial Policy. Interim Report on the Importation of Goods from the Present Enemy Countries after the War. GT 464, 14 Dec. 1916, CAB 24/10, published as Cd 9034 of 1918, Committee on Commercial and Industrial Policy. Interim Report on the treatment of exports from the United Kingdom and the British Overseas Possessions and the conservation of the resources of the Empire during the transitional period after the war.

12

Wartime planning

measures would be to Britain's advantage.24 When in the early summer of 1917 Balfour of Burleigh asked Lloyd George whether the Paris Resolutions ought to be regarded as a basis for his committee's deliberations, he received no answer.25 The Imperial War Cabinet meeting in March-April 1917 saw a serious attempt to draw up a programme of war aims. The meeting was called to coordinate the military help which the Dominions and India were providing, and to ask them to do more. British ministers were clear that in return the Dominions must be consulted both on the conduct of the war and on peace terms, especially if, in negotiations for a compromise peace, it should prove necessary to choose between imperial aims and Britain's commitments to France and Belgium.26 At the conference two committees were set up to consider British Empire desiderata, territorial and non-territorial.27 Thefirst,chaired by Curzon, Lord President of the Council, spent most of its time discussing the disposal of the conquered German colonies and some possible overseas acquisitions from Allies and neutral countries, such as the French possessions in India. It recommended as essential, in Europe, the 'restoration' of Belgium, Serbia, Montenegro, and Romania. The military power and resources of the Central Powers must be reduced, and it was very important to secure a barrier to the extension of German power to the Near East, but it would not be Britain's purpose to destroy the enemy's national existence.28 The second committee, on non-territorial desiderata, was chaired by Milner, a member of the War Cabinet without departmental responsibility. Its report approved the Paris Resolution on most-favoured-nation treatment but emphasised the reservations expressed by several Allied countries and the United States, and said flatly that the Resolutions did not provide a suitable basis for the government's guidance in peace negotiations. But the Empire must not lose control of its natural resources, nor should it accept the freedom of the seas. The committee was also dubious about schemes for a League of Nations.29 The report was criticised in the Imperial War Cabinet: Bonar Law objected to the virtual 24

25

26 27 28 29

G T 4 2 5 , 12 A p r . 1917, C A B 2 4 / 1 0 ; Board of Trade m e m o r a n d u m , 2 7 O c t . 1916, circulated as P 12, 24 Jan. 1917, C A B 2 9 / 1 . C o m m i t t e e o n Commercial and Industrial Policy, 35th meeting, 7 Jun. 1917, B T 5 5 / 8 . The committee's final report, G T 2891, 3 D e c . 1917, C A B 24/34, was published as C d 9035 of 1918, Final Report of the Committee on Commercial and Industrial Policy after the war. A Reconstruction Committee consisting of ministers had also been set up before the Paris conference t o consider preparations for the end of the war: memorandum b y Runciman, 15 D e c . 1915, C A B 3 7 / 1 3 9 / 3 1 ; Cabinet, 16 Mar. 1916, C A B 4 1 / 3 7 / 1 1 . It encountered similar difficulties about commercial policy. War Cabinet, 22 D e c . 1916, W C 15, C A B 2 3 / 1 . IWC 9, 12 Apr. 1917, CAB 23/40. Report of C u r z o n Committee, P 16, 28 Apr. 1917, C A B 21/77. Report of Milner Committee, P 15, 24 Apr. 1917, C A B 2 1 / 7 1 . See also Thomas Jones, Whitehall Diary, ed. Keith Middlemas, Vol. 1, L o n d o n 1969, pp. 2 9 - 3 4 .

Wartime planning

13

abandonment of the Paris Resolutions; Cecil objected to the playing down of the idea of a League of Nations; Lloyd George objected to the dismissal of the idea of disarmament. The conclusion on peace aims reached on 1 May was not based on the Milner report, and as has been seen the resolution on imperial economic cooperation paid some regard to the interests of the Allies.30 Useful in clearing the minds of the participants though the discussions doubtless were, the Imperial War Cabinet did not settle a definite programme of peace aims. Lloyd George wanted to keep a free hand and was more interested in extirpating German militarism than in colonial territories. And on the economic aspects the situation was transformed, while the Empire leaders were meeting, by the entry of the United States into the war. The Americans had objected to the Paris Resolutions as soon as they were published. The Secretary of State, Lansing, condemned them as a threat to American trade; and various Congressmen expressed anxiety.31 The British Ambassador in Washington, reporting a generally hostile reception for the resolutions and American suspicions of British policy, warned that the importance of the United States in world trade made her attitude a matter of 'serious consideration'.32 The Foreign Office, fearful of jeopardising American financial help, was anxious to reassure Americans that the Resolutions would not be directed against the United States.33 The entry of the United States into the war removed some fears, as for example of American-German cooperation, but raised doubts about the practicability of Allied economic arrangements to which the United States did not assent. Balfour, the Foreign Secretary, despatched to Washington as head of a mission to discuss cooperation on a range of subjects from shipping to munitions and finance, briefed members of his mission on, among other things, what to say to American enquirers about the Paris Resolutions. They were purely defensive, he said. The restoration of the devastated territories of France and Belgium, which had been stripped bare of everything necessary for economic life, must be the first charge on those Allies whose countries had been spared invasion. But even in those countries the ordinary economic 30

31

32 33

I W C 12 and 13, C A B 23/40. For the conference as a w h o l e see Rothwell, British War Aims, pp. 6 8 - 7 4 ; David Lloyd George, War Memoirs, 6 vols. L o n d o n 1933-6, Vol. 4, ch. 55; also Amery, Diaries, Vol. 1, pp. 1 5 2 - 3 . United States, Department of State, Papers Relating to the Foreign Relations of the United States, hereafter cited as FRUS, Washington 1862ff., The Lansing Papers, Vol. 1, pp. 3 1 1 12. See also Carl P. Parrini, Heir to Empire. United States Economic Diplomacy 19161923, Pittsburgh 1969, pp. 3 1 - 4 . Spring-Rice to Grey, 23 Jun. 1916, 128359/6672/150, FO 368/1669. FO memoranda, 20 and 21 Oct. 1916,146959/6672/150, FO 368/1669; 205593/63430/45, FO 371/2796; CAB 37/158/3. Asquith in his Commons statement on 2 August stressed that the Paris Resolutions were in no way directed against neutrals: HCDeb., Vol. 85, cols. 340-1.

14

Wartime planning

machinery had had to be devoted to the production of war material, and it would be years before normal peaceful economic life could be resumed. It was only right that the Allies should make arrangements for a common effort to restore normal life. This was the object of the Paris Resolutions: they were not directed against other nations.34 For a time the American attitude towards special postwar arrangements seemed to be fairly benevolent. Wilson, in a message to Congress in December 1917, suggested that a still-militarist Germany might be excluded after the war from the free economic intercourse that would spring from the partnership of a real world peace;35 and the Fourteen Points left the door open for economic discrimination against countries not fully committed to the peace. Wilson's close adviser Colonel House expressed in January 1918 sympathy for the idea of postwar control over raw materials.36 But the general tenor of American utterances and Wilson's speeches was always against special economic combinations and in favour of removing trade barriers. In the autumn of 1917 Sir Edward Carson, the Ulster Unionist leader and a member of the War Cabinet, demanded more active preparations for a postwar economic struggle with Germany. Carson was one of those who hoped that the formation of an economic alliance between Britain, France and the United States might force Germany to make peace, and was not especially interested in longer-term policy: he stressed the need for a 'sound economic foundation to serve as a basis for negotiation when serious peace proposals are being discussed'.37 Carson's initiative was supported by other ministers, and Albert Stanley, the President of the Board of Trade, suggested that 'steps be taken to clear up the position of the United States with regard to the conservation of the economic resources of the Allies during the reconstruction period'. 38 Yet another Cabinet com34

35

36

37 38

Memoranda by Balfour, Apr. 1917, FO 800/208. For the Balfour mission as a whole see Kathleen Burk, Britain, America and the Sinews of War 1914-1918, L o n d o n 1985, ch. 6. The Papers of Woodrow Wilson, ed. Arthur S. Link et al., Vol. 45, Princeton 1984, pp. 194—202; Woodrow Wilson, War and Peace, Presidential Messages, Addresses and Public Papers 1917-1924, ed. Ray Stannard Baker and William E. Dodd, New York 1927, Vol. 1, pp. 128-39. This statement aroused considerable hopes on the French and British sides: Trachtenberg, Reparation in World Politics, p. 14; Sterling J. Kernek, Distractions of Peace during War. The Lloyd George Government's Reaction to Woodrow Wilson, December 1916-November 1918, Philadelphia 1975, p. 10. Charles Seymour, The Intimate Papers of Colonel House, Boston and New York 1926-8, Vol. 3, pp. 377-8 (27 Jan. 1918). Memorandum by Carson, 20 Sep. 1917, G 156, CAB 24/4. Memorandum by Stanley, 4 Oct. 1917, G 158, CAB 24/4. The Board of Trade had suggested in July discussing with the Americans the principle of conserving Allied production for Allied needs during the reconstruction period, but no steps had been taken: GT 1492, 20 Jul., CAB 24/10. Cecil deprecated references to the Paris Resolutions, while saying that he supported the principle that the Allies should help one another in reconstruction: G 159, 28 Sep. 1917, CAB 24/4.

Wartime planning

15

mittee was set up, headed by Carson and including the Colonial Secretary Walter Long, Cecil, Stanley, and Addison.39 Much of its work was devoted to wartime measures, but some papers on postwar arrangements urged the importance of collaboration with the Allies and the United States, and included proposals for the postwar control of raw materials.40 The War Cabinet approved on 3 January 1918 a proposal by Carson's committee that existing commercial treaties should be denounced (a proceeding which would release Britain from most-favoured-nation obligations) 'as essential as a war measure for bargaining in the peace negotiations and for the rationing of materials in the transitional period at the end of the war'.41 Next day the War Cabinet went a little farther by approving an undertaking on raw materials that was included in Lloyd George's war-aims speech to the trade unions. The economic conditions at the end of the war [he said] will be in the highest degree difficult. Owing to the diversion of human efforts to warlike pursuits, there must follow a world shortage of raw materials, which will increase the longer the war lasts, and it is inevitable that those countries which have control of raw materials will desire to help themselves and their friends first.42 Carson left the War Cabinet shortly afterwards, in disagreement over Ireland and over military policy. He complained also that his Economic Offensive Committee had been ignored, the War Cabinet had failed to take steps towards an economic alliance with the Allies, these were confused about British policy, and there was misunderstanding and disappointment at home. He recommended the appointment of a new committee that would be given public acknowledgment.43 Before this recommendation was followed up still another committee (on trade relations between the United Kingdom and the Empire) had begun to consider the control of raw materials. In a report in February 1918 the objects of control were defined as being to secure for the British Empire and the Allies sufficient raw materials to enable them to repair the effects of the war and safeguard their industrial needs, to put pressure on the enemy countries to conclude peace for fear of economic ruin later, and to strengthen the Allies' hands in peace negotiations. Machinery suitable for cooperation with the Allies should be 39 40

41 42

43

War Cabinet, 9 Oct. 1917, WC 247, CAB 23/4. GT 2544, 16 Nov. 1917, CAB 24/31; War Cabinet, 27 Nov., WC 283, CAB 23/4; memoranda of the Economic Offensive Committee, CAB 27/15-16, esp. EOC 26, 16 Nov.; EOC 48, 19 Nov.; EOC 50, 19 Dec; EOC 55, 10 Jan. 1918; EOC 56, n.d.Qan.]; EOC 59, 30 Jan.; EOC 63, 7 Feb. G 177, CAB 24/4; War Cabinet, 3 Jan. 1918, WC 312, CAB 23/5. War Cabinet, 4 Jan. 1918, WC 314, CAB 23/5; Lloyd George, War Memoirs, Vol. 5, p. 2516. G 190, 196, 21 Jan., 23 Feb. 1918, CAB 24/4.

16

Wartime planning

set up, and the Allies, particularly the United States, should be consulted about their needs in Empire raw materials and the help they could offer in return. The Empire should be treated as a unit. Three weeks later, however, this last point had been abandoned: the committee now realised that the Dominions and India would not agree to hand over to London control of their raw materials and could only be asked to help. It was suggested instead that the next Imperial War Conference should be asked to approve the general principle of reserving specific quantities of certain raw materials for the United Kingdom and the Allies.44 This recommendation was approved by the War Cabinet,45 but the subject was not officially discussed by the Imperial War Conference in June 1918. In unofficial conversation it seems to have caused difficulty, but afterwards Hewins, now parliamentary under-secretary at the Colonial Office, talked optimistically to French officials about organising a technical conference to exchange information about specific raw materials. The principal Allied governments and the United States had already been told that an Imports and Exports Bill had been drafted, one of the objects of which was to conserve stocks of raw materials. The purpose was to maintain British and Empire industry, but any control would be administered in such a way as to benefit the Allies, especially those faced with the problem of restoring industries ruined by the war. In granting special facilities to the Allies, the government would give 'full recognition to the principle that the more fortunately situated members of the Alliance should do their utmost to aid in repairing the sufferings and losses which the less fortunate have incurred in the common cause5. The precise extent of the facilities could not be stated until it was known how far the Dominion governments, whose raw materials the United Kingdom did not control, were willing to cooperate; but meanwhile the government suggested an exchange of information about materials needed and available.46 In fact, however, the Import and Export Control Bill was not proceeded with during the summer; nor, despite a statement in Parliament of the government's intention to do so, were existing commercial treaties denounced. Instead, neutral governments were warned that some wartime measures of prohibiting exports (which were not strictly compatible with 44 45 46

GT 4015, 4015A, 25 Feb., 12 Mar. 1918, CAB 24/46. War Cabinet, 9 Apr. 1918, W C 387, C A B 2 3 / 6 . Cambon to MAE, 27 and 29 Jul., 1 Aug. 1918, MAE, Y Internationale 1918-40, Vol. 211; circular despatch to British representatives in Paris, Tokyo, and Rome, 23 May, CAB 21/ 108; Derby to MAE, 28 May, MAE, Guerre 1914-18, Vol. 1219. The French had been hoping since April to interest the Americans in an inter-governmental conference on joint control of raw materials: correspondence in MAE, Guerre 1914-18, Vols. 1217-18; Y Internationale, Vols. 211-12; AN, F12 7819.

Wartime planning

17

existing treaties) would probably be continued after the war to help the reconstruction of devastated Allied territories.47 By this time, after some prodding by the Foreign Office and Hankey, the secretary to the War Cabinet, a new Economic Defence and Development Committee had been set up under the chairmanship of Austen Chamberlain, Minister without Portfolio in the War Cabinet.48 Up to this point none of the many committees, whether composed of ministers or including businessmen and MPs, had made much impact upon the War Cabinet, absorbed as it was with the actual conduct of the war. The new committee's initial concerns did not differ greatly from those of the Carson Committee; but as the end of the war at last came into clear view it devoted some thought to the machinery of cooperation. At the time when Clementel was first formulating his vision of international control of raw materials no such machinery existed; but during the last year of the war a genuinely inter-Allied system came into being and worked. To a very large extent this was due to the military situation in 1917. During the early part of the war Allied purchases in Britain were coordinated through a Commission Internationale de Ravitaillement set up in London, and any necessary British help with transport was improvised. Some attempts were made in 1916 and early 1917 to produce more permanent arrangements, but they were not successful. By the autumn of 1917, however, shipping had become a highly critical factor. In the first three months of intensive German submarine warfare, 470 ocean-going ships were sunk. British losses in a single fortnight in April were equivalent to 25 per cent per round voyage; that is, one in every four ships that sailed from Britain was sunk before it returned. Continuation of this rate of loss would have spelled disaster. The first step in overcoming the danger was the introduction of convoys; by the autumn the sinkings were less alarming, but the pressure on shipping was, if anything, even greater. Less than half the lost tonnage had been replaced; the United States had not begun to build intensively; but the demand for shipping was greater than ever, to supply munitions for the increasing scale of the war in France, and to transport troops from the British Empire and, now, the United States.49 In August 1917, and again in October, Clementel came to London to press French needs, and urged the principle of equal sacrifice, shared importing of food, and joint allocation of resources. He wanted also to retain the system after the war. The British were sympathetic, but did not 47

48 49

Circular despatch t o British representatives in neutral countries, 15 Jun. 1918, C A B 2 1 / 108; HCDeb., Vol. 106, col. 30 (13 May); Vol. 108, cols. 692-3, 891-2 (15 and 16 Jul.). GT 4368, 27 Apr. 1918, CAB 24/49; War Cabinet, 10 Jun., WC 429, CAB 23/6. J. Arthur Salter, Allied Shipping Control, O x f o r d 1921, pp. 1 2 1 - 2 , 1 3 5 - 4 1 , 1 4 4 - 5 ; Salter, Slave of the Lamp, London 1967, pp. 62, 65-7.

18

Wartime planning

commit themselves for the postwar period.50 Among other things the possible cost to Britain of what was seen as a French policy of establishing 'a claim to share in the advantages of supply and price arising out of the resources of the British Empire' alarmed the Treasury.51 In wartime, the key to establishing a common import programme was joint control of shipping. In practice this meant supplying more British ships to the Allies and some loss of British control, and hence it aroused British objections. However, on 3 November 1917 an agreement was reached with French and Italian representatives that practically admitted the principle of pooling the use of shipping for food and other imports. American cooperation was vital - American tonnage was considerably greater than that of France and Italy combined - and was developed with a mission that came to London led by Colonel House. The principle was accepted that the United States, France, Italy, and Britain should list their shipping requirements and resources, so that a general allocation could be made within the limits of shipping available.52 Then at a conference in Paris at the beginning of December a plan was agreed, creating a number of inter-Allied councils, executives, and programme committees for different commodities, to decide import programmes. Since shipping was the critical limiting factor, the Maritime Transport Council, by deciding priorities, became in practice more important than the Food and Munitions Councils, although these were nominally equal to it in status. The War Purchases and Finance Council dealt only with purchases in the United States, and its relations with the Maritime Transport Council were not altogether clear.53 By the end of the war the Maritime Transport Council was tending to become a general economic council for the Allies, but its power to coordinate programmes for different commodities was limited. Allied ministers met only three times before the armistice; the various committees and executives were not unified authorities ( a single shipping pool, for example, was not acceptable to the British or the Americans). Nevertheless, the officials working together became aware of the different countries' needs as never before and were able to adjust some potential difficulties 50

51

52

53

War Cabinet, 20 Aug. 1917, WC 220, CAB 23/3; War Cabinet, 25 Oct., 30 Oct., 31 Oct., WC 257, 260, 261, CAB 23/4; memorandum by Stanley, 16 Oct., EOC 3, CAB 27/15; records in AN, F12 7797, 7997; Clementel, La France et lapolitique economique interalliee, pp. 150—95; Jean-Baptiste Duroselle, 'Strategic and economic relations during the First World War', in Troubled Neighbours. Franco-British Relations in the Twentieth Century; ed. Neville Waites, London 1971, pp. 54-6. Bertie, Paris, to FO, 19 and 22 Nov. 1917; Treasury to FO, 24 D e c , 222934, 222937, 243275/107875/117, F 368/1739. Salter, Allied Shipping Control, pp. 147-50; Clementel, La France et la politique economique interalliee, pp. 184—95, 221—3. Salter, Allied Shipping Control, pp. 151-5; Salter, Slave of the Lamp, pp. 77-83; Wise to Hankey, 29 Sep. 1920, CAB 21/163.

Wartime planning

19

before they went very far. The greatest responsibility and power in the end fell on Britain, as the only country that provided more shipping than it used: contrary to expectations American military demands took up more than the total of American tonnage. Many of the officials became convinced that the organisations ought to continue in some form, first in the transition from war to peace and in the reconstruction period, and then providing a model, or even the whole staff, for the functional services of a League of Nations. Arthur Salter, the British member of the Maritime Transport Executive, writing its history in 1920, was aware of the differences between wartime imperatives and peacetime international cooperation; but he hoped that the 'forcing experiment' of the war would provide guidelines for the 'possible and desirable development of the future'.54 Salter was one of those working in the inter-Allied system who went on to work in the services of the League of Nations: another was Jean Monnet. Meanwhile the Economic Defence and Development Committee had collected some papers about postwar trade policy and reconstruction, and was beginning to envisage the problem of credit. Sir Alfred Mond, a Liberal and leadingfigurein the chemical industry, recommended self-sufficiency as far as possible for the Empire, an economic alliance with the Allies to prevent the enemy countries from regaining their prewar commercial and financial position, and help (especially in credits) to the Allied countries during the reconstruction period to enable Britishfirmstofindnew outlets and capture markets from Germany. He thought government support would be needed. Addison suggested an international committee to collect information on the needs of Allied countries and a British organisation to allocate contracts given to Britain. Much would depend on what credit was available: the government would need to know what risks manufacturers were prepared to take; they would wish to know how far the government was prepared to guarantee foreign payments.55 In general the idea of an economic alliance took on fresh life in the summer, with an eye to propaganda towards Germany and demands from business circles for reaffirmation of the Paris Resolutions, imperial preference, and preparations for the 'economic struggle which must follow the war'.56 Lloyd 54

55

56

Salter, Allied Shipping Control, p p . 231-44. H a n k e y , w h o s e attitude t o a league of nations was rather different, also (in J a n u a r y 1918) envisaged t h e inter-Allied organisations becoming the basis of a p o s t w a r peace-keeping organisation with control of the w o r l d ' s economic resources: G T 3344, 16 Jan. 1918, C A B 24/39. See Egerton, Great Britain and the Creation of the League of Nations, pp. 6 9 - 7 1 . Memorandum by Mond, 2 Jul. 1918, EDDC 18, CAB 27/44; memorandum by Addison, 23 Jul.,GT 5217, CAB 24/59. Memorandum by Cecil, 1 Aug. 1918, EDDC 31, EDDC, 6th meeting, 13 Aug., CAB 27/ 44; resolution from the British Empire Producers' Association, 22 Jul., GT 5211, CAB 24/59. See Bunselmeyer, Cost of the War, pp. 76-8.

20

Wartime planning

George's endorsement of such appeals in a speech to the National Union of Manufacturers on 31 July, however, drew a warning from Woodrow Wilson. On 20 August Sir William Wiseman, the head of British Intelligence in the United States, who was an important link with Colonel House and Wilson, telegraphed at Wilson's request to Lord Reading, the British Ambassador who was at the time in England. The President, said Wiseman, fully appreciated the value of the economic weapon and was in favour of using that weapon to the full in order to bring Germany to her senses and to secure that a just peace, when signed, will be scrupulously observed. He is convinced, however, that it is a great mistake to threaten Germany now with any kind of punitive postwar measures against her trade. In his view this threat is one of the strongest levers with which the German militarists suppress the growth of any liberal movement in Germany . . . It is true that the Allies will come to the Peace Conference practically controlling the supply of the world's raw materials, but there will be no need to advertise that fact or threaten anyone. Everyone - especially the Germans - will be quite aware of the fact... Colonel House says he fears that, if the Allies persist in making similar statements regarding their economic policy, the President will feel obliged, as he did before, to make some statement dissociating this country with that policy.57 Reading acted on this advice,58 and Lloyd George in a speech at Manchester on 12 September withdrew from the idea of an extreme punitive peace. All the same Wilson began to make publicly plain his opposition to special economic combinations and all kinds of economic boycott except as a means of discipline and punishment of peace-breakers by the League of Nations. 59 On the positive side of providing for Allied postwar needs discussion gathered pace. On 17 September the Economic Defence and Development Committee decided that the Foreign Office should encourage international machinery but did not favour Addison's idea of a British clearing-house.60 Cecil had just submitted a paper recommending continuing Allied control of imports during the period of reconstruction, both to protect British interests and to fulfil the 'obligations which we have repeatedly acknowledged to come to the economic assistance of our Allies who have suffered 57

Wiseman t o Reading, 20 A u g . 1918, F O 800/225; printed in Papers of Woodrow Wilson, Vol. 4 9 , p p . 3 0 0 - 1 ; R a y Stannard Baker, Woodrow Wilson, Life and Letters, V o l . 8, Garden City, N . Y . 1929, pp. 3 4 1 - 2 ; Seymour, Intimate Papers of Colonel House, Vol. 4,

pp. 62-4. 58 59

60

Reading t o Wiseman, 28 A u g . 1918, F O 800/225. For example in the 'Five Particulars' o f 2 7 Sep. 1918, FRUS, 1918, Suppl. I, V o l . 1, p p . 316-21 (esp. p. 319); Wilson to Senator F.M. Simmons, 28 Oct., Baker, Woodrow Wilson, Life and Letters, Vol. 8, pp. 524-6; Papers of Woodrow Wilson, Vol. 51, pp. 127-33 (esp. p. 130); Martin, Peace without Victory, p p . 181—2. EDDC, 8th meeting, 17 Sep. 1918, CAB 27/44.

Wartime planning

21

61

most severely from the ravages of war'. Cecil was anxious for consultation with the Americans and hoped for a conference once the November elections were over. He telegraphed to Sir Richard Crawford, commercial adviser in the British Embassy in Washington, that the object was not to formulate economic terms of peace, still less to formulate a policy of boycotting Germany, but to consider the needs of the Allies in the reconstruction period. It was not only a matter of the devastated areas; industrial dislocation in other countries and social unrest must be forestalled. 'The needs of the Allied populations are a moral claim on all of us.' The first step would be to get people back to regular work, and for this control over raw materials and arrangements for shipping were necessary. The food question was most urgent too. Recognition that 'the needs of the Allied consumers are the only true basis of a food and raw materials supply programme' ought to allow a dispassionate consideration of what would otherwise be contentious trade problems. Immediate consultation was necessary, as otherwise individual countries might commit themselves to partial measures, in the interest of their own trade, which would be incompatible with the general interest and likely to produce friction. Crawford was instructed to take such steps as he could to get British ideas put before the President.62 But Cecil's hopes of consultation and a conference proved vain; and whilst still anxious for inter-Allied cooperation in the transition period, British officials were becoming increasingly conscious of other factors besides shipping. In October, indeed, the Shipping Controller Sir Joseph Maclay questioned whether either shipping or raw materials would be scarce once hostilities ceased.63 When recommending the extension of the existing inter-Allied committee for supplies to Belgium, the Secretary of the Overseas Trade Department, Arthur Steel-Maitland, suggested excluding from inter-Allied discussion both the availability of credit and Britain's desire to restore her export trade.64 A long Foreign Office paper written in the third week of October by Lord Eustace Percy treated the whole problem from a political point of view. It was now possible to envisage a decisive Allied victory (although not yet its date), but Percy assumed that 61

62

63

64

Memorandum by Cecil, 10 Sep. 1918, EDDC 37, CAB 27/44; PID 364/354, FO 371/4367. Cecil to Crawford, 21 Sep. 1918, PID 354/354, FO 371/4367. At the same time the French government was deciding to approach Wilson on the subject of sharing raw materials and mutual help in reconstruction; but Tardieu, the High Commissioner in the United States, had no greater success: correspondence in AN, F12 7812, 8104; MAE, Y Internationale, Vol. 212. EDDC, 11th and 12th meetings, 15 and 22 Oct. 1918; memorandum by Maclay, 21 Oct., EDDC 50, CAB 27/44. Memorandum by Steel-Maitland, 31 Oct. 1918, EDDC 58, CAB 27/44.

22

Wartime planning

there would be a period of some months between the ending of hostilities and the signature of a general peace treaty. During this period it would be necessary to be able to maintain pressure on Germany and to use German shipping. The inter-Allied economic machinery, better coordinated than at present, would have to be maintained for this purpose, but not for this purpose alone. It would be necessary to secure inter-Allied solidarity during the peace negotiations and to ward off the popular discontent that would arise from temporary shortages of supplies. Percy also saw economic and social arguments for maintaining interAllied controls. There was no prospect that immediately after the end of hostilities sufficient supplies of food and raw materials could be distributed evenly over the world without controls; 'anomalies, if allowed to produce their natural effect on the movement of food supplies, could not fail to produce the most acute suffering and discontent amongst the poorer consumers'; and the position regarding supplies for industry would be no less serious. Further: From the point of broad economic policy a fatal effect might be produced upon our trade relations with our Allies, and indeed also with Russia, Poland, and other European markets, if we appeared to wash our hands of their reconstruction needs. Up to a certain point at least, the interests of our own manufacturers and exporters demand that we should accept some responsibilities with our Allies for working out and providing for a considered reconstruction programme suited to their requirements. Among other things this will involve some continuance of British credits to our European Allies, at any rate for the purpose of clearing off commitments already entered into, and while it will be generally agreed that their present excessive demands upon us must at once be limited and must stop altogether as soon as possible, it seems clear that at first they will have to be supplied with food and raw materials beyond the amounts for which they are able to pay. However, the control machinery must not be continued longer than was really necessary: 'The whole basis of the present organisation tends to breed irresponsibility in the French and Italian Governments at the expense mainly of the British Government.' Their programmes were drawn up without regard to their ability to carry or pay for the goods concerned, and Britain had to provide much of the materials, the great bulk of the shipping, and the funds except for purchases in the United States. If during the transition period France and Italy were encouraged to go on relying indefinitely on British assistance, the world would get farther and farther away from any possibility of returning to a normal basis of trade. In other words, the needs of our Allies on the basis of prewar imports, with additions for the purposes of reconstruction, must, to some extent even at first, and after that progressively, be modified by their ability to carry and pay for such

Wartime planning

23

imports. Once this principle is established, the British Empire will be relieved of the excessive sacrifices imposed upon it. Britain's own financial reconstruction would depend entirely on the rapid revival of her export trade, and from the national point of view it was not to the European Allies that she needed to export, but to the United States and other overseas creditors to whom she owed some £300 to £400 millions in short-term debts. But the gradual introduction of the criterion of ability to pay involved further problems, first one of financial policy: If the debt position of the various Allies remains at the end of the war what it is today... it will be very difficult for the debtor countries to devote their energies to the task of internal reconstruction, or for the creditor countries to renounce responsibility for the difficulties experienced by their debtors in coping with this task. The first condition for any sound economic organisation after the end of the war seemed to be that Britain and the United States should cancel the French and Italian debts to them, and that the United States should cancel at least a large part of the British debt. If this were not done, 'the effect of the continuance of these enormous debts must be a continuance of a large measure of financial assistance by Great Britain to the European Allies, and a corresponding measure of assistance by the United States Government to Great Britain'. Secondly, Britain should gradually regain control over her own shipping, and the Empire should maintain its right to use its produce to satisfy its own needs. Even if one did not favour continuing international governmental action for its own sake after the conclusion of peace, and assumed that everything - prices, wages, the exchanges - soon returned to 'equilibrium', there remained enough areas of uncertainty to make it unwise for the 'Associated Governments, including in that term all the Governments of a world at peace and presumably associated in some form of loose international league', to abandon all control over trade. The considerations about the reconstruction of the European Allies would still apply, and so would those about shortages, prices, and so on. The existing organisations should be retained and improved as a 'machinery of consultation' with the purpose of facilitating a gradual liquidation of controls. There must be sufficient economic cooperation between the Allies in the reconstruction period to allay international anxieties and suspicions, to assure consumers in Europe and America that the responsibility for the supply of some at least of the chief necessaries of life is placed in the hands of an international body acting impartially

24

Wartime planning

and without consideration of profit, and to provide a nucleus of economic action to which other functions can be added as they become obviously necessary. Such a system could indeed not be a purely Allied one with a few key neutrals added. It was difficult to see how even one year after the final conclusion of peace, it could be anything but more or less coterminous with the League of Nations, although not formally linked to it. Nevertheless everything would depend on the relation between the four major Allies and between them and the smaller countries: No international machinery can function properly after peace is signed unless the dominant war pressure which has made present co-operation possible between the Allies is replaced by a full realisation of the imperious claims which reconstruction and the establishment of a secure and stable international order make upon those who have fought side by side during these four and a half years.65 Cecil circulated this paper to the Economic Defence and Development Committee and on 31 October it approved the maintenance of inter-Allied organisations to discuss cooperation over food and other commodities. A shortened version of Percy's paper, omitting critical remarks about Allied irresponsibility, was given to American officials at the beginning of November, and a brief proposal to retain the organisations was sent to Allied and American representatives on 13 November. 66 By this time the British Embassy in Washington had handed to the State Department suggestions for consultation on shipping and raw materials, based on Cecil's instructions of 21 September. The note stressed the moral obligation resting on the Allied governments to continue in the reconstruction period the economic cooperation which had been developed in the war.67 But Crawford soon gathered, from conversations with American officials about the allocation of raw materials after the end of the war, that the President was opposed to the idea of a conference.68 Cecil replied that the memorandum of 31 October had been given to American officials who were returning to Washington to seek the President's approval for the continuation of Allied machinery during the reconstruction period. If the President thought the proposal was tied up with the economic boycott of Germany, this was not the case. American officials in London agreed with Allied representatives that the machinery was needed, at least in the transition period, to prevent trade confusion, supply Allied and liberated territories, direct German shipping for common purposes, and so on.69 65 66

67 68 69

Memorandum b y Percy, 21 Oct. 1918, P I D 439/354, F O 371/4367. EDDC 51, 21 Oct. 1918; EDDC, 15th meeting, 31 Oct.; EDDC 55, 26 Oct.; Cecil to Crawford, 9 Nov., EDDC 67, CAB 27/44. The short paper given to the Allied representatives is printed in Salter, Allied Shipping Control, pp. 329-30. Crawford t o Polk, 15 Oct. 1918, FRUS, 1918, Suppl. I, Vol. 1, pp. 6 1 2 - 1 4 . Crawford to Cecil, 6 Nov. 1918, PID 515/354, FO 371/4367; EDDC 66, CAB 27/44. Cecil to Crawford, 9 Nov. 1918, PID 515/354, FO 371/4367; EDDC 67, CAB 27/44.

Wartime planning

25

However, Wilson now discouraged all suggestions of discussions on postwar policy.70 His objection to a conference or even an understanding on raw materials was not, Crawford reported, due to fear that the Allies meant to boycott Germany, but was founded on his desire that all the governments should approach the peace conference free of commitments and with an open mind.71 Wilson was not opposed to cooperation, and at this point does not seem - to judge from a letter to the Secretary of Commerce, William Redfield, written just after the armistice - to have been necessarily opposed to the retention of existing machinery: I doubt [he wrote] whether it would be wise just at this venture [sic] or very soon to call together a commercial conference to discuss the best method by which the resources of the world, our own included, can be correlated in order to render the best service in the critical times now at hand. Happily there are international agencies of conference and co-operation now in existence growing out of the war which not only can be used but are already being used to consider co-operation.72 On the other hand his objection to special combinations was expressed in his description, to Edward N . Hurley, the Chairman of the United States Shipping Board, of a suggestion of pooling shipping after the war as 'an extraordinary proposition . . . It will not be possible for us to make special arrangements with any one nation, inasmuch as it is our fixed policy and principle to deal upon the same terms with all.'73 How far this principle, expressed notably in the third of the Fourteen Points, precluded special facilities for the Allies during the reconstruction period was, however, not clear. During Wilson's correspondence with the German government in October, members of the British War Cabinet were uneasy about this aspect among others: Balfour, for example, commented in one discussion that Wilson did not understand that 'however successful a League of Nations might be," there must be a transition period while it was being established'.74 House's commentary on the Fourteen Points, provided with Wilson's approval for the pre-armistice discussion with the Allies in Paris, was specific about equality of trading rights among members of the League, but did not say anything about the immediate treatment of Germany or Allied reconstruction.75 On 1 November the War Cabinet telegraphed to Lloyd George in Paris their fear 70

71

72

73

74 75

Arthur Walworth, America's Moment: 1918. American Diplomacy at the End of World War I, N e w York 1977, p. 234. Crawford to Cecil, 19 N o v . 1918, P I D 557/354, F O 371/4367; E D D C 74, C A B 27/44.

Papers ofWoodrow Wilson, Vol. 53, pp. 55-6; Baker, Woodrow Wilson, Life and Letters, Vol. 8, p. 587. Papers ofWoodrow Wilson, Vol. 49, pp. 490-1; Baker, Woodrow Wilson, Life and Letters, Vol. 8, p. 393 (9 Sep. 1918). Ministerial conference, 13 Oct. 1918, GT 5967, CAB 24/66. Point 3, 'The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace . . . ' meant,

26

Wartime planning

that Point 3 would interfere with the obligation to help in the restoration of Allied territories, and Lloyd George explained to House: We should all be short of various kinds of raw material. . . After the signature of peace, were we to share all stocks equally among all peoples? If so, Germany would benefit, as her machinery was intact, whereas that of the Allies, especially Belgium, was to a great extent damaged or destroyed . . . Did President Wilson mean that when peace was signed no country should have preferential tariffs?

House promised to seek a clarification, and when none came Lloyd George raised the matter again on 3 November. House said that during the period of reconstruction no one would wish to interfere with the allocation of raw materials to France and Belgium, but Germany must be left with the means to pay. Lloyd George suggested that the Allies' fears would be met if 'so far as possible' were to apply to 'equality of trade conditions' as well as to 'removal of all economic barriers'. House assented and promised to draw the point to Wilson's attention; and Wilson did not disown him.76 Wilson did not only believe in equality of trade conditions for all and a completely free hand at the peace conference. He was sincerely convinced that only the United States was disinterested in its use of economic power. Some of his advisers were even more certain that the Allies, in claiming a share in the control of resources, were seeking commercial advantage or a lever for use in the peace negotiations. They were quite ready to use American resources for American ends, but were determined to retain complete independence. Hoover, the forceful Food Administrator and Director of Relief in Belgium, argued strongly against any idea of international control over American supplies: the United States must have the sole disposal in order to maintain fair distribution and 'confer favours instead of complying with agreements'. After conferring with Wilson, Hoover cabled to his representative in London on 7 November that the United States government 'will not agree to any programme that even looks like inter-Allied control of our economic resources after peace'.77 'Our only

76

77

according to House's commentary of 29 October, 'the destruction of all special commercial agreements, each putting the trade of every other nation in the League on the same basis, the most-favoured-nation clause applying automatically to all members of the League of Nations': FRUS, 1918, Suppl. I, Vol. 1, pp. 455-7. War Cabinet, 25 Oct. and 1 Nov. 1918, WC 491A, 495A, CAB 23/14; IC 88, 92, CAB 28/5; 183157/157260/39, FO 371/3445; FRUS, 1918, Suppl. I, Vol. 1, pp. 455-7; Papers of Woodrow Wilson, Vol. 51, p. 575. The point that France and Belgium could not be forced to agree not to protect against Germany, during the reconstruction period, the industries of the devastated regions, was also made by Percy in a memorandum after the armistice: P 69, CAB 29/2. Hoover to Wilson, 24 Oct., 4 Nov., 7 Nov. 1918; Hoover to Cotton, 7 Nov., Baker, Woodrow Wilson, Life and Letters, Vol. 8, pp. 510, 549-50; Papers of Woodrow Wilson, Vol. 51, pp. 437-8, 634-5; The Organisation of American Relief in Europe 1918-1919, ed. Suda L. Bane and Ralph H. Lutz, Stanford 1943, pp. 26-7.

Wartime planning

27

hope to [sic] securing justice in distribution, proper appreciation abroad of the effort we make to assist foreign nations, and proper return for the service we will perform will revolve around complete independence of commitment to joint action on our part'. To allow foreigners to decide how the United States should dispose of its surpluses was 'wholly inconceivable'. Hoover was particularly opposed to the continuance of the interAllied machinery because it was dominated by the British.78 Other Americans agreed. One of House's advisers told him that the British seemed determined to subordinate the new American merchant marine to the 'fiat' of the Royal Navy; an attache in London reported that British bankers wanted American cooperation on terms that would ensure British leadership.79 The Treasury Special Commissioner of Finance, Oscar T. Crosby, cabled home from Paris on 13 November that American policy on loans could 'best be exercised if we retain complete freedom of action in disposal of our resources'; that in turn could best be maintained by restricting the functions of the inter-Allied programme committees to studying and reporting on conditions; and even that task could be done by American representatives on their own, seeking information from those who wished for a share in American resources.80 Again on 20 November Crosby recommended that if the United States government agreed to the continuance of the inter-Allied committees it should make it clear that it would not be bound to act through them alone.81 On the other hand Cecil was right in thinking that some Americans believed the inter-Allied machinery was needed. Paul Cravath, an American member of the interAllied War Purchasing Council, expressed the view from London that continuation of inter-Allied control, preferably through the existing organisation, was essential to bridge over the transitional period until 'normal international economic relations' could be resumed, in order to avoid confusion and profiteering.82 And the Secretary of the Treasury, William McAdoo, replied to Crosby that whilst he was inclined to agree about restricting the activities of the inter-Allied bodies, the advantages of cooperation in some situations should not be ignored and he was ready to 78

79

80

81

82

Hoover to Cotton, 7 Nov. 1918; Hoover to Wilson, 11 Nov., Bane and Lutz, Organisation of American Relief, pp. 32-3, 38-9; FRUS, 1918, Suppl. I, Vol. 1, pp. 616-17. Cited in Michael Hogan, 'The United States and the problem of international economic control: American attitudes towards European reconstruction, 1918-20', in Pacific Historical Review, 44 (1975), pp. 92-3. Crosby to McAdoo, 13 Nov. 1918, FRUS, The Paris Peace Conference, hereafter cited as FRUS, PPC, Vol. 2, pp. 533-5. Crosby to Rathbone, 20 Nov. 1918, Washington, National Archives, Record Group 59 (Department of State), 102.1/1444. Documents in the United States National Archives are hereafter cited as NA, with Record Group (RG) and file or box number. Cravath to Leffingwell and Rathbone, 22 Nov. 1918, NA, RG 59, 102.1/1451.

28

Wartime planning

consider it whenever such advantages could be shown.83 None the less, apparently on Wilson's instructions, the American representatives were withdrawn from the various inter-Allied councils - the Maritime Transport Council, the Food Council, Munitions Council, and Council on War Purchases and Finance - by January 1919.84 The question of financing reconstruction will be discussed in the next chapter. To continue with the machinery, on the day of the armistice SteelMaitland put to the Economic Defence and Development Committee proposals for setting up a reconstruction council and asked that the devastated areas of all the Allied countries should be given equal priority with British needs in the allocation of supplies and orders.85 The committee agreed to the latter proposal but preferred keeping the existing machinery rather than setting up a new body to deal with reconstruction orders.86 The War Cabinet on 13 November approved the proposal to turn the Maritime Transport Council into a General Economic Council for the Allies, with a Food Council and a Raw Materials Council subordinate to it, to deal with inter-Allied help for reconstructing devastated territories, reciprocal concessions and exchanges on food and other essential commodities, and joint action on obtaining scarce commodities for Allied use.87 The proposal was sent to the Allies and the Americans, but whilst the French and the Italians agreed, even this amount of integration was more than the Americans would accept. House thought that as the bulk of relief supplies would come from the United States, American control was essential. Hoover, whose opinion of European civil servants was low, considered that an international relief board 'could only mean disaster', and that the Allies hoped to use American sympathy for European distress as a bargaining counter in negotiating with the President. He was also very anxious to dispose of American surplus food and to keep up prices to American farmers. Hurley feared that European control over American shipping would soon lead to control over American raw materials. House therefore, with Wilson's approval, sent Balfour on 1 December a counter-proposal for the appointment of an American Director General of Relief to deal with liberated territories, enemy countries and neighbouring neutrals and with power to purchase supplies, while the Supreme War Council would determine general policy and the Allies would look after their own relief needs. Meetings were then held in London between a committee appointed by the 83 84 85 86 87

McAdoo to Crosby, 22 Nov. 1918, FRUS, PPCy Vol. 2, pp. 535-7. Hogan, in Pacific Historical Review, 44 (1975), pp. 94-5. EDDC 65, 68, 11 Nov. 1918, CAB 27/44. EDDC, 16th meeting, 14 Nov. 1918, CAB 27/44. War Cabinet, 13 Nov. 1918, WC 501, CAB 23/8; minute by Cecil, 14 Nov., London, British Library (hereafter BL), Cecil of Chelwood Papers, Add. MS 51094; Salter, Allied Shipping Control, pp. 220-2, 329-30.

Wartime planning

29

Allied prime ministers - Reading, Maclay, Clementel and the French and Italian Ministers of Food, Boret and Crespi - and Hoover and Hurley. Clementel had again put forward his idea that the League of Nations should control world resources for some years, but he now abandoned long-term proposals. The committee recommended setting up an Allied Relief Council without executive powers, but there was some delay in agreeing the terms, and in the interval the Americans went ahead with relief on their own.88 With Hoover as Director General of Relief the council was much closer to the concept of a clearing-house for information than to any kind of international agency. The British themselves were now moving farther away from ideas of pooling resources, and putting greater emphasis on domestic reconstruction, imperial self-sufficiency, and, newly important, cutting dollar expenditure. On 21 November the Treasury told the Board of Trade that relief supplies for the liberated peoples, which would to some extent have to be provided by government departments and financed by government credit, should be limited to British goods. Supplies from outside the United Kingdom would involve international financial arrangements. Reconstruction of the devastated territories was to be paid for out of indemnities from the Central Powers, so that 'Their Lordships regard it as a cardinal point of policy that supplies for the reconstruction and development of such territories should not be financed out of British Government credits.'89 On 2 December Austen Chamberlain issued a memorandum of guidance for British representatives on the Allied programme committees, rather on the lines suggested by Percy about reserving a larger share of Empire resources for British needs, but showing a different spirit. Now that shipping was no longer the supremely limiting factor, Chamberlain said, it was desirable that British requirements should as far as possible be met from imperial resources, and that Empire sources should give priority to British needs. When the minimum needs of Allied countries had been met, supplies for industrial purposes should be retained within the Empire. This principle was not meant to be avowed or applied ruthlessly, but the revival of Britain's export trade was so important that British representatives should 88

89

IC 101, 3 Dec. 1918, CAB 28/5; memorandum as to the constitution of an inter-Allied council, 12 Dec, CAB 21/196; FRUSy PPC, Vol. 2, pp. 636-718; Bane and Lutz, Organisation of American Relief pp. 50-116; H.V.W. Temperley, A History of the Peace Conference of Paris, Vol. 1, London 1920, pp. 294-6. On 12 December Clementel sent Reading a note saying that France must be able to get, at fair prices, the goods necessary to reconstruct her national life, and asking that certain controls should be abandoned only gradually and in a coordinated way. Reading replied that France could be assured of necessary supplies, but he made a reservation on the United States attitude: AN, F12 7798. Treasury to Board of Trade, 21 Nov. 1918, T 142/7. The problem of credits is discussed in ch. 2.

30

Wartime planning

bear it in mind as an aim. Some modifications would no doubt be politically necessary. The Allies could be given equal priority in materials for the production of goods for domestic consumption; and where the Empire controlled a large proportion of the world's supply of some commodity, the Allies would have to be allowed more than they needed for domestic consumption even if the balance could profitably be used in Britain.910 This paper already shows a distinct trend away from cooperation for reconstruction and towards the idea of competition with friends as well as with enemies. The Allies were not to be helped to restore their trade, only to satisfy their minimum needs. That the United States was the chief competitor was emphasised by W.M. Hughes, the Australian Prime Minister who chaired the Committee on Indemnity, so optimistic on recovering the cost of the war from Germany, and who wrote to Lloyd George when sending the committee's report: The Committee . . . think it is important that the Cabinet should be informed that in their opinion the great menace to the trade of the British Empire comes from the U.S.A. America made large profits during the first two and a half years of the war .. . The British Empire on the other hand has been pouring out great streams of blood and treasure during the whole period of the war. From a great creditor nation she has become a debtor nation. The crushing burden of debt which she now carries must inevitably most seriously handicap her in any competition with a nation such as America whose financial and economic position is now much stronger than before the war. America is now predominant bothfinanciallyand industrially; and if there are to be no indemnities it is impossible to say that in course of time British trade may not be completely ruined by American competition. An indemnity covering the whole cost of the war, of which Britain would get about twice as much as the United States, 'would go far to restore the relative position of the two countries'.91 The Americans for their part were equally determined not to give any advantages to British trade. As Rathbone, Assistant Secretary to the Treasury, cabled on 19 September to a financial representative in Europe: 'If after the war only United States production were called upon for materials for French reconstruction on credit, and similar arrangements were not made with Britain, the result would be to put the United States at a decided disadvantage to the British Empire as regards trade.'92 And as McAdoo wrote to Wilson on 26 October, the United States should help 90 91

92

Memorandum by Chamberlain, 2 Dec. 1918, CAB 21/123. Hughes to Lloyd George, 18 Dec. 1918, London, House of Lords Record Office, Lloyd George Papers, F/28/2/18. For the committee, see below, p. 33. Rathbone to Crosby, 19 Sep. 1918, Washington, Library of Congress, hereafter LC, Russell C. Leffingwell Papers, container 5, reel 13.

Wartime planning

31

France to reconstruct, but Britain must share the burden; otherwise she would get aflyingstart and 'secure an undue share of the cash markets of the world'.93 Equality of sacrifice was taking on a fresh meaning. 93

McAdoo to Wilson, 26 Oct. 1918. 1918, NA, RG 39 (Treasury), Country files, box 51, cited in Trachtenberg, Reparation in World Politics, p. 25.

Chapter 2

Armistice and peace conference

Sir Joseph Maclay's forecast that shipping and raw materials would not be absolutely scarce once hostilities ceased was borne out in fact, although particular difficulties over shipping remained for some months. The overriding problem for reconstruction proved to be finance, in a variety of forms. The months between the armistice and the signature of the Treaty of Versailles on 28 June 1919 can be divided into two periods. In the first, down to the end of March, reconstruction problems largely centred on France, along with immediate relief for central and eastern Europe which is discussed in Chapter 4. The French on the one hand tried to obtain Allied cooperation in their country's reconstruction by such means as controlling raw materials and redistributing war costs. They were defeated by American refusal of cooperation and as a result turned instead to getting as much reparation as possible from Germany: in the latter form the problem continued to the signature of the peace treaty - and of course beyond it.1 Secondly, the French wanted to continue the wartime financial arrangements of unlimited advances from the United States and Britain, to sustain the value of the franc and to pay for imports. Immediate French needs were largely met, but the attempt could not succeed for long. The United States government was trying to wind up its lending activities, and its power to make advances was running out. It wished to force Britain to match any help it gave. The British, worried about their own exchange and balance of payments, also needed transitional assistance and were unwilling to increase their own indebtedness by granting open-ended credits to others. By the end of March the French had reached an arrangement with Britain, the last such inter-governmental agreement; and American government lending was confined, by the Victory Loan Act, to limited sums for 1

Trachtenberg, Reparation in World Politics, ch. 2, gives a full account of this aspect of French policy.

32

Armistice and peace conference

33

eighteen months for purchases of American grain and government surplus. In the second phase, to the end of June, while the problem of German reparations continued under discussion, attention turned to more general questions of European reconstruction. Various partial proposals were made, none was adopted. The British delegation had ideas but could not push them through. Any large scheme, bringing all the elements together, would have had to come from the United States; but whilst some Americans were conscious of the problem, the chances of a government initiative were steadily receding even before the President left Europe. One of the elements in such an overall scheme would have been inter-Allied debts. At this stage, approaches to that problem were highly tentative. The British did not take to the peace conference any comprehensive ideas on reconstructing Europe. As far as Britain herself was concerned, they wanted to penalise German trade for a period: the provision in the Treaty of Versailles that Germany should give the Allies unilateral mostfavoured-nation treatment for five years might be regarded as the last relic of the Paris Resolutions. On reparations, there was no clear understanding of what would be feasible. At the time of the pre-armistice discussions, expectations that Germany could be required to pay more than compensation for damage, and that the British Empire could get much, were not high. Under the impact of the general election campaign, however, and the protests of W.M. Hughes, the Imperial War Cabinet set up a committee to consider how Germany might pay to the limit of her capacity and without harmful effects.2 The committee reported that Germany ought to pay the costs of the war and would be able to pay, each year, some six times as much as the total that the Treasury had considered possible.3 The Imperial War Cabinet, when it discussed the committee's report just before Christmas, was divided. Lloyd George did not commit himself. He doubted whether Germany could pay the entire cost of the war, but upheld Britain's case. 'Unless', he said, 'President Wilson was prepared to pool the whole cost of the war, and for the United States to take its share of the whole, he was not in a position to reject our claim for indemnity.'4 But Wilson, on his arrival in England on 26 December, proved very stiff on the subject of indemnity, and the Imperial War Cabinet was not prepared to 2

3

4

See Bunselmeyer, Cost of the War, ch. 5; Imperial War Cabinet, 26 Nov. 1918, IWC 39, CAB 23/43. P 38, 2 Dec. 1918, CAB 29/2; committee proceedings in CAB 27/43. See Bunselmeyer, Cost of the War, ch. 6. Lloyd George's somewhat tendentious version, claiming to have miscalculated the composition and attitude of the committee, is in his The Truth about the Peace Treaties, London 1938, Vol. 1, pp. 297-309. Imperial War Cabinet, 23 and 24 Dec. 1918, IWC 45, 46, CAB 23/42; Lloyd George, Truth about the Peace Treaties, Vol. 1, pp. 315-20.

34

Armistice and peace conference

risk losing American cooperation on other important aspects of the peace.5 The instructions proposed by Lloyd George for the British Empire delegates on reparation were very general: 'To endeavour to secure from Germany the greatest possible indemnity she can pay consistently with the economic well-being of the British Empire and the peace of the world, and without involving an army of occupation in Germany for its collection.'6 The delegates themselves were Hughes, Lord Cunliffe (former Governor of the Bank of England and member of the Committee on Indemnity, on which he revealed strange ideas about the basis of a country's credit), and Lord Sumner (a distinguished judge, who had no experience of international economics). Their objective at Paris was initially to claim a very large indemnity, including war costs, and to resist any priority for reparation of damage. Later the aim came to be to secure for the British Empire the largest possible share of whatever total bill was to be laid upon Germany. Hints about sharing war costs and adjusting debts had, as has been seen, already been made to American officials and been rebuffed, and the British did not pursue the ideas at Paris. The French, on the other hand, tried to use the discussion of peace terms to secure help in reconstruction. After a last unsuccessful effort in December to persuade Hoover to adopt French ideas on controlling raw materials, Clementel advised that the way to secure a socially and economically just peace was for the associated countries to take measures in common to restore to a position of economic equality the countries which had suffered most, secure supplies, and enable debts to be paid. The terms to be imposed on Germany would depend to some extent on the assurances the Allies gave to each other. If they did not agree in advance on the future economic order, France would have to demand integral reparation.7 To begin with it seemed that the Americans were prepared to consider some degree of cooperation. When on 27 January the Supreme Council decided to set up an economic drafting committee to propose economic questions for study, it was Wilson who suggested that they should include privileges to be given to devastated regions to restore their economic life.8 The French then put forward a memorandum calling for Allied control of raw materials and cooperation on shipping and exchange rates, and making it plain that French approval of a moderate peace would depend on the continuation of Allied cooperation. The British 5

7

8

Imperial War Cabinet, 30 and 31 Dec. 1918, IWC 47, 48, CAB 23/42; Bunselmeyer, Cost 6 of the War, ch. 10. Imperial War Cabinet, 24 Dec. 1918, IWC 46, CAB 23/42. For Clementel's proposals on raw materials, and Hoover's rejection, see Bane and Lutz, Organisation of American Relief, pp. 78—84; 'Avant-projet des clauses economiques des preliminaires de paix', with covering memorandum Clementel to Clemenceau, 31 Dec. 1918, AN, F12 8104; Clementel to Pichon, 19-20 Jan. 1919, F12 8039; MAE, Y Internationale, Vol. 213; Trachtenberg, Reparation in World Politics, pp. 33—5. FRUS, PPC, Vol. 3, pp. 730-2.

Armistice and peace conference

35

and American representatives agreed that the proposed Economic Commission of the conference should study these questions, but did not commit themselves to any position on them.9 The list of questions suggested by the drafting committee for the Economic Commission to consider therefore included economic measures to be taken in common for the supply of Europe and referred especially to the needs of the devastated regions. The Supreme Council decided on 21 February that transitional measures of this kind should be handed over to the newly established Supreme Economic Council, leaving the Economic Commission to discuss problems directly related to the peace terms for Germany.10 But owing to increasing American resistance to all schemes involving inter-governmental cooperation, the Supreme Economic Council never became what its title promised. It discussed questions of relief and blockade, but French reconstruction was barely touched.11 The French also urgently desired continued financial assistance from both Britain and the United States, to pay for imports and to support the exchange. Since the summer of 1918 the government had been trying to accumulate, in return for advances of francs made to the American forces in France, a fund of dollars for postwar reconstruction spending and the support of the franc. After negotiations in Washington and Paris, Crosby wrote on 16 October to Andre Tardieu, the French High Commissioner in the United States, offering to devote 40 per cent of the franc advances to a special fund to be spent only on goods needed for reconstruction, on condition that Britain gave similar help and that any money received from Germany by way of reparation during the first three years of peace was used to repay the American credit.12 Crosby explained to McAdoo that his principal objective had been to secure the supply of francs after the end of hostilities, and to give support to the Bank of France in buying food and raw materials, especially for restoring the devastated provinces. Serious troubles lay ahead for France, and even a cold calculation of American interest as a creditor would suggest that a helpful attitude was desirable.13 9

Paris Peace Conference, Recueil des Actes de la Conference, Paris 1922-34, Part IV, B, 7, 10 pp. 10-21. FRUS, PPC, Vol. 4, pp. 62-5, 67-9. 11 Minutes of the Supreme Economic Council in FRUS, PPC, Vol. 10. 12 Crosby to Tardieu, 16 Oct. 1918, France, Archives nationales, Archives economiques et financieres, F30 780 = B 31705 (archives of the Ministry of Finance are hereafter cited as MF, with F30 and/or new classification number); printed in United States, Congress, Senate, Commission on the Judiciary, 67th Congress, Senate Document No. 86, Loans to Foreign Governments, Washington 1921, pp. 267-70. For the negotiations see Denise Artaud, La Question des dettes interalliees et la reconstruction de VEurope (1917-1929), Paris and Lille 1978, pp. 40-7; Ellen Schrecker, The Hired Money. The French Debt to the United States 1917-1929, New York 1978, pp. 34=-5. 13 Crosby to McAdoo, 25 Oct. 1918, NA, RG 59, 851.51/101; US Senate, Loans to Foreign Governments, pp. 265-7.

36

Armistice and peace conference

Another American Treasury representative, Norman Davis, told Keynes that he favoured the United States taking over the entire burden of financing France, relieving Britain, but he believed the French request was too high and was concerned with a scheme of postwar development based on the control of raw materials. Davis thought that the Allies and the United States ought to discuss a comprehensive settlement.14 For their part the British, concerned about their own exchange and the shortage of dollars, were anxious that some of the French dollar resources should be used in London before British credits were called on. At the end of October Celier, the Director of the Mouvement General des Fonds in the French Ministry of Finance, came to London for a conference with Treasury officials and the Bank of England. Keynes, who continued to think that the franc ought not to be supported at too high a rate, mentioned Davis's idea that the United States should take over the whole burden but said that British credits would continue, if necessary, on the previous basis provided that France did not build up balances elsewhere. He was not sure that the Americans wanted to tie their arrangements to similar British ones and thought that they simply wished to be kept informed.15 After the armistice, however, the British began to warn the French that government credits were likely to be restricted. On 28 November Bonar Law, the Chancellor of the Exchequer, wrote to his French opposite number Louis Klotz that the time had come to adapt the relations between the two Treasuries to the new circumstances. Since the summer the French Treasury had not needed help, apart from the renewal of outstanding Treasury bills, apparently because the expenditure of the British and American armies had provided enough to meet French foreign requirements. Bonar Law was not concerned with Klotz's negotiations with the Americans about a dollar fund, but said that he felt Britain could not make advances to France as long as she could meet current expenditure from these and other sources. There was a strong feeling in Britain against further advances to others when she herself was dependent on help from the United States. Existing arrangements to lend France the sums needed for interest on Treasury bills would be continued, but Bonar Law proposed that future financial assistance should be limited to that. If the situation changed, however, it would always be possible to reconsider the position.16 This letter dismayed Klotz, who asked Clemenceau to do what he could, 14 15

16

Minutes by Keynes, 21 and 29 Oct. 1918, T 1/12227/44667/18. Avenol to Ministry of Finance, hereafter MF, 28 Sep. 1918; MF to Avenol, 12 Oct.; notes of conference at the Treasury, London, 28 Oct., MF, B 12676; MF to High Commissioner, New York, 2 Nov., F30 782 = B 31707. Bonar Law to Klotz, 28 Nov. 1918, MF, F30 926 = B 31846.

Armistice and peace conference

37

on his forthcoming visit to London, to get the British to appreciate that France had made for the common cause more sacrifices than any other nation, and in consequence had had to become a debtor for the first time. The British decision to oppose further transfers of sterling to the Bank of France confronted the government with a choice between ceasing commercial purchases in Britain or seeing the franc exposed to greater depreciation than during the war.17 On 7 December Klotz replied to Bonar Law's letter, pointing out that British and American expenditure in France was falling with the beginning of troop withdrawals, and a balance between French expenditure and foreign resources had certainly not been reached. More generally, whilst France might expect German reparations to give her the means of paying her debts and restoring her balance, the transitional period would be extremely difficult and Klotz hoped that Bonar Law did not mean that Britain intended to abandon her. France did not think it right suddenly to abandon to their own resources the countries she had helped; he believed the United States government would agree that cooperation had not lost its raison d'etre with the armistice, and he attached great importance to the same spirit prevailing in Anglo-French relations. Klotz made no suggestions as to how British help should continue, but said he was open to any proposals.18 The Frenchfinancialadviser in London, Joseph Avenol, thought that the trouble was of his government's own making. Once the British had been given, earlier in the year, a detailed breakdown of French payments and then the government had raised the exchange rate and demonstrated that credits were not needed, it could not have hoped for more.19 And Bonar Law replied to Klotz that he appreciated French efforts to be as little dependent as possible on financial assistance, and the fact that the withdrawal of the British and American armies would mean a loss of income; but he had not been looking farther ahead than the next few months and new arrangements could always be discussed if they were needed. He went on to explain the considerations in his own mind. He thought that for the present and the immediate future, the receipts from the Allied armies would cover French external expenditure if they were freely available, and that Britain could not fairly be asked to make advances just because part of those resources had been earmarked for some other purpose. Secondly, the possibility and scale of future assistance depended very much on the attitude of the United States Treasury, which was not yet clear. Congress had apparently just been approached for authority to make advances to the Allies after the peace, but the British financial commissioner understood 17 18 19

Klotz to Clemenceau, 30 Nov. 1918, MF, F30 926 = B 31846. Klotz to Bonar Law, 7 Dec. 1918, MF, F30 926 = B 31846. Avenol to Fromage, MF, 2 Dec. 1918, MF, B 12676.

38

Armistice and peace conference

that these advances would only be for reconstruction in France and Belgium and possibly for food for Italy, and would not be made to Britain for any purpose. If this were really the American intention, Klotz must realize that Britain's power to lend to other countries would cease altogether. If later on in 1919 France did need help and Britain could give it, there was much to be said for reviving the ordinary machinery of commercial borrowing.20 Bonar Law was referring to the bill laid before Congress by McAdoo, seeking authority to raise the ceiling of Liberty Bond issues to $25,000 million, and that of advances to foreign governments to $10,000 million, and for power for the government to make advances for one year after the end of the war for purchases in the United States or to pay interest to the United States. The War Finance Corporation would also be allowed to advance up to $1,000 million to American firms or individuals to finance sales to Europe. Since the United States had already advanced $8,500 million to the Allies, this meant $1,500 million of new credits, or $2,500 million including the War Finance Corporation advances, all to be spent in the United States.21 McAdoo had assured Tardieu just before the armistice that he would continue to give sympathetic consideration to requests for credits, but had pointed out that he had no power to give credits for reconstruction purposes after the end of the war, and in any case would not wish to do so before requirements were definitely known.22 He cabled to Crosby that he wished to encourage private financing even of the purchase of American commodities, and Crosby should indicate informally that a policy of retrenchment in the government's lending was to be expected.23 When Crosby reported from London on 1 December that Bonar Law had indicated that the British government might need to borrow $100 million a month for some months, McAdoo replied that he intended to discontinue loans for purchases anywhere but the United States. Under present legislation loans could only be made for war purposes and therefore could not take the form of specific sums irrespective of use; and foreign governments must understand that the amount of United States government lending would be very much reduced.24 On 18 December, after discussions in Washington between Rathbone, 20 21

22

23 24

Bonar Law to Klotz, 18 Dec. 1918, MF, F30 926 - B 31846. Artaud, Question des dettes, p. 84; Schrecker, Hired Money, pp. 39-44. The Victory Loan Act, passed in March 1919, eventually authorised the Administration to make advances to foreign governments for eighteen months, solely to purchase goods belonging to the United States government or grain at a price guaranteed by the government. McAdoo to Tardieu, 7 Nov. 1918, LC, McAdoo Papers, container 500/2; US Senate, Loans to Foreign Governments, pp. 278-9. McAdoo to Crosby, 22 Nov. 1918, NA, RG 59, 102.1/1420. Crosby to McAdoo, 1 Dec. 1918; McAdoo to Crosby, 7 Dec, NA, RG 59, 800.51/120.

Armistice and peace conference

39

an Assistant Secretary of the US Treasury, and the British financial representative Sir Hardman Lever, the Americans agreed to advance Britain $250 million which Rathbone said he expected would be enough to cover outstanding commitments and to provide for other purchases until normal peacetime channels offinancewere available. Lever replied that the Chancellor of the Exchequer thought that more would certainly be needed;25 and on 26 December he delivered a message from Bonar Law suggesting $500 million for the next three months, beyond which it was impossible to do more than guess at requirements. The two principal unknown factors were the date when Britain's export trade might be expected to reach its prewar dimensions - it could hardly be before the end of 1919 - and how far she would have to finance the Allies and provide liquid resources for European reconstruction. The size of this task was itself obscure, and the size of the share falling to Britain would depend on United States policy. In particular the burden on the pound was determined mainly by other countries' indebtedness to the United States and only secondarily by British purchases.26 But Rathbone replied that although the United States Treasury would have been glad to help, it was not in a position to advance $500 million in addition to the balance of the $250 million special credit just approved. Britain ought to be able to float a loan.27 The suggestion that the United States should take over the entire task of financing French reconstruction was raised several times by Keynes in conversation with Crosby, on the lines that the loans made by Britain before the United States entered the war should be equalised. But whatever Davis had said in October, the suggestion now met with no favour in Washington.28 Still less did that, coming from the Chancellor of the Exchequer and the French Minister of Finance as well as from unofficial sources, that all the inter-Allied war debts should be cancelled. To both Bonar Law and Klotz Crosby replied that as far as he knew McAdoo had never entertained such an idea and he had no authority to discuss it.29 25

26

27

28 29

Davis, London, to Rathbone, 6 Dec. 1918; Rathbone to Crosby, Paris, 11 Dec, NA, RG 39, Country files, box 119; Barclay, Washington, to FO, 15 Dec, T 1/12256/49893/18; U S Senate, Loans to Foreign Governments, pp. 1 8 - 2 1 . FO to Bailey, New York, 23 Dec 1918, T 1/12256/49893/18; Lever to Rathbone, 26 D e c , U S Senate, Loans to Foreign Governments, pp. 2 2 - 3 . Rathbone to Lever, 31 Dec 1918, US Senate, Loans to Foreign Governments, pp. 23-4; Bailey to FO, 4 Jan. 1919, T 1/12256/49893/18. Before leaving London in January Crosby warned the Chancellor of the Exchequer that it would be unwise to depend on the legislation submitted to Congress for authorising loans after the end of the war, and any further case the British wanted to make should be presented soon: Crosby to Glass, 10 Jan., NA, RG 59, 102.1/1600. Crosby to McAdoo, 4 Dec. 1918; McAdoo to Crosby, 7 Dec, NA, RG 59, 800.51/122. Crosby to McAdoo, 4 Dec. 1918, NA, RG 59, 800.51/122; US Senate, Loans to Foreign Governments, pp. 16-17. The fact of the British approach was confirmed by Austen

40

Armistice and peace conference

McAdoo indeed was quite clear that no such suggestion could be considered. He had told the President that decisions on the consolidation of Allied debts fell solely within the authority of the Secretary of the Treasury, and he cabled to Crosby that the Treasury had no power to cancel debts and they were not a matter for the peace conference.30 He told House that he was convinced that Congress and the American public would not approve cancellation of the loans or any action that would reduce their value. It was going to be difficult enough to get Congress to authorise the new reconstruction credits, and any doubt cast on the earlier credits would strengthen the opposition. The loans should not be mixed up with other questions and should be kept out of the peace conference. The Treasury was not officially represented there and must not be unofficially represented.31 McAdoo was on the point of leaving office. His successor, Carter Glass, agreed to Treasury representatives being attached to the United States delegation at the peace conference, but he lost no time in advising the President that all questions concerning the loans should be kept out of the conference's discussions.32 But the fact that the United States Treasury did not wish to discuss the loans at the peace conference did not mean that it had no wish to discuss them at all, with individual debtors or to some extent together. On the contrary in writing to Wilson on 26 October McAdoo foresaw the necessity of a general discussion of the Allied debts to Britain and the United States, in connection with sharing the supply of credits for reconstruction.33 During November some uneasiness grew up in London as to the use that a new Secretary of the Treasury might make of the British obligations, which were nominally payable on demand. When Crosby explained the British anxieties McAdoo replied that the Secretary of the Treasury was prepared to discuss with the Allies, in Washington when they wished, all questions about the conversion and maturity of their obligations; and on 10 December Rathbone so informed the British and French financial representatives.34 Rathbone suggested that the various

30

31 32

33 34

Chamberlain in a speech in February 1921: see below, p. 157. T h e French demarche is mentioned b y Harold G. Moulton and Leo Pasvolsky, War Debts and World Prosperity, Washington 1932, pp. 5 3 - 4 , o n the authority of Crosby. M c A d o o to Wilson, 26 O c t . 1918, L C , M c A d o o Papers, container 525; M c A d o o to Crosby, 7 D e c , L C , Leffingwell Papers, container 6, reel 18; N A , R G 59, 102.1/1736; R G 59, 800.51/122. M c A d o o to H o u s e , 10 D e c . 1918, L C , Leffingwell Papers, container 7, reel 18. Glass t o W i l s o n , 19 and 30 D e c . 1918, L C , Leffingwell Papers, container 7, reels 18, 19; Glass t o T h o m a s W . Lamont, 2 0 Jan. 1919, Harvard Business School, Baker Library, Lamont Papers, I V - A , 171-14. McAdoo to Wilson, 26 Oct., 1918, LC, McAdoo Papers, container 525. Crosby to McAdoo, 30 Nov., 4 Dec. 1918, NA, RG 59, 841.51/136; 800.51/122; Crosby to McAdoo, 6 and 7 Dec, RG 59, 800.51/1489,1496; McAdoo to Crosby, 7 Dec. RG 59, 102.1/1736c; Rathbone to Crosby, 11 Dec, RG 59, 102.1/1489; de Billy, New York, to MF, 10 Dec, MF, F30 780 = B 31705; Bailey to FO, 11 D e c , T 1/12256/49893/18.

Armistice and peace conference

41

Allied debts and claims could usefully be discussed together, and the French representative de Billy suggested to Paris that his ministry should concert its views with the British Treasury; but in fact their paths diverged. Crosby found that Klotz now wished to postpone discussion until the peace conference met, and then to discuss all the debts and terms for funding along with reparations and reconstruction. This the Americans refused, but they were in no hurry to press the French to discuss conversion at present.35 On the other hand the British Treasury was ready to take up discussion of the conversion of the British obligations into longterm bonds; and even when they learned that the French preferred general discussion in Paris, they went ahead.36 Informal discussions began with the United States Treasury in the middle of January. Lever gathered that the Americans believed the British government wanted to pay its debt as soon as it conveniently could, whatever the attitude of the other Allies might be, and hoped for a British proposal and a statement of British views on the terms to be granted to the other Allies. The Americans assumed that there would be consultation and the terms arranged would be similar; but they did not think the terms to be granted by the United States to Britain need be the same as those granted to other Allies. They thought it important to be able to sell the bonds for the British debt to the American public.37 But the British Treasury was less keen on early and separate Anglo-American discussions. Keynes was working on a scheme for setting off the inter-Allied debts against each other, and so talking about conversion might prove a waste of time. Since it had pressed for discussion, however, it could hardly withdraw, and Keynes suggested that Rathbone should be told that the problem was tied up with that of the inter-Allied debts generally and that now the peace conference had begun the British would prefer to postpone discussion in case some general proposal for redistributing the cost of the war came up. There was no prospect either of Britain paying soon, nor unless the Allies paid her.38 Lever was instructed to continue the discussions informally, saying that no definite commitment could be undertaken until the future was clearer, and pointing out that Britain's power to pay would be largely determined by France's and Italy's ability to pay her. These debts therefore should have priority over Britain's to the United States.39 This last point the United States Treasury was not willing to accept. It agreed that a definite 35

36

37 38 39

Crosby to McAdoo, 13 Dec. 1918; Rathbone to Crosby, 17 Dec, NA, RG 39, Country files, box 56; MF to Tardieu, 20 Dec; de Billy to MF, 28 Dec, MF, F30 780 = B 31705. FO to Bailey, 23 Dec 1918, T 1/12256/49893/18; Bailey to FO, 31 Dec; FO to Bailey, 9 Jan. 1919, T 1/12338/25131. Bailey to FO, 19 Jan. 1919, T 1/12338/25131. Minutes by McFadyean and Keynes, 27 and 29 Jan. 1919, T 1/12338/25131. FO to Bailey, 6 Feb. 1919, T 1/12338/25131.

42

A rmistice andp eace conferen ce

commitment should be postponed until reparations were settled, and that the various individual debt settlements should be reached in a joint conference with the various debtors, starting with the least promising cases and being crowned by a settlement between Britain and the United States.40 There the matter rested for the time being so far as the British were concerned. The French n*ade another attempt in the middle of January to get American agreement to a general discussion of debts and credit at the peace conference in connection with the peace terms, but received another refusal. The new Secretary of the Treasury, Carter Glass, wrote to de Billy that he agreed that any scheme of French repayments should take account of the reparations France was likely to receive from Germany, that no government should seek priority over another, and that where countries had borrowed from more than one lender all parties should be kept informed of the terms being reached. But this did not mean that everything should be discussed in Paris, only that the United States should be willing to postpone discussion - which must be bilateral and take place in Washington - until after the financial terms of the peace settlement had been decided.41 Once the peace conference opened Paris inevitably became the scene of much of the discussion of finance. Although the United States Treasury remained adamant that debts could not be discussed there, the question of continuing credits to France still needed to be resolved, and it was tied up with problems of the exchange and of trade. The French continued to urge joint discussions. Before receiving Carter Glass's refusal to discuss debts in Paris, the Ministry of Finance instructed the representatives in Washington to ask for joint discussions on other related questions. The British were trying to reduce their commitments to the Allies because American credit to Britain had been stopped, but France's situation had deteriorated so quickly that if there were no more credits her resources would soon run out. Separate bilateral arrangements would only lead to deadlock. Moreover, once the peace conference started, there could be no useful discussion of the German indemnity with all its related questions, the reconstruction of France, and the opening of credits for the small states, unless the French, American, and British delegations had consulted together first. Negotiations could be continued in Washington and decisions taken there if necessary.42 A similar message was sent to the new 40 41

42

Bailey to FO, 16 Feb. 1919, T 1/12338/25131. De Billy to Glass, 15 Jan. 1919; Glass to de Billy, 29 Jan., NA, RG 39, Country files, box 56; United States, World War Foreign Debt Commission, Combined Annual Reports, Washington 1927, pp. 64-5. MF to High Commission, New York, 27 Jan. 1919, MF, B 12676.

Armistice and peace conference

43

British Chancellor of the Exchequer, Austen Chamberlain, suggesting that the moment had come for a concerted examination by the three Treasuries of the distribution of the costs of reconstruction and of the war. Without this, and a friendly effort to solve the common difficulties, it would be difficult to discuss usefully all the other financial questions involved in the peace conference.43 Avenol found Chamberlain courteous, ready for tripartite conversations, but anxious about Britain's financial situation and unwilling to make anything more than a temporary advance.44 Carter Glass replied that he sympathised with the difficult French position and if fuller knowledge could be gained by conversations in Paris he would welcome it. The questions in which the Treasury and the Allies were interested fell, he suggested, into three categories: indemnities, which formed an integral part of the peace negotiations and must be discussed in Paris; current finance, which should be the subject of exchange of views between the Treasuries; and other questions which concerned two governments only. Norman Davis was told that he might join in discussion and make recommendations. Methods of financing reconstruction should not be discussed, but it was advisable to discuss needs.45 The American delegates in Paris were already considering what Davis thought was a concerted move by the Allies to get the United States locked into the whole financial situation in Europe, by means of plans to stabilise the exchanges, pool raw materials, and guarantee German reparation undertakings, in such a way as to create open-ended American commitments to share the costs of the war and sustain balance of trade deficits. Davis recommended to the President that the United States should not enter into general financial or economic arrangements but should simply undertake to consider sympathetically and on its merits any request by an individual government for specific assistance.46 At Wilson's request a group of American technical advisers, Davis, Baruch, Hoover, McCormick, and Robinson, discussed, on 11 February, what could be done for reconstruction. Their recommendations amounted to pressing all governments to remove restrictions on trade as the United States government had done, and stimulating American exports with private finance. It might be necessary, they said, and helpful to American manufacturers, to continue for a while to help some of the European governments with limited advances for purchases in the United States, but advances should only be made on condition that all import and export restrictions were removed. The French were trying to block 43 44 45 46

Memorandum given to Sir John Bradbury, 31 Jan. 1919, MF, B 12676. Avenol to MF, 5, 6, 12 Feb. 1919; Avenol to Celier, 8 Feb., MF, B 12676. Glass to Davis, 11 Feb. 1919, LC, Leffingwell Papers, container 8, reel 21. Davis to Wilson, 2 Feb. 1919, LC, Norman H. Davis Papers, container 11.

44

Armistice and peace conference

progress on ending the blockade and other restrictions in order to get agreement on financial and economic assistance and a large indemnity from Germany, and progress on the peace terms might be slow until the French were told definitely that the United States would not make any special financial or economic agreements extending beyond the signature of peace. The advisers thought that the French had enough dollars to last a considerable time; they could therefore be told that the United States would not make any financial arrangements now but would be willing to look at French requirements after the peace treaty was signed and in the light of their cooperation now.47 The French meanwhile were still finding the British attitude on credits extremely unhelpful and asked the Americans to intervene. On 19 February two members of the financial section of the American delegation, Davis and Strauss, met Keynes and Celier. The French and American accounts of the meeting differ: there is no contemporary British record. According to the French account, the Americans were ready to support British purchases in the United States if Britain gave France credits for purchases in the United Kingdom, but Keynes said this was not enough; and both he and the Americans objected to the French exchange rate. According to the American account, they and Keynes were chiefly concerned to convince Celier that the franc must be allowed to fall to a realistic level and France must take steps to help herself: Keynes had said that Britain could not go on making advances to the Allies beyond her own means without risking bankruptcy.48 Klotz was deeply upset and concluded that Britain was coldly resolved to abandon, on the morrow of the battle, the companion in arms whose wounds prevented him from rising. The ambassador in London, Paul Cambon, was instructed to urge Chamberlain to come to Paris at once, as a crisis was imminent. The British had already agreed to a temporary advance to France of £2 million for February, but Avenol told the Treasury that he could not go on living from hand to mouth and would have to prepare to suspend payments in Britain; the financial situation must be discussed by the ambassador with ministers. While Avenol was talking in this way to the Permanent Secretary, Sir John Bradbury, Keynes came in and reported on his visit to Paris. Avenol thought that Keynes was 47

48

Baruch to Wilson, 12 Feb. 1919, Davis Papers, container 46. Davis also reported that Hoover was worried that Allied control of buying of food staples and retention of the blockade threatened to depress American prices, and that McCormick had told the Blockade Committee that the United States might have to act alone in relaxing blockade measures in south-east Europe: Davis to Rathbone, 18 Feb., RG 59, 102.1/1729. MF to Avenol and de Billy, 20 Feb. 1919, MF, F30 782 = B 31707; Davis to Rathbone, 22 Feb., NA, RG 59, 851.5/118. For Keynes's account of the whole episode, written in 1924, see J.M. Keynes, Collected Writings, London 1971-83, Vol. 16, pp. 406-15.

Armistice and peace conference

45

not ill-disposed nor prejudiced against advances, but was worried by the size of the French requests and anxious to work out how Britain could avoid going bankrupt through helping her Allies.49 Avenol had been making enquiries in London about financing French purchases through bank consortia and now reported that the banks were favourable in principle but were receiving many other requests. Avenol thought, however, that bank financing was the only solution: the Treasury was willing to furnish precise sums for particular needs, but would not agree to support the exchange rate nor would it furnish credit for indeterminate operations, thus increasing Britain's own foreign commitments.50 Cambon now went to see Chamberlain, who said that he appreciated French difficulties but his were no less. Apart from the domestic demand for money, which was so great that he could not at present authorise the emission of a French loan in London, the key to the question was the Treasury's situation in the United States and he could not make a longterm agreement with France without one with the United States. He would gladly come to Paris as soon as his budget was prepared. Meanwhile he would prevent a suspension of French payments and would ensure that there were funds for French purchases in the British Empire; but he would not take part in French exchange operations. Cambon commented that the French government ought to have taken the initiative in negotiating a new agreement, but neither he nor Avenol could act without instructions. The British would try to prevent their exchange being used for commercial purposes, but they and the Americans were genuinely sympathetic about French reconstruction and would help if given precise proposals based on figures and details which could have been prepared in the months since the armistice. The Americans in particular, said Cambon, were astonished that this had not been done and that the French were wrapping themselves up in vague general formulae.51 Avenol, too, sent home a long memorandum on the British position, designed perhaps to counteract Klotz's emotion. He did not think the Treasury's present niggardliness was due to lack of sympathy for an ally. Bonar Law had said in successive letters that Britain's help was conditioned by her own situation vis-a-vis the United States, but the Treasury was worried about what would happen to sterling when peace was signed and the neutrals could draw on their balances. Any credit granted in London increased Britain's obligation to the United States, and this was not acceptable without an American assurance. The British were 49 50 51

Avenol t o M F , 21 Feb. 1919, M F , B 12591. Avenol t o M F , 23 Feb. 1919, M F , B 12591. C a m b o n t o Ministry of Foreign Affairs, hereafter M A E , 22 and 24 Feb., 1919, M F , B 12676.

46

Armistice and peace conference

conscious of an obligation to join in the reconstruction of France; but the hope of German reparation did not help France.52 On 25 February the Cabinet discussed policy on help to France. Keynes reported that the French were asking the United States for $650 million and for £100 million from Britain, partly for purchases and partly to support their credit. The United States would only lend for expenditure in the United States: the French would accept British credit limited to purchases in the Empire, but that would not help British exchange difficulties. Britain was under an obligation to give France some help, but ought she to do so for general purposes and for restoring French trade? It was not worth doing on a small scale, and a large scale could not be afforded. Lloyd George thought that the United States ought to be pressed to help France. Churchill said that a loan should only be for purchases in Britain; but Chamberlain pointed out that even that meant expenditure on imported raw materials. Bonar Law said that France could not be allowed to go bankrupt. The Cabinet agreed to approve the advance of £2 million already promised to France, and to urge the United States to help. Chamberlain would go to Paris in the following week.53 In advance of the meeting in Paris Rathbone told the British Embassy in Washington that he could not understand the statement that Britain's resources had been strictly limited. The Treasury was willing to continue financial help to France for purchases in the United States, but not to lend money to enable France to make purchases in or pay debts to Britain. All the associated governments should cooperate: otherwise French credit could not be maintained. Rathbone wanted to wind up the system by which Allied governments paid dollars to Britain for purchases made on their behalf and suggested that in future any such reimbursements should be applied to paying the British obligations to the United States. He realised that this would reduce Britain's dollar resources, but the Treasury was willing to consider an application for advances to meet British purchases in the United States which could not be provided through private channels.54 At the same time Carter Glass wrote to de Billy, 52

53 54

Memorandum by Avenol, 24 Feb. 1919, MF, F30 781 = B 31706. At this stage, in the Commission on Reparation, both the French and the British delegates were insisting, as against the Americans, on the inclusion of war costs. The French were also asking for priority for reparation of damage, and in the Financial Commission on 20 February Klotz emphasised the link between France's reparation claims and the settlement of inter-Allied financial questions. See Philip Mason Burnett, Reparation at the Paris Peace Conference•, New York 1940, ch. 3 and related documents; Peace Conference, Recueil des Actes, Part IV, B, 6, p. 25; Trachtenberg, Reparation in World Politics, pp. 53-4. Cabinet, 25 Feb. 1919, WC 536A, CAB 23/115. Rathbone to Reading, 4 Mar. 1919, FO 115/2522; LC, Leffingwell Papers, container 8, reel 22. The so-called 'dollar reimbursements' were largely book-keeping transactions arising from the fact that whilst the United States Treasury preferred to keep the loan

Armistice and peace conference

47

assuring him of the Treasury's desire to help solve France's financial problems and his conviction that the restoration of France was of great importance to all the associated governments. But it must be understood that United States government aid to France was limited to French requirements in the United States that could not be met through private channels, and must not be used directly or indirectly to enable the French government or French nationals to make any kind of payments to Allied or other governments or nationals. The French government must not use any dollars that it acquired to make any payments to Allied governments without United States Treasury consent.55 Rathbone also cabled to Davis in Paris that if it would help an arrangement whereby Britain would extend further credit to France, further credits might if necessary be established in favour of Britain. He had talked to Blackett, a British Treasury official who was visiting Washington, and thought he had removed British misapprehensions.56 Chamberlain's conversations in Paris began on 7 March. Once again, a proper British record is lacking,57 and most of the evidence is American. The French had given Colonel House, on 5 March, a memorandum setting out in general terms their financial situation and need for credits.58 Chamberlain, when he arrived, went with Klotz to call on President Wilson, but instead saw House. Klotz expounded his views; the Americans indicated that France must take steps to help herself, end restrictions on trade, and unpeg the artificially high franc; her problems could not be solved by constant appeals for help. On 8 March, after an Anglo-American conversation about the necessity of letting the franc fall, there was a further meeting with Klotz but without House. Chamberlain explained that

55

56 57

58

accounts with each Allied government separate, some purchases were made in bulk by one government (nearly always the British) for some of the others as well as itself. Britain also provided shipping services. T h e purchasing government received the necessary funds from the U n i t e d States T r e a s u r y ; w h e n the supplies had been allocated the Treasury advanced to the other governments the funds t o reimburse the purchasing government for their respective shares; and so the indebtedness of the purchasing government o n the Treasury's b o o k s w o u l d be reduced and that of the other governments increased. See M o u l t o n and Pasvolsky, War Debts and World Prosperity, p p . 4 3 - 5 . Glass to de Billy, 4 Mar. 1919, N A , R G 39, C o u n t r y files, box 57; M F F30 781 =

B 31706; U S Senate, Loans to Foreign Governments, pp. 2 8 0 - 1 . Rathbone to Davis, 6 Mar. 1919, LC, Leffingwell Papers, container 8, reel 22. In February 1924, when Klotz's book De la guerre a lapaix was published and Keynes was writing an article in reply, he asked Chamberlain for his recollections of the meetings and sought help from the Treasury. Keynes learned that the Treasury archives relating to that period were 'in a most chaotic condition*, and his informant there could not recall ever having seen a connected account of events leading to the March agreement with the French. Chamberlain's recollection was good, but inevitably not very precise: University of Birmingham, Austen Chamberlain Papers, Chamberlain to Keynes, 7 Feb. 1924; Keynes to Chamberlain, 10 and 28 Feb., AC 35/7/5, 7, 10. Memorandum, 5 Mar. 1919, MF, B 12676.

48

Armistice and peace conference

British resources were only just enough to cover their own trade deficit and to meet the claims of neutrals, and the British Empire was not a financial unit. Klotz asked for American help in meeting France's sterling requirements and was told not only that it was impossible but that any more talk about reapportioning war costs would harm such help as might be forthcoming. Chamberlain gave Klotz a paper outlining what the British government was prepared to do. He proposed to discount a further £25 million of French Treasury bills, make available the sterling equivalent of francs furnished to the British government for French purchases in London, buy the French gold deposited in London for a further sum of approximately £21,500,000, and fund the interest on existing French obligations. The total would amount to about £76,500,000 in place of the £100 million the French were asking for. He would not help to support the franc exchange in London, and this would be the last instalment of aid. The Americans did not make any offer to help Britain, except to say that if as a result of her advances to France her dollar requirements increased, it might be possible to work out some limited plan of help.59 On 10 March Klotz gave the British and the Americans another memorandum asking for credits to support the franc. He also asked the British for delay in introducing Chamberlain's proposals and consent for raising commercial credits in London.60 At the same time Chamberlain received the text of Rathbone's letter to Reading of 4 March and reacted angrily, in a letter to the American peace mission, saying that the United States Treasury seemed to be threatening him with the termination without notice of existing arrangements; and if it considered itself entitled simply to interrupt the ordinary course of payments for shipments of wheat and sugar to France he could not be responsible for continuing the shipments. Apart from this, the United States government seemed to be unwilling to help France except by providing dollars for purchases in the United States. His proposals to Klotz should give enough for French purchases in the United Kingdom. The difficulty was over the need to pay for purchases elsewhere. Did the United States really mean to refuse to continue existing arrangements unless Britain took the full liability for the French exchange, with which she refused any association?61 To his wife, Chamberlain described the United States Treasury as 'insupportable', and he telegraphed to London that he, too, wished to end the system of dollar reimbursements but could not stop providing purchas59

60

61

Davis to Rathbone, 9 Mar. 1919, N A , R G 39, Country files, box 56; T.W. Lamont diary, 8 Mar., Lamont Papers, IV-A, 164-18; Chamberlain to Reynes, 7 Feb. 1924, Chamberlain Papers, A C 35/7/5. For recent talk about debts, see below. Memoranda, 10 Mar. 1919, M F , B 12676; Lamont diary, 10 Mar., Lamont Papers, IV-A, 164-18. Davis to Rathbone, 12 Mar. 1919, N A , R G 59, 102.1/1809.

Armistice and peace conference

49

ing services at once without causing disastrous consequences for France. He had told Davis that the United States Treasury's apparent attempt to force Britain to make further loans to the Allies by threatening to withhold dollars due to her had made a painful impression. Britain could not go on interposing her credit between the United States and the real recipients, by making loans to the Allies which involved her in additional borrowing in the United States.62 The American mission in Paris also expostulated to Washington. The British proposal to the French, they said, would not cover purchases in the Empire, let alone neutral countries, and was not going to be improved. In an effort to induce the British to raise it Davis had suggested, as indicated by Rathbone, that an additional American credit to Britain might be opened. Keynes had replied that Britain would need about $125 million for her own needs regardless of what might be done for France, and the problem was to avoid increasing the unfavourable British trade balance. The delegation was very anxious to maintain close relations with the British, and also to prevent serious disturbance to the French financial situation at present; the peace negotiations were at a critical stage and it would be better if the mission were informed before the Treasury sent abrupt letters to the British and French representatives in Washington.63 By the beginning of March the French attempt to link all the economic andfinancialquestions together and so to put pressure on the United States had failed. The Americans were totally averse to allowing such a linkage and were in a position to sustain their refusal. The United States Treasury to some extent aggravated the difficulties by its efforts to tidy up procedures affecting other governments without consulting them, and by its epistolary style. In addition to announcing termination of the system for dollar reimbursements, Carter Glass had just written an extremely curt letter to de Billy and to the Italianfinancialrepresentative regarding reports that at the Financial Commission of the peace conference the Italians had proposed to include reapportionment of war debts among the subjects for discussion. Glass instructed Davis to consult the President as to whether the Treasury should refuse to make further advances to France and Italy while they were pressing the debt question at the conference, and wrote to 62

63

Chamberlain t o Mrs Ivy Chamberlain, 11 Mar. 1919, Chamberlain Papers, A C 6 / 1 / 3 3 9 ; Chamberlain t o Treasury, 12 and 13 Mar., T 1/12256/49893/18. See also Keynes, Collected Writings, Vol. 16, pp. 406-15. Davis, Lamont and Strauss t o Rathbone, 12 Mar. 1919, N A , R G 5 9 , 102.1/1806, 1808. The critical stage of the peace negotiations concerned the Rhine frontier: see Harold I. Nelson, Land and Power. British and Allied Policy on Germany's Frontiers 1916-19, London 1963, ch. 8. Wilson, Lloyd George, and Clemenceau had also just set up a special committee to attempt to resolve a deadlock in the Commission on Reparation over a fixed sum of reparations: see Burnett, Reparation at the Paris Peace Conference, ch. 7; Trachtenberg, Reparation in World Politics, pp. 56-61.

50

Armistice and peace conference

de Billy and Alliata saying that the Treasury would not consent to discussion of the debts at the peace conference and would not continue advances to any Allied government which lent its support to any plan that would create uncertainty as to its due repayment of advances already made.64 The Americans in Paris told the French unofficially that unless attempts to discuss reapportionment of debts, and efforts to get the United States to support the exchange, were dropped, Washington might be so annoyed that the Treasury would not be able to help France as it wished. Klotz replied that the French government had not made a declaration on debts in the sense that had caused the upset, and the matter then dropped.65 On the dollar reimbursements Rathbone acknowledged there had been a muddle because the Treasury wanted to end the old running account, but new arrangements could be made. He had understood that the French could provide for their purchases outside the United States and the British Empire (he was still confusing the United Kingdom and the Empire), but if this were not the case he agreed that the British Treasury could not be asked to assume the whole burden. Rathbone then wrote a long letter which he proposed to send to Reading, saying that he was willing to share the burden of French purchases in neutral countries but not to finance the whole of them. He desired close relations with Britain. He told Davis that he would be willing not to send the letter provided that Chamberlain was given its substance, and he would show it to Reading and Blacken for information.66 Meanwhile after further discussions between Keynes and Celier, Klotz had accepted, on 13 March, a financial agreement with Britain under which Britain gave France a further credit of £25 million for purchases already made, and a further £30 million in return for part of the gold deposited in London and for dollar transfers and francs made available to the British government. After two months the sterling equivalent of these francs, and 64

65

66

Rathbone to Davis, 3 Mar. 1919; Davis to Rathbone, 5 Mar., 7 Mar.; Glass to de Billy and Alliata, 8 Mar.; Glass to Davis, 11 Mar., NA, RG 59, 102.1/1780, 1789, 1849b; RG 39, Country files, box 56; LC, Leffingwell Papers, container 9, reel 22; MF, F30 781 = B 31706; US Senate, Loans to Foreign Governments, pp. 270, 345; Artaud, Question des dettes, pp. 116-17; Schrecker, Hired Money, pp. 64-8. A list of questions proposed at the end of February for discussion by the Financial Commission of the conference included: 'Accords interallies pour la consolidation, la nouvelle repartition, la nouvelle prise en charge des dettes de guerre. Accords interallies temporaires pour le soutien des changes.' Peace Conference, Recueil des actes, Part IV, B, 6, pp. 36-8. Davis, Lamont and Strauss to Rathbone, 12 Mar. 1919; de Billy to Rathbone, 18 Mar., NA, RG 39, Country files, box 56; RG 59, 102.1/1804; Klotz to de Billy, 15 Mar., MF F30 781 = B 31706. In the Financial Commission in the middle of April Klotz made another proposal for reapportioning war costs, but it was not discussed: Peace Conference, Recueil des actes, Part IV, B, 6, pp. 230-5; Germain Calmette, Recueil de documents sur Vhistoire de la question des reparations (1919—5 mai 1921), Paris 1924, pp. 39-42. Rathbone to Davis, 15 and 18 Mar. 1919, NA, RG 59, 102.1/1809, 1825.

Armistice and peace conference

51

part of the dollar transfers, would be freely available to the French government but the British Treasury would not discount any more French Treasury bills except to renew earlier ones. The Treasury would not oppose French commercial borrowing in London.67 On 24 March the signature of the Victory Loan Bill signified the end of American government advances; from now on, the United States Treasury could not lend outside the amounts or the purposes laid down in the Act. And the exchanges being unpegged, the European currencies began to fall against the dollar.68 Some of the Americans in Paris were beginning to think that something more than sweeping away controls was needed to get the European economies moving again. On 29 March Baruch wrote to Wilson, pointing out that whilst the Allied governments were insisting on reparation terms which would at best hamper the resumption of German trade, the whole of Europe was facing financial difficulties which might eventually involve the United States. Baruch thought the United States must do something to adjust the terms of the Allied debts, make further advances to France, Italy, and Belgium for reconstruction, and make some advances to new states to help them re-equip their railways and buy raw materials for industry.69 Baruch hoped that Wilson would depute him to deal with the aspects other than reparations, and wanted discussions with the British, for which Cecil, now British representative on the Supreme Economic Council, suggested a team of bankers and Treasury officials.70 At the same time Thomas Lamont, a partner of J. P. Morgan who was one of the American financial experts, was considering the effect of the war debts on the prospects of reconstruction. At the end of March he drafted, but apparently did not send, a letter to Russell Leffingwell, an Assistant Secretary of the Treasury, on the subject. He thought that uncertainty over the debts was the great obstacle to the restoration of normal business and trade. It was not enough to say that the Allied governments knew that the United States government would not use the debts in such a way as to cripple them, for the people did not know this and in any case the Allied governments could not make funding arrangements with their debtors as long as the United States did not do so. Whereas when he came to Europe Lamont had thought it would 67

68

69 70

Keynes t o Celier, 12 Mar. 1919; Klotz t o Chamberlain, Chamberlain t o Klotz, 13 Mar.; Anglo-French agreement, 13 Mar., M F , B 12676; T 176/1A. Artaud, Question des dettes, pp. 103-4. The pound fell from $4.40 in March 1919 to $3.30 in March 1920. Baruch to Wilson, 29 Mar. 1919, copy in Lloyd George Papers, F/213/5/18. Cecil to Lloyd George, 30 Mar. 1919, Lloyd George Papers, F/6/6/22. Cecil had been told by some of the partners of the banking house of Lazard Bros, that a large lump sum was needed from the United States to start the reconstruction of French and Belgian industry: Cecil, 'Diary at the Peace Conference', 4 Mar. 1919, BL, Add. MS 51131.

52

Armistice and peace conference

be better to leave funding arrangements for the principal of the Allied debts until the situation was clearer, he had changed his mind and would now recommend immediate talks with the British and French representatives in Washington, telling them precisely what the United States Treasury intended to do and undertaking to fund the interest. Lamont thought the French idea of a general discussion of debts and all related problems was quite impracticable, but the United States held the key to the door and the peace of the world depended on whether she decided to unlock it.71 Norman Davis, too, suggested funding debt interest; but he was told by Rathbone that it was impossible because Congress had struck out of the Victory Loan Act the authority, for which the Treasury had asked, to add interest payments due to the principal of the debts.72 In other areas, too, American advisers were shying away from the possibility of inter-governmental cooperation for fear of being manipulated. When the League of Nations was first discussed in a plenary session of the peace conference Klotz tabled a draft proposal for a financial section, with the duty of preparing plans for carrying out League decisions. The proposal, referred to the Financial Commission of the conference, proved to be one for an organ to supervise the execution of the financial clauses of the peace treaty. The British representative, Edwin Montagu, proposed instead charging the section with the task of advising the League of Nations on financial questions submitted to it. The United States delegate, supporting Montagu's proposal, remarked that it was extremely undesirable that the financial section should be made an organ for the collection of debts.73 When Wilson came back from the United States in March and the drafting of the Covenant was taken up actively, Cecil suggested to House and Miller, the American expert on the League, that there should be a financial council, but Wilson did not care for the suggestion. House believed the President meant to confine the activities of afinancialsection to harmless matters.74 However, on 26 March Leon Bourgeois, the French expert on the League, proposed a new clause for the Covenant declaring that in view of the very unequalfinancialrepercussions of the war on different countries, special measures should be taken to restore equitable conditions and budget charges. Bourgeois said that he was not asking for any particular arrangement to be adopted now, but he wanted a reference to a financial 71 72 73

74

Lamont to Leffingwell, 29 Mar. 1919, Lamont Papers, IV-A, 165-8. Rathbone to Davis, 7 Apr. 1919, NA, RG 59, 102.1/1926b. FRUSy PPCy Vol. 3, p. 199; Peace Conference, Recueil des actes, Part IV, B, 6, pp. 5-9, 29-33, 39-40. David Hunter Miller, The Drafting of the Covenant, New York 1928, Vol. 1, pp. 282-3, 292; American Economic Group meeting, 19 Mar. 1919, Lamont Papers, IV-A, 164-8.

Armistice and peace conference

53 75

section and he wanted his observations to be recorded. In this he was successful, and the Hurst-Miller draft of the Covenant, of 31 March, contained an article about constituting a financial section to advise the League on all financial questions; but Miller himself advised against its inclusion, and it was dropped from thefinalversion of the Covenant.76 At the plenary session of the conference on 28 April, Klotz moved that the proposal to set up a financial section be conveyed to the League.77 The League did itself set up afinancialsection after the Brussels conference of 1920, and as will be seen later it played a useful part in reconstruction; but it did not redistribute thefinancialburdens of the war. The Americans were not more helpful about a British proposal of 5 April to the Supreme Economic Council for a comprehensive Allied policy on the stabilisation of currencies and the supply of capital and raw materials. Baruch, despite what he had written to Wilson, condemned the idea of government intervention in economic matters.78 Cecil contested Baruch's assumption that private initiative could solve the problem. He was increasingly worried about the economic situation in Europe and the prospects of getting either American help or an appropriate British policy.79 He went back to London to speak in the House of Commons on 16 April, drawing a grave picture of the condition of central Europe and stressing that what was needed, beyond food relief and the end of the blockade, was credit to set the people to work again, and that would mean effort and sacrifice by everyone in Britain and 'the Anglo-Saxon race throughout the world'.80 The question of credits for reviving trade was also exercising British businessmen and government departments from the domestic point of view. On 5 April Lord Derby, the ambassador in Paris, wrote to Curzon that he was worried that the Board of Trade seemed in effect to be discouraging Anglo-French trade for lack of credit. Chamberlain, consulted by Curzon, replied that there was no objection to commercial credits for French trade but there were limits to what the government could do. Britain had to obtain foreign credits to buy food and raw materials, including raw materials for the export industries; and exporting on credit instead of for cash increased Britain's indebtedness to other countries. She must not refuse all credits to the Allies, and would doubtless have to 75

76 77 78 79

80

Commission on the League of Nations, 26 Mar. 1919, Peace Conference, Recueil des actes, Part IV, B, 1, pp. 130-1. Miller, Drafting of the Covenant, Vol. 1, pp. 392-4, 400-1; Vol. 2, pp. 658-67. FRUS, PPC, Vol. 3, p. 302. FRUS, PPC, Vol. 10, pp. 110-13. 'Diary at the Peace Conference', 3 and 5 Apr. 1919, BL, Add. MS 51131; Cecil to Lloyd George, 7 Apr., Lloyd George Papers, F/6/6/26; Baruch to Cecil, 12 Apr.; Cecil to Baruch, 14 Apr., in Ray Stannard Baker, Woodrow Wilson and World Settlement, Garden City, N.Y. 1922, Vol. 3, pp. 334-5. HCDeb., Vol. 114, cols. 2961-71.

54

Armistice and peace conference

increase the commitments already undertaken for relief and reconstruction; but to create or guarantee credits for the general encouragement of British exports would in effect stimulate trade with customers who could not pay at the expense of trade with those who could, at a time when the restoration of British trade was most urgently needed.81 On the other hand the Board of Trade and Department of Overseas Trade were asking for credits to finance British trade with eastern European countries, on the grounds that they would help employment at home and the countries concerned had been so ravaged by the war that they were unlikely to be able to get private credit. On 17 April the Cabinet discussed the question. Chamberlain was doubtful about government guarantees but agreed to give some assistance so long as each transaction was submitted for Treasury approval.82 The outcome was the first British Export Credit Guarantee scheme, under which the Board of Trade was empowered to make advances up to an amount outstanding at any time of £26 million, in respect of goods produced or manufactured in the United Kingdom and exported to Poland, Romania, or Yugoslavia.83 Schemes of this kind were avowedly conceived in the interest of British business and employment. On a much larger scale Keynes was producing a plan forfinancingEuropean reconstruction. Just after the armistice he had submitted in the Treasury a memorandum proposing the all-round cancellation of inter-Allied debts, which did not get discussed.84 In March 1919 he produced a new version. Cancellation, Keynes wrote, would result in net losses to the United States and the United Kingdom; and net gains to France, Italy, Russia, Belgium, Serbia, Romania, Greece, and Portugal. Without cancellation it would be impossible to solve the problem of reparations, since the Allies' demands were based 'not on any reasonable calculation of what Germany can, in fact, pay, but on a well-founded appreciation of the intolerablefinancialsituation in which these countries will find themselves unless she pays'. France, for example, would not be able to get from Germany even the amount needed to restore the devastated regions, but would have to pay her friends and allies more than four times the amount of the indemnity imposed on her by Germany in 1871. It might be an exaggeration to say that the debts could not be paid; but they would be a crushing burden which the European allies would do their best to avoid paying, and they would be a source of friction and ill will 81 82

83 84

Curzon to Chamberlain, 5 Apr. 1919; Chamberlain to Curzon, 11 Apr., T 172/1058. Memorandum by A. Geddes, GT 7112, 15 Apr. 1919, CAB 24/78; Advisory Committee to Department of Overseas Trade, Paper No. 13, n.d., BT 90/15; Cabinet, 17 Apr., WC 558, CAB 23/10. A.C. Pigou, Aspects of British Economic History 1918-1925, London 1947, pp. 139-40. Memorandum on the Treatment of Inter-Allied Debt arising out of the War; late Nov. 1918, Keynes, Collected Writings, Vol. 16, pp. 418-19.

Armistice and peace conference

55

for years. The existence of the debts was a menace to financial stability everywhere. More fundamentally, Keynes criticised the whole liberal banking view of international indebtedness. The debts of the nineteenth century, he believed, formed a fragile system which had only survived because the burden on the paying countries had not been oppressive, because it represented productive assets and was bound up with the system of property, and because the sums involved were not large in relation to those it was hoped to borrow. But the war debts were not only much larger; they represented a heavy tribute which did not square with human nature nor march with the spirit of the age, and Keynes did not believe that the Europeans would go on paying for more than a few years.85 Keynes proposed to discuss the matter quietly with the Americans. A copy of his paper was given to Wilson, and Lamont had one;86 but American hostility to any talk of debt cancellation had not abated, and there is no record of a discussion before Keynes produced, in the middle of April, his scheme for the rehabilitation of European credit and the financing of relief and reconstruction. Warmly commended by Austen Chamberlain to Lloyd George, and sent by Lloyd George to Wilson on 23 April, 87 the scheme proposed the issue of bonds, to a present value of £1,500 million, by Germany, the other European enemy states, and the new states (£1,000 million from Germany). One fifth of the enemy countries' bonds would be left in the hands of their respective governments for the purchase of food and raw materials; the rest would be handed over to the allies on account of sums due for reparations (except for £76 million from Germany to be used to pay outstanding debts to neutral countries). The bonds handed over to the Allies would be divided between them in the proportion agreed for the division of reparation receipts. The Allies would accept the bonds between themselves in payment of their debts to each other. The bonds would be jointly guaranteed by the enemy states and, in case of their failure, by the Allied and Associated governments and neutral governments in the proportions: United States, United Kingdom, and France 20 per cent each, Italy and Japan 10 per cent each, Belgium 5 per cent, the Scandinavian countries, Holland, and Switzerland 15 per cent together. The central banks of the issuing and guaranteeing states would accept the bonds as first-class collateral for loans. In the covering letter sent to Wilson, Keynes wrote that the problem of restoring Europe was too great for private enterprise alone: the risks, and the amount of credit 85

86 87

'The Treatment of Inter-Allied Debt arising of the War', Mar. 1919, Keynes, Collected Writings, Vol. 16, pp. 420-8; T 172/988. Lamont Papers, IV-A, 165-21. Chamberlain to Lloyd George, 17 Apr. 1919; Lloyd George to Wilson, 23 Apr., Lloyd George Papers, Y1712121, 34; T 172/988.

56

Armistice and peace conference

needed, were too large. The only alternatives were direct assistance from the more prosperous Allies, which would mean hand-outs, mostly from the United States; or an attempt to recreate the European credit system and enable countries to capitalise on their future productive prospects or trade on their expectations of reparation. The British government was prepared to take part and invited American comment.88 Not all the British delegation was equally impressed by Keynes's scheme: the banker Robert Brand, for example, objected that it did not meet the problem of French and Belgian indebtedness.89 But what mattered most was that the Americans turned Keynes's plan down flat. The United States Treasury sent long cables of criticism to the delegation in Paris;90 its members were equally condemnatory; 91 and on 3 May Wilson wrote to Lloyd George that the scheme was not economically or financially sound, that Congress would not guarantee European bonds and would only authorise aid on independent lines, and that the Treasury was strongly of the view that credit should go through private channels. Finally, asked Wilson, how could the experts be expected to work out a new plan to furnish working capital to Germany when we deliberately start out by taking all Germany's present capital? How can anyone expect America to turn over to Germany in any considerable measure new working capital to take the place of that which the European countries have determined to take from her?92 88

89

90

91

92

Keynes, Collected Writings, Vol. 16, pp. 429-36; T 172/988; G 241, CAB 24/5; also printed in Baker, Woodrow Wilson and World Settlement, Vol. 3, pp. 336-43; Burnett, Reparation at the Paris Peace Conference, Vol. 1, p p . 1011-19; Calmette, Recueil de documents, pp. 4 2 - 9 . Diary at the Peace Conference, 20 and 22 Apr. 1919, BL, Add. MS 51131; Chamberlain to Cecil, 17 Apr., T 172/988. Leffingwell and Rathbone to Davis, 26 Apr. 1919; Leffingwell to Davis, 28 Apr., 1 May; Rathbone to Davis, 28 Apr.; LC, Leffingwell Papers, container 10, reel 24; NA, RG 59, 102.1/2003c; Lamont Papers, IV-A, 165-12. Lamont diary, 25 Apr. 1919; Davis and Lamont to Leffingwell and Rathbone, 29 Apr.; McKnight, American Relief Administration, to Lamont, 29 Apr., Lamont Papers, IV-A, 164-14, 164-18, 165-12; Davis to Baruch, 1 May, Davis Papers, container 46; Davis and Lamont to Rathbone, Leffingwell and Strauss, 1 May, NA, RG 59, 102.1/2000. See Artaud, Question des dettes, pp. 131-3; Schrecker, Hired Money, pp. 69-71. Wilson to Lloyd George, 3 May 1919, Lloyd George Papers, F/60/1/14; printed in Baker, Woodrow Wilson and World Settlement, Vol. 3, pp. 344—6; Burnett, Reparation at the Paris Peace Conference, Vol. 1, pp. 1127-9; Calmette, Recueil de documents, pp. 49-51; extract in Keynes, Collected Writings, Vol. 16, pp. 440-1. See Artaud, Question des dettes, pp. 134-5; Schrecker, Hired Money, p. 71. By this time the reparation clauses of the peace treaty were virtually complete (the terms were handed to the German delegation on 7 May). The quest for a fixed sum had been abandoned; a Reparation Commission was to fix, by May 1921, Germany's debt by adding up damages listed by category in the treaty (including, at British insistence, war pensions); it would then decide how the debt was to be paid. There would be certain payments in kind. Before May 1921 Germany was to pay 20 billion gold marks (£1,000 million) to cover occupation costs and

A rmistice and peace conferen ce

57

Keynes admitted the force of the last point, but contended that Wilson had declared the necessity of reparation and could not now disclaim responsibility for what went into the peace treaty, and the advantage of his proposal was that by counting the bonds to be issued as part of thefirst20 billion gold marks which the Americans had agreed to demand from Germany, the immediate needs of the devastated countries would be met without depriving Germany of all her working assets.93 However, there was little point in arguing about this. Since the Americans would not even discuss Keynes's plan, the more important question was whether they had any other proposals for reconstruction. American advisers in Paris in fact analysed the situation in a way very similar to the British. Although opposed to any talk of debt cancellation they did think that some arrangement about the interest was necessary.94 After receiving Keynes's scheme Wilson asked Lamont to draw up some constructive suggestions 'on American lines', and gave it to be understood that he believed the United States must help the smaller countries and the European situation in general.95 Other members of the delegation agreed that the United States would have to assume, one way or another, much of the burden of reconstructing Europe; but opinions differed as to how much the government should do. On 1 May Davis and Lamont cabled to Washington that the situation in Europe was very serious and if there was anything the United States could 'prudently and safely' do to help solve the problem she ought to try to do so. They agreed that as far as possible assistance should be obtained through private channels, 'but frankly we are very much in the dark as to any comprehensive solution'.96 Leffingwell and Strauss were not able to offer much help. The former cabled on 6 May that public opinion was in no mood to tolerate the assumption by the government of further burdens to help Europe: it believed that the war was over. On the other hand there were signs of increasing interest among businessmen, and the funds of the War Finance Corporation were available. Strauss replied that account must be taken of the limits to the Treasury's authority

93 94

95 96

essential food and raw materials as well as to go towards reparations; and she was to issue 60 billion gold marks' worth of bonds. These were expected to be sold, and so to produce the cash and credit that France needed for reconstruction. See Burnett, Reparation at the Paris Peace Conference\ Vol. 2, pp. 1077-99; Trachtenberg, Reparation in World Politics, pp. 84-5. Keynes to Kerr, 10 May 1919, Collected Writings, Vol. 16, pp. 4 4 1 - 2 . Davis to Rathbone, 2 2 Apr. 1919, N A , R G 5 9 , 102.1/1976; Cecil, 'Diary at the Peace Conference', 2 May 1919, BL, A d d . MS 51131. Lamont, Diary, 25 Apr. 1919, Lamont Papers, I V - A , 164-18. M c C o r m i c k and McFadden t o State Department, 2 5 Apr. 1919, L a m o n t Papers, I V - A , 1 7 0 - 5 ; McKnight t o Lamont, 2 9 Apr., Lamont Papers, I V - A , 1 6 5 - 1 2 ; Baruch t o Davis, 30 Apr., Davis t o Baruch, 1 M a y , Davis Papers, container 4 6 ; Davis and Lamont to Rathbone, Leffingwell and Strauss, I May, NA, RG 59, 102.1/2000.

58

Armistice and peace conference

and of the fact that Congress was most unlikely to extend it. The real remedy would necessarily be slow in developing and would have to be based on private initiative and the prospect of profit.97 On 7 May Baruch addressed the President himself. It was the United States' duty, he wrote, to complete the work of liberating the new states by helping them to establish themselves in the world. The United States should help Europe, in cooperation with Britain, France, and any other country that would join in, but on her own, not jointly, and on condition that economic barriers were removed, preferences cancelled, and equal opportunity secured. The Secretary of the Treasury should be empowered to adjust the terms of payment of the war debts, thus easing the exchanges, and to establish special commercial credits for purchases in the United States. Other governments should do the same.98 On 16 May Hoover suggested that the War Finance Corporation be empowered to guarantee export credits, interest be not demanded from the Allies for three years provided they did the same for their debtors, some credit be provided for currency stabilisation, and perhaps some special credits for Germany and Austria, repayment taking priority over reparations.99 This suggestion of Hoover's was an alternative to the scheme submitted to Wilson on 15 May by Davis, Lamont, McCormick, and Baruch. The European states, they said, apart from the neutrals and Britain, were in a most serious condition. The United States was involved through her trade, and it was hardly conceivable that she would not try to meet the situation. The principles on which American cooperation must be based were: (1) Europe needed credits that were not tied to purchases in the United States, and whilst there should be the earliest possible return to private channels, some governmental help and government guarantees were needed at present. The European countries and the neutrals should give credits, too. (2) Europe must be treated as a whole, with plans drawn up with the cooperation of public and private interests. (3) American assistance would be subject to conditions: the receiving countries must handle their finances in such a way as to command the confidence of American investors; they must not use loans or credits for military purposes or for public improvements other than those to transport; and they must not have discriminatory tariffs, preferences, or concessions prejudicial to American interests. Immediate measures were necessary. Five problems had to be solved: (i) The new states needed credits of some $500 million, in particular to stabilise their currencies; (ii) France, Belgium, and Italy needed immedi97

98 99

Leffingwell t o Davis, 6 M a y 1919; Strauss t o Davis, 7 M a y , L C , Leffingwell Papers, container 10, reel 25. Baruch t o Wilson, 7 M a y 1919, c o p y in L a m o n t Papers, I V - A , 165-8. Hoover to Lamont, 16 May 1919, Lamont Papers, IV-A, 165-9.

Armistice and peace conference

59

ate credits for raw materials but estimates of the amount varied; (iii) France and perhaps Belgium needed later credits, probably not large, for reconstruction; (iv) Germany and the other defeated countries needed working capital: this was for the reparation commission to work out, as the United States had no further suggestions to offer; (v) something ought to be done about the interest on war debts, and funding of the principal would be a great help to the exchange situation. But having, at least implicitly, raised the prospect of a large-scale American government effort, the advisers recommended as practical measures only the creation of a small committee of bankers and businessmen to coordinate a general scheme and to study projects for loans, an American committee of bankers to work with the Treasury and tap the resources of the American money market, legislation to allow the United States government to make further advances to Europe to be spent by the end of 1920, legislation to enable the Treasury to suspend interest payments on Allied debts for three years, and a campaign launched by the President to educate American public opinion about the problems of European reconstruction.100 By the time this memorandum was submitted to Wilson the Council of Four had, on 9 May, at Wilson's own proposal, asked a special committee of two economic advisers from each of the principal powers to submit a scheme for helping countries that were in immediate need of food, raw materials, and credits.101 The British representatives on the committee, Cecil, Keynes, and Brand, found their American counterparts uncertain whether help should be confined to the new states and unable to think of a way of helping Germany which did not help the Allies to extract reparations. Lamont and Baruch thought a concerted scheme for the smaller countries could be drawn up at once, whereas Davis was reluctant to mention anything so definite as a plan: he read Cecil a long statement from the United States Treasury about the difficulty of raising money in the United States and its fear that American money would be wasted.102 After a meeting on 13 May Brand, who was given a draft of the American 100

Lamont to Wilson, 15 May 1919, Lamont Papers, IV-A, 165-13; printed in Baker, Woodrow Wilson and World Settlement, Vol. 3, pp. 352-62; Calmette, Recueil de documents, pp. 52-61. 101 FRUS, PPC, Vol. 5, pp. 521-5. The Supreme Economic Council, at its meeting on 5 May, had adopted a resolution for the Council of Four stressing Europe's urgent need of raw materials (FRUS, PPC, Vol. 10, pp. 233, 244-6), and Cecil expounded the general economic problem at the Council of Four's meeting on 9 May. 102 Keynes to Bradbury and Chamberlain, 4 May 1919, Collected Writings, Vol. 16, pp. 43740; memorandum by Brand, 4 May 1919, Oxford, Bodleian Library, R.H. Brand Papers, file 18; Cecil, 'Diary at the Peace Conference', 9 May 1919, BL, Add. MS 51131. The US Treasury telegram may be one of those to Davis from Leffingwell and Strauss of 6 and 7 May: see p. 58 and n. 97.

60

Armistice and peace conference

experts' report to the President, concluded that only the smaller states could usefully be discussed at present. The United States was providing dollars for France and Italy for some months, but the American representatives at Paris were not likely to agree to any large plan until the peace terms had been settled. Sterling would be a greater problem for these countries than dollars. The United States would do nothing about Germany until the reparation terms were settled. It was generally agreed that the smaller states must be helped and indirect government assistance was necessary, that measures should be devised to assist private trade, that the effectiveness of such schemes would largely depend on currency reforms in the countries concerned and the Allied governments should help in this, but that it would take months and meanwhile immediate help should be given in any way that was open, and that all steps should be taken to put traders in touch with one another. Brand recommended, for British action, further discussion with Davis about immediate relief and credits, and, for the longerterm problems, working out schemes for helping trade by government guarantees or insurance of exchange risks, appointing commercial and agricultural experts in some of the countries, investigating currency reform, and a campaign to encourage trade. There should be as much cooperation as possible with other governments, and the Dominions should be asked to help.103 On 15 May Brand and Monnet of the French delegation had a further discussion with Lamont. They suggested, for the smaller countries, that the United States and the Allied governments should work out their own schemes for helping private trade, but any advisers appointed to the receiving countries would cooperate. Governments should tackle the currency problem. But meanwhile direct government assistance would no doubt be necessary, and they asked whether the United States government would help. Lamont said he thought the amount of money needed might have been exaggerated, but he believed the United States would help - the more readily if Britain and France agreed to help over currency and if it were accepted that each country would finance the supply of raw materials from its own territory. As regards western Europe Brand said he could understand that it would be difficult for the United States to agree on a detailed plan but he himself thought it unlikely that private credit would be sufficient and he feared that individual government schemes to assist private enterprise would fail. Lamont agreed, but hoped that something 103

Memorandum by Brand, 14 May 1919, Brand Papers, file 18. It is not clear what his reference to the reparation terms being settled meant. The German observations on the peace terms, including alternative proposals on reparations, were delivered on 29 May: see FRUS, PPQ Vol. 6, pp. 795-901; Trachtenberg, Reparation in World Politics, pp. 87-9.

Armistice and peace conference

61

feasible could be found, and he outlined three American ideas now under consideration, for insuring risks, discounting exporters' bills, and creating new export corporations. Brand repeated that European problems were so great and the exchange risks so serious that private credit would not be enough and it was very important that the United States government should be in a position to help if the need arose. He and Monnet thought the President ought to obtain authority from Congress to lend considerable sums to European countries if necessary: Monnet suggested a total of $3,000 million. Lamont did not think that nearly so much would be needed, but agreed on the principle and said that he had suggested it in a memorandum which was about to go to the Prsident. He also agreed that, apart from raw materials for the smaller countries, credits should not be limited to purchases in the United States. Brand pointed out Britain's unfavourable balance of trade and the demands on her credit from all over the world. Her recovery depended on her ability to export but it was impossible to say as yet how much credit she could give without getting into serious difficulties. He himself thought considerable risks would have to be taken, but Britain's power to help would be much reduced by a narrow policy on the part of the United States. Lamont said he hoped Wilson would shortly approve some plan, but he did not know whether it could be put before Congress before the President returned home.104 Brand himself proceeded to explore the question of private British credit and government help for trade. He found the general impression among British bankers to be that the problem was so large that it would have to be dealt with by governments in some way. A meeting at the Board of Trade to consider the feasibility of the government insuring or guaranteeing private trade concluded that it would be possible to devise a scheme that would work with the smaller countries if the Treasury agreed; but the western European problem was too large to be dealt with in this way.105 Lamont for his part repeated to Wilson, whom he visited with Davis, Baruch, and McCormick on 19 May, the view that not much in the way of loans would be needed except to the new states for the stabilisation of their currencies and gave his suggestions on educating American opinion: the people should be told that their help was still needed, so that they should save for another two years and lend the proceeds to European countries to put them on their feet again. Wilson thought the best time to launch such a campaign would be when he returned home and presented the peace treaty to Congress. He agreed that the powers of the War Finance Corporation 104 105

Memorandum by Brand, 15 May 1919, Brand Papers, file 18. Brand to Cecil, 26 May 1919, Brand Papers, file 12. The undated memorandum of about this time in file 18 is probably the one sent to Cecil and Lamont and referred to by Lamont in his letter to Brand of 10 June, file 12.

62

Armistice and peace conference

should be widened, and Congress should be asked to allow the consolidation of interest on the Allied debts.106 The special committee set up by the Council of Four produced on 30 May a report giving an outline of the problem. In the existing conditions of political and monetary disorder in the new states, private credit would not be able to provide the necessary funds, so that although in the long run international trade must be re-established on the basis of private credit, in the mean time the Allied and Associated governments would need to provide guarantees to their exporters and should contribute to a fund for currency stabilisation and raw material credits. Germany, too, was in dire need of food and raw materials, and some means should be found to enable her to raise credit in neutral countries. As regards western Europe, the French and Italian representatives had drawn attention to their countries' unfavourable balance of trade and need for credit. Doubts had been expressed as to whether private credit and initiative could cope with the situation. The American representative had pointed out that the United States Treasury had no power to make new advances after the conclusion of peace, and that it was very unlikely that legislation allowing further advances would be forthcoming; but the War Finance Corporation had power to help American exporters and these facilities, supplemented by private credit, should be enough to cover Allied purchases in the United States. Finally the report said that for the next two or three years it would be very difficult for Britain, France, and Italy to pay for essential raw materials and restore their trade balances to the point of being able to pay the interest on their obligations. Reparation receipts were expected to provide the necessary funds eventually, but could not do so in the immediate future. For a real solution a larger plan than that for the rest of Europe might be needed; but the committee made no suggestions as to what it might include, ending the report with the vague statement that until the western Allies could restore their trade balances and pay interest on their obligations, currency stabilisation and the restoration of confidence that was necessary for private enterprise would be delayed.107 During the committee's discussions the British and French representatives understood Davis to say that the President was prepared to recommend to Congress that interest on the Allied debts should be remitted or postponed for three years and the powers of the War Finance Corporation 106

107

Memorandum by Lamont, 19 May 1919, Lamont Papers, IV-A, 165-13. On 27 May Davis and Lamont cabled to Leffingwell a summary of the conclusions reached. The President, they said, was taking an active interest in the matter: Davis and Lamont to Leffingwell, 27 May, Davis Papers, container 46. Report, 30 May 1919, Lamont Papers, IV-A, 165-9; Davis Papers, container 11; printed in Baker, Woodrow Wilson and World Settlement, Vol. 3, pp. 363—72; Calmette, Recueil de documents, pp. 61—9.

Armistice and peace conference

63

to make advances extended; but Davis denied that he had gone so far and was alarmed that Cecil had reported anything to Lloyd George.108 He went to see Cecil and Lloyd George and, as he afterwards reported to Wilson, told them that the President had authorised him to say informally and confidentially that he was prepared to ask Congress for authority to consolidate (not remit) the interest on Allied obligations for three years, on certain conditions. Two of these conditions would be that the governments concerned should take all necessary measures to help themselves and help others to the utmost of their ability, and that they should not make any discriminatory financial or commercial agreements. He had been told that France and Italy needed sterling credits and he hoped the British Treasury could help, especially if the interest on British obligations to the United States were consolidated. He thought the powers of the War Finance Corporation were adequate if they were supplemented by private initiative, but if a further slight extension proved advisable it would be recommended. He ended the conversation by emphasising that nothing he had said could be taken as a commitment on the part of the United States.109 The report of the special committee was shelved by the Council of Four on 6 June and was never brought up again.110 Cecil's brief optimism, based on his understanding of Davis's attitude, had already been dashed; and the latter's caution was justified by the response from the United States Treasury to reports of the ideas being considered by the delegation in Paris. Glass begged the President not to commit himself to any specific plan until he had conferred with the Treasury and advised him not even to mention future financial help to Europe in the message he would presumably send to the Senate with the peace treaty. Pessimistic reports by American bankers about the condition of Europe had done a great deal of harm, and the President should determine his course not only by his knowledge of the situation in Europe but by his own judgement of the state of opinion at home.111 This factor was certainly one element in the American refusal, by the time the Treaty of Versailles was signed, to undertake any commitment to specific action for European reconstruction. But from the attitudes and advice of the experts on the delegation in Paris, who were much closer to the problems of Europe and farther removed from those of public opinion 108

Keynes to Bradbury, 22 and 27 May 1919, Collected Writings, Vol. 16, pp. 445-8, 464-5; memorandum by Avenol, 28 May, MF, F30 1359 = B 32265; Cecil to Davis, 31 May; Cecil to Lloyd George, 31 May; Davis to Cecil, 3 Jun., Davis Papers, container 11; Lloyd George Papers, F/6/6/49. 109 Cecil to Davis, 4 Jun. 1919; Davis to Wilson, 7 Jun., Davis Papers, container 11; Lloyd George Papers, F/6/6/49. 110 FRUS, PPC, Vol. 6, p. 223. 111 Glass to Davis, 24 Jun. 1919, LC, Leffingwell Papers, container 10, reel 26. For reports from Americans visiting Europe see below.

64

Armistice and peace conference

at home, it is evident that other factors were as important. All distrusted government control; most doubted the need even for government participation. But most of all, the Americans were absolutely determined to maintain complete independence of decision and action, and to prevent the formation of any European bloc that might threaten their interests. The British for their part were anxious to cooperate with the United States but less so with the European Allies, and were afraid of being let in for commitments to European reconstruction that would be too burdensome on sterling unless United States backing were assured. As Wilson was leaving Paris, Lloyd George wrote a reply to his rejection of Keynes's scheme. After pointing out that in the discussions of reparation the Americans had not opposed the idea of Germany paying 20 billion gold marks in the first two years, although they now made it the chief point of their criticism of Keynes, Lloyd George claimed that Britain, which had bled itself white for the sake of the Allies during the war, had the right to ask her colleagues both to compel Germany to pay what she could, and to make their own credit available for the regeneration of the world. Europe could not at presentfinanceits own purchases of raw materials; Britain had no surplus capital for the purpose; the United States, as the only country which was both very prosperous and not overwhelmed by debt, bore the chief responsibility for the reconstruction of the world.112 This appeal only underlined the fact that nothing definite on reconstruction had been done at Paris. 112

Lloyd George to Wilson, 26 Jun. 1919, Lloyd George Papers, F/7/3/12.

Chapter 3

Western Europe from Paris to Brussels, 1919-20

Just as, in the winter of 1918, over most of central and eastern Europe, new governments were set up and some administration functioned before the new frontiers were definitely laid down, so when hostilities ceased governments and peoples throughout the continent began to restore or create peacetime economic life. The situation in central and eastern Europe was much more disturbed, and the problems greater, than in the west, and will be considered in the next chapter. In western Europe, by the end of 1920 the work of repairing the damage was under way in France, Belgium, and Italy: the French government had disbursed over one third of all the payments eventually made to claimants, financed largely by domestic borrowing until such time as reparations should come in. In terms of manufacturing production, France and Belgium were still in 1920 produc- * ing only about two-thirds of their 1913 output. The United Kingdom and Italy, on the other hand, were producing between 92 per cent and 96 per cent of prewar output. External trade had resumed, although under difficulties. In 1919-20 continental Europe imported from overseas more food and finished goods than it had done in 1913. Commodity prices, however, were much higher than before the war; the bulk of raw material imports went to the western Allies and the former neutrals, and little to eastern Europe. Overall less than one third of imports were covered by exports; the scramble for high-priced commodities contributed to the depreciation of currencies; and that in turn increased difficulties in arranging credits.1 1

League of Nations, Europe's Overseas Needs 1919-20 and how they were met, Geneva 1943, pp. 8, 12-22; League of Nations, Industrialization and Foreign Trade, Geneva 1945, Table III; League of Nations, Raw Material Problems and Policies, Geneva 1946, pp. 267; B.R. Mitchell, European Historical Statistics 1750-1980, London 1975, Table E 1; Alfred Sauvy, Histoire economique de la France entre les deux guerres, 2nd edn, Paris 1984, Vol. 2, pp. 248-61; Vol. 3, pp. 315-17; Eleanor Lansing Dulles, The French Franc 1914-1928, New York 1929, pp. 131-5; League of Nations, The Transition from War to Peace Economy, Part I, Geneva 1943, pp. 68-9.

65

66

Western Europe from Paris to Brussels

For about a year, from March 1919 to April 1920, Britain enjoyed a boom, caused by making up a backlog of investment and meeting a pent-up demand for consumer goods. Liquid assets were abundant. New issues on the London money market, mainly for domestic purposes, rose from £65.3 million in 1918 to £237.5 million in 1919 and a peak of £384.2 million in 1920. Exports rose by 2S.5 per cent in 1919-20; but wholesale prices rose by a comparable figure, as they did in continental countries also.2 Defining the problems During the first year after the signature of the Treaty of Versailles the reconstruction problems confronting the Allied governments, individually and collectively, largely concerned overcoming monetary disorder and controlling inflation, organising international indebtedness, and encouraging trade. Maintaining the flow of exports was also important to the United States; but there concern with European cooperation was still on the ebb, and the last year of Wilson's presidency was clouded by his illness and by political strife. United States policy was therefore highly uncertain. The British government, too, found great difficulty in making up its mind on the issues of debts and reparations. Its overall objective was to reduce the total mass of inter-governmental indebtedness, but how to do so posed some awkward choices. Even after it became clear, early in 1920, that the United States did not intend to cooperate, the British government went on hoping. It wished both to cooperate with and to be independent of the United States. It wished to behave as a creditor rather than join an Allied front of debtors. It wished to see Germany reintegrated into the European economy but not to make sacrifices. It had difficult political and social problems at home, and wished to balance the budget and cut expenditure. The coalition had put forward a progressive programme of social reform at the election in November 1918, and it soon embarked on the legislation to put the promises into effect. The bill to establish a Ministry of Health was presented on 17 February, Addison's Housing bill on 18 March, and the Land Settlement bill on 28 March. Lloyd George's return from Paris stimulated consideration of policy and recovery. The Treasury's advice was orthodox. On 18 July Chamberlain informed his colleagues that the Victory Loan which had just been closed was likely, instead of funding the floating debt, to be swallowed up by the budget deficit of the current financial year. This was the road to ruin: they absolutely must cut expenditure. A Treasury paper of the same date observed that public 2

Derek H. Aldcroft, The Inter-War Economy: Britain 1919-1939, London 1970, pp. 31-6; Mitchell, European Historical Statistics, Table I.

Defining the problems

67

opinion was inclined to believe that the enormous financial effort of the war showed that it was safe, or even advantageous, to go on spending on a very large scale. The reasons for economy were no longer obvious to the man in the street and needed persistent explanation. The most urgent need was increased production, especially for export; to achieve this hard work was needed, controls must be removed, and most of all prices must come down. This meant an early cessation of government borrowing and a reduction in government expenditure.3 The Board of Trade on the other hand was still influenced by wartime thinking. Its President Auckland Geddes recommended at the beginning of June that the government should announce its policy on imports. Costs of production were indeed high; but wages could not be reduced and so imports must be restricted by such means as anti-dumping measures, protecting key industries, giving financial help to large industries to develop production, controlling raw materials, and imperial preference. At the end of the month Geddes wrote to Lloyd Geroge that the real problem about the state of trade was the exchanges, the uncertainties of which disturbed trading conditions everywhere. Germany could only import goods from countries worse affected than herself, but the depreciation of the mark made her a deadly competitor in exports; and if she escaped Bolshevism she was likely to recover first of all the European countries despite reparations.4 At the beginning of August the Cabinet held a series of meetings about future policy. Introducing the discussion Lloyd George pointed out that there were many things that the government was expected to do and ought to do, and must show the intention to do even if some of them proved impossible. The situation was full of anxieties. Britain was now a debtor nation, and very hard work was needed if she were to pull through; but instead there were strikes, low output, and discontent. In cutting expenditure they must not take risks with the workers. But when ministers discussed the Board of Trade's proposals for fostering key industries, ensuring the supply of raw materials, developing agriculture, and licensing imports, there was considerable dissent. Sir Alfred Mond, the industrialist First Commissioner of Works, said that the underlying principle seemed to be preparation for another war. Bonar Law said that future trade policy could not be settled until conditions were more normal: meanwhile imports of certain goods might be licensed. Maclay, the Minister of Shipping, thought government controls produced nothing but blight; 3 4

Memorandum by Chamberlain, 18 Jul. 1919, GT 7729, CAB 24/84; Treasury memorandum, 18 Jul., G 257, CAB 24/5. Memorandum by Geddes, 3 Jun. 1919, GT 7904, CAB 24/86; Geddes to Lloyd George, 26 Jun., Lloyd George Papers, F/l7/5/42.

68

Western Europe from Paris to Brussels

private enterprise should be left to get on with things. Chamberlain, however, said that he had found business extraordinarily slow to move. He, like Geddes, was worried about the pound, but he said that a sudden deflation was neither possible nor desirable. A committee on trade was set up, and some import licensing was reluctantly agreed.5 So far as exports were concerned the general view in the City of London was that the problem of credit was far beyond the capacity of British banks. Brand told Cecil that he believed the British investment market should be opened to western European countries' issues; but he did not think this would meet the problem unless the United States granted credit that could be used anywhere.6 In November 1919 the future of the Supreme Economic Council came into question: the Americans had ceased to attend, the relief and communications sections were being transferred to the Reparation Commission, and the British delegate to the latter body, Bradbury, now proposed that the Council should be abolished.7 E.F. Wise, one of the British delegates on the Council, objected that it had recommended continuing international economic cooperation in some form until the League of Nations had an opportunity to consider the question, and the British government had in the summer approved a scheme for an international economic council. Now Bradbury was arguing that because the Americans did not like the Supreme Economic Council it ought to be abolished. The American attitude to the peace treaty and the League of Nations was, Wise admitted, very disquieting; but unless it were decided that the League must be abandoned because of the American attitude, surely the right course was to show the Americans and the Europeans that Britain would continue to stand with her allies. The present state of Europe needed international action; and the delay in ratifying the Treaty of Versailles made international consultation more rather than less necessary.8 The difficulty of the 5

6

7 8

Cabinet, 5, 8, and 14 Aug. 1919, WC 606A, 609A, 610A, 616A, CAB 23/15; GT 7904, 7905, 7906, 7974, CAB 24/86. For the government's relations with labour see Kenneth O. Morgan, Consensus and Disunity. The Lloyd George Coalition Government 1918-1922, Oxford 1979, pp. 46-66. These meetings also saw the initiation of the Ten Year Rule on defence spending: see Anne Orde, Great Britain and International Security 1920-1926, London 1978, pp. 155-60. Brand to Cecil, 26 May 1919, Brand Papers, file 12. See above, p. 61; memorandum by Brand, n.d. [Plate May 1919], Brand Papers, file 18. Bradbury to Chamberlain, 12 Nov. 1919, CP 110, CAB 24/93. Memorandum by Wise, 17 Nov. 1919, CP 135, CAB 24/93. For the earlier history see Council of Four, 28 Jun., FRUS, PPC, Vol. 6, pp. 741-3; Supreme Economic Council, 23 Jun., 30 Jun., 10 Jul., 2 Aug., FRUS, PPC, Vol. 10, pp. 376, 414-27, 430-1, 450-1, 499; Council of Heads of Delegations, 28 Jul., FRUS, PPC, Vol. 6, pp. 343-4. British agreement to the setting up of an International Economic Council was announced at the Supreme Economic Council meeting on 2 August, a decision greeted by French officials with some suspicion: they feared that Britain intended to dominate this body, which the

Defining the problems

69

British position on the Supreme Economic Council was that the European countries were constantly asking for help which only the United States and Britain were in a position to give, and the virtual American withdrawal left the British even more exposed. The question whether the League of Nations could really exist or Britain could undertake its obligations if the United States were not a member was exercising officials and ministers at the same time, in the light of the struggle in the United States Senate over reservations to the Covenant and of the imminent necessity of Britain ratifying the Treaty of Versailles.9 The government decided, despite contrary pressure from some ministers, that it would not do to abolish the Supreme Economic Council before the League could take over its work; but after the decision to back the League had been taken, Chamberlain suggested that the British representatives on the Council should propose its virtual suspension until the League of Nations reached a decision on setting up an economic section. This was done.10 During the summer of 1919 American bankers discussed with their European friends a variety of credit projects and organisations. The President of the National City Bank, Frank A. Vanderlip, had come to Europe early in the year to study the prospects of trade and of expanding his bank's business. He was alarmed at what he found and concluded that to prevent the spread of Bolshevism it was necessary to rehabilitate the industrial life of Europe. Because the infection would not stop at national frontiers, Europe must be treated as a political whole; and government intervention would be needed because private credit, left to itself, would inevitably go to the borrowers who could offer the best security, whereas the greatest need probably lay where the security was worst.11 Vanderlip drew up a plan for an international loan (its amount not specified) to be raised in the United States, the neutral countries, Japan, South American Americans would dislike; and so France, which needed good relations with both countries, would be put in a difficult position. Memorandum by Seydoux, 9 Aug.; Seydoux to Clemenceau, 20 Aug., MAE, Y Internationale, Vol. 205; note for Clementel, 13 Aug.; Sonalet to Avenol, 27 and 28 Aug.; Clementel to Chamberlain, 28 Aug.; note of telephone conversation with Avenol, 30 Aug., AN, F12 8066. Wise may possibly have entertained schemes of the kind the French feared; but no British government department or minister did. See also Seth P. Tillman, Anglo-American Relations at the Paris Peace Conference, Princeton 1961, pp. 272-4. 9 George W. Egerton, 'Britain and the "Great Betrayal": Anglo-American relations and the struggle for United States ratification of the Treaty of Versailles', in Historical Journal, 21 (1978), pp. 885-911; Egerton, Great Britain and the Creation of the League of Nations, pp. 182-99. 10 Ministerial conference, 18 Nov. 1919, C 9 (19), appendix, CAB 23/18; note by Chamberlain, 31 D e c , CP 369, CAB 24/95; Supreme Economic Council, 6-7 Feb. 1920, FRUS, PPC, Vol. 10, p. 684. 11 Vanderlip to Lamont, 21 Apr. 1919, Lamont Papers, IV-A, 170-4. See Artaud, Question des dettes, pp. 172-4.

70

Western Europe from Paris to Brussels

countries, and Britain. The governments of the lending countries would nominate a consortium of bankers who would appoint a Loan Commission, based at The Hague. The Commission would allocate the proceeds of the loan and would supervise its spending. The borrowing countries would issue obligations secured on their customs revenues, which the Loan Commission might manage. Service of the loan would take priority over all other international obligations, including reparations and war debts.12 Vanderlip's proposal found few supporters. Lamont's comments were particularly critical. Montagu Norman, Deputy Governor of the Bank of England, described it in a letter to the Govenor of the Federal Reserve Bank of New York, Benjamin Strong, as 'so heroic as to be difficult of achievement'. Avenol criticised it as putting Europe under financial tutelage.13 After his return to the United States Vanderlip attempted, by lectures and meetings and writing, to convince bankers and politicians and the general public that something must be done about Europe; but his own bank did not agree with him, and observers noted that his warnings of collapse were being counter-productive.14 The idea of a large international loan vanished from discussion. At about the same time the House of Morgan was sounding out the prospects for guaranteeing short-term credits for European importers. Davis and Lamont suggested at the end of May setting up a small special committee of private interests to coordinate, in consultation with the Treasury, credits for food and raw materials for Europe.15 Another Morgan partner, Henry P. Davison, proposed the formation of a Finance and Export Company, or a group of specialised corporations, to finance shortterm credits for European purchasers by issuing bonds on the American market which would be guaranteed by banks and governments of the importing countries.16 Davison organised a meeting of bankers in New York and committees were set up in other states. But discussions in Paris soon revealed difficulties. Avenol, for example, thought that what France 12

13

14

15 16

The Vanderlip plan was widely publicised, and copies of it are to be found in many archives. I have used the one in NA, RG 59, 800.51/174. A version was printed in Vanderlip's book What Happened to Europe, New York 1919. Lamont to Vanderlip, 8 May 1919; memorandum by Lamont, 13 May, Lamont Papers, IV-A, 165-11; Norman to Strong, 5 Jun., Federal Reserve Bank of New York, hereafter cited as FRBNY, Benjamin Strong Papers, 1116.1(2); Bank of England archives, hereafter cited as BE, OV 31/2; memorandum by Avenol, 4 Jun., MF, F30 1359 = B 32265. The original is dated 4 May, but this is obviously a mistake, and copies are dated 4 June. US Legation, The Hague, to State Department, 28 Jul. 1919, NA, RG 59, 800.51/174. Vanderlip's book was published at the end of July. Davis and Lamont to Leffingwell, 27 May 1919, Davis Papers, container 46. Davison to Stettinius, 10 Jun. 1919; memorandum for Tardieu, Loucheur and Avenol, 13 Jun., Lamont Papers, IV-A, 166-1; MF, F30 1359 = B 32265. See Artaud, Question des dettesy p. 175.

Defining the problems

71

needed most was credit for the monetary system, and the Davison plan left all the risks of possible depreciation of the franc to be borne by the importers.17 Stettinius, another Morgan partner currently with the peace delegation, rejected a suggestion that the risk should be shared between the two parties, but admitted the difficulty. He wrote to Davison that the Morgan associates would do what they could to hasten action, making it clear, however, they they were merely trying to help in working out a solution to a European problem, and that there was no commitment other than an assurance of sympathetic interest.18 Before long both the Federal Reserve Board and the United States Treasury declared themselves opposed to the Davison plan, and nothing more was done on those lines before the passage of the Edge Act allowing the creation of new banks to finance foreign trade, in December 1919.19 In June Lamont, now back home, expressed to Brand impatience at the lack of a reasonable estimate of needs. The French talked vaguely of $1,000 million a year for five years, the Italians of $500 million a year; the British had not even tried to guess. Lamont thought that the estimate might well turn out to be lower than had been expected, and he even wondered whether Britain would need any dollar credits except for debt payments. He asked whether Britain would join in Davison's plan. For the long run, he was sure that what was needed was a working partnership between Britain and the United States, and he suggested that American interests should buy a half share in a number of British banks rather than try to set up their own branches overseas. Keynes, Lamont admitted, had thought the suggestion fanciful, and his own impression was that British banks did not want any such Anglo-American partnership.20 Brand does not seem to have followed up Lamont's suggestion of partnership, but he told Stet17

Memoranda by Avenol, 2 and 13 Jun. 1919, MF, F30 621 = B 31548; memorandum from Stettinius, 13 Jun.; Avenol to Lamont, 13 Jun., MF, F30 1359 = B 32265; Lamont Papers, IV-A, 166-1. 18 Stettinius to Davison, 13 Jun. 1919, Lamont Papers, IV-A, 166-1. 19 Leffingwell to Lamont, 26 Jul. 1919, LC, Leffingwell Papers, container 11, reel 27; Lamont Papers, IV-A, 172-5; memorandum by Herring, Brussels, 29 Jul., NA, RG 151, 640, Belgium; Artaud, Question des dettes, pp. 176-8; Schrecker, Hired Money, pp. 7980; Paul P. Abrahams, 'American bankers and the economic tactics of peace: 1919', in Journal of American History, 56 (1969-70), pp. 572-83. Before 1914 American banks incorporated under federal laws were prohibited from establishing foreign branches or accepting foreign drafts or bills of exchange, although banks incorporated under state laws, and private banks, could do so. The Edge Act of December 1919 authorised federal incorporation of investment trusts lending money to foreign importers and taking longterm foreign obligations as collateral. Two such banks were founded in 1920 and 1921. See Cleona Lewis, America's Stake in International Investments, Washington 1938, pp. 191-6; Parrini, Heir to Empire, pp. 79-100. 20 Brand to Lamont, 7 Jun. 1919, Lamont to Brand, 10 Jun., Lamont Papers, IV-A, 165-10; Brand Papers, file 12. Stettinius mentioned a figure of $2,000 million for the whole of Europe for one year: Stettinius to Davison, 13 Jun., Lamont Papers, IV-A, 166-1.

72

Western Europe from Paris to Brussels

tinius about the Board of Trade meeting to consider financing trade with the smaller European countries and added that he thought the British authorities should, after consulting bankers, make an estimate of the credits the country would need.21 Morgan's London partner Edward Grenfell, senior partner of Morgan Grenfell, reported to Davison a fortnight later that after enquiring around the City and the Treasury, he found that no progress had been made with any comprehensive scheme, but all kinds of emissaries from European countries had been arriving in search of credits on almost any terms. The Board of Trade was inclined to favour the idea of trade credit guarantees, but the Treasury was not encouraging it.22 Not all informed Americans believed that even private credits would be needed for long. Hoover, for one, did not think they were necessary or desirable for more than a short period, perhaps a year. The real answer, he wrote in a memorandum to the Supreme Economic Council at the beginning of July, was that Europe must realise the necessity of increasing productivity. Inflation must be halted, consumption curbed, expenditure on armaments stopped, controls and discrimination of all kinds removed. Aid from the western hemisphere was secondary and should not be given to any country that did not resolutely tackle these questions. If these conditions were met, the west was duty bound to help tide Europe over the period of temporary economic difficulties, but unless they were fulfilled aid would be useless.23 Hoover reiterated to Philip Kerr, Lloyd George's private secretary, that the only thing that could save the European countries was for their people to return to work, learn to organise, and establish sensible trade with one another. He was against Britain and the United States doing more than was absolutely necessary to keep the Europeans alive; and whilst he believed there must be some American help he thought that Congress would do nothing.24 Benjamin Strong, in London at the end of July, did not find the conditions as bad as Vanderlip had pictured; but he was impressed by the extent to which British hopes were pinned on the United States, and the conviction that it alone was in a position to bear the financial burden of rebuilding Europe.25 In Paris Strong learned that Stettinius saw little hope 21 22

23

24 25

Stettinius t o Brand, 26 June. 1919; Brand t o Stettinius, 30 Jun., Brand Papers, file 17. Grenfell t o D a v i s o n , 14 Jul. 1919, L o n d o n , Morgan Grenfell and C o . archives, hereafter cited as M G Papers, B o x Hist. 3 , file 2 1 . For the relationship between J.P. Morgan and C o . and Morgan Grenfell and C o . see Kathleen Burk, Morgan Grenfell 1838-1988: The Biography of a Merchant Bank, O x f o r d 1989, passim; V . P . Carosso, The Morgans, Private International Bankers 1854-1913, Cambridge, Mass. 1987, pp. 442-50. Memorandum by Hoover, 3 Jul. 1919, printed in FRUS, PPC, Vol. 5, pp. 462-8; copy in Lloyd George Papers, F/60/1/18. Kerr to Lloyd George, late Jul. 1919, Lloyd George Papers, F/89/3/11. Journal, 25 Jul. 1919; Strong to Leffingwell, 25 Jul., Strong Papers, 1000.3; NA, RG 39,

Defining the problems

73

of arranging a programme of general assistance unless the United States government helped not only with influence but with actual credit. Hoover, who gave Strong a copy of his recent memorandum, also saw direct government aid as the only solution to what he regarded as a very gloomy situation.26 Strong's own conclusions substantially focused on the debt question and will be discussed later.27 Opinion in the United States, however, was all opposed to any further governmental assistance. Wilson, in presenting the Treaty of Versailles to the Senate on 10 July, and in conference with the Foreign Relations Committee in August, referred in general terms to United States participation in the reconstruction of Europe but made no suggestion of government help. On his western tour in September the President began by referring to European reconstruction, but later dropped the subject from his speeches.28 There was no campaign of the kind Lamont had recommended to educate the American public, and by the end of August some observers thought that the psychological moment for even a private scheme on a large scale had passed.29 Instead the United States Treasury was left to work out plans for the earliest possible end to government intervention and for the reduction of expenditure. Glass advised Wilson in the middle of September that there was no need to extend the administration's powers to make advances or to intervene in the exchanges: all that the government need do was to fund the Allied debts and fund interest payments for three to five years. Fixing exchange rates would not help. Glass was prepared to support the Edge bill, but not a bill put forward by Senator Owen to create a Federal Reserve Foreign Exchange Bank because that involved supporting European currencies.30 In these circumstances it could hardly be expected that the United States government would be pleased by the proposal put forward by bankers in the autumn of 1919 for a conference to discuss the European situation. The proposal came from meetings held, on Dutch initiative, between individual bankers and financial experts from the Netherlands, the United States, Britain, France, Switzerland, and the Scandinavian countries at Amsterdam in October and November. 31 The British promoters were

26 28

29

30

31

Country files, box 120. See Lester V. Chandler, Benjamin Strong, Central Banker, Washington 1958, pp. 140-7. 27 Journal, 28 Jul. 1919, Strong Papers, 1000.3. See below, pp. 77-9. Woodrow Wilson, War and Peace: Presidential Messages, Addresses and Public Papers (1917-1924), ed. Ray Stannard Baker and William E. Dodd, New York 1927, Vol. 1, pp. 549-50, 635-6; Vol. 2, p. 20; Woodrow Wilson's Case for the League of Nations, compiled by Hamilton Foley, Princeton 1923, pp. 55, 175-6, 177-8, 179. Altschul, Lazard Freres, New York, to Brand, 22 Aug. 1919; Brand to Lazard Freres, New York, 25 Aug., Brand Papers, file 16. Glass to Wilson, 11 Sep. 1919, LC, Leffingwell Papers, container 12, reel 28. See Artaud, Question des dettes, pp. 195-203. Keynes to Brand, 20 Oct. 1919, Brand Papers, file 20; Keynes, Collected Writings, Vol. 17, pp. 128-9.

74

Western Europe from Paris to Brussels

Keynes and Brand; the American protagonists were Fred I. Kent of the Bankers Trust Company, temporarily United States representative on the Reparation Commission, and Paul Warburg of the bankers Kuhn Loeb. In a memorial of 3 November the bankers said that the first essential for recovery was that countries should end inflation and balance their budgets. Germany would have to bear a heavier burden than the Allied countries but for the sake of her creditors and the rest of the world she must not be made bankrupt. Some countries had suffered so much destruction of property and savings that they could not recover without outside help. The United States and Britain might consider easing the burden of their Allied debtors by scaling down their claims; and the world's balance of indebtedness should be freed of some of the fictitious items now inflating it. But even when the expenditure of European countries had been brought within the bounds of taxable capacity, and the burdens of indebtedness reduced to bearable size, the problem remained of obtaining working capital to restart industry and trade and reorganise currencies. Normal banking channels could do much but not everything: a more comprehensive scheme was needed and should be recommended by the League of Nations. The memorialists suggested that the greater part of the funds would have to be provided by countries with favourable balances of trade and exchange; as far as possible credit should be provided and trade encouraged through normal channels without government controls; borrowing countries would have to provide the best possible security; loans should therefore rank ahead of all other debts including reparation and inter-Allied debts, and special securities in the case of Germany and the new states might include assignment of customs revenues.32 The draft memorial arrived in the middle of the battle in the United States Senate over the ratification of the Treaty of Versailles, which made mention of the League of Nations inexpedient; but even apart from this, and the equally unwelcome mention of inter-Allied debts, the United States Treasury was opposed to suggestions of governmental involvement.33 Thefinalversion of the memorial omitted all mention of the interAllied debts, but even so Kent had to withdraw. The organisers had thought of getting governments to sign the memorial and send it to the League, but in view of the American difficulties it was decided that the 32

33

Keynes, Collected Writings, Vol. 16, pp. 136-41. The final version, dated 15 Jan. 1920, printed in FRUS, PPC, Vol. 10, pp. 686-93; Calmette, Recueil de documents, pp. 191-6. Kent to Strong, 7 and 10 Nov. 1919; Strong to Kent, 1 Dec; Strong to Vissering, 8 Dec, FRBNY, Fred I. Kent material; Rathbone to Glass, 10 and 18 Nov.; Glass to Rathbone, 14 Nov., NA, RG 59, 102.1/2341; Rathbone to Klotz, 21 Nov., 2 Dec; Klotz to Rathbone, 29 Nov., NA, RG 39, Country files, box 56; Warburg to Davis, 26 Nov., Yale University, Paul M. Warburg Papers, box 10.

Defining the problems

75

signatories in each country should address their own government and furthermore that Keynes should not sign at all. His book The Economic Consequences of the Peace was published in December and caused an immediate sensation. It was taken as, in part at least, an attack on Wilson; and since the success of the memorial would largely depend on the United States, there was a fear that Keynes's signature would prejudice its chances there, as well as attracting charges of pro-German sympathies in Britain.34 But the omission of Keynes's name did not save the memorial from disapproval by the United States Treasury. Participation by the government in a conference was bound to raise hopes of continued direct financial help to European governments, or some centralised governmental scheme for international financial relief, whereas according to Davis the Treasury held the 'deliberate and deep-seated conviction' that private enterprise should be restored and government control and interference removed. The steps proposed would only delay 'the only effective remedies, namely the return of the population to work and the financing of the requirements of those countries that need it, through private channels'.35 J.P. Morgan was reluctant to sign the memorial unless the Treasury indicated, at least privately, that it thought a conference would be useful. Since it would not do so, the organisers decided to alter the preamble of the American memorial and address it to the United States Chamber of Commerce; and in these circumstances J.P. Morgan did sign.36 Even then, to dampen any hope of government help the Treasury published a letter to the president of the Chamber of Commerce, saying that it did not favour the idea of a conference; but if the Chamber wanted to send delegates the Treasury would not object. Not surprisingly, the memorial fell rather flat in the United States.37 In Britain, Brand secured the signature to the memorial of a string of leading bankers and selected politicians of all three parties. In soliciting the signature of the chairman of Lloyds Bank, Sir Richard Vassar Smith, Brand wrote: 34

35

36

37

Brand to Ter Meulen, 6 Jan. 1920, Brand Papers, file 20; Grenfell to Lamont, 3 Jan., MG Papers, Box Hist. 4, file 23; Keynes, Collected Writings, Vol. 17, pp. 141-50. Davis to Warburg, 7 Jan. 1920; memorandum by Leffingwell, 8 Jan., LC, Leffingwell Papers, container 13, reel 32. J.P. Morgan & Co. to Morgan Grenfell, 3 Jan. 1920; Grenfell to Lamont, 3 Jan.; Lamont to Grenfell, 7 and 14 Jan., MG Papers, Box Hist. 4, file 23; Warburg to Hoover, 13 Jan., Warburg Papers, box 10. Glass to Homer L. Ferguson, 28 Jan. 1920, published in the press and printed in Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year ended June 30, 1920, Washington 1921, pp. 80-4; Calmette, Recueil de documents, pp. 200-6. Grenfell to Lamont, 27 Jan.; Lamont to Grenfell, 29, 30 and 31 Jan., MG Papers, Box Hist. 4, file 23; Lamont to Grenfell, 29 Jan., Lamont Papers, II, 111-12; Warburg to Leffingwell, 4 Feb., Warburg Papers, Box 10.

76

Western Europe from Paris to Brussels

I have no exaggerated view of what can be accomplished by Conferences to remedy the vast economic evils from which Europe is suffering. We have all in the main to work out our own salvation through tribulation and suffering. Nevertheless there are obstacles - and important ones - which can be removed by international action and by that only, and the Bankers of the world would in my opinion be lacking in their clear duty to humanity, unless they made every effort to do so. It is, in my opinion, in the interests of all of us that help should be given - I do not say necessarily by us - but certainly by others to Central Europe. The Reparation terms and the lack of an international understanding on the subject renders help impossible . .. We all know the plight of Austria. The German Exchange has now reached the point where it is practically impossible for her to buy except by barter: the French Exchange is, as you know, demoralised. To what extent it is within human power to remedy these evils . .. may be questioned, but it would at the very least be invaluable to the bankers of all countries that they should meet and discuss these great problems in common.38

The government's reception of the memorial was not enthusiastic. Speaking to ten of the British signatories Chamberlain said that he did not see how such a scheme could succeed without United States cooperation. If the United States did not join in, either the scheme would fail or the whole burden would fall on Britain. McKenna suggested that judgment of the scheme depended on one's judgment of the European situation. If that were regarded as serious, here was a way of giving governments an incentive to put their houses in order. He himself thought the international exchanges and Europe were on the verge of collapse; it was in Britain's interest to do what she could to get the European economy functioning again; and he did not think very large credits were needed. Chamberlain said that he would not mind a conference intended to educate governments and the public, but he was afraid of an inter-governmental conference without the United States and with all the other governments asking Britain for help. He did not underestimate the danger to Europe but feared that Britain could not deal with it alone and might be ruined in the effort.39 38

39

Brand t o Vassar Smith, 18 D e c . 1919, Brand Papers, file 2 0 . T h e British signatories were Sir Richard Vassar Smith, chairman o f L l o y d s Bank; L o r d Inchcape, chairman o f t h e National Provincial Bank and of the P. & O . Shipping Company; W. Leaf, chairman of the Westminster Bank; F . C . Goodenough, chairman of Barclay's Bank; Reginald McKenna, chairman of the Midland Bank and a former Chancellor of the Exchequer; Sir Robert Kindersley, partner in Lazard Bros, and a director of the Bank of England; Sir Charles Addis, chairman of the H o n g k o n g and Shanghai Banking Corporation and a director of the Bank of England, E.C. Grenfell, partner in Morgan Grenfell and of J.P. Morgan & C o . , and a director of the Bank of England; R . H . Brand, partner in Lazard Bros.; Lord Robert Cecil; H . H . Asquith, former Liberal prime minister; Sir Donald Maclean, leader of the Liberal Party in the H o u s e of C o m m o n s ; J.H. Thomas and J.R. Clynes, joint leaders of the Labour Party; and Lord Bryce, Liberal peer and former ambassador to the United States. C P 580, 3 Feb. 1920, C A B 24/97; Brand to Ter Meulen, 4 Feb., Brand Papers, file 20.

The question of debts

77

A week later Chamberlain wrote to the British signatories, saying that the government would not take the initiative of calling a conference but would send representatives to a broadly based one. The government was not borrowing and would not make any new loans except for relief, and then only with United States cooperation. If credits were to be granted the government would not take part in any scheme that involved increasing British expenditure in the United States.40 On 13 February the newly established Council of the League of Nations resolved that the League should call a conference to study the financial crisis and look for remedies.41 The conference was eventually held in Brussels in October 1920, and will be dealt with below. The question of debts In the summer of 1919 ideas on dealing with the inter-Allied debts were still fluid. Owing to American refusal, there had been no discussion at the peace conference; and although the United States Treasury would have been willing to discuss funding arrangements in Washington, other governments had been too preoccupied with the conference and none had decided on a strategy for negotiation. When Benjamin Strong arrived in London in the last week of July 1919 he found Montagu Norman and other British bankers thinking that the chief cause of the prevailing uneasiness was uncertainty about United States intentions. They did not expect the demand obligations to be presented for payment, but regarded their existence as a potential threat; and a demand for interest in the autumn would have a serious effect on sterling. The bankers did not think cancellation of the British debt was reasonable or feasible, but Strong detected an underlying feeling among the public that the United States had incurred very little sacrifice in the war and made considerable profits, and really owed the Allies a great deal.42 From a conversation with Chamberlain, and other interviews, Strong got the impression that the British government was anxious for AngloAmerican cooperation in working out the problems of debts and reconstruction, and, in particular, wanted the United States to take a considerable share of the burden and would like to have the terms of the debts dealt with promptly and in such a way that the bulk of the Allied debts would be reduced all round. Strong did not think that the United 40

41

42

C P 583, 6 Feb. 1920, C A B 24/97; letter, dated 11 Feb., printed in The Times, 12 Feb.; Calmette, Recueil de documents, pp. 2 0 6 - 9 . League of Nations, International Financial Conference, 1920, Report of the Advisory Committee, Geneva 1920, Appendix 1. Strong Journal, 2 2 , 2 4 , 25 Jul. 1919, Strong Papers, 1000.3.

78

Western Europe from Paris to Brussels

States claims could be reduced, but he advised Leffingwell that definition of the terms of the British debt would give relief in London. Chamberlain had not discussed the debt, saying merely that he thought it was for the creditor to make the first move.43 Strong, who had gone on to France, was himself coming to the conclusion that the United States government should suspend interest payment on the debts for three to five years, and should accept from Britain and France obligations of their debtors. Strong set out these ideas in a letter to Leffingwell, and more formally in a long memorandum which he sent at the end of August to Leffingwell and his own bank, and showed to United States representatives in Europe. Strong was convinced that American leadership and help would transform the situation in Europe and would be in the United States' own interest. The first essential was that the Treaty of Versailles be ratified and the League of Nations set up; then long credits were needed for food, raw materials and machinery. As regards the debts, it was unthinkable that the Allies should be required to pay even interest at present. The interest must be deferred and added to the capital debt for three to five years; amortisation payments should not begin for five to eight years. If in addition a scheme of debt readjustment could be adopted by which the United States would accept from Britain, France, and Italy some of the obligations of their own debtors, including Germany, it would help to restore confidence. How and on what principle reparation was exacted from Germany would, Strong thought, largely determine Germany's economic future. He had found two theories current, one that Germany should be allowed to recover and be enabled to make large payments in cash and kind, the other that the Allies should take over world trade and reduce Germany to insolvency. Strong thought (mistakenly) that trading countries such as Britain and the United States might prefer the second course, and countries in need of reparation such as France and Italy would probably prefer the first.44 Back in London in September, Strong suggested to Colonel House a plan for cancelling debts that were actually duplicated, and further reducing the burden as between the Allied governments by allowing payment in German reparation bonds so that any default would be German. House was enthusiastic and encouraged Strong to discuss the plan with Viscount Grey, who was about to go to Washington as ambassador on special mission. House himself commended the plan in a letter to President Wilson.45 But when Strong discussed it with Chamberlain (making it clear 43

44

45

Strong Journal, 25 Jul. 1919, Strong Papers, 1000.3; Strong t o Leffingwell, 24 and 25 Jul., ibid, and N A , R G 39, C o u n t r y files, box 120; KG 59, 841.51/160; U S Senate, Loans to Foreign Governments, pp. 55-6. Strong to Leffingwell, 31 Jul./17 Aug. 1919; Strong to Leffingwell, 30 Aug.; Strong to Jay, 30 Aug., Strong Papers, 1000.3. Strong Journal, 9 and 11 Sep. 1919, Strong Papers, 1000.3; Seymour, Intimate Papers of Colonel House, Vol. 4, pp. 515-18.

The question of debts

79

that he had no authority to talk about debts at all) he found that the Chancellor, whilst ready to send a representative to Washington for discussions, saw great difficulties in the whole German debt being held by the United States and Britain. Britain would be able to pay her creditors if she were paid by her debtors, but not otherwise. She was prepared to join in a complete cancellation of inter-Allied debts rather than be in the position of collecting toll from France, Italy, and the smaller countries for years to come. He realised that the United States would be the chief loser, but thought that if the British government, which was a net creditor, were prepared for cancellation, the question of principle would be solved.46 Strong told Chamberlain that United States officials could not encourage the idea that the debts might not be paid; and at the end of September an American friend told Grey (whose mission was now deprived of usefulness by Wilson's collapse) that he could not say that the Treasury or Congress would agree that German bonds should be accepted in place of an equivalent portion of the debts.47 Now, however, there was a prospect of official discussions. The United States Treasury, in the middle of August, told the French financial representative and a visiting British Treasury official, Blackett, that talks on the consolidation of the debts should begin without delay.48 The French Minister of Finance decided to express readiness to start discussions and suggested that it would be useful at the same time to settle the terms regarding the French debt to Britain. The Americans approved the idea, and Avenol suggested to the British Treasury that an Anglo-French agreement might be prepared for the time when the two countries approached the United States.49 Blackett gathered from his conversations in the United States in August a fairly clear idea of what the American proposals would be. On his return to London, where he took up the post of Controller of Finance at the Treasury, he recommended trying to secure the postponement of interest payments for three years. He had found the United States Treasury unsympathetic to the idea that Britain's power to repay the principal of the debt depended on the Allies paying Britain, so that British claims on the Allies should have priority over the obligations to the United States, and also to the suggestion that the United States might accept payment from Britain in Allied or even German reparation obligations. The Americans also thought it important that Britain should treat 46 47 48

49

Strong Journal, 19 Sep. 1919, Strong Papers, 1000.3. Grey to Curzon, 29 Sep. 1919, Lloyd George Papers, F/60/8/6. Leffingwell to Strong, 1 Aug. 1919, NA, RG 39, Country files, box 120; Leffingwell to Strong, 16 Aug., RG 39, Country files, box 56; Strong Papers, 012.4; Casenave to MAE, 18 Aug., MAE, Amerique, Etats-Unis, Vol. 226; MF, F30 781, 782 = B 31706, 31707. Correspondence in MAE, Amerique, Etats-Unis, Vol. 226; MF, F30 781, 782 = B 31706, 31707; B 12592; B 12676. The French obligations to Britain were not in demand form, but were nominally repayable three years after the signature of peace.

80

Western Europe from Paris to Brussels

her debtors as nearly as possible in the same way as the United States did.50 Blackett's own view, then as later, was that far the most important object for Britain was the economic reconstruction of Europe. That, rather than the precise terms of a funding agreement, would determine how difficult Britain would find it to pay the United States, and he hoped that the forthcoming negotiations would not prejudice an eventual general settlement with total or partial debt cancellation.51 Draft instructions for Blackett, drawn up in the Treasury, made it clear that Chamberlain would welcome all-round cancellation. Failing that he would recommend, as part of a general settlement, complete or partial waiving of interest, scaling down the principal, conversion into bonds, and so on, to the extent agreed by the governments concerned. The Cabinet Finance Committee agreed that any American proposals should be considered in the light of the connection between Britain's debt to the United States and the Allies' debts to Britain. If the Americans asked for British proposals Blackett should say that nothing definite could be said until American views were known. He should aim at getting interest postponed for at least three years; and bonds should if possible not be marketable at all, or at worst only after ten years. The French and the other Allies should be kept generally informed of the negotiations, but Britain must maintain her position as a fellow creditor with the United States rather than as a fellow debtor with the Allies.52 Avenol was told that Chamberlain thought it better not to limit his negotiations with the United States by making a prior agreement with Britain's debtors; but Avenol thought that Britain would certainly regard any advantage she gained from the United States as applying to all war debts, and that Chamberlain was ready to consider the whole problem.53 The Anglo-American debt discussions, which began in November 1919, were conducted between Treasury officials but were determined by considerations of high policy. Both sides attempted to fit any technical arrangements into a large policy context. The British, as Blackett's instructions made plain, wanted general cancellation, in which Britain would join the United States in giving suitable terms to their debtors and would benefit from equally good terms herself. The Americans, it became plain, 50

51

52

53

Treasury memorandum, n.d. [c. M a y 1920], T 160/365/F557/1, citing telegram from Blackett, 29 Aug. 1919, and memorandum by Blackett. Treasury memorandum o n the History of the American Debt, Cambridge, University Library, Baldwin Papers, Vol. 237. FC 1,23 Sep. 1919, CAB 21/72; Treasury memorandum, n.d., T 160/365/F557/1 refers to a Finance Committee meeting on 30 Sep. These conclusions are not minuted in CAB 27/71. Avenol to MF, 29 Sep. 1919, MF, F30 781 = B 31706.

The question of debts

81

wanted to use the British debt as a lever to bring about a settlement in Europe (including tariffs and reparations) that suited their interests but without themselves undertaking any commitment. The two purposes proved incompatible; and neither party was in a sufficiently strong bargaining position to make its purpose prevail. Rathbone had been sent to Europe at the end of September to discuss the consolidation of the debts. Casenave thought the United States Treasury set store by dealing with the French and the British at the same time, in order to make sure that Britain gave her debtors the same conditions.54 On arriving in Europe Rathbone installed himself in Paris (where he acted as unofficial United States representative on various Allied bodies, including the Reparation Commission) and avoided Chamberlain's invitation to a preliminary discussion as fellow creditors of the European Allies.55 Instead Blackett went to Paris on 1 November and was given a draft plan for a debt settlement within the lines laid down in the Liberty Loan Acts. The plan envisaged the conversion of the British debt into two series of bonds maturing in 1938 and 1947, with a sinking fund and a uniform 5 per cent rate of interest. Interest payments might be deferred for three years and the postponed payments spread over the following three years. The plan also envisaged accelerated repayment of certain advances, in particular those made to enable Britain to repay certain bank credits obtained before the United States entered the war, the security for which (the so-called subrogated securities) had been borrowed by the British government from British subjects.56 Rathbone told Blackett that the United States Treasury would have preferred to keep the British obligations in demand form, so that if the Allies received large sums for Germany in reparations the United States could ask for some to reduce the Allied debts. Blackett said that Britain, too, would prefer not to stereotype the obligations in the form of long-term bonds but would agree, in order to meet the United States Treasury's difficulties with Congress, provided that the general question of inter-Allied indebtedness was not prejudiced. Blackett read Rathbone his instructions to pursue AngloAmerican cooperation in dealing with the Allied debts, and Rathbone urged that Britain should accept from her debtors bonds as similar as possible to those to be taken by the United States. On the general question Rathbone said that he and the United States Treasury were unalterably opposed to any suggestion of cancelling or scaling down the debts, and at 54 55

56

Casenave t o M F , 23 and 2 4 Sep. 1919, M F , F30 781 = B 31706. Chamberlain t o Rathbone, 2 O c t . 1919; Rathbone t o Chamberlain, 11 O c t . , N A , R G 39, Country files, box 120. M e m o r a n d u m , n.d., N A , R G 39, C o u n t r y files, b o x 120; printed in U S Senate, Loans to Foreign Governments, pp. 60-2.

82

Western Europe from Paris to Brussels

present he was equally opposed to accepting German bonds from the Allies or Allied bonds from Britain. As reparations progressed he might change his mind, but he thought it unlikely.57 Blackett's reply to Rathbone's proposal was given on 8 November. It expressed Chamberlain's general approval of the lines proposed but reservations on almost all the details. Chamberlain regarded close cooperation between the British and United States Treasuries, with their similar interests as the two chief creditors, as vitally important, and he hoped that the two Treasuries would work together to find the right solution to the problems of inter-Allied indebtedness and German reparations. A conversion of this kind ought not to prejudice a general settlement of inter-Allied debts. Blackett then expressed reservations about the idea of a sinking fund, said that protection for the pound would be needed if the bonds were to be marketable, and, in another letter, stated that accelerated payment of the special credits would only be possible if Britain demanded money from her debtors, an undesirable course.58 Despite expressions of hope for cooperation, the attitudes of the two Treasuries were thus evidently entirely different. The British hoped to use their position as a fellow net creditor to induce the Americans to cooperate in the reconstruction of Europe. The Americans had no idea of cooperating with Britain in any larger purpose. Their notion of common action went no further than seeking agreement that Britain and the United States should give their European debtors similar terms, not that all debtors should be given the same terms; and they had no intention of allowing Britain to make payment to the United States depend on receiving payment from other Allies. They were determined to retain their advantageous financial position. All this was made clear in Rathbone's reply to Blackett on 18 November, in which he again refused an invitation to come to London. But Rathbone admitted to Davis that the fact that Britain was not now borrowing in the United States deprived him of leverage.59 And Blackett told Avenol that although Rathbone had declared himself personally opposed to the idea of the Allies paying part of their debts in German reparation bonds, Blackett understood that opinion in Washington was divided, so that the suggestion might not be absolutely turned down.60 57

58

59

60

Memorandum by Blackett, 3 Nov. 1919, T 160/365/F557/1; Rathbone to Davis, 4 Nov., NA, RG 59, 102.1/2325, 2339. Blackett to Rathbone, 8 Nov., NA, RG 59, Country files, box 120; US Senate, Loans to Foreign Governments, pp. 62-3. Rathbone to Blackett, 18 Nov. 1919, NA, RG 39, Country files, box 120; US Senate, Loans to Foreign Governments, pp. 63-8; Rathbone to Davis, 4 Nov., NA, RG 59, 102.1/ 2325, 2339. Avenol to MF, 8 Dec. 1919, MF, B 12676. Some of Blackett's evidence about American opinion came from Grey, who in October discussed with Strong and House a plan for

The question of debts

83

On 2 December Rathbone, partly to counter the proposal for a financial conference, sent to Chamberlain and Klotz a statement of the United States Treasury's views on reconstruction. The Treasury, the letter said, was prepared to take up the question of funding the debts and their interest during the reconstruction period. It was utterly opposed to suggestions of supporting the exchange by direct United States government action, but heartily approved of plans to facilitate the extension of private credit and the investment of private capital in Europe. To this end all restrictions and government controls should be removed. Europe must return to work: it had great recuperative powers and must not be treated as an object of relief. American bankers and exporters, and European importers, should be able to lay the basis of credit in sound business transactions.61 Klotz replied expressing agreement in principle but listing the obstacles to the removal of controls. Chamberlain replied at some length on the overall problem. The British government had, as Rathbone knew, agreed that the demand obligations should be converted into long-term bonds and the interest funded for two or three years; and it was willing to extend similar treatment to its debtors. It also agreed that private initiative should be restored, and government controls ended, as far as possible. It had already stopped supporting the exchange, and trade with the United States had been adversely affected. Britain had to buy where the exchange was less unfavourable, and private credits added to the total foreign indebtedness. American policy, however, seemed to contain inconsistencies: Rathbone's request for immediate payments on account of the special advances must add to Britain's difficulties in financing necessary imports from the United States and in contributing to the general restoration of Europe. Europe must not indeed be regarded from the humanitarian point of view alone: the trouble was too deep-seated and widespread, and needed comprehensive international cooperation going beyond the limits of private enterprise and the power of any individual nation. Quite small sums from the United States might suffice if they were raised and made available in accordance with a reasoned and definite plan of international reconstruction. The British government was ready to discuss proposals of this kind, and, despite the sacrifices it had made during the war and the resulting strain on financing war debts, not unlike Strong's suggestions in September, under which Britain and the United States would accept from France obligations of the smaller Allies, the United States would accept such obligations from Britain in part payment, and all creditors would accept some portion of their payments in German bonds: Blackett to Bradbury, 12 Dec, T 194/4. 61 Rathbone to Glass, 18 Nov. 1919, NA, RG 59, 102.1/2373; Rathbone to Klotz, 2 Dec, MF, F30 781 = B 31706; RG 39, Country files, box 56; Rathbone to Chamberlain, 2 Dec, NA, RG 39, Countryfiles,box 120; US Senate, Loans to Foreign Governments, pp. 68—70. The statement was taken from Glass's letter to Wilson of 11 September: see above, p. 73.

84

Western Europe from Paris to Brussels

itsfinances,would do its best to promote the success of any scheme agreed upon. 'We do not pretend to be in a position at the present time to play the leading part in such a scheme, but we should do our best to contribute our share to its success.'62 Blacken and Rathbone continued for some weeks their discussion of the grounds for postponing interest payments. Glass was struggling to convince the House of Representatives Ways and Means Committee that postponement was not only within his powers but did not mean giving the debtors new credits.63 At the same time the Treasury was trying to ensure that any request for postponement would be based on need. It also wished to make it plain that postponement could not be for more than three years and must be part of a funding arrangement. The British were not willing to say that they could not pay. It would not be true and would seriously damage Britain's financial reputation. Wishing to range Britain as a creditor alongside the United States, they wanted to emphasise that both countries were ready to postpone interest payments due from their debtors in order to help European reconstruction. They also pointed out that if Britain herself paid interest, her ability to help others would be reduced and the pound would suffer; and they claimed that she could only really pay if she were being paid by her debtors.64 On 4 February Blackett, after consultation in London, wrote to Rathbone putting formally on record the British government's desire to find a "large solution' to the problem of the Vast mass' of inter-governmental indebtedness, the existence of which 'not only involves very grave political dangers but also forms at the present time a most serious obstacle to the recuperation of the world and particularly of continental Europe from the immense strain and suffering caused by the war'. The Chancellor of the Exchequer had expressed himself ready cto take steps towards relieving the 62

63

64

Klotz to Rathbone, 12 Dec. 1919, MF, F30 781 = B 31706; Chamberlain to Rathbone, 11 Dec, NA, RG 39, Country files, box 120. Artaud, Question des dettes, pp. 241-4. In this connection statements made by Sir George Paish, a wartime adviser to the Chancellor of the Exchequer, that Britain was raising a large loan in the United States to be used for European recovery, caused embarrassment. The United States Treasury, however, advised against publication of an official British denial on the ground that it would only revive the stories: Morgan Grenfell & Co. to J.P. Morgan & Co., 2 Jan. 1920; J.P. Morgan & Co. to Morgan Grenfell & Co., 3 Jan., MG Papers, Box Hist. 4, file 23; FO to Lindsay, 10 Jan.; Lindsay to FO, 13 Jan.; FO to Lindsay, 16 Jan., A 182, 217/182/45, FO 371/4562. The statement was published on 31 January. Davis and Leffingwell t o Rathbone, 17, 19, and 2 0 Jan. 1920, L C , Leffingwell Papers, container 13, reel 3 3 ; Lindsay t o F O , 19 Jan., 1 7 2 0 1 5 / 1 5 1 9 7 4 / W 5 1 , F O 3 7 1 / 4 3 3 5 ; Rathbone to Leffingwell and Davis, 22 and 26 Jan., NA, RG 39, Country files, box 120; Rathbone to Leffingwell and Davis, 23 Jan., RG 59, 102.1/2517; Blackett to Chamberlain, 26 Jan., T 1/12546/18255; FO to Lindsay, 26 Jan., 173351/151974/W51, FO 371/ 4335; Davis to Rathbone, 3 Feb. (sent 6 Feb.), NA, RG 39, Country files, box 120; RG 59, 811.51/2493b.

The question of debts

85

Governments which are debtors to the British Government of the burden of their debts which the United States Treasury might feel able to propose to regard to the obligations of the Governments which it holds'. Formal discussions, the letter went on, had been confined to the postponement of interest, but Chamberlain doubted whether this was enough to relieve the present financial and economic disorders. It was agreed that no more foreign loans should be made, but in their absence finding the foreign exchange for essential imports was difficult, and private lenders were inhibited by a fear that creditor governments might demand payment of the principal of their loans. Chamberlain suggested that the two Treasuries should agree to postpone the collection of interest due to them, and to convert, if asked, into similar long-term bonds the short-term Allied obligations that they held, including the British obligations to the United States. If these proposals were acceptable, a formal request for postponement of Britain's interest would be despatched.65 These proposals were not at all acceptable to the United States Treasury, but at this stage it was in the thick of negotiations with the House Ways and Means Committee. These were concluded in April, with the Committee acknowledging that the Secretary of the Treasury had the power to postpone the collection of interest; and the question of a formal British request was left over while other aspects of a debt arrangement were discussed.66 But whilst the Americans insisted that a request for the postponement of interest must not refer to debt cancellation, Leffingwell himself inadvertently precipitated another British plea for cancellation by asking the British charge d'affaires, Ronald Lindsay, to obtain Chamberlain's view of the general situation. The United States Treasury, he said, wanted to help Britain as far as its duty to Congress allowed: he foresaw great difficulties for all countries and was convinced that good policy required the United States and British Treasuries to work together.67 Chamberlain replied on 7 February, welcoming Leffingwell's desire to work together. He believed the financial and economic problems of the world could not be separated from one another. Britain was not doing too badly, but was profoundly affected by the position in Europe. In order to 65

66

67

Rathbone to Davis, 31 Jan. 1920, NA, RG 59, 811.51/2489; Blacken to Rathbone, 4 Feb., T 160/365/F557/1; RG 39, Country files, box 120; US Senate, Loans to Foreign Governments^ pp. 72-3. By this time the two sides were near to agreement on the terms of converting the British obligations. The question of marketability was not settled but was not expected to cause great difficulty: Treasury memorandum, n.d., T 160/365/F557/1; Artaud, Question des dettes, pp. 248-50. Davis to Rathbone, 27 Feb. 1920; Rathbone to Davis, 4 Mar.; Houston to Rathbone, 13 Mar. (sent 15 Mar.); Rathbone to Houston, 17 Mar.; Davis to Rathbone, 27 Mar. (sent 30 Mar.); Rathbone to Davis, 3 Apr.; Houston to Rathbone, 16 Apr., NA, RG 39, Country files, box 120; RG 59, 811.51/2522, 2539a, 2542, 2557a, 2558. Lindsay to FO, 27 Jan. 1920, 174252/151974/W51, FO 371/4335; CP 597, CAB 24/97.

86

Western Europe from Paris to Brussels

export enough Britain would have to give large commercial credits. These would be private - the government had set its face against advances by and to governments except for relief purposes - but Chamberlain was not confident that there were enough solvent borrowers. All British government purchases were now covered without further foreign borrowing; but the cost of the existing debt and of current purchases was increased by the fall in sterling. This fall was due to the advances made to Europe, just as the debt to the United States was largely due to Britain's lending to the Allies. Chamberlain was not thinking of asking for financial help. A financial crisis in the United States would imperil the incipient recovery of Europe by halting the possibility of credits. If he might venture on to controversial ground, he would say that it was largely because of these dangers that Britain would welcome a general cancellation of the war debts. Their existence deterred neutrals from helping, checked private credits, and was likely to prove a disturbing factor in international relations.68 Blackett, who had drafted this message, wrote at the same time a long private letter to Leffingwell, whom he had got to know in Washington. He expressed regret that Rathbone had not been able to come to London, if only to undo the impression, held by those who had only read his letters, that he was a 'terror'. Blackett was cheerful about Britain's financial situation seen in isolation, but he said that the encouragingly large exports were being sold on credit, and very few European countries could be regarded as good borrowers. Germany might improve rapidly once the Reparation Commission started work and certain political problems had been settled; but French policy - monetary, tariff, and fiscal - 'fills me with despair'. Austria was a 'nightmare', and Congress's behaviour over British efforts to get cooperation in providing her with food and raw materials filled him with impotent indignation at the American constitution. I do beg you [Blackett wrote] to try and help us to reach a settlement. I think the U.S.A. has at least as great a moral responsibility in these matters. Of course English policy for years has recognised and acted on the notion that unpleasant jobs all over the world have to be done by someone and usually by England. There is plenty of national pride, some hypocrisy and some far-sighted and enlightened selfinterest in this policy, but it is hardly ever immediately remunerative. The war has crippled our money power abroad and has also left us with very heavy commitments all over the world. On the inter-Allied debts, I do feel some surprise that so far as I am aware (I may be wrong) you have not recognised the absolute impossibility of the present position. There seems to me 68

FO to Lindsay, 7 Feb. 1920, 177413/151974/W51, FO 371/4335; CP 597, CAB 24/97; NA, RG 59, 811.51/2500. Last paragraph in Calmette, Recueil de documents, pp. 291-2.

The question of debts

87

not the faintest possibility of Europe's paying off her debt to the U.K. and U.S.A. I doubt if any of the Continental Allies even think of trying to pay interest. Nor could Blacken see how either Britain or the United States could stand a vigorous effort by France or Italy to pay what they owed. American talk about impossible reparation terms and self-congratulation on not asking for reparations did not help. It was true enough, but the demand for indemnities c is at bottom merely the popular recognition of the true ultimate equities of the case'. Blackett admitted that he had laid himself open to retorts and said that he had become increasingly alive to the ambiguities of our position when we press plans on you for cancelling debts, because we are debtors as well as creditors and you are only creditors. We have done so for two reasons: - first because it has taken us a long time to understand that you don't mean to take the moral leadership . . . and secondly because we honestly thought and think that there is nothing inequitable in your wiping off some $8,000,000,000 dollars [sic] of debt to our net $4,000,000,000. You would still come out of the war far richer relatively than in 1914 and we should still have our market debt in the U.S.A. to deal with and have parted with most of our American bonds .. . Your population is more than twice ours and for various reasons it was only in the last few months of the war that your military contribution was considerable. However as I say it has now been borne in on us that you do not share our view. We have accordingly put our view on formal record and that chapter is closely [sic] so far as we are concerned. Blackett said that he was puzzled to know how to make continental Europe realise that she could not forever borrow from the United States and Britain 'to enable her to go on the road to bankruptcy'. But he thought the inter-Allied debts tended to make France and Italy reckless, and wiping them out would do more good than lectures from Hoover and Glass.69 When Leffingwell received Chamberlain's message he told Lindsay that the attitude of Congress and American public opinion put cancellation outside the realm of practical politics, at any rate for the time being; and the less that was said about it the better. He wrote to Blackett that the proposal of cancellation would find no support worth mentioning in the United States, and when known would damage Britain's credit and impair Treasury efforts to get authority for further relief loans. It would come better, moreover, if it were accompanied by a proposal to surrender the spoils of war, the retention of which deprived Europe of the hope of a healthy economic life and removed the basis of credit.70 A reply, in a form 69

70

Blackett to Leffingwell, 6 Feb. 1920, Yale University, Russell C. Leffingwell Papers, series 1, box 1, folder 9. Lindsay to FO, 13 Feb. 1920, 180938/151974/W51, FO 371/4335; Leffingwell to Blackett, 2 Mar., LC, Leffingwell Papers, container 14, reel 34; Yale, Leffingwell Papers, series l,box 1, folder 9.

88

Western Europe from Paris to Brussels

suitable for publication in the United States, came on 5 March from Glass's successor as Secretary of the Treasury, Houston. Any proposal for a cancellation of debts, he said, would merely arouse hopes in the debtor countries that were doomed to disappointment since the United States Congress and people would not agree. Cancellation would no doubt be advantageous to Britain and would probably not involve any losses for her, but it would be pure loss to the United States, who owed nothing. The United States had shown its desire to help Europe; the Allied obligations were not an obstacle to private lending, nor were they a burden on the debtors since they were not being paid. Europe was not doing enough to help itself, by such means as raising taxes, stabilising currencies, reducing trade barriers, or adopting reparation policies that would enable Germany to contribute to European rehabilitation. When they had done all they could for themselves, one or more of the debtor governments might wish to approach all its creditors to make a general settlement. Houston said that he did not know whether the United States would take part in such a composition, but a general cancellation was out of the question. It would throw all the burden on the American people, who had gained nothing from the war whereas the Allies had gained, under the peace treaties, territory and other advantages to set off against their losses in lives and property.71 Chamberlain quickly replied that he had only mentioned cancellation in response to Leffingwell's request for his appreciation of the situation. A week later he took issue with Houston's assertion that the Allies had made gains under the peace treaties. As far as Britain was concerned, he said, this was not true. She received no financial contributions from the Empire, and the mandates were going to be cause of expense. Houston replied, in the middle of April, that he had not meant to be offensive, but he did think the Allies were getting some economic compensation for their losses; and he supposed the mandates were assets of a kind.72 By this time the British had considered, and abandoned, the possibility of cancelling the debts due to Britain independently of the United States. The proposal was due to Blackett who, in a paper circulated to the Cabinet on 6 February, wrote that for nearly a year the British and United States Treasuries had been in communication on the subject of debts. The Americans said they were anxious to cooperate, but so far all that had 71

72

Houston to Lindsay, 1 Mar. 1920, NA, RG 59, 811.51/2500; Lindsay to FO, 5 Mar., A 1223, 1224/182/45, FO 371/4562; CP 842, CAB 24/100; US Senate, Loans to Foreign Governments, pp. 78—80; Calmette, Recueil de documents, pp. 292-6. FO to Lindsay, 5 Mar. 1920, A 1224/182/45, FO 371/4562; CP 842, CAB 24/100; Chamberlain to Houston, 12 Mar.; Houston to Chamberlain, 13 Apr., T160/365/F557/1.

The question of debts

89

happened was that the British side had had to abandon, without putting them on record, the policies they favoured because the United States Treasury was preoccupied with persuading Congress to take small steps and feared the effect of mentioning bold ones. The time, Blackett thought, had come to stop this. From the first, British policy had been to move as far and as fast in the direction of reducing the mass of indebtedness as the United States could be persuaded to go. The continental countries would probably never pay; meanwhile the debts were a dead weight on their credit and made reconstruction more difficult than it need be; the statesmanlike thing was to wipe them all out. Britain could not officially propose cancellation to the United States, for that involved asking for a gift; but she could say that she proposed to cancel the European countries' debts to her, as a contribution to setting Europe on its feet and ending the disadvantages of her own creditor position. Blackett did not think that, given time, the burden of paying the United States would be impossible. It might even bring some advantages in exporting to the United States, and eventually Britain might be asked to accept cancellation.73 Blackett's suggestion of cancellation by Britain alone did not convince Chamberlain, although he circulated it to the Cabinet, and it drew objections from other ministers. Geddes, who was shortly going to the United States as ambassador, thought the United States would resent it as an attempt to force her hand; and if she cancelled the debts of the European Allies but not Britain's, in ten years France would be economically stronger than Britain. There was no certainty that the proposal would lead to general cancellation, and an election year was not a good time for trying to force the issue with the United States. Amery, Parliamentary Undersecretary for the Colonies, wrote to Chamberlain that he had been struck by the fact that helping only the Allies did not help Europe. If a way could be found of linking revision of Allied debts with a realistic reparation settlement, it would improve British trade; it might induce the United States to cancel Britain's debt; and it might in the end be worth a good deal more than the chance of recovering the money lent. Churchill, Secretary of State for War and Air, was likewise concerned with forestalling upheaval in Germany, and wanted some means - such as a loan or the supply of raw materials - to be found to help her restore her economic position. Chamberlain replied briefly that a loan for Germany could not be raised in Britain: the money would not be forthcoming, or if it were there would be conflict with the Allies to whom further advances had been refused. Would the Cabinet, asked Chamberlain, like to instruct the British representative on the Reparation Commission to propose that Germany should seek a 73

Memorandum by Blackett, 2 Feb. 1920, T 160/365/F557/1; CP 584, 6 Feb., CAB 24/97.

90

Western Europe from Paris to Brussels

credit from neutral countries with priority over reparation payments? The Cabinet did not respond to the suggestion.74 But on 24 February Lindsay was asked what he thought the effect on the United States of Blackett's proposal would be, and whether the Americans ought to be consulted in advance of an announcement. Lindsay replied deprecating action before the autumn elections. A British cancellation would be a great embarrassment to the Treasury. It would usefully differentiate Britain from the continental Allies - there was a tendency to lump them all together as recalcitrant debtors - but this advantage was outweighed by the consideration that it would be taken as an invitation to the United States to follow suit, and far from doing so she might refuse to postpone interest. If it were decided to go ahead, the United States Treasury should be sounded; but it would be important to present the matter as far as possible as one between Britain and her Allies, and to avoid mentioning the United States in public.75 On 4 March Lindsay was told, without explanation, that the proposal had been abandoned. It was soon revived by the Foreign Office with political arguments and received some ministerial support. Churchill, however, argued that British opinion would not agree to pay the United States while getting nothing from the Allies.76 On 26 April the Cabinet, asking Chamberlain to invite representatives to go to the Brussels financial conference, decided that no step should be taken on debt cancellation without prior Cabinet approval, even if the United States took part.77 Meanwhile Blackett's negotiations with Rathbone were resumed; but they again ran into political difficulties. As soon as the chairman of the House Ways and Means Committee informed Houston that the majority believed he had power to postpone interest, the Secretary cabled to Rathbone approving a settlement on the lines proposed, subject to certain conditions including a statement that the settlement would be subject to the Secretary's decision to exchange the obligations only if he judged that other matters on which Europe's financial and economic rehabilitation depended had been satisfactorily arranged.78 Rathbone still believed that agreement could be reached; but when Blacken, welcoming his decision to 74

• 75

76

77 78

M e m o r a n d a by G e d d e s , 12 F e b . 1920, Churchill, 13 Feb., and Chamberlain, 17 Feb., C P 6 2 1 , 632, 6 7 1 , C A B 2 4 / 9 8 ; A m e r y t o Chamberlain, 13 F e b . , T 160/365/F557/1.

FO to Lindsay, 24 Feb. 1920; Lindsay to FO, 27 Feb., A 1290, 1291/182/45, FO 371/4563. FO to Lindsay, 4 Mar. 1920, A 1291/182/45, FO 371/4563; memorandum by Waterlow, 20 Mar., 186981/186981/W50, FO 371/4330; CP 1093, 17 Apr., CAB 24/103; memoranda by Worthington-Evans, Churchill, and Home, 25 Apr., 23 Apr., 1 May 1920, CP 1153, 1156, 1202, CAB 24/104, 105. Cabinet, 26 Apr. 1920, C 23(20), CAB 23/21. Houston to Rathbone, 2 Apr., 1920, NA, RG 39, Country files, box 120; Rathbone to Davis, 3 and 22 Apr.; Houston to Rathbone, 16 Apr., RG 59, 811.51/2558, 2574.

The question of debts

91

go to London, wrote that he hoped Chamberlain would be able to announce an agreement in his budget speech on 19 April, Rathbone replied that he feared it would not be possible to say anything so definite. He himself was still in communication with Washington on various matters and had not really discussed interest postponement with the other governments involved. The United States Treasury believed, moreover, that the two Treasuries would not be committed to accept the long-term obligations and postpone interest for the whole period contemplated, unless certain other matters necessary for the financial and economic rehabilitation of Europe were arranged to their satisfaction.79 On 30 April Rathbone, in London, handed to Blackett a draft agreement on postponing interest and converting the British debt into long-term obligations. The contentious parts of the draft were not thefinancialterms (such as funding at 5 per cent interest, latest possible dates of maturity, release of subrogated securities) but the quasi-political conditions. The draft recalled that the American purpose in making these tentative arrangements was to help the recovery of Europe. The Secretary of the Treasury's willingness to grant liberal terms to the debtor governments was conditional on reparations and other matters involving world stability being arranged in such a way as to satisfy him that the overall purpose would be realised. The Secretary believed that preferential tariffs and discriminatory concessions must be avoided; governments should refrain from granting or accepting them in their own and their colonial territories. Britain was to give her debtors the same terms. The agreement would not be put into effect until the Secretary of the Treasury so decided: meanwhile Britain would not be asked to pay capital or interest on the demand obligations.80 On being given the draft Blackett said that the terms were threats, which ought not to be put in writing. The British were unlikely to do the same to their debtors, and more would be gained by casting one's bread on the waters than by using postponement of interest as a club. The French, Blackett added, would not meet a demand for interest and would be glad to default.81 This stand angered the United States Treasury. Davis had already stressed that the British must be clear that the decision whether to put the agreement into effect was reserved for future determination by the Secretary of the Treasury; and he would have to be free to make further 79

80

81

Blackett to Rathbone, 7 Apr. 1920; Rathbone to Blackett, 19 Apr., NA, RG 39, Country files, box 120. Chamberlain did not mention the negotiations in his budget speech on 19 Apr.: HCDeb., Vol. 128, cols. 69-100. Financial terms only in United States, Senate, Hearings before the Committee on Finance on S. 2135: Refunding of Foreign Obligations, 67th Congress, 1st session. Rathbone to Davis, 7 May 1920, NA, RG 59, 811.51/2589.

92

Western Europe from Paris to Brussels

conditions; considerations to be taken into account at the time might include whether Britain had undertaken to give similar concessions to France and Italy. After hearing of Blackett's comments Davis telegraphed his 'unfavourable impression' of the British position, his suspicion that they did not want a settlement, the State Department's fear they were deliberately excluding American nationals from equal opportunity in mandated territories, his own belief that they would be brought round by a Virtual ultimatum', and his denial that posing conditions was a threat since he had forecast to Lloyd George and Cecil in Paris the conditions on which the President would be prepared to recommend deferment of interest.82 Rathbone, however, believed that an arrangement now, fixing the exchange of obligations and postponing interest, was better than continuing to hold demand obligations, provided that the Secretary of the Treasury's right not to implement it were reserved. Making the arrangement tentative would only postpone the day when a definite decision would have to be taken. Rathbone therefore discussed with Blackett softening the paragraph on conditions for implementing the agreement, while still reserving the Secretary of the Treasury's right to decide what measures needed to be taken before it was put into effect; and he obtained Washington's consent to putting this part into a preamble or separate letter.83 This concession was not enough for Chamberlain. He told Rathbone privately that he would prefer to pay if he could and default if he could not, rather than sell Britain into bondage by signing a document containing such language. To his Cabinet colleagues Chamberlain denounced the 'intolerable pretensions' of the United States government and said that he had come to favour releasing the Allies and the Dominions from their debts to Britain and telling the United States that Britain would pay interest, back interest, and sinking fund on her debt. Blackett, in a summary for the Cabinet of the negotiations and the American terms, wrote that there was clearly a serious divergence of views between the two Treasuries. The British government regarded the debts as an obstacle to good relations and wanted to reach a comprehensive settlement as soon as possible. The United States regarded the possession of demand obligations as a useful instrument for making her view prevail in any controversy arising out of the peace treaties or the general European situation. Furthermore, she 82

83

Davis to Rathbone, 28 Apr. 1920 (sent 3 May), 12 and 13 May, NA, RG 59, 811.51/ 2585a, 2589, 2597a, 2597c; RG 39, Country files, box 120. Rathbone to Davis, 7 May 1920; Davis to Rathbone, 12 May, NA, RG 59, 811.51/2589; draft of 10 May, summarised in Treasury memorandum, n.d., T 160/365/F557/1; financial terms only in US Senate, Hearings before the Committee on Finance on S. 2135, pp. 110-15; Calmette, Recueil de documents, pp. 297-302.

The question of debts

93

wanted all the debtors to plead inability and refused to give Britain the same concessions as the continental Allies.84 At the same time as the question was reaching the Cabinet, Lloyd George was meeting the French prime minister, Millerand, at Lympne to discuss German reparations.85 Churchill, who still disagreed with the idea of cancelling the Allied debts to Britain except as part of a settlement including a moderate reparation arrangement and United States remission of European and British debts, and who wanted to use Britain's claims as an instrument for 'effecting a good arrangement for Germany', raised the matter at a Cabinet meeting on 19 May in Lloyd George's absence. Chamberlain was asked to produce a full account of the negotiations with Rathbone, and there was a feeling that an Anglo-American ageement would prejudice the general question of inter-Allied debts.86 After this meeting Chamberlain wrote to Rathbone, who had returned to Paris and was due to leave for the United States on 5 June, to ask whether he could come back to London before he sailed.87 On 21 May the Cabinet had a further discussion, with Lloyd George in the chair. Chamberlain presented a written statement about the negotiations with the Americans. Since January, he said, he had proceeded on the understanding that the United States would treat all her debtors alike, and public opinion would resent it if Britain were treated worse than others. In the draft agreement produced by Rathbone the financial terms were conditional on reparations and other matters such as tariffs being arranged to American satisfaction; and the Americans had suggested that when Britain had agreed the two countries should go on a joint debt-collecting expedition to France and Italy. There was no doubt that the United States government wanted to use the agreement to compel the Allies to adopt what it regarded as proper conditions on reparations. He had said that Britain could not possibly accept. Then had come the conference with the French. One advantage of the arrangement made there, that the two governments should aim at a settlement including all the international obligations arising from the war and providing for the parallel discharge of the Allied war debts and the Central Powers' reparations, was that if the French proved unreasonable over Germany, Britain would have some leverage. When Rathbone came back to London Chamberlain would say that he could not deal with the French debt at the same time or in the same way as the British debt to the United States. For the latter he was willing to give bonds, but without 84

86

Note by Chamberlain, 12 May 1920, covering memorandum by Blacken, CP 1259, CAB 85 24/105. See below pp. 99-100. Memorandum by Churchill, 15 May 1920, CP 1316, CAB 24/106; Cabinet, 19 May, C 29(20), CAB 23/21; Hankey to T. Jones, 14 May, Churchill College, Cambridge, Hankey Papers, 4/12; Hankey to Lloyd George, 19 May, Lloyd George Papers, F/24/2/36. . 87 Chamberlain to Rathbone, 19 May 1920, T 160/365/F557/1.

94

Western Europe from Paris to Brussels

prejudice to a general debt settlement. The Cabinet did not take a definite decision, but ministers suggested that this was not a good moment for dealing with the United States, that there was no need to deal with her alone, and the matter should be dealt with at a higher level than that of departments.88 As a result of this meeting Chamberlain wrote to tell Rathbone that there was no point in his coming back to London. Lloyd George and Millerand had agreed that the inter-Allied debts should be dealt with parallel with reparations, and so the government wished to consider further how the proposals for its debt to the United States fitted into the general situation. These questions were not suited to discussion between departments, and Lloyd George proposed to take up again his earlier correspondence with the President.89 Rathbone was surprised by the suspension of his negotiations. He had just been explaining to Davis what he understood to be the British reasons for unwillingness to bind themselves in respect of their claims on the Allies; but he did not know the outcome of the Lympne conversations except that he understood the British were ready to make concessions to France. Blackett had told him that Britain was likely to be more liberal than the United States over the postponement of interest, and he was expecting to receive a statement that Britain would not collect her debts more quickly than the United States did.90 He replied briefly to Chamberlain, regretting the end of his negotiations with Blackett, which had been near to success, and restating the American view that questions relating to the British debt to the United States must be settled by the two governments alone, and that other debts or reparations could have nothing to do with postponement of interest or funding.91 Rathbone cabled home that there seemed to be nothing more he could do with the British, and in view of the sudden turn of events he thought it undesirable to try to negotiate settlements with any other governments.92 Clearly there was, as Blackett wrote, a serious divergence between the two Treasuries, and the position was not improved by the British Cabinet's failure to make up its mind. Was it the American intention to wield a club? 88 89

90

91

92

Cabinet, 21 May 1920, C 30(20), CAB 23/21. Chamberlain to Rathbone, 21 May 1920, T 160/365/F557/1; CP 1382, CAB 24/106; NA, RG 39, Country files, box 120. Rathbone to Davis, Leffingwell and Houston, 21 May 1920, NA, RG 59, 811.51/2604. Another American draft of the financial terms, dated 22 May, is in US Senate, Hearings before the Committee on Finance on S. 2135, pp. 115—19; Calmette, Recueil de documents, pp. 303-9. Rathbone to Chamberlain, 24 May 1920, T 160/365/F557/2; CP 1382, CAB 24/106; NA, RG 39, Country files, box 120. Rathbone to Leffingwell and Davis, 25 May 1920, NA, RG 39, Country files, box 120; US Senate, Loans to Foreign Governments, pp. 80-1.

The question of debts

95

Notwithstanding their assertions that questions to do with the British debt had nothing to do with other Allied debts or reparation, Houston and his advisers certainly meant to use the American claims as a weapon to bring about a reconstruction of Europe on lines favourable to the United States, including a moderate reparation settlement, restoration of the gold standard, and the Open Door. They wanted British cooperation, on their terms, but their refusal to make any concession to British views raises the question whether they were trying, by dictating the terms of such cooperation, to enforce American predominance on Britain. The style of the American documents suggests that this was the case, although some correspondence suggests a different interpretation. Leffingwell, for example, wrote to Blackett that the Americans did not like international finance and did not want to take part in it. Some now recognised that their country would have to take on a share of the world's problems, but the idea of responsibility was new and would take time to become familiar.93 On the other hand there was a great deal of suspicion of British motives and methods; independent British cancellation of Allied debts would have been extremely embarrassing; and whilst it may be a little premature in 1920 to talk of imposing financial predominance, there can be no doubt of American determination to foster complete financial independence. The US Treasury wished to be able, by marketing the British bonds, to put pressure on sterling; but it believed that the proposed funding terms were fair to both sides, and it did not believe that if payment were demanded Britain would have to demand payment from her Allies and thus precipitate a general repudiation. By reserving the right to make new conditions before implementing an agreement, it wished to be able to force Britain to carry out American policy. But since it could not actually use the demand obligations it could not make Britain accept. The domestic factor was important but not, it would seem, decisive. Even after it had achieved independence of Congress on the interest question, the Treasury was always looking over its shoulder at Congress and public opinion; but there is no evidence that it favoured debt cancellation any more than Congress did.94 On the British side the Cabinet failed to carry through the argument about policy. The Treasury and the Foreign Office wanted Britain to act independently of the United States, which they reckoned she could just afford to do and which would give her both influence over and 93

94

Leffingwell to Blackett, 2 Mar. 1920, LC, Leffingwell Papers, container 14, reel 34; Yale, Lefflngwell Papers, series 1, box 1. Davis to Rathbone, 28 Apr., 12 and 13 May 1920, NA, RG 59, 811.51/2585a, 2589, 2597a, 2597c; Lindsay to FO, 27 Feb., A 1291/182/45, FO 371/4563. Leffingwell and Davis admitted to Lindsay that in theory all the debts ought to be cancelled; but they never advocated doing so.

96

Western Europe from Paris to Brussels

independence of Europe. The Treasury set great store by Britain's creditor position but wanted from the United States the same advantages as other debtors - a thing which, whatever Chamberlain's understanding, the Americans had never offered, and never conceivably would offer. Churchill may have suspected that Britain could not act independently and had a keener eye for the public's reaction to paying without being paid; but he preferred to pursue Anglo-American cooperation and to try to induce or shame the Americans into debt reduction and a general settlement rather than join Europe in confronting the United States. The Cabinet was able to evade making the choice at this juncture because the approach of the autumn elections raised doubts whether it would be possible to reach an agreement with the United States at all this year, and the need to make progress over reparations indicated collaboration with Europe. But the collaboration was limited. Allied cooperation and the Brussels conference The German economy was of central importance to the reconstruction of Europe, because of Germany's industrial pre-eminence and her position as a trading partner of many central and eastern European countries. Although Strong supposed that trading countries such as Britain might prefer to see Germany reduced to insolvency, German trade was in fact of great importance to the restoration of European, and hence British, trade. Whilst there was no question of direct British assistance to Germany, and low German export prices became a cause of concern, British banks were involved in financing German trade as soon as the peace treaty came into force. At the same time German reparations were of crucial significance to French recovery, and important to the problem of inter-Allied indebtedness. Reparation policy therefore forms part of the overall question of European reconstruction. The peace conference having dealt with German reparation in isolation from any mutual inter-Allied aid, and then having failed to agree on a fixed sum that could form a basis for credit, the Treaty of Versailles provided that the amount of the damage for which reparation was to be paid would be determined by a Reparation Commission by 1 May 1921 and a schedule of payments drawn up for discharging the obligations within thirty years. But in reply to the German observations on the peace treaty, the Allies stated that Germany might, within four months, make proposals for a complete settlement, and if these were agreed Germany's exact liability would be known.95 Even before the treaty came into force on 10 Janaury 95

Burnett, Reparations at the Paris Peace Conference, docs. 429, 444; Trachtenberg, Reparation in World Politics, pp. 91—7. Lloyd George was responsible for this proposal.

Allied cooperation and the Brussels conference

97

1920 discussion began about the possibilities of reaching a settlement before May 1921 and of raising some advance on future payments. Lloyd George was now anxious for certainty and was ready to scale down Allied expectations to achieve it and to get the German and the European economy moving. The French were anxious for money soon for reconstruction, but feared that a sum fixed early might turn out to be much less than the bill for damage. The Germans, whose agreement was needed for any settlement outside the terms of the treaty, were not sure despite their anxiety about the effects on their economy of uncertainty as to the final sum, that it was in their interest to make an offer. The gap between what even the most forthcoming German thought it possible to offer and what even the most moderate Frenchman would regard as acceptable was sure to prove very wide, and the revelation of its width might do greater harm than would silence. And less forthcoming Germans reckoned that time was on their side, since the Allies would eventually realise the impossibility of imposing a really large obligation and meanwhile the mark would depreciate in value.96 At the end of November 1919 Loucheur, the French Minister for Reconstruction, who had been negotiating with the Germans about exchanging coal for iron ore, told Bradbury that he wanted to come to an understanding with Britain about the financial situation of Europe. Loucheur talked about an international loan based on Germany's reparation obligations, and as in Keynes's plan he envisaged guarantees by the Allied governments. He was confident, moreover, that the United States government would be unable to refuse to take part: a loan entitled 'for the devastated districts' would certainly appeal to American sentiment.97 From the British point of view this plan had the disadvantage that it would simply raise money for France and Belgium, and Chamberlain doubted whether such a loan would be subscribed in Britain.98 Lloyd George, entertaining Loucheur to lunch at 10 Downing Street on 3 December, took the opportunity to emphasise France's dependence on close relations with Britain.99 Chamberlain at the same time was writing to Rathbone on the need for an overall plan to revive the European economy, and was thinking of taking up with the French the idea of a joint approach to the United 96 97

98 99

See Trachtenberg, Reparation in World Politics, ch. 3 . Memorandum by Bradbury, 29 Nov. 1919, T 194/4; Trachtenberg, Reparation in World Politics, pp. 110—14. In the spring of 1920 Fred Kent suggested to Poincare, currently French delegate to the Reparation Commission, a scheme for an American loan for the devastated regions, its application to be supervised by American engineers. Poincare was interested, but the scheme was not pursued: memorandum on meeting with Poincare, 14 Apr. 1920; Poincare to Kent, 19 Apr.; Poincare to Kent, 14 May, Princeton University, Fred I. Kent Papers, Box 24. Chamberlain to Lloyd George, 2 Dec. 1919, Lloyd George Papers, F/213/5/40. S. 2, 3 Dec. 1919, CAB 23/35.

98

Western Europe from Paris to Brussels

States about American and British acceptance of French and other Allied obligations in payment of their debts, and general acceptance of German reparation bonds. As Blackett put it unofficially, the ultimate object would be to get the United States holding a large portion of German bonds; Germany might then default more or less completely, and 'everything in the garden would be lovelv'. Blackett favoured Anglo-American cooperation in buying interests in German firms, as the safest way for British capital to take part in restarting European economic activity; but he told Bradbury that 'the attitude here is to keep the Yanks out5.100 While hopes of official American government cooperation dwindled, Allied leaders had to consider the European situation. At the first Allied Supreme Council meeting of 1920, in London in February-March, the French and Belgian finance ministers outlined schemes for raising credits, most based on the security of future German annuities. The suggestion of an international loan of this kind was diverted in the direction of the financial conference to be called by the League of Nations;101 but Chamberlain said that one of the difficulties about a loan secured on German annuities was that it engaged Allied rather than German credit, so that Germany could default without injury. He would prefer that the total indemnity be fixed, that the Reparation Commission take bonds for this amount secured on German assets, and that these bonds should gradually be sold on the market. The object would be to engage Germany's credit. The Italian prime minister, Nitti, was more concerned with problems of high prices and the exchanges, from which Italy was suffering whilst it did not expect relief from German reparations. He asked for combined purchasing of raw materials and long-term credits. The British took the view that the chief cause of high prices was currency inflation. The French and Belgians, while acknowledging the necessity of balanced budgets, attached great importance to the destruction of means of production. Chamberlain said that the British government was determined on a policy of deflation and could not guarantee any new loans nor force the City to lend; but it would not object to the Allies borrowing on the London market so long as government assistance was not needed.102 100

See above, pp. 83-4 and n. 62; Blackett to Bradbury, 10 and 12 Dec. 1919, T 194/4. Allied meetings, 12 and 13 Feb. 1920, Documents on British Foreign Policy 1919-1939, ed. E.L. Woodward and Rohan Butler, and others, London 1947 ff., hereafter cited as DBFP, Ser. I, Vol. 7, Nos. 1-2, 5. 102 Allied conference, 27 Feb., 28 Feb., 1 Mar. 1920, DBFP, Ser. I, Vol. 7, Nos. 32-3, 35, 39; CP 726, 727, 728, 730, 743, 744, 777, 778, CAB 24/99. The Italians, in particular, had been complaining about high British coal prices, which they believed were controlled by the government. Curzon, circulating an Italian note on 31 Dec. 1919, commented that the preservation of close relations with the Allies must depend on British help in their recovery. In the spring there was also a problem about the quantity of coke available for export: CP 406, 414, 502, 954, 1222, 1407, 1520, CAB 24/96, 97, 101, 105, 107, 108; 101

Allied cooperation and the Brussels conference

99

The conference accepted a statement on the economic situation of Europe, in which orthodox deflationary principles were seasoned with promises of cooperation. The Supreme Council recommended the restoration of normal economic relations in east central Europe; efforts by governments and individuals to restore production and eliminate obstacles to it; reduction of personal consumption; deflation of credit and currency in circulation by balancing government revenue and expenditure and consolidating floating debt; facilitating commercial credits for the purchase of raw materials. The leaders recognised the necessity of continued Allied cooperation and would exchange views on the supply of food and raw materials. They recognised the capital importance of restoring the devastated regions and the fact that reconstruction could not wait for German payments. The necessary funds, they believed, could be raised by borrowing on the expectation of such payments, and the restriction they wished to impose on borrowing would not apply to such loans. They agreed that it was desirable tofixas soon as possible the total Germany was to pay, and the period during which she might make proposals should be extended.103 At their next conference at San Remo in the second half of April, the Allied leaders agreed to invite the German government to confer with them and make proposals for carrying out the peace treaty, includingfixingthe total reparation obligation.104 The meeting with the Germans, at Spa in Belgium, was arranged originally for the end of May and then postponed first until June and then to the middle of July. When Lloyd George and Millerand met at Lympne on 15 and 16 May to discuss the postponement and the agenda, the French failed to get British acceptance of a priority for restoring the devastated regions; but it was agreed that reparation should be assured with the least delay and that Germany should be put in a C 25(20), CAB 23/21; correspondence in CAB 21/182. For the coal problem see also below, n. 124. In December the Treasury assented to the raising ot a large French government loan in London, to be spent in the United Kingdom. The French government undertook not to ask for the return of the gold deposited in London until the whole of the war debt was liquidated. The British government undertook to waive interest for three years, subject to a settlement on details with the United States: T 176/ 1A, No. 11. 103 DBFP, Ser. I, Vol. 7, Nos. 43, 47, 52; Cmd 646 of 1920, Declaration of the Supreme Council of the Peace Conference on the Economic Conditions of the World; Calmette, Recueil de documents, pp. 210-23. 104 Dgfp^ Ser. I, Vol. 8, No. 18, Appendix 4. Nitti also proposed to Lloyd George the retention and extension of the Allied wartime wheat purchasing organisations. The Treasury and the Ministry of Food thought this a bad idea: not all countries would cooperate, and Britain would be saddled with financial and shipping responsibility for supplying the more impoverished countries at the expense of her own consumption. Nitti was told that the government's policy was to revert to normal commercial practice and reduce state control as rapidly as possible: correspondence in CAB 21/175.

100

Western Europe from Paris to Brussels

position to recover her financial autonomy by prompt fulfilment. In addition the two prime ministers agreed that it was important to arrive at a settlement including all the international obligations arising from the war and providing for the parallel discharge of the Allies' war debts and the Central Powers' reparation debts. Experts of the two governments would work out the minimum sum for Germany's liability that would be acceptable to the Allies and within Germany's capacity, and they would discuss methods of payment and means of mobilising the debt.105 It was this agreement that cut across a decision on the BlackettRathbone negotiations on funding the British debt to the United States. It expressed the continuing British preference for a general settlement of debts and reparations; and in the context of the Allied decision to seek an early reparation settlement for the sake of European recovery, it showed a belief that the American problem could be postponed until after the autumn elections. But the Anglo-French rapprochement did not go anything like as far as the formation of a common front of debtors. Cabinet ministers talked of using the British claim to put pressure on France over reparations. It was recognised that Millerand might have difficulty in persuading his parliament to accept the idea offixinga sum for reparations now; but Lloyd George showed no inclination to help him, telling Lord Derby that it was in France's interest to see the German liability fixed, so that she could borrow on the security and Germany's credit would be engaged.106 In the discussions that took place, as a result of the Lympne meeting, between British and French officials both sides envisaged that France, starting infiveyears' time, would repay the principal of her debt to Britain in thirty equal instalments without interest. As Avenol pointed out, the adoption of the United States proposals for consolidating the debts would mean an average payment by France to Britain of about £35 million a year; this proposal would mean £15 million a year. The result would be a reduction of about half in the present value of the debt, or a priority for France of £20 million a year in her share of reparations.107 Avenol and Seydoux, the Assistant Director for Commercial Affairs in the French Ministry of Foreign Affairs, strongly recommended to Millerand that reparations be fixed definitely, to free France from the necessity of constantly having to put pressure on Germany.108 Proposals for a new 105

106

107

108

DBFP, Ser. I, Vol. 8, Nos. 21-3; Calmette, Recueil de documents, p. 238. See Trachtenberg, Reparation in World Politics, pp. 136-8; Artaud, Question des dettes, pp. 237-9. Sassoon to Lloyd George, 2 Jun. 1920, Lloyd George Papers, F/45/1/1; Derby to Lloyd George, 4 Jun., F/53/1/38; Lloyd George to Derby, 6 Jun., F/33/1/33. Memorandum by Blackett, 21 May 1920, AN, AJ5 67; Friedrich to Seydoux, 2 Jun., MAE, Relations commerciales 1919-40, Sous-serie B. 81, hereafter cited as MAE, RC, Vol. 15. Note for the President of the Council, 5 Jun. 1920, MAE, Papiers d'Agents (hereafter cited as MAE, PA), Millerand, Vol. 15.

Allied cooperation and the Brussels conference

101

system of reparations were agreed by Lloyd George and Millerand at a second meeting at Lympne on 20 June, to be submitted to the other Allies at Boulogne the next day and to be the basis put to the Germans at Spa. No total debt was stipulated: instead a series of annuities was called for, payable over forty-two years from 1921. In effect this meant scaling down the figure the French had been asking for. Germany was given an incentive for early payment and would be supported in raising a series of loans to liquidate the entire obligation. Britain would not, for five years, demand any share of the proceeds of a German loan or advance payments that went beyond her share of the annuity and her occupation costs: this might give France the chance of a priority for the devastated regions.109 But the proposals did not include a link with inter-Allied debts. Talking with the French ministers, Lloyd George and Chamberlain said that the British government believed the debts should be cancelled but could not take any steps without knowing the American disposition. Lloyd George suggested (not a generous offer in the circumstances) that if the United States would not agree to general cancellation, Britain would say that she would cancel the French and Italian debts to her to the extent that the United States cancelled the British debt. But it was not possible to discuss the matter with the United States before the presidential election, and meanwhile things should be left as they were. Britain could not give up her loan claims now, lest the United States refuse to do anything; but he could give an assurance that she would not press her claim. The French agreed to leave things as they were until the two governments could negotiate together with the United States, hoping to reach an eventual all-round cancellation.110 Thus despite disappointment at the British retreat, the French still hoped for a common front on debts. Immediately after the first Lympne meeting, Celier wrote to Norman Davis to try to remove any possible misunderstanding about it, such as might be caused by press reports that reparation claims were to be assigned to the payment of war debts. It had emerged, he wrote, that with regard to the general improvement of European conditions it was not enough to consider reparations alone. The international charges resulting from the war included the Allies' war debts: both burdens weighed on the future and caused anxiety tofinanciers.Celier thought that the British and French governments wanted a clarification of the financial situation so that the peace settlement should operate without hindering the recovery of trade. For this, it was necessary that Germany should be 109

Trachtenberg, Reparation in World Politics, pp. 141-2; DBFP, Ser. I, Vol. 8, No. 30, appendix. Lloyd George told a meeting of ministers on 14 June that Millerand no longer expected the 120 million francs previously proposed: C 37(20) Appendix I, CAB 23/21. 110 DBFPy Ser. I, Vol. 8, No. 27; Treasury memorandum, Jun. 1920, T 194/5; memorandum, 28 Jun., MAE, RC, Vol. 15. Blackett criticised this decision as fundamentally insincere,

102

Western Europe from Paris to Brussels

treated in such a way as not to discourage her from working; and that similarly Britain and France should give their debtors delays and terms of interest, perhaps even remissions, such as to allow their recovery. The only way to arrange all this was to make a general settlement to which all would contribute. The other Allies would be asked to adopt the same attitude, and whilst Celier understood the American difficulties over participating in such agreements, he wondered whether there might not be some way in which they could do so.111 Davis did not reply until after the Spa conference in July. He then repeated the American view that the Allies' obligations were entirely independent of the reparation problem. The United States certainly realised that ability to pay the debts in full depended in some cases on economic recovery, and that one element in recovery would be the receipt of reparations; but American opinion would not approve of a closer link. Even if the Secretary of the Treasury were inclined to tie the two problems together (which Davis thought was not the case) he could not do so without Congressional approval; that was out of the question, and any agitation on those lines would make things worse. On reparations, Davis thought that France would benefit more from fixing the German debt at a reduced sum that could be paid, rather than leaving the question undetermined in the hope of collecting the full claim. On debts, the Secretary of the Treasury had expressed willingness to negotiate on funding and to postpone interest. Davis did not believe that the United States would ever be a harassing creditor; but it was believed that the Allies would be able to pay in full and would wish to do so for the sake of their own credit. If they did not recover as expected, and if it became necessary to make some adjustment later, the question could be considered in the light of actual circumstances.112 Davis regarded Chamberlain's letter to Rathbone breaking off the funding negotiations as another British attempt to inject the question of the debts into quite other matters. He wanted to maintain contact with the Allies, not in order to offer anything but to prevent them from formulating plans that the United States must reject. Wilson was prepared to send a message forestalling the one Lloyd George was said to be going to write; but in the end nothing was sent.113 Instead Houston gave the new British ambassador, Geddes, a note repeating the United States Treasury's view that questions to do with the British debt and its funding had nothing to do since the government appeared to be simultaneously expecting impossible payments from Europe and asking the French to agree to a large reduction in the total of reparations: memorandum, 12 Jul., T 160/365/F557/2. 111 Celier to Davis, 25 May 1920, Davis Papers, container 26. 112 Davis to Celier, 23 Jul. 1920, Davis Papers, container 26; MF, F30 781 = B 31706. 113 Davis to Wilson, 26 May 1920, and drafts of 27 and 28 May, NA, RG 39, Country files, box 120.

Allied cooperation and the Brussels conference

103

with other Allied debts nor with reparations. He regretted that Rathbone's negotiations had been broken off and suggested that a British representative should come to Washington to take them up again. Both Geddes and Wiseman reported that the United States Treasury was offended by the breaking off of the negotiations with Rathbone and the non-arrival of the promised letter from Lloyd George.114 Chamberlain replied that discourtesy to Rathbone had been neither intended nor shown. It had always been made clear to him that in the British view any arrangement must not preclude a more general settlement, and Chamberlain understood that the Americans made the acceptance of their proposals conditional on Britain making not less favourable arrangements with the other Allies who were debtors to both. Progress had been made in the negotiations, but important questions remained unsettled; and at Lympne it had become clear that the American terms could not be considered without reference to France. Since the Prime Minister had discussed the question with the President earlier, the Cabinet had decided that the discussion should be returned to that level.115 The pressure of the Allied meetings and then the Spa conference delayed Lloyd George until early August in writing his letter to Wilson. He then explained that Britain and France had been discussing the question of fixing Germany's reparation liability. The British view was that it should be done without delay and at a figure within Germany's capacity, because the reconstruction of central Europe could not begin until it was fixed, nor could the Allies raise money on its security. Millerand reluctantly agreed but pointed out that France could not settle for less than her full entitlement for damage unless her debts were also scaled down. The British government had come to the conclusion that it could not remit France's debt except as part of a general settlement, chiefly because it could not bear the sole expense, and such an arrangement would embitter Anglo-American relations. Lloyd George realised that in the midst of the election campaign it was impossible for the United States government to deal with the problem, but, he said, he would welcome any advice on how to get the whole question considered as soon as possible. Britain would be glad to fund her debt to the United States if a way could be found that would not prejudice the larger problem.116 114

Geddes to FO, 18 Jun. 1920, A 4043, 4044/182/45, FO 371/4563; memorandum by Wiseman, Jun. 1920, T 160/365/F557/2. 115 Chamberlain to Wiseman, 25 Jun. 1920, T 160/365/F557/2; Wiseman to Davison, 29 Jun., NA, RG 39, Country files, box 120; Lamont to Davison, 29 Jun., Lamont Papers, II, 91-4. The British and US governments reached agreement in August on the questions of dollar reimbursement and silver advances to India. 116 Lloyd George to Wilson, 5 Aug. 1920, Lloyd George Papers, F/60/1/28; T 160/365/ F557/2; CP 2037, CAB 24/114; Davis Papers, container 67; printed in US Senate, Hearings before the Committee on Finance on S.2135y pp. 52-3; Moulton and Pasvolsky, War Debts and World Prosperity\ pp. 65-7; Calmette, Recueil de documents, pp. 313-15.

104

Western Europe from Paris to Brussels

Wilson was not able to offer the advice Lloyd George wanted. On the contrary his reply, sent on 3 November, said that it was highly unlikely that Congress would ever cancel or reduce Allied debts, and no part of the British debt would be remitted. Fixing Germany's reparations was certainly necessary for the economic life of Europe and the peace of the world, but Americans saw no reason why the United States should make any sacrifices to induce the Allies to do something that would strengthen their own financial position. There was no question of connecting reparations and debts. Any arrangement Britain might make with her debtors should be made in the knowledge that she would have to pay the United States in full. The delay in funding was proving embarrassing, and a British mission should be sent to Washington without delay. On a more positive note, Wilson wrote that the United States government recognised the importance of securing the restoration of financial and industrial stability throughout Europe, and he held out the hope of unselfish American cooperation for the benefit of the world once the elections were over and the prejudices and cross currents that beclouded the real issue had been dissipated.117 But it was far from clear what such cooperation, if it materialised, would mean; and in the existing climate in Washington, even the invitation to the international financial conference was causing great difficulty. Preparations for the conference had gone ahead only slowly. In the first place the relationship between the League of Nations, the conference, and the Allied organs was not clear. As noted above, the Allied leaders, meeting in London in February-March, themselves discussed high prices and the exchanges, but referred to the financial conference a proposal for an international loan secured on the German indemnity.118 The Supreme Council's announcement that it was going to work to get the German liabilityfixedmade the committee organising the League conference decide to postpone it until after the meeting between the Allies and the German government, in the hope that the reparation question would be settled and so all other financial questions rendered easier of solution. But the Spa conference was itself postponed and then produced no settlement. The financial conference was then fixed for the end of September. The agenda produced for the conference by its preparatory committee included discussion on public finance, currency and exchanges, and trade 117

Wilson to Lloyd George, 3 Nov. 1920, Lloyd George Papers, F/60/1/31; T 160/365/ F557/2; Davis Papers, container 67 (with drafts); printed in United States, Congressional Record, Senate, 18 Jul. 1921, p. 3951; Calmette, Recueil de documents, pp. 315-17; Moulton and Pasvolsky, War Debts and World Prosperity, pp. 67-70. 118 Memoranda by de la Baumelle, 10 and 16 Feb. 1920, MAE, SDN 1917-40, Vol. 1158; memorandum by Celier, Feb., MF, F30 1359 = B 32265; DBFP, Ser. I, Vol. 7, No. 5.

Allied cooperation and the Brussels conference

105

(all based on information furnished by countries in advance), and discussion of possible international action such as devices for facilitating international trade, governmental backing for commercial credits, and loans.119 The French Minister of Finance found this list too extensive: he suggested to Millerand that economic and trade questions should not be discussed at all; nor should future loans, whilst wartime claims should not be mentioned in front of the Germans; and procedures should be adopted that would keep the French delegates strictly subordinated to orders from Paris. But by the time that Franc,ois-Marsal issued his instructions to the three officials who were to represent France, he had realised that the abstention of the United States from a full part in the conference made negotiations on international financial problems impossible.120 The United States administration had found it very difficult to decide what to do about the conference. Some officials such as Davis and Rathbone thought it would be a mistake to refuse the invitation when it came, since the United States was interested in what Europe might do; and as the position on debts and further loans had been made quite clear, embarrassing requests need not be feared. Boyden, the American unofficial representative on the Reparation Commission, recommended that an official representative would be better able than a private individual to prevent appeals for American help, and his presence might counteract the growing impression that 'we are leaving Europe coldly in the lurch'. In the end Boyden was sent from Paris, with instructions not to discuss debts or government credits, and to emphasise the virtues of avoiding government control and encouraging production and saving.121 Strictly speaking, all the delegates to the Brussels conference, which opened on 24 September, were unofficial representatives of their governments. Most of them were bankers and economists, some were civil servants, few were diplomats or politicians. It was agreed at the start that governments would not be bound by any of the conference's recommendations; and these, as a result of its composition and the changed spirit since 1919, were in the main anti-governmental, anti-nationalist, and economically orthodox. The conference report, after surveying the world situation, pointed out the limits of financial remedies: 119

League of Nations, International Financial Conference, Brussels 1920, Report of the Advisory Committee. 120 Franc.ois-Marsal to Millerand, 3 and 9 Sep. 1920; Bourgeois to Franc.ois-Marsal, 17 Sep.; Fran§ois-Marsal to Fleuriau, Avenol and Cheysson, 21 Sep., MAE, RC, Vol. 22. Some of the initial French doubts about the conference derived from consciousness that the government's own financial policy and management were open to international criticism: memorandum by Avenol, 5 Feb., AN, F12 8104. 121 Correspondence in NA, RG 59, 55 A l , 501 A l ; LC, Leffingwell Papers, container 15, reel 36; FRUS, 1920, Vol. 1, pp. 95-6.

106

Western Europe from Paris to Brussels

The wealth of the world consists of the products of man's work, and the sum total of human prosperity can be increased only by an increase of production. All that any official or organised action can do is to create conditions which are favourable to production, and of these the most important fall outside the sphere of finance. First and foremost the world needs peace. The Conference affirms most emphatically that the first condition for the world's recovery is the restoration of real peace, the conclusion of wars which are still being waged and the assured maintenance of peace for the future. The continuance of the atmosphere of war and of preparations for war is fatal to the development of that mutual trust which is essential to the resumption of normal trading relations. The world must resolve the rivalries and animosities which have been the inevitable legacy of the struggle by which Europe has been torn. This the Conference ventures to hope is no vain aspiration. The fact that for the first time since 1914 representatives of belligerents and neutrals alike have met in conference is a good omen for the future. The world needs the inauguration of a new era of cooperation and good will between nations if it is to repair the destruction of those years of struggle, if indeed it is ever to secure the survival of its civilisation. If the first condition of recovery is peace between the countries of the world, the next is peace within each of them and the establishment of conditions which will allay the social unrest that is at present impeding and reducing production, and which will restore social content and with it the will and the desire to work. Among the conditions, however, which are essential if a maximum production is to be attained is the existence of a system which facilitates the exchange of commodities and their equitable distribution, and within this third sphere lies the task offinanceand the special problems which the Conference has had to consider. The conference recommendations, adopted unanimously, stressed above all the necessity of re-establishing sound public finances, balancing government expenditure and revenue, halting the growth of inflation and eventually returning to the gold standard, restoring freedom of trade and removing artificial restrictions on it. Some countries, it was said, needed external credits for periods longer than the normal commercial terms. Assistance could only be effectively accorded to countries which are prepared to cooperate with one another in the restoration of economic life and to make every effort to bring about within their own frontiers the sincere collaboration of all groups of citizens and to secure conditions which give to work and thrift liberty to produce their full results. The conference did not believe in inter-governmental credits; but having heard the Belgian prime minister Delacroix propose an international institute of control and issue, able to issue gold bonds to states and act as a vast clearing house of exchange, it adopted a proposal for a less grand international mechanism for encouraging private credit with guarantees by

Allied cooperation and the Brussels conference

107

borrowing countries, to be set up by the League of Nations. 122 This scheme became known by the name of its originator, the Dutch banker C.E. Ter Meulen. Its features and subsequent history will be discussed in Chapter 4. The unanimity with which the Brussels conference resolutions were passed was achieved by couching them in general terms, and the sentiments were such as all governments could acknowledge without feeling obliged to do much. Thus whilst both the United States and Britain had already adopted severely deflationary monetary policies, most other governments continued to finance reconstruction by a greater or less degree of inflation. The orthodoxy of the financiers disappointed one British observer.123 French officials, who had feared combinations and intrigues, were reassured on that score. One noted that an Italian attack on British coal price policy led to almost the only interesting economic discussion. Another wrote that France could make better use of her prestige if she were less ready to fear traps and surprises, a sort of distrust which bred distrust in others. Britain was not popular and could have been isolated on commercial questions.124 The British banker Edward Grenfell cabled to his partner Dwight Morrow that the conference had been useful in acquainting the delegates with each other's views. The only and serious blot had been the absence of an American voice, and Grenfell asked for advice on the American viewpoint. Morrow replied that there was no American viewpoint, and the problem could not be considered before the elections.125 122

League of Nations, International Financial Conference, Brussels 1920, Proceedings of the Conference•, Geneva 1920. Vol. 1 contains the report and recommendations, also published separately. Delacroix's proposal is in Vol. 2, pp. 108—12. 123 'Ted' to Wise, 20 Oct. 1920, Lloyd George Papers, F/175/13. 124 Fleuriau to Millerand, 26 Sep. 1920, MAE, PA Avenol, Vol. 15; Siegfried to MAE, 7 Oct.; Fleuriau to MAE, 11 Oct., RC, Vol. 22. British coal supply and prices had been a cause of complaint among foreign customers for some months (see above, n. 102). Whereas later Britain lost export markets for coal, in the 1920 boom export policy favoured diminished exports at high prices. Production in 1920 was only 20 per cent less than in 1913, but exports were reduced by 70 per cent. Export prices ranged between £5 and £12 per ton; by the end of 1921 they had fallen to an average of 25s. 2d. The French and Italian governments claimed priority and preferential prices for their countries' industries. At Brussels the British delegation accepted a resolution calling for an end to price differentials. See DBFP, Ser. I, Vol. 8, No. 2; correspondence in CAB 21/182; CP 954, 1222, 1407, 1520, GAB 24/101, 105, 107, 108; C 25(20), CAB 23/21. The Italian attack in International Financial Conference, Proceedings, Vol. 2, p. 96-7. For coal exports see Barry Supple, The History of the British Coal Industry, Vol. 4, Oxford 1987, pp. 6-14, 119-20, 148-9, 152-5, 172-9; also Manchester Guardian Commercial, 'Reconstruction in Europe', Section 13, 'Raw Materials', Manchester 1923, p. 795. 125 Grenfell to Morrow, 15 Oct. 1920; Morrow to Grenfell, 19 Oct., MG Papers, Box Hist. 4, file 24. Boy den, in his statement to the conference, confined himself to pointing out the United States government's position on credits, and saying that while the government was actuated by a most friendly spirit, few American businessmen in present circumstances would think Europe a good risk: they would need to see an advance towards peace and union before their attitude would change: International Financial Conference, Proceedings, Vol. 3, pp. 203—5.

Chapter 4

East central Europe: relief and reconstruction, 1919-22

British, and American, experts at the peace conference were aware that the problems of reconstructing the new states and lesser defeated countries of east central Europe were different from those of the west. They also regarded them as smaller. This judgment may have been based on an assumption that the restoration of a more complex economy would require greater resources than that of a less advanced one; or on the relative importance of western and eastern Europe to the economies of Britain and the United States. It may have been based on ignorance, since few experts were any better acquainted with the region than were the politicians. At any rate the judgment was ill-founded. The problems of east central Europe proved to be a particularly intractable mixture of the economic and the political, and some were barely on the way to solution by the end of 1922. Experts thought that private enterprise could suffice to restore the smaller countries but the west would need governmental help. But in the event it was in central Europe that various experiments in international action were tried; and these form much of the subject-matter of this chapter. Russia was another problem again, largely beyond the reach of western action but featuring in policy discussions and negotiations in 1921 and 1922 that are dealt with in Chapters 5 and 6. For over a year after the end of hostilities the principal problem of east central Europe was relief. Only when the most urgent need for food and fuel was met could thought of real reconstruction begin. Since the one merged into the other, the story must begin with relief. Relief, reconstruction, and business, 1919-20 Shipments of food began as soon as the armistices were signed, without waiting for the setting up of Allied relief organs. The Supreme Council of Supply and Relief met in Paris for the first time on 11 January 1919. Under 108

Relief, reconstruction, and business

109

its aegis and that of the Supreme Economic Council relief missions were established in the countries of eastern and central Europe, to distribute relief and organise transport.1 The Supreme Economic Council had no executive powers: the relief missions operated largely independently, under Hoover, the Director-General of Relief. The bulk of the food came from the United States, where there were large surpluses of which Hoover was anxious to dispose without a collapse of prices.2 Between the armistice and the end of May 1919 over 2.5 million tons of relief supplies were delivered to Europe, nearly 80 per cent of it from the United States.3 The chief difficulties were finance and shipping. In a report to the Supreme Economic Council on 20 March 1919 Hoover estimated that in the next four months the amount that could be shipped would fall far short of what the various governments said was needed. As forfinance,taking account of what countries could pay for by exports and liquid assets, some $371 million of credits would be needed.4 Hoover was doing his best to stimulate self-help in the countries concerned, but much outside assistance was obviously necessary. On 23 February the United States Congress voted $100 million for relief to Allied and liberated countries: soon afterwards Parliament voted £12 million for relief. Germany was a special case, not covered by either of these funds. The Allies took responsibility for feeding Germany until the harvest of 1919, in return for German shipping being made available for general use.5 The American relief fund also did not cover Austria. At the beginning of March the Supreme Economic Council agreed that credits should be granted by the other Allies to ex-enemy countries apart from Germany, and the Council of Ten agreed that up to half of the proposed total should be advanced by Britain, France, and Italy to finance food supplies to Austria until the next harvest. The sum had to be increased in April: the three countries each borrowed $16 million from the United States to pay for American foodstuffs for Austria.6 Altogetherfifteencountries received relief loans totalling $1,423 million, granted by eight Allied and neutral governments. Belgium and France were the two largest borrowers. All the other receiving countries were in central and eastern Europe: of them, Poland and Austria received the most. The United States provided much the greatest share of the credits, followed quite a long way behind by Britain and France. In addition private charities provided $80.4 million 1 2

3 4 5 6

Temperley, History of the Peace Conference, Vol. 1, pp. 295-305, 308-11. Arno J. Mayer, Politics and Diplomacy of Peacemaking, New York 1967, pp. 272-3; League of Nations, Relief Deliveries and Relief Loans 1919-1923, Geneva 1943, pp. 35-8. See report in FRUS, PPC, Vol. 10, pp. 455-8. FRUS, PPC, pp. 91-5. Temperley, History of the Peace Conference, Vol. 1, pp. 311-25. FRUS, PPC, Vol. 10, pp. 32-4; Vol. 4, pp. 193-212.

110

East central Europe: relief and reconstruction

worth of gifts, and the United States government donated $90.2 million worth.7 Relief loans were not the only nor even the main source of finance for continental Europe in 1919-20, but inter-governmental loans of various kinds were the most important source of long-term finance, with shortterm borrowing to cover a large adverse balance of trade. During the peace conference representatives in Paris of the new states explored the possibilities of private credit and investment. The Czechoslovak Prime Minister, Kramaf, talked to Brand about his country's economic prospects and needs. The government wanted to issue a state loan to help establish the currency, and hoped for western investment in Czech industry to help it oust German capital all over eastern Europe. The purchase of food and raw materials would be financed by arrangements between Czech and foreign banks.8 Brand replied that a British bank might be able to help with a credit for supplies and raw materials, but it would be very difficult to launch a state loan in London at present, or to get British investment in Czechoslovak enterprises. But Brand was impressed with the necessity of starting commercial and financial relations with the new states, and thought the opportunity of cultivating relations with Czechoslovakia ought not to be missed.9 Other London bankers were less impressed. When Brand, not long afterwards, sent to the chairman of Lloyds Bank a letter he had received from the Polish Prime Minister, Paderewski, asking for a loan to help set up Polish diplomatic representation abroad, Vassar Smith replied that he saw no prospect of a loan to Poland for anything. There was, he said, a general consensus in London that it was for the government to do what was possible for the new states in connection with their buying goods in Britain and thus building up business links and helping British employment.10 After this and other consultations Brand told Cecil that in the City's view the problem of help to Europe was far beyond the capacity of British banks to solve. The domestic demand for capital was large and growing, and the joint stock banks did not feel able to lock up depositors' money in foreign countries. A government guarantee or insurance of private trade might work with the smaller countries, but the western European problem was too big to be dealt with in this way and would need something more direct.11 The course of actual trade, however, does not seem to have borne 7

8 9 10 11

The figures are computed slightly differently in different publications. League of Nations, Relief Deliveries and Relief Loans, pp. 27,29, gives total postwar relief loans granted by the United States as $778.3 million, Britain $91.4 million, France $20.5 million. Kramar to Brand, 27 Apr. 1919, Brand Papers, file 12. Brand to Kindersley, 2 May 1919, Brand Papers, file 12. Brand to Vassar Smith, 14 May 1919; Vassar Smith to Brand, 19 May, Brand Papers, file 12. Brand to Cecil, 26 May 1919, Brand Papers, file 12.

Relief, reconstruction, and business

HI

out the City's view. In each of the years 1919 and 1920 continental Europe imported, in value, less than two thirds the amount of raw materials and semi-finished products imported in 1913; but almost all of what was imported went to the western Allies and neutral countries. In total volume, Germany and the east central European countries imported in both 1919 and 1920 about one third of their imports of 1913, whilst the western Allies averaged slightly more than in 1913 and the neutrals about 80 per cent. Although the industrialised countries normally imported more overseas raw materials and semi-finished goods than the agrarian ones, these figures cannot simply reflect differences of need but must be explained by differing ability to pay or to obtain credit. So far as the United Kingdom was concerned, it of course exported comparatively little food to Europe, but exports of raw materials (including coal), semi-finished products and finished goods were, in volume, greater in 1919 than in 1913 - in 1920 slightly less.12 As before the war, British exports to Europe in 1919 and 1920 went predominantly to western countries, that is (in descending order of importance) France, Belgium, the Netherlands, Denmark, Norway, and Italy.13 12

Raw material imports, in thousand million dollars

1919 1920

W. Allies

Neutrals

Others

Total

2.5 2.0

1.0 1.0

0.1 0.6

3.6 3J,

League of Nations, The Transition from War to Peace Economy', pp. 68—9. 'Others' were Germany, and all the countries of east central Europe, but not Russia. Overseas imports into continental Europe, volume, 1927 = 100 (I = foodstuffs including animals; II = raw materials and semi-finished goods; III = finished goods) Total 1913 1919 1920

Total 115 95 75

Of which from UK

I

I

III

109 120 83

117 62 61

122 127 107

Total 118 131 105

I 65 165 72

II

III

121 101 95

127 160 125

League of Nations, Europe's Overseas Needs 1919-20 and how they were met, Table 5. Statistics for 1919-20 do not exist for all countries; some estimates are rough; exchange fluctuations are a possible cause of error. Overseas imports by groups of countries, volume, 1927 = 100

1913 1919 1920

Total

W. Allies

Neutrals

Others

115 95 75

107 145 97

138 112 95

111 35 40

Ibid. Table 9. 13

Economist, 20 Feb. 1923, pp. 420-1. In 1913 Britain's chief European customer was Germany: she returned to the first six in 1921. In 1913 Russia was fourth in the table.

112

East central Europe: relief and reconstruction

The Export Credit scheme was extended in 1921 to cover the Empire and most countries except Russia; but it had little effect on the pattern or volume of British trade. Long-term lending by private institutions was discouraged. At the beginning of November 1919, in reply to another enquiry about the possibility of issuing a Czechoslovak loan in London, the Treasury said that it would not object, but regarded long-term credits as having an adverse effect on prices and the value of sterling. When the Board of Trade objected that loans might help British trade, the Treasury replied that long-term credits on any large scale involved financial dangers so long as Britain had to pay cash for imports from countries with which the exchange was unfavourable. Serious discussion of a Czechoslovak loan did not become possible until nearly two years later. By that time the Bank of England, as part of the preparations for a return to the gold standard, was imposing a not wholly effective embargo on foreign lending, asking bankers not to issue loans with a term of less than twenty years.14 Although after the harvest of 1919 the need for food relief in Europe generally declined, the situation in Austria remained precarious: there were times in the autumn and early winter when Vienna had meagre rations for only a few days ahead.15 The causes of this state of affairs were the cutting off of Vienna in particular from its former sources of grain and coal in what were now Yugoslavia and Czechoslovakia, coupled with the generally low level of agricultural production in east central Europe, shortages of railway rolling stock, administrative hindrances, and monetary disorder. Beyond immediate relief, reconstruction depended on adequate food and fuel supplies, and financial and commercial stability in the whole of central Europe and the former Monarchy. Political relations between Austria and the successor states were of great importance to trade. Although in the summer of 1919 Allied officials on the spot advised that harsh financial and economic terms for Austria would be unwise and even dangerous, the Treaty of Saint-Germain, signed on 10 September, included reparation clauses modelled on those of the Treaty of Versailles. Few people seriously expected Austria to be able to pay reparations for some 14

Treasury to FO, 7 Nov. 1919; Board of Trade to Treasury, 21 Nov.; Treasury to Board of Trade, 29 Nov., 150042, 165936/2138/3, FO 361/3527; T 142/8. For the expansion of the Export Credit scheme see Pigou, Aspects of British Economic History, pp. 139-40. For the embargo on foreign lending see Kathleen Burk, 'Diplomacy and the private banker: the case of the House of Morgan', in Konstellationen internationaler Politik 1924-1932, ed. Gustav Schmidt, Bochum 1983, pp. 25-40. 15 See, for example, DBFP, Ser. I, Vol. 6, Nos. 219 (17 Oct. 1919), 296 (22 Nov.), 326 (29 Nov.), 343 (3 Dec); Vol. 2, No. 40 (16 Dec); Eduard Marz, Austrian Banking and Financial Policy. Creditanstalt at a Turning Point 1913-1923, London 1984, pp. 290-7; F.L. Carsten, The First Austrian Republic 1918-1938: A Study Based on British and Austrian Documents, Aldershot 1986, pp. 7-40.

Relief, reconstruction, and business

113

16

years at least; but the Allied claim on Austria's revenues and assets was an obstacle to the Austrian government selling assets to obtain supplies or pledging them as security for loans. At the back of at least some Allied minds was the further consideration that since the Allies had forbidden a union between Austria and Germany, they must, to sustain the ban, help to keep Austria going. For example Sir Francis Oppenheimer, sent on a visit to Vienna in June 1919 on behalf of the Finance Section of the Supreme Economic Council and of the British government, reported that Austria needed propping up if the dangers that would result from her fusion with Germany were to be avoided and if she were ever to be able to pay.17 British officials in Vienna, Paris, and the Foreign Office continued, through the summer of 1919, to advocate credits or the injection of private capital into Austrian industry. But the Treasury would not move without the Allies and poured cold water on the prospects of attracting much private investment. Foreign Office attempts to interest British bankers and industrialists met indeed with little success.18 Nor was anything substantial achieved on the international level. Early in November the forerunner of the Austrian Section of the Reparation Commission, now established in Vienna, reported that an immediate loan to Austria was needed to buy food and coal, and that the country'sfinancesrequired reform and supervision. But American cooperation seemed both essential and unobtainable. The United States government did not have authority from Congress to lend to ex-enemy countries and was unwilling to repeat the expedient of lending to the Allies to lend to Austria. The Cabinet was not willing to increase Britain's obligations to the United States on Austria's behalf, nor to incur further dollar expenditure; but Chamberlain agreed to give some credit for use in the United Kingdom and to spend some relief funds on sending coal to Vienna.19 On 16 December the Supreme Council in Paris heard the Austrian Chancellor Karl Renner appeal for help for his country and sent him home pleased by their sympathetic reception.20 But actual measures were still delayed. The Allied governments waived their claims on the securities pledged for the $48 million credit of 1919, so that the Austrians could 16

17

18

19 20

See, for example, the report of the British H i g h Commissioner, Lindley, of 5 D e c . 1919, DBFP, Ser. I, Vol. 6, N o . 356. DBFP, Ser. I, Vol. 6, N o . 25. For the question of union between Austria and Germany see Alfred D . L o w , The Anschluss Movement 1918-1919 and the Paris Peace Conference, Philadelphia 1974; A n n e Orde, 'Grossbritannien u n d die Selbstandigkeit Osterreichs 1918-1938', in Vierteljahrshefte fur Zeitgeschichte, 28 (1980), pp. 2 2 4 - 8 . Treasury t o F O , 23 Jul. 1919; F O t o Treasury, 1 A u g . ; minutes, 19 Sep.-4 Oct., 106929, 118713,136595/5445/3, F O 371/3530; DBFP, Ser. I, Vol. 6, N o s . 5 0 , 1 1 2 , 2 1 0 , 2 2 9 , 2 3 8 , 2 7 8 n. 6. DBFP, Ser. I, Vol. 1, N o . 70; Vol. 2 , N o . 27; Vol. ^passim. DBFP, Ser. I, Vol. 2, No. 40; Vol. 6, No. 392.

114

East central Europe: relief and reconstruction

mortage them again; and the Reparation Commission decided to send an adviser to Vienna to work out a plan for the reconstruction of Austria's finances.21 Meanwhile the British were trying to encourage the production of a general scheme, suggesting that British participation in credits for Austria and Poland should be coupled with a condition that receiving countries should cooperate with one another in removing economic barriers, and that the other Allies, the principal European neutrals, and Argentina as a major food exporter must also take part.22 Parliamentary opinion was becoming increasingly concerned about the situation in central Europe, especially after the publication of reports by Sir William Goode, British Director of Relief, on the operation of the British relief missions. Charitable organisations such as the Friends' Emergency and War Victims' Relief Committee and the recently-founded Save the Children Fund, were publicising the continuing distress, especially among children. Goode, who was about to become British representative on and chairman of the Austrian Section of the Reparation Commission, stressed that without raw materials to restart industry, food relief merely aggravated the problem and that the Allies must provide some comprehensive scheme to reduce the political risks which deterred private lenders from making long-term arrangements with governments 'whose political existence and even whose assets and liabilities are, from day to day, of doubtful duration'.23 In view of this anxiety, and to encourage the United States, Chamberlain announced on 12 February that, without waiting for a comprehensive plan, the government was prepared to contribute up to £10 million, applicable to the purchase of British food and raw materials and to freight for relief goods carried in British ships whether or not they were bought with British credits.24 Next, in pursuit of a comprehensive scheme, the British government took the initiative in April 1920 of calling a conference in Paris of potential lenders. The British idea was to set up an executive body which would arrange the distribution between receiving countries of the goods and services offered on credit.25 The Americans, 21 22

23

24

25

DBFP, Ser. I, Vol. 12, N o s . 97, 103, 104, 108. DBFP, Ser. I, Vol. 12, N o s . 72, 76, 77, 84, 8 5 , 8 8 ; B r a d b u r y t o T r e a s u r y , 29 J a n . 1920, 174647/5445/3, F O 3 7 1 / 3 5 3 4 ; HCDeb., Vol. 125, cols. 2 0 6 - 8 . Cmd 521 of 1920, Economic Conditions in Central Europe (I)} despatch from Sir W. Goode; Cmd 641 of 1920, Economic Conditions in Central Europe (II). See the debates in the H o u s e of C o m m o n s o n 18 D e c e m b e r 1919 and 12 F e b r u a r y 1920: HCDeb., Vol. 123, cols. 719-79; Vol. 125, cols. 265-374. HCDeb.y Vol. 125, cols. 2 0 6 - 8 . T h e U S Treasury h a d asked Congress for authority t o spend $150 million o n commodities for E u r o p e and neighbouring countries, b u t it was n o t until April that it received authority t o spend $53 million. N o t e from Spanish Embassy, 20 Mar. 1920; records of meetings, M a r . - A p r . ; B r a d b u r y t o Chamberlain, 14 A p r . ; F O m i n u t e , 16 Apr., 187136, 191339, 192013, 192414/5445/3, F O 371/3537; DBFP, Ser. I, Vol. 12, N o . 140.

Relief, reconstruction, and business

115

however, were opposed to any form of international control. They could not, their delegates said, legally put American credits under such control, and whilst they had no desire to tell other countries what their policy ought to be, they believed that the creation of international agencies was a retrograde step in European economic rehabilitation. 'We are profoundly of the opinion that the sooner governmental aid and control of all kinds on international trade is abolished and replaced by prewar competitive commercial practice, the better it will be for Europe.'26 As a result the International Committee on Relief Credits set up in Paris did not have executive powers. Its task was to coordinate the programmes of individual countries, which remained free to decide where to give their credits; but it was agreed to accept a common form of bond from all receiving countries. In the case of Austria and Hungary these bonds would take priority over reparations and would come under the supervision of the Austrian Section of the Reparation Commission.27 To begin with, the Committee's work was largely concerned with disposing of surplus government stocks of food, but before long the General Secretary, J. H. Gorvin, raised the question of raw materials and machinery, the form of help that receiving countries most wanted and needed to develop their resources and enable them eventually to pay their relief debts. How, Gorvin asked, could the International Committee help? Governments could hardly buy raw materials in the market, but they might support private traders, for example by appropriations similar to the British Export Credit scheme.28 That scheme, however, had been set up to help British employment and so applied only to the export of manufactured goods. It had not achieved much so far, and officials were not in favour of adapting it to the supply of raw materials.29 In any case, the life of the International Committee on Relief Credits was to be short. At a meeting on 22 September 1920, Bradbury, the chairman, pointed out that most of the definite credits which the Committee had been set up to administer had now been used, and the lending governments had not suggested that they would provide more. Logan, the American unofficial representative, said that he had no instruction on future credits, and Bradbury agreed that the 26 27

28 29

Memorandum by US delegation, 20 Apr. 1920, AN, AJ5 191. McFadyean, Reparation Commission, to Treasury, 27 Apr. 1920,195132/5445/3, FO 371/ 3537; Klobukowski to Millerand, 28 and 30 May, AN, AJ5 191; DBFP, Ser. I, Vol. 12, No. 190. Gorvin to Waterlow, 5 Aug. 1920, C 3321/65/62, FO 371/4711. Tyrrell to Gorvin, 12 Aug. 1920, C 3321/65/62, FO 371/4711; minute by Fountain, 1 Sep., T 160/42/F1380. The Trade Facilities Act of 1921 authorised the Treasury, on the recommendation of an advisory committee, to guarantee loans for carrying out, by United Kingdom firms, of capital undertakings in foreign countries and for the purchase of materials produced in the United Kingdom for such undertakings: HCDeb., Vol. 147, col. 405.

116

East central Europe: relief and reconstruction

British government was unwilling to commit itself. Gorvin, who had suggested consulting governments about raw material credits, was despatched to the financial conference at Brussels instead.30 Even if it was generally agreed that ordinary commercial relations were to be re-established as soon as possible, and private enterprise attracted to help rehabilitate the east central European countries' economies, the distinction between normal governmental support and promises of special privileges was not always clear. British firms looking for new opportunities in east central Europe did not receive much encouragement from the Treasury. In late 1919 a syndicate headed by Lord Inverforth, the shipowner at that time liquidating the affairs of the Ministry of Munitions, was set up to acquire control of shipping companies on the Danube. In February 1920 the group asked for assurances of government support in case they found themselves in difficulties with the Reparation Commission over certain provisions of the Treaty of Saint-Germain. They wanted assurances that the Reparation Commission would recognise the right of the Austrian and Hungarian governments to exempt the shipping companies from extraordinary taxation, allow the Austrian government to sell its share in a particular German company, and free the companies' capital from any reparation or restitution claim. The Treasury forwarded the requests to the British delegation to the Reparation Commission, remarking that it would be for the Commission to decide how far the syndicate's scheme would be in the interests of the Allies as a whole and that there could be no question of special privileges for a British syndicate except in accordance with those interests. McFadyean, an official of the British delegation, replied that there was widespread suspicion that foreign financiers were buying up Austrian assets at bargain prices as a result of the inflation and falling exchange, a process which in their deplorable financial situation the Austrians were not able to resist. McFadyean thought the suspicion was not well founded, and perhaps the best evidence that the undertakings were at present worth very little was that the Inverforth group required 'preposterous' guarantees for their investment. However, the Americans were especially suspicious and concerned to prevent the alienation of Austrian assets until the credit action was assured; and in view of the strong desire to involve American interest in Austria's future, it would be dangerous for the British government to encourage such schemes as Inverforth's. No harm would be done if the Austrian government sold 30

International Committee for Relief Credits, 22 Sep. 1920, AN, AJ5 193. A sub-committee was asked to report on the possible allocation of relief credits for raw materials and did so on 1 Feb. 1921. By that time the International Committee was practically wound up, and the report was sent to the Reparation Commission: League of Nations archives, Geneva, series 1919-27, hereafter cited as LN Arch., R 306.

Relief] reconstruction, and business

117

its share in the Siiddeutsche Dampfschiffsgesellschaft, but the proposal ought not to come from the British delegation. The other requests would not stand a minute's examination. They amounted to a demand that the Reparation Commission should neglect its duty to see that Austria was adequately taxed, for privileges of this kind could not be confined to one group or one nationality. If they were granted, it would soon be seen that the easiest way out of her difficulties would be for Austria to hand over all undertakings to foreigners, so that there would be no one left to bear the taxation that Austria herself would need. Reparations were not at present in question: the most that could be hoped for for many years was interest and some capital repayment of the money spent on securing Austria's existence. From this point of view the group was in a position to produce dividends for foreign investors at the expense of the taxpayers of the countries providing credits. Lord Inverforth was duly told that the government could give no assurance of the kind the group asked. He, however, protested that the scheme had been commended by the Prime Minister and Bonar Law and the privileges were not essential to it; and the group went ahead and acquired a large stake in the four Danube shipping companies.31 Although the French government later became the chief upholder, on principle, of the rights of reparation creditors, it seemed at this time rather less concerned about safeguarding the assets of ex-enemy countries. In addition to the government's initiatives over economic influence and advantages in Poland, which are discussed below, an industrial group led by Schneider et Cie acquired substantial interests in Czechoslovakia in 1919-20- a controlling interest in the Skoda Works in September 1919 and a large share in the Mining and Metallurgical Company of the OstravaKarvina region in the early summer of 1920.32 The group was also interested in openings in Hungary, including the state railways; and in its support the Ministry of Foreign Affairs went some distance in promising political patronage to the Hungarian government. In the hope or expectation of gaining some quite considerable adjustments in the territorial provisions of the peace treaty and favour as the centre of a new combination in central Europe, the Hungarians granted the Schneider group options for the lease of the state railways and locomotive works, construction of a port at Budapest, and control of the General Credit Bank. The French in return promised to facilitate conversations between Hungary and her neighbours, to lend their good offices in any friendly agreement to 31

32

Correspondence, Jan.-Mar. 1920, file 168474/3, FO 371/3550; Marz, Austrian Banking, p. 353, n. 24. Alice M. Teichova, An Economic Background to Munich. International Business and Czechoslovakia 1918-1938, Cambridge 1974, pp. 92-101, 193-6.

118

East central Europe: relief and reconstruction

correct minor injustices, and to facilitate discussions about restoring communications. These were much less specific promises than the Hungarian negotiators expected. The British government was very careful not to get involved in any of the negotiations, but pointed out to the Hungarians that cession of the state railways would contravene the reparation provisions of the peace treaty, and that France had no power to promise revision. In the end the whole affair petered out. The Hungarian government had to ratify the Treaty of Trianon as it stood; Paleologue, the Secretary-General who had been much involved, left the Quai d'Orsay in September 1920; the Ministry of Finance refused to find money to help Schneider take up the options. These then expired; and Hungary did not become either the political or the economic centre of a French combination in east central Europe.33 Credits for central and eastern Europe, 1921 The Ter Meulen scheme for international credits, adopted by the Brussels conference and recommended to the League of Nations, envisaged the constitution of an international commission to which would-be borrowing countries would notify assets which could be assigned as security for commercial credits to be granted by nationals (not governments) of exporting countries. The assets could if necessary be administered by the international commission. In any case it would state, in gold terms, the amount of credit it would approve on the security of the assets, and the government concerned would prepare bonds to this amount and lend them to their own nationals to use as security for their foreign purchases. Each transaction using the bonds would need the approval of the international commission. At the end of each transaction the supplier to whom the bonds had been pledged would return them to the importer; he would return them to his government; it would cancel them and issue others to the same value. Thus the same assets could serve as security for a series of transactions. If the importer could not fulfil his contract, the supplier could either keep the bonds (which would mean that the assets could not be pledged again) or sell them, giving the issuing government the first option to buy. The machinery would normally only be used for the import of raw materials or primary necessities.34 The Council of the League of Nations accepted the scheme, with slight modifications, in December 1920, and a 33

34

See my article Trance and Hungary in 1920; revisionism and railways', in Journal of Contemporary History, 15 (1980), pp. 475-92, and in War and Society in East Central Europe, Vol. 6, Essays on World War I: Total War and Peacemaking, A Case Study on Trianon, ed. Bela K. Kiraly, Peter Pastor, and Ivan Sanders, New York 1982. League of Nations, International Financial Conference 1920, Report of the Conference, Brussels 1920.

Credits for central and eastern Europe

119

British banker, Sir Drummond Drummond Fraser, was appointed in the first instance for one year to work out the details, publicise the scheme, and make enquiries about its likely use.35 The initial American reaction was sceptical. To an early enquiry from Blackett, who had been appointed to the League of Nations Financial and Economic Committee set up (at first provisionally) on the recommendation of the Brussels conference, Morrow replied that American bankers were doubtful about the scheme because governments were likely to be moved by political considerations in lending their bonds. Four months later Benjamin Strong wrote that the bankers, and Ter Meulen, overlooked the fact that the volume of business to be done is limited, not by the amount of capital which can be raised by stock issues or borrowings so much as by the quality of the business which is available to be done abroad, and people are now learning that the political risks inherent in Central Europe are still so grave as to require insurance before capital can be invested in such enterprises.36 It was the same problem as before: bankers doubted the effectiveness of machinery other than the normal commercial channels; they suspected the political considerations moving governments but thought their own were neutral; guarantees from weak governments were insufficient security compared with that offered by western and northern European businessmen. Capital issues told the same tale; in 1919 all the foreign loans raised in London (where borrowing was still subject to wartime controls) and New York were for western and northern Europe; in 1920 central and eastern Europe accounted for 18 per cent of the issues; in 1921 for 11 per cent; only from 1922 did the balance begin to shift.37 The machinery of the Ter Meulen scheme was undeniably cumbersome, and despite Drummond Fraser's enthusiasm, the international commission was never actually set up. Attempts to apply the principles in the case of Austria failed. By 1922 the supply of many raw materials exceeded demand; prices had fallen; the problem now was low levels of activity. Although the League Financial Committee still hoped that the scheme could be used for credits to restore some countries' economic equipment, Fraser's office was closed down in June 1922.38 Only surpassed by those of Austria, Poland's economic and financial 35

36

37 38

League of Nations, Interational Credits (The 'Ter Meulen' Scheme), London 1921. Drummond Fraser's experience was largely concerned with financing trade: he was a director of the Manchester and Liverpool District Bank and president of the Manchester Bankers' Institute. Blackett to Morrow, 9 Nov. 1920; Morrow to Blackett, 18 Nov., MG Papers, Box Hist. 4, file 25; Strong to Norman, 21 Mar. 1921, Strong Papers, 1116.2(1); BE, OV 31/4. League of Nations, Europe's Overseas Needs and how they were met, Table 16. League of Nations, Official Journal, hereafter cited as LNOJ, 1922, pp. 633-6 (Report of Financial Committee, June 1922); League of Nations, Brussels Financial Conference 1920.

120

East central Europe: relief and reconstruction

difficulties were great in the postwar years. Not only had the country suffered great damage and loss during the war, it remained effectively at war until March 1921, when peace was signed with Soviet Russia. The resulting strains were primarily responsible for the inflation which gathered pace from the second half of 1921. In November 1919 the Polish mark was quoted at 90 to the dollar; in July 1920 the rate was 186 to the dollar; in November 1921 it was 3,850 to the dollar. Until 1920 four different currencies were in circulation. Customs unity was not achieved until 1921.39 Apart from relief, a number of foreign governments and groups were involved in projects of assistance to Poland. In the summer of 1919 there were suggestions of an American financial adviser to help the Polish government to set up a new currency and banking system; but the United States Treasury was not enthusiastic.40 The French government was less inhibited, and embarked on a large and ultimately rather unsuccessful scheme of economic advantage and political influence in Poland.41 The two aspects were reflected in the political treaty and military agreement of February 1921, each of which contained a statement that it would not come into force until commercial agreements then in course of negotiation were concluded.42 One of these agreements related to Galician oil. As part of a plan conceived during the war to secure French access to oil supplies independent of British or American companies, an agreement was negotiated in 1920 giving, in return for a bank advance of 100 million francs, security to French companies operating in Galicia and a guaranteed two-fifths share in Polish oil exports. The agreement was held up by Polish attempts to secure an additional credit to pay for war material, and facilities to float a loan of 1 billion francs on the Paris market. The military agreement of February 1921 provided for an advance of 400 million francs, but French ministers were clear that the market could not take a loan of 1 billion francs. Negotiations continued throughout 1921, with delays first on one side and then on the other. Since both wanted the political and military agreements to succeed, compromise was reached early in 1922 on

39

40

41

42

The Recommendations and their Application. A Review after Two Years, Geneva 1922; correspondence and reports in L N Arch., R 320, R 352, S 144, S 136. See also D a n P. Silverman, Reconstructing Europe after the Great War, Cambridge, Mass. 1982, pp. 285—7. Ferdynand Zweig, Poland between Two Wars. A Critical Study of Social and Economic Changes, L o n d o n 1944, pp. 2 7 - 3 5 . H o o v e r , Lamont and Davis t o Leffingwell, Strauss, and Rathbone, 30 Apr. 1919; Lamont to Leffingwell, 22 Jul.; Leffingwell to Lamont, 26 Jul., N A , R G 39, Country files, Box 166; Lamont Papers, I V - A , 172-4, 1 7 2 - 5 ; L C , Leffingwell Papers, Container 11, reel 27. The following account is based o n the definitive article b y Georges Soutou, 'La politique economique de la France en Pologne (1920-1924)', in Revue historique, 251 (1974), pp. 8 5 116, on the M A E files there cited, and o n M F , F30 1 0 1 9 , 1 0 2 5 , 1 0 2 7 , 1 0 2 8 , 1 0 2 9 , 1 0 3 0 , 1 0 3 3 = B 31933, 31939, 31941, 31942, 31943, 31944, 31947. F o r these agreements and their background see Piotr S. W a n d y c z , France and her Eastern Allies 1919-1925, Minneapolis 1962, pp. 211-37.

Credits for central and eastern Europe

121

the guarantees for French companies and the 1921 agreements came into effect. Owing to disagreement about the security offered, the 400 million franc advance was not finally approved by the French parliament until December 1923. An important group of projects concerning Upper Silesia suffered a number of vicissitudes. The resources of the region were important for the whole of central and eastern Europe; their control was critical for the economic balance between Germany and Poland, and was seen as important for the economic balance between Germany and France. If France could control part of Germany's coal supply she could not only ensure reparation coal deliveries but might redress in her favour the balance of industrial advantage enjoyed by Germany even after the loss of Lorraine. Depending partly but not wholly on the political fate of Upper Silesia, French control could be pursued either through helping the Polish government to acquire Upper Silesian concerns and hand them to Frenchcontrolled companies, or by getting a direct stake in the concerns themselves, or by a mixture of the two methods. Both indeed were pursued. The French Treasury had a substantial sum of marks purchased from the citizens of Alsace and Lorraine, which it proposed to advance to the Polish government to buy German property; but as the value of the mark fell, the sum proved inadequate for large purchases. At one point a French group negotiating in Berlin appeared to have secured far-reaching control over German companies with only a quite modest investment; but French industry and banks were reluctant to put up capital without government help, the government had little help to give and would give none without political control, and the German government vetoed the transaction once it became clear that it would not save Upper Silesia for Germany. A Polish proposal for inter-Allied finance did not please the French because it would bring in British interests. In 1921 a Franco-Polish company was set up to lease the so-called fiscal mines (Prussian state property) and agreement was reached on a Franco-Polish bank for Upper Silesia; but neither ever had sufficient resources to give France effective control. The French government could not provide enough for a really large economic enterprise in Poland, and French private institutions were reluctant to venture into the Polish whirlpool. The Polish government sought to interest Britain in reconditioning, and perhaps managing, the railways in Poland. The suggestion, made at the end of November 1920, prompted members of the Northern Department of the Foreign Office to think of a large scheme to meet the Polish situation. Britain would supply, on credit, manufactured goods, machinery, rolling stock and coal, of which Poland would be able to sell part to buy food; and the use of the goods, and Polish policy in general, would have to be

122

East central Europe: relief and reconstruction

controlled. Crowe, the Permanent Under-Secretary of State, however, poured cold water on such a notion of effectively running the Polish state by British officials and thought that the proposal for large credits doomed the whole plan. Curzon agreed. It was no good, he said, putting such a scheme to the Cabinet: the Chancellor was adamant about credit, and moreover the Poles were unpopular.43 Various British engineering firms were anxious to get the business of reconditioning Polish railway workshops and material, but feared that any pledged Polish assets might disappear; the export credit scheme could only be used for manufactured goods; and the Ter Meulen scheme could hardly be used because the railways were running at a loss and other Polish assets were already earmarked. The Northern Department did its best to argue that a credit for reconditioning the Polish railways should appeal both to those who believed in the resumption of relations with Russia and to those who wanted to consolidate the border states into a defensive alliance against Russia. But the argument did not avail, and the situation remained frustrating for British representatives in Poland. The minister, William Max Muller, wrote in May 1921 of Britishfirmslosing contracts because of the security required by the export credit scheme. If Britain continued to do nothing for reconstruction, he wrote, the Poles would become convinced that her words were meaningless and she was not interested. Suggestions for a guarantee for a loan under the Trade Facilities Act for the sale to Poland of railway locomotives also ran into difficulty over the security needed.44 The Treasury was equally unhelpful over the suggestion of a loan to stabilise the Polish currency and again suggested recourse to the Ter Meulen scheme. In the spring of 1921 there began what was to prove a long-running saga over the possible employment by the Polish government of a Britishfinancialadviser. No decision had been reached on this by the end of 1922. As with Poland, possible credits to Yugoslavia for railway locomotives and railway building came to nothing. The Trade Facilities Act Advisory Committee was willing to consider a guarantee for the supply of railway material by Armstrong Whitworth, but the Yugoslav government's desire to raise a loan in London to build a new railway from Belgrade to the 43

44

Loraine, Warsaw, to Gregory, 1 Dec. 1920; memorandum by Leeper and Maxse, 6 D e c ; memorandum by Maxse, 13 D e c ; minute by O'Malley, 29 D e c , N 3833,4138,4321,4867/ 236/55, FO 371/5399. The British delegation at Paris, especially Lloyd George, had opposed large Polish territorial claims. Lloyd George's dislike of Poland was enhanced by the Russo-Polish war of 1920. See Norman Davies, 'Lloyd George and Poland 1919-20', in Journal of Contemporary History, 6 (1971), pp. 132-54. Correspondence in file N 236/55, FO 371/6819; file N 117/55, FO 371/6815-16; DBFP Ser. I, Vol. 23, Nos. 1, 4, 8, 40, 66, 86, 152, 242, 247, 248.

Credits for central and eastern Europe

123

Adriatic was another matter. The Treasury at first said that it would not object to a loan if the period were for not less than twenty years, and the prospects would be improved if the Yugoslav government would carry out a promise to deposit bills for the wartime advances to Serbia. It then reiterated the official doctrine that it did not intervene in questions of issues by foreign governments through ordinary commercial channels. However, in the autumn of 1921 the Chancellor of the Exchequer was willing to give an opinion. Rothschilds were considering the possibility of a loan to Yugoslavia and discussed it with Baring Brothers and with Home. When Lord Revelstoke suggested that Czechoslovakia seemed to be a better proposition, the Chancellor said that of the two countries he would have no hesitation in pronouncing in favour of Czechoslovakia. There was a good deal of criticism of the proposed railway line in Yugoslavia itself; the government was not prepared to put up any of the capital; and the British minister in Belgrade wrote in January 1922: 'Were it not for the desperate desire of His Majesty's Government to get British trade going again at almost any price I should have strongly deprecated in principle the guarantee by the British Government of a loan made to a foreign country like this one, with its happy-go-lucky methods and indifference to the letter of its international obligations.' The loan project fell through, but some regrets were felt later in 1922 when the Yugoslav government raised in the United States a loan for railway works, secured on the customs revenues.45 By the end of 1920 it was generally accepted that one of the chief keys to Austria's problems was government finances. Currency inflation was gaining pace, but since about ten per cent of the population (including families of employees) were dependent on government wages, it would be extremely difficult for any government to impose far-reaching change by its unaided authority.46 At the end of October the Austrian Section of the Reparation Commission recommended further raw material credits and a loan, by governments or guaranteed by governments, of $250 million, subject to control of Austria's public finances. The Reparation Commission, having no funds of its own, forwarded the report to the various 45

46

Correspondence, Aug. 1921-May 1922, in file C 12692/92 (1921), FO 371/6209; C 84/92 (1922), FO 371/7678-9; memorandum by Revelstoke, 4 Nov. 1921, Baring Brothers & Co. archives, hereafter cited as BB, Partners' files (PF) 229. For the Czechoslovak loan see see below, pp. 138—41. 'The problem of Austria', in Manchester Guardian Commercial, 'Reconstruction in Europe', Part 3, pp. 143-50; Marz, Austrian Banking, pp. 402-10 and Table A6. Inflation had started in 1914. When, after the break-up of the Empire, a new Austrian currency was introduced in March 1919, the note circulation was 5,122 million crowns; in the middle of December 1919 it was 11,508 million; in the middle of December 1920 28,935 million; in the middle of December 1921 142,871 million.

124

East central Europe: relief and reconstruction 47

governments. Although Goode urged on Chamberlain the importance to British interests of granting credits to Austria as the key to the trade of south-east Europe, the Treasury resisted the idea of any further direct government assistance. The Cabinet decided on 17 December not to give any morefinancialhelp to Austria and thought that France ought to take the initiative, since it was the French who were particularly opposed to the idea of Austria joining Germany, as she might try to do if she collapsed.48 The French had in fact been working on a plan that would save Austria with Alliedfinancialcontrol, and put it to the British on 18 December. The plan gave control of Austria's finances to the Austrian Section of the Reparation Commission, while a consortium of banks would provide credits and constitute a new bank of issue.49 But the Cabinet did not like the idea of putting Austria under the control of the Reparation Commission and preferred the Ter Meulen scheme.50 The French Ministry of Finance, too, was discouraging: French banks were not in a position to give immediate help and the Treasury had no funds since the Chamber of Deputies had not yet voted the 150 million francs requested for credits.51 Allied leaders, meeting in Paris in January 1921, set up a committee to consider means of helping Austria by private enterprise alone. Loucheur, the French Minister for Liberated Territory, who had connections with industry, recommended complete financial control over Austria by an international commission, with an industrial company to run the public enterprises whose revenues were allotted as security for credits. The committee, however, recommended that the Reparation Commission 47

48

49

50

51

Report of Austrian Section, 27 Oct. 1920; Austrian Section to Reparation Commission, 1 N o v . ; resolution of Reparation Commission, C 12015, 12016/785/3, F O 371/4647; Bradbury to Treasury, 13 N o v . , T 160/57/F2073/1; DBFP, Ser. I, Vol. 12, N o . 265; C P 2139, 23 N o v . , C A B 24/115. Memorandum by Blackett, 16 Nov. 1920, T 160/57/F2073/1; Goode to Chamberlain, 22 Nov., C 12705,12706/785/3, FO 371/4647; CP2139, CAB 24/115; CP2318, CAB 24/117; Cabinet, 17 Dec, C 72(20), CAB 23/23. The Cabinet expressed no view on the matter of a union between Austria and Germany, although Curzon in his first conversation with the new Austrian Minister in London on 7 October had said that such a union would be entirely contrary to British policy: DBFP, Ser. I, Vol. 12, No. 241. Memoranda by Seydoux, 14 and 21 Oct. 1920, MAE, Europe 1918-40, Autriche, Vol. 125; Leygues to Fran§ois-Marsal, 5 Nov.; interdepartmental meeting, 10 Nov.; Franc.oisMarsal to Leygues, 20 Nov.; Berthelot to Franc.ois-Marsal, 23 Nov., MF F30 637 = B 31562; memorandum by Klobukowski, 16 Nov.; Klobukowski to Dubois, Reparation Commission, 9 Dec, AN, AJ5 195; Cambon to Curzon, 18 Dec, C 14238/785/3, FO 371/4647. Cabinet, 30 Dec. 1920, C 80(20), CAB 23/23; Treasury to FO, 1 Jan. 1921, C 149/75/3, FO 371/5738; Fleuriau, London, to MAE, 31 Dec. 1920, MAE, SDN, Vol. 1223; D ^ P , Ser. I, Vol. 22, No. 13. Leygues to Fran^ois-Marsal, 22 Dec. 1920, MF, F30 621 = B 31548; memoranda by Seydoux, 28 and 31 Dec; Franc.ois-Marsal to Leygues, 11 Jan. 1921, MAE, Europe, Autriche, Vol. 125.

Credits for central and eastern Europe

125

should secure the postponement of claims on Austrian state assets in respect of occupation costs, relief credits, and reparations; that a board of financial advisers should be appointed by the Austrian government; that capitalist groups should examine the idea of a corporation to promote recovery; and that Austria should be included in export credit schemes.52 The Austrian press protested loudly against the idea of giving the Reparation Commission control over reconstruction, and even more against Loucheur's proposal of an 'international consortium of exploiters'. Even the revised version of Loucheur's plan worried Bradbury, who thought that the Allies must face the alternatives of withdrawing from Austria altogether or committing themselves indefinitely to governmental help.53 On the eve of the next Allied conference, in London in March 1921, the Foreign Office informed the major Allies, the Americans, and the neutrals which had given relief credits to Austria, that the British government was ready to abandon its privileged claim, or lien, on Austrian assets in respect of occupation costs, relief credits, and reparations if the other signatories of the Treaty of Saint-Germain and the neutrals agreed to do the same. The Allies were told that the government did not feel able to make or guarantee further loans but sympathised with the idea of assistance by private capital - although British banks were not likely to take much part. Blackett, however, was able to discuss with Avenol a method for bringing the Austrian problem within the scope of the Ter Meulen scheme: the Allies would declare their willingness to postpone their claims for reparation and relief credits; the Austrian government would pledge the released assets as security for Ter Meulen bonds; and the League of Nations Finance Committee would make the necessary arrangements and appoint an administrator.54 This, in effect, was the answer given to the Austrian Chancellor and ministers after they had appeared before the Allied conference, and their financial officials had had discussions with Allied experts. The Austrians were also told that the Allies hoped the release of the liens would help them to make progress in balancing the budget and reducing the money supply. 52

53

54

Allied conference, Paris, 25,28, and 29 Jan. 1921, DBFP, Ser. I, Vol. 15, Nos. 3,12; Vol. 22, No. 14; CP 2510, CAB 24/119; memorandum by Loucheur, 20 Jan., MF, F30 637 = B 31562; MAE, PA Millerand, Vol. 47. Before the conference Niemeyer of the Treasury had sought Foreign Office views on what should be done if Austria collapsed, to be told that Curzon had not wanted the question discussed but it seemed very unlikely that union with Germany would be recommended: Niemeyer to Waterlow, 14 Jan.; Waterlow to Niemeyer, 15 Jan., T 160/57/F2073/2. Bradbury to Chamberlain, 21 Feb. 1921, T 160/57/F2073/2; Marz, Austrian Banking, pp. 410-11 and nn. 38, 39 (quotation from Der Osterreichische Volkswirt, 26 Mar. 1921). Curzon to Saint-Aulaire and others, 3 Mar. 1921; memorandum by Waterlow, 8 Mar., C 3916, 5374/75/3, FO 371/5739; memorandum by Blackett, 11 Mar., T 160/57/F2073/3. Blackett and Avenol were both members of the League of Nations Financial Committee.

126

East central Europe: relief and reconstruction

The Allies would use their good offices at the Porto Rose conference to improve economic conditions in central and south-east Europe, and would take steps to improve Austria's coal supply.55 The Financial Committee of the League of Nations quickly reported that the liens should be suspended for not less than twenty years. The Committee was prepared to take on the task of applying the Ter Meulen scheme to Austria provided it was given the necessary powers to control the pledged assets and supervise the expenditure of a loan to be raised by the Austrian government. The latter for its part must reduce expenditure on subsidies and officials' salaries.56 The Austrian Section of the Reparation Commission doubted whether the Ter Meulen scheme was really suitable for the Austrian case; but the Section itself was to be withdrawn from Vienna and much reduced in size, in order to save Austria expense.57 The Austrians themselves, having hoped for immediate assistance, were not enthusiastic about the London decisions. The situation was further complicated by a wave of agitation in favour of union with Germany, which alarmed the French.58 In the middle of this a delegation from the League Financial Committee arrived in Vienna for discussions. They thought that the Austrian government should raise an internal loan before the question of a foreign loan was touched, since that would give some confidence to foreign investors and help to stabilise the currency. But Lindley, the British minister in Vienna, told them that confidence in the crown seemed to him to be as much needed for domestic as for foreign lenders, and he did not think an internal loan would succeed until it was certain that foreign credits would be forthcoming. Avenol, one of the Financial Committee delegates, likewise thought that the Austrian public lacked confidence in their currency and their country, and that the 55

56

57

58

DBFP, Ser. I, Vol. 15, Nos. 61, 62, 63,64, 67, 68; Vol. 22, Nos. 55,61,62. The Porto Rose Conference, between Austria and the successor states, was held in October 1921. It produced agreements on such matters as improving communications and suppressing trade restrictions, but gave no countenance to ideas of close cooperation between the Danubian states. Correspondence in file C 10653/62,1920, FO 371/4717; file C 79/62,1921, FO 371/ 5832-6; DBFP, Ser. I, Vol. 22, Nos. 10,20; report by Haas, 8 Dec. 1921, LN Arch., R 372. See Lajos Kerekes, Von St Germain bis Genf. Osterreich und seine Nacbbarn 1918-1922, Vienna, Cologne and Graz 1979, pp. 70-6. LNOJ, 1921, pp. 282-7; League of Nations Provisional Economic and Financial Committee, Report and Papers relative to the Financial Reconstruction of Austria, Geneva 1921, Annex II. Treasury to Bradbury, 19 Mar. 1921, T 160/57/F2073/2; memorandum by Financial Services, Austrian Section, Reparation Commission, end Mar., AN, AJ6 831, 834. DBFP, Ser. I, Vol. 22, Nos. 108, 114, 122; Lindley to FO, 1 Apr. 1921, C 6881/75/3, FO 371/5740; FO to Lindley, 13 Apr.; Lindley to FO, 15 Apr., 25 Apr., C 5744, 7783, 7818, 7973, 8491/1383/3, FO 371/5775; aide-memoire from Saint-Aulaire, 28 Apr., C 8101, 8850/1383/3, FO 371/5775; correspondence, 9-28 Apr., MAE, Europe, Autriche, Vols. 72, 84.

Credits for central and eastern Europe

127

59

Anschluss agitation was an expression of this feeling. A plan of reform agreed between the League Financial Committee delegates and the Austrian government provided for foreign credits in step with internal reforms, with the League finding three representatives as trustees for the powers, and a permanent representative to reside in Vienna.60 Progress on postponing the liens on Austrian assets, however, was painfully slow. Whilst some governments agreed, others hedged; the Italians made incomprehensible reservations about the March statement by the Supreme Council, and seemed to want to establish political control over assistance to Austria.61 In order to get round some of the difficulty, the French suggested that the League proposals should be referred to the Ambassadors' Conference. The British agreed, but pointed out that United States consent to the release of its liens, which was essential, would not be given unless the international character of the League plan was assured.62 On 5 July the United States government was asked not only to postpone its lien but also to put no obstacle in the way of American capital joining in relief to Austria and to agree to an American being appointed to the proposed commission of control.63 The Secretary of State, Hughes, said that his government was in favour of suspending the liens but had no power to do so until the Congress passed legislation authorising the Secretary of the Treasury to deal with foreign debts and credits, and the prospects for the bill were quite uncertain. Another resolution by the Allied Supreme Council on 13 August did not hasten matters.64 Meanwhile the Governor of the Bank of England was trying to organise credits from as many central and other banks in as many countries as possible. On 14 May Norman wrote to ask Strong whether there was any chance of the Austrian government raising money in New York; and three weeks later he asked for advice on arranging the release of the United States liens.65 Norman also urged the President of the Danish Riksbank to participate and to help get Swedish cooperation, and in the Netherlands 59

60

61

62

63 64 65

Lindley t o F O , 22 Apr. 1921, C 8447/75/3, F O 371/5740 (DBFP, Ser. I, Vol. 22, N o . 129, n. 1); A v e n o l t o Tannery, 27 Apr., M F , F30 637 = B 31562. League of Nations, Report and Papers relative to the Financial Reconstruction of Austria; DBFP, Ser. I, Vol. 22, N o . 129; Lindley t o F O , 11 May, C 10272/75/3, F O 371/5741. DBFP, Ser. I, Vol. 22, N o s . 1 3 7 , 1 5 1 ; correspondence, 3 M a y - 1 0 Jun. 1921, file C 75/3, F O 3 7 1 / 5 7 4 0 - 1 ; M A E , Europe, Autriche, Vol. 73; memorandum b y Seydoux, 27 Jun., Italie, Vol. 79. DBFP, Ser. I, Vol. 22, N o s . 1 9 7 , 1 9 9 , 2 0 2 ; Treasury t o F O , 8 and 17 Jun. 1921; Blackett to Avenol, 21 Jun.; Hardinge to F O , 25 June., C 11912, 12555, 12842, 13121/73/3, F O 3 7 1 / 5 7 4 1 - 2 ; Cabinet, 30 Jun., C 56(20), C A B 23/26. The warning about the American attitude had been conveyed to N o r m a n b y Strong. DBFP, Ser. I, Vol. 22, N o . 207; F O t o Geddes, 4 Jul. 1921, C 13607/75/3, F O 371/5742. DBFP, Ser. I, Vol. 22, N o . 215; Vol. 15, N o . 103. N o r m a n to Strong, 14 May, 4 Jun., 9 Jun. 1921, Strong Papers, 1116.2(2); BE, O V 31/4,

OV 28/52.

128

East central Europe: relief and reconstruction

pressed both Vissering, the President of the State Bank, and Ter Meulen of Hope and Co.66 Norman's idea was that the initial advance should not be more than £6 million, of which the British share would be £2 million in the form of a public issue by the Bank of England underwritten by the Bank and the Treasury. Norman was strongly opposed to a government guarantee, since if one were given other banks would demand one from their governments, and the neutrals would not comply. For the Bank of England Norman hoped to get in return an exclusive connection with the Austrian State Bank. An approach was also made to J. P. Morgan and Co. by Blackett and by Monnet of the League Financial Section. Morgans, like Strong, doubted whether a loan could be floated in the United States.67 Strong's doubts were increased by Norman's reports of complications with the French about guarantees and about control. French banks, after some prodding, agreed that a consortium could be formed to handle a sum of marks provided by the government, on condition that the latter bore the exchange risks. They also raised the question of participating in a new Austrian bank of issue and of asking for advantages for French trade.68 Norman was anxious that control should be in the hands of neutrals and exercised on purely economic lines; but Avenol, who after going to Vienna on the League delegation had visited Rome to persuade the Italians to join in the League scheme,69 told Norman that France and Italy would only cooperate if the commission of control, whilst nominally representing the League, actually represented the Allies. Avenol said that he thought it both proper and necessary that the Allies should permanently control the political and economic situation in Austria and the neighbouring new states; but Norman told him it was unlikely that the United States or the neutral countries would join in advances unless the advisory committee were genuinely neutral. Norman wrote to Strong that the difference was so fundamental that even if the question of the liens were settled he did not see how the financing of Austria was to be arranged.70 66

67

68

69

70

N o r m a n to Gluckstadt, Copenhagen, 1 Jun. 1921; N o r m a n t o Vissering, 4 Jun.; Gluckstadt to N o r m a n , 10 Jun.; Gluckstadt t o Ter Meulen 10 Jun.; Ter Meulen t o N o r m a n , 11 Jun.; N o r m a n to Ter Meulen, 16 Jun.; N o r m a n t o Gluckstadt, 16 Jun., BE, O V 2 8 / 5 2 . Strong to N o r m a n , 2 and 8 Jun. 1921, Strong Papers, 1116.2(1); BE, O V 2 8 / 5 2 ; Morgan Grenfell & C o . to J.P. Morgan & C o . , 4 Jun.; J.P. Morgan & C o . to Morgan Grenfell & C o . , 11 Jun., M G Papers, Bundle 156, file 1; T 160/57/F2073/5. Felcourt, L o n d o n , to Seydoux, 24, 25, 26, 27, 29 M a y 1921; Seydoux t o Gouet, 2 Jun.; Felcourt t o Seydoux, 3 Jun., M A E , S D N , Vols. 1 2 2 3 - 4 ; minute b y Parmentier, 22 Jun.; U n i o n syndicate des banques de Paris et de la Province to M F , 29 Jul., M F , F30 637 = B 31562. N o r m a n to Strong, 9 Jun. 1921; Strong t o N o r m a n , 27 Jun., Strong Papers, 1116.2(1) and (2); BE, O V 3 1 / 4 ; memorandum by Avenol, 21 Jun., M F , F30 637 = B 31562; M A E , S D N , Vol. 1224. M e m o r a n d u m b y N o r m a n , 6 Jul. 1921; N o r m a n t o Strong, 13 Jul., Strong Papers,

Credits for central and eastern Europe

129

When Balfour, the British delegate to the Council of the League of Nations, asked his views on a compromise, Norman replied that the way the Austrian problem was enmeshed in politics had gravely reduced the prospects of raising money from the City or the public: he thought a government guarantee would now be needed.71 All this delay bred gloom in Austria in the summer, the exchange fell sharply, and there were stories of German interests, led by the Ruhr magnate Hugo Stinnes, buying Austrian enterprises and forcing down the crown for the purpose.72 Norman, on a visit to the United States, persuaded Strong of the necessity of American banks joining a programme of assistance to central Europe in order to avoid a complete collapse.73 It was hoped that Hoover, the Secretary of Commerce, would ask the banks to study a plan for the time when Congress passed the legislation permitting the release of the liens. Hoover was disposed to make the request, but Hughes feared that such an expression of encouragement might involve the United States government in 'embarrassing moral commitments'. He was anxious lest the government should appear to be behind the proposed action 'when in truth there is no intention of assuming any responsibility in the matter'.74 As a result of this discouragement the Chairman of the Federal Reserve Bank of New York, Pierre Jay, who was on a visit to Europe, had to advise against an Austrian delegation being sent to the United States.75 At the beginning of September, since progress on the League plan could not be expected for some time, the Austrian government appealed for a temporary advance, saying that it had raised taxation and cut expenditure, but if foreign help were not made available it would be thrown back again on to the printing press. The British government agreed to make a very small advance of £250,000 provided the French did the same.76 This could 71

72

73 74

75

76

1116.2(3): BE, OV 28/52; Morgan Grenfell & Co. to J.P. Morgan & Co., 11 Jul, MG Papers, Bundle 156, file 1. Balfour to Norman, 13 Jul. 1921; Norman to Balfour, 15 Jul., BE, OV 28/52; Balfour to Drummond, Geneva, 22 Jul., LN Arch., S 102. Memorandum by Nixon, 8-9 Aug., LN Arch. S 102; Nixon, League of Nations, to Norman, 10 Aug. 1921; memorandum, 'Outline of the general scheme for the rehabilitation of Austria, with special reference to the part played by the Bank of England', BE, OV 28/52. Strong to P. Jay, 29 Aug., 15 Sep. 1921, Strong Papers, 320.14. Hoover to Strong, 29 Aug. 1921, Strong Papers, 013.1; Norman to Bank of England, 30 Aug., BE, OV 28/52; Hughes to Hoover, 1 Sep., NA, RG 59, 800.51/312. Strong to Jay, 15 Sep. 1921; Strong to Hoover, 24 Sep.; Norman to Strong, 24 Sep.; Strong to Norman, 24 Sep.; Jay to Strong, 27 Sep.; Strong Papers, 320.14; 013.1; FRBNY, Bank of England cables 1919-21; Norman to Vissering, 12 Oct., BE, OV 28/52; Strong to Norman, 1 Nov., BE, OV 31/5. DBFP, Ser. I, Vol. 22, Nos. 299,340,384,389; Nixon to Niemeyer, 10 Sep. 1921, T160/57/ F2073/6; Saint-Aulaire to Curzon, 20 Sep.; Keeling to FO, 22 Sep.; note from Franckenstein, 23 Sep., C 18430, 18520, 18553/75/3, FO 371/5744.

130

East central Europe: relief and reconstruction

not be much help; in the last week of November the Austrian government asked urgently for £3 million and at the beginning of December started an attempt to raise $10 million in the United States on the security of the Austrian state's tapestries.77 J. P. Morgan and Co. were, rather reluctantly, prepared to consider the matter; but they eventually concluded, even when assured of United States, as well as British and French, government approval, that such a loan could not be raised in New York.78 Thus at the beginning of 1922 the Austrian state was still living from hand to mouth, lacking conviction about its own viability, and troubled by the difficulty of securing the small accession of territory due to Hungary.79 On the other hand relations with Czechoslovakia had improved and an agreement, the so-called Treaty of Lana, had been signed on 16 December pledging cooperation. The Czechoslovak Foreign Minister, Benes, who earlier in the year had worked to improve relations between his country and both Poland and Hungary, told the British Minister in Prague, Sir George Clerk, that he wanted to build up in central Europe an economic group of states aware that mutual cooperation was necessary if they were to attain the full development of their freedom and independence.80 Clerk for his part hoped that Czechoslovakia would be allowed to raise a loan in London, since that would help to secure better economic relations between the central European countries and thus the restoration of the region's economic life.81 Austria and central Europe, 1922 On 25 January 1922 the Austrian government appealed again to the Allies for immediate credits to tide the country over until the loan envisaged in the League scheme could be raised. The Cabinet agreed in general terms 77

78

79

80

81

Lindley to FO, 24 Nov. 1921; Treasury to FO, 2 Dec; FO to Geddes, 5 Dec, C 22456, 22744, 22954/75/3, FO 371/5745. DBFP, Ser. I, Vol. 22, Nos. 455, 586, 596; Geddes to FO, 8 and 9 Dec. 1921, C 23085, 23101/75/3, FO 371/5745; Nixon to Blackett, 24 Nov.; Monnet to Morrow, 28 Nov., LN Arch., S 107; Amherst College, Dwight W. Morrow Papers, Austria 1921-2; J.P. Morgan & Co. to Morgan Grenfell & Co., 3 and 9 Dec, 13 Jan. 1922; MG Papers, Bundle 156, file 1; Treasury to FO, 13 Dec; FO to Geddes, 15 Dec; Geddes to FO, 16 Dec, C 23307, 23484/75/3, FO 371/5745; Brittain (Treasury) to Nixon, 27 Jan. 1922, LN Arch., S 102. For the problem of the Burgenland or Hungarian 'western counties* see Royal Institute of International Affairs, Survey of International Affairs 1920—1923, pp. 304—7 (volumes in this series are hereafter cited as RIIA, Survey, with year of volume); DBFP, Ser. I, Vol. 22, Nos. 245-600,passim; Kerekes, Von St Germain bis Genf, pp. 297-338. DBFP, Ser. I, Vol. 22, No. 578; Keeling to FO, 21 Dec 1921, C 23985/83513/3, FO 371/ 5788. For the Austrian—Czechoslovak agreement see Kerekes, Von St Germain bis Genfy pp. 345-53. For Czechoslovak-Polish and Czechoslovak-Hungarian relations see DBFP, Ser. I, Vol. 22, Nos. 189, 190, 193, 200, 204, 213, 254, 292, 381. Clerk to FO, 14 Oct. 1921, C 19833/13400/3, FO 371/5786.

Austria and central Europe

131

that Austria must be put on her feet before industrial life in eastern Europe could be restored, and that the political consequences of an Austrian collapse would be serious, and so decided to advance £2.25 million for one year on account of the loan which it was hoped that Austria would be able to raise once the liens were postponed. A special British representative was to supervise the expenditure of the provisional advance.82 The French government, although conscious of the narrowness of its financial resources, decided that it could not afford politically not to take a lead in helping Austria, and so asked parliament to authorise a similar credit. The Czechoslovak government made a similar advance.83 It was not until the end of March that both Houses of Congress passed resolutions extending for twenty-five years the time within which Austria must repay her relief credit to the United States. Meanwhile the possibility of private or central bank assistance was actively, but inconclusively, under discussion. Norman wrote on 6 February to ask Strong whether the Federal Reserve Bank was going to be able to do anything in the near future. Strong replied that at present nothing seemed feasible in the United States except to see that the government was kept informed.84 He, like Norman, deprecated Goode's proposal to visit the United States on Austria's behalf, to seek money without the imposition of a League financial adviser: Norman was worried by the proliferation of Austrian emissaries and tried to get negotiations confined to a single channel.85 The question of control had become murkier than ever. Previously the British had pressed for League, as contrasted to Allied, control: now they maintained that League control itself would be too political - because, so Avenol surmised, they wished to retain in London control over the expenditure of British-subscribed money, whilst British representatives now thought that the French and Italian object was to get the Reparation Commission to make impossible conditions for an Austrian loan which 82

83

84

85

Note from Franckenstein, 25 Jan. 1922, C 1282/74/3, FO 371/7335; Cabinet, 26 Jan. C 4(22), CAB 23/29; note to Franckenstein, 10 Feb., DBFP, Ser. I, Vol. 24, No. 28. The special representative was G.M. Young, director of the newly organised Anglo-Austrian Bank (for which see below, pp. 138-9 and n. 116). Avenol to MF, 18 Jan. 1922, MAE, PA Avenol, Vol. 18; memorandum by Avenol, 19 Jan.; memorandum by Parmentier, 30 Jan., MF, F30 637 = B 31562; MAE memorandum, 24 Jan., MAE, SDN, Vol. 1224; note from Saint-Aulaire, 5 Feb.; note from Benes, 13 Feb., C 1822, 2347/74/3, FO 371/7335-6. Norman to Strong, 6 Feb. 1922; Strong to Norman, 4 Mar., Strong Papers, 1116.3(1) and (2); BE, OV 31/5. Goode to McFadyean, Reparation Commission, 28 Feb. 1922; McFadyean to Goode, 1 Mar., British Library of Political and Economic Science, McFadyean Papers, Correspondence; Norman to Goode, 2 Mar., T 160/58/F2073/8; Strong to Norman, 4 Mar.; Norman to Strong, 6 Mar., Strong Papers, 1116.3(1) and (2); Norman to Spencer Smith, Vienna, 25 Mar.; Spencer Smith to Norman, 31 Mar.; Norman to Spencer Smith, 3 Apr.; memorandum by Laverock, BE, OV 28/52.

132

East central Europe: relief and reconstruction

would then not need to be raised.86 League of Nations officials were concerned to point out that Austria (unlike Turkey, Egypt and China, formerly subjected to less far-reaching debt control) was a modern enlightened European state and could not be put under direct control by bankers. Neither she nor her neighbours would agree, and the Social Democrats in Vienna 'could make extreme difficulties for what they would call capitalist tyranny'.87 The Italian government agreed in March to a loan of 70 million lire, after complaining at not having been asked earlier.88 Goode, now the sole Austrian negotiator, had discussions in New York in the second half of March with Morgans, who concluded that nothing could be done quickly but were anxious to help in the long term, as was Strong.89 The Austrian problem was kept separate from the discussion, in the winter of 1921-2, of an international consortium to help reconstruct central and eastern Europe, and Austria was not brought within the purview of the international economic conference at Genoa in April-May. The representatives there of the countries with claims on Austria discussed a resolution authorising their representatives on the Reparation Commission to take steps to postpone the claims for twenty-five years, but Yugoslavia and Romania were still unwilling to agree.90 By the time that, on 14 June, the Ambassadors' Conference approved a report on measures to be taken by the interested governments to put the League of Nations scheme into effect, observers were again predicting the collapse and disintegration of Austria, with most of her neighbours waiting to pick up the pieces.91 Negotiations with bankers for private credits were getting nowhere.92 The Italians now declared that they had never agreed to 86

87

88

89

90

91 92

Goode to McFadyean, 28 Feb. 1922; McFadyean to Goode, 1 Mar.; Goode to McFadyean, 1 Mar.; McFadyean to Goode, 21 Mar., McFadyean Papers, Correspondence; Avenol to MF, 28 Feb., MAE, PA Avenol, Vol. 18. Note of conversation between Blackett and Monnet, 24 Feb. 1922; Nixon to Morrow (draft, not sent), 16 Mar., LN Arch., S 103, S 106; Avenol to MF, 28 Feb., MAE, PA Avenol, Vol. 18. Lefevre-Pontalis, Vienna, to MAE, 16 and 17 Feb. 1922, MAE, Europe, Autriche, Vols. 65, 126; Akers Douglas to FO, 22 Mar., C 4520/74/3, FO 371/7337. Correspondence, 18 Mar.-5 Apr. 1922, MG Papers, Bundle 156, file 1; Strong to Norman, 22 Mar., Strong Papers, 1116.3(1). Memorandum by Blackett, 21 Apr. 1922, T160/58/F2073/8; DBF?, Ser. I, Vol. 24, No. 61, n. 2, Nos. 70, 73; McFadyean to Waley, Treasury, 29 May; Waley to McFadyean, 31 May; Treasury to FO, 31 May, T 160/58/F20738; Barthou, Genoa, to Poincare, 11 May, MAE, Europe, Autriche, Vol. 126. For the international consortium and the Genoa conference see ch. 6. DBF?, Ser. I, Vol. 24, Nos. 74, 80. Correspondence, 12 May-8 July 1922, MG Papers, Bundle 156, file 1; Lamont Papers, II, 111-14; BB, COF/05/11/11; Norman to Strong, 6 JuL, Strong Papers, 1116.3(2); Bank of England to FRBNY, 8 JuL, FRBNY, C.261 Eng., Bank of England 1918-22; Franckenstein to Vienna, 26 May, 31 May, 7 Jun., Vienna, Haus-, Hof- und Staatsarchiv, Neues Politisches Archiv (henceforth HHStA, NPA), box 40, London-Berichte 1922; DBF?,

Austria and central Europe

133

suspend their claims, the League scheme should be scrapped, and Austria should be put under a commission of the great powers presided over by Italy.93 The Italian Minister for Foreign Affairs, Schanzer, was in London at the end of June and assured Balfour, who was acting Foreign Secretary while Curzon was away ill, that his government had not withdrawn its consent; Balfour hoped that he had convinced Schanzer that Italy must keep in step, and Treasury officials were rude in private about Italian pretensions. But it was admitted that the League scheme would not now suffice to save Austria since private capital would not be forthcoming without government guarantees; and the Cabinet on 4 July decided that no useful purpose would be served by advancing money to Austria merely to postpone afinancialcollapse that seemed to be imminent and that would not have very serious effects on Britain.94 Lloyd George and Balfour agreed to have the question of Austria put on the agenda of the Allied conference that was due to take place in London in August. The Italians were told that the British government thought the proposed control commission would be objectionable unless one of the governments concerned was willing to take responsibility forfinancialhelp for Austria and perhaps for maintaining order. In other words, if the Italians wished to control Austria they must provide the money: the British government was not prepared to give any more.95 The Allied conference was held mainly to discuss German reparations and means of compelling the German government to undertake financial reforms. On its eve the Reparation Commission decided to release the claims on Austria, and the Austrian government appealed to the Allies for credits without which, it said, it would not be able to carry out its financial reforms nor even carry on at all.96 The view now generally held in London was that the Austrian case was hopeless. Seydoux thought the only solution was complete international control.97 When the Allied ministers

93

94

95

96

97

Ser. I, Vol. 24, N o . 87. O n behalf of a group consisting of Morgans, Morgan Grenfell, Rothschilds, Schroders and Barings, G . M . Young investigated the Austrian situation in J u n e and reported that there was n o basis for a public loan. N o t e from de Martino, 19 J u n . 1922; Cheetham, Paris, to F O , 28 Jun., C 8832,9289/74/3, F O 371/7338; DBFP, Ser. I, Vol. 24, N o s . 93, 9 8 ; Franckenstein to Vienna, 28 J u n . , H H S t A , N P A , box 40, London-Berichte 1922. DBFP, Ser. I, Vol. 24, N o s . 5 , 1 0 5 , 1 1 0 ; Cabinet, 4 Jul., C 37(22), C A B 23/30; Blackett t o McFadyean, 5 JuL, T 160/58/F2073/8. Minute b y Vansittart, 12 Jul. 1922; note to de Martino, 21 Jul., C 10080, 10315/74/3, F O 371/7338. F o r the Allied conference, reparations and debts, see ch. 6. Akers Douglas t o F O , 4 Aug. 1922; Franckenstein to Lloyd George, 13 Aug., C 11183, 11517/74/3, F O 371/7338-9; DBFP, Ser. I, Vol. 20, N o . 64, appendix; Schuller and Franckenstein to Vienna, 4-15 Aug., H H S t A , N P A , Fasz, 356, Liassen Osterreich, Auswartige Politik. See Marz, Austrian Banking, pp. 489-92. Memorandum by Cadogan, 9 Aug. 1922, C 11425/74/3, FO 371/7339; Cabinet, 14 Aug.,

134

East central Europe: relief and reconstruction

discussed Austria on 14 August Poincare was worried about a possible Austrian attempt to join Germany; Schanzer was worried about the possible formation of a Danubian confederation. It was agreed to refer to the question to the League for investigation, along with a statement that there was no further prospect of financial help from the major Allies unless the League could propose a programme of reconstruction with definite guarantees that further help would produce results and would not simply be swallowed up like previous advances.98 This decision filled the Austrian government with despair, and it agreed that in addition to appealing to the League the Chancellor, Mgr. Seipel, should visit Czechoslovakia, Germany, and Italy in search of immediate help and advice." In Prague on 21 August Seipel received an assurance of support at Geneva, a strong warning against attempting an Anschluss with Germany, and advice not to rely on Italy. In Berlin on 22-3 August he was told that Germany could only help in small ways, that there was no question of an Anschluss, and that Austria should lean on Italy rather than on Czechoslovakia. At Verona on 25 August Schanzer said that he could not favour an Anschluss, still less any leaning to the Little Entente; Italy would give any political guarantee; financially she could do little but was ready to examine the idea of a customs union if Austria insisted.100 The Italians were indeed not at all anxious to take on the burden of Austria, but continued for the next several weeks to work for a predominant share in any control that might be set up.101 The French were alarmed at Seipel's visit to Berlin, but non-committal about a choice between Czechoslovakia and Italy.102 The British now, in a turn of policy, took a leading part in the C 46(22), CAB 23/30; Norman to Strong, 15 Jul., 17 Aug., Strong Papers, 1116.3(2); memorandum by Seydoux, 31 Jul., MAE, SDN, Vol. 1225. The dollar, which on 2 May was quoted in Vienna at 8,262.50 crowns, was at 50,875 crowns on 2 August and 83,600 crowns on 25 August, its highest point: J. van Walre de Bordes, The Austrian Crown, its Depreciation and Stabilisation, London 1924, p. 26. 98 Allied conference, 14 Aug. 1922, DBFPy Ser. I, Vol. 20, No. 64; Lloyd George to Franckenstein, 15 Aug., C 11517/74/3, FO 371/7339. 99 Cabinet meeting, 17 Aug. 1922, HHStA, Allgemeines Verwaltungsarchiv, Ministerratsprotokolle, Karton 65, No. 218, confidential annex; DBFP, Ser. I, Vol. 24, No. 133. 100 Records of meetings, 21-5 Aug. 1922, HHStA, NPA, Fasz, 471, Geheim-Akten, Osterreich, Aussenpolitik. See Gottlieb Ladner, Seipel als Uberwinder der Staatskrise vom Sommer 1922, Vienna-Graz 1964, pp. 90-7; Kerekes, Von St Germain bis Genf, pp. 3728; Clerk to FO, 22 Aug.; minute by Lampson, 24 Aug.; minute by Tyrrell, 25 Aug., C 11946, 11956, 12301, 12303/74/3, FO 371/7339-40; DBFP, Ser. I, Vol. 24, Nos. 135, 137, 143; MAE, Europe, Autriche, Vols. 74, 127; SDN, Vol. \225ypassim. 101 DBFP,Ser. I, Vol. 24, Nos. 141,144,158,162,166,167,172; Schanzer to Lloyd George, 29 Aug. 1922; Kennard, Rome, to FO, 31 Aug., 8 Sep., C 12894,12527,12828/74/3, FO 371/ 7340; MAE, Europe, Autriche, Vol. 127; Italie, Vol. 81,passim. 102 DBFP, Ser. I, Vol. 24, No. 138; correspondence in MAE, Europe, Autriche, Vols. 74,127; SDN, Vol. 1225.

Austria and central Europe

135

examination of the Austrian position by the League and the production of a solution at last. That this came about was in large measure due to Balfour, the British delegate on the League of Nations Council which met in Geneva from 31 August to 4 October at the same time as the Third Assembly. Balfour had to work at Geneva to produce a solution acceptable to Austria and her neighbours and France: equally important, he had to convince a sceptical Treasury that Britain must be further engaged. Before leaving for Geneva Balfour pressed for and got Treasury assistance on the delegation: Blackett was recalled from holiday in France and went, expressing the view that only if Austrian sovereignty were suspended and some super-sovereign with a foreign gendarmerie at his disposal took control would it be possible to raise money for Austria on world markets with government guarantees.103 A gendarmerie was expected to be needed because measures necessary to reform Austria's finances were likely to be so draconian (including the dismissal of thousands of officials and the suppression of state enterprises supported by the Social Democrats) that public order might be threatened. Avenol, too, thought that the problem was how control was to bring its authority to bear; but he considered that in some ways the external situation was simpler than it had been earlier. The threat of Austria joining Germany had been shown to be empty, and the rivalries of Austria's other neighbours might be kept in balance if the danger of dismemberment and disputes over the pieces were averted.104 The Austrian minister in London, Franckenstein, told Miles Lampson, the head of the Central Department of the Foreign Office, that Austria would welcome control and even a foreign gendarmerie (though not a Czechoslovak one and preferably not an Italian one); but Seipel, on returning to Vienna from Geneva, told the British minister, Akers Douglas, that whilst Austria was perfectly ready to accept a commission of control, he did not think an international gendarmerie need be considered.105 Balfour, who took the lead on the sub-committee on Austria set up by the League Council, and decided to make it his chief task at Geneva, emphasised the importance of the Austrian government continuing to administer the country itself.106 103

104

105

106

Niemeyer to Blackett, n.d.; Blackett to Niemeyer, 30 Aug. 1922; Niemeyer to Home, 31 Aug.; Niemeyer to Blackett, 2 Sep., T 160/584/F2073/021/1. Avenol to MF, 24 Aug. 1922, MAE, SDN, Vol. 1225. The Social Democrats were known to be opposed to foreign help with foreign control: see Marz, Austrian Banking, p. 493 and nn. 59, 63. Memorandum by Lampson, 12 Sep. 1922, C 12999/74/3, F 371/7340; DBFP, Ser. I, Vol. 24, No. 164. Phillpotts, Geneva, to Akers Douglas, Vienna, 7 and 15 Sep. 1922, C 12982, 13213/74/3, FO 371/7340. O.S. Phillpotts, the commercial attache in the British Legation in Vienna, was in Geneva for the whole of the League consideration of Austria and sent reports to his Minister and to the FO.

136

East central Europe: relief and reconstruction

While Balfour was trying to devise means for keeping the rivalries of Austria's neighbours in balance, the Italian government continued its efforts to obtain predominance in any control commission that was set up. The Italian counsellor in London came on 12 September to tell the Foreign Office that his government was anxious for recognition of its special position with regard to Austria. On 16 September the Italian ambassador wrote to Lloyd George and Curzon to complain that Balfour had proposed that states giving help to Austria should undertake not to seek any special political or economic advantage there, and asked them to ask Balfour to come to an understanding with the Italian delegate at Geneva. The Foreign Office regarded this as a 'try-on', and Curzon got Lloyd George to withdraw a telegram he was preparing to send to Balfour asking him to propose an Italian for the presidency of any control commission for Austria.107 The League Economic and Financial Committee now reported that budget equilibrium could be reached in two years if the Austrian government took immediate measures to prevent an increase in the deficit, stopped issuing paper currency, and established a new bank of issue; if a controlling authority were set up to supervise the execution of the reforms and authorise any borrowing; and if loans of 650 million gold crowns (about £22 million) were guaranteed by foreign powers. Guarantees would in many cases need parliamentary approval, but their promise would restore internal confidence in Austria and enable the government to embark on reforms; and the bank of issue and the control could be set up in a few weeks.108 To begin with Blackett and the Treasury were inclined to advocate refusal of a British guarantee. But on 23 September Blackett, who had returned to London, put to Home a strong plea from Balfour for reconsideration, on the ground that the British liability would be limited, that France and Italy were agreeing to give guarantees and to take previous British efforts into account, that 'the further help proposed can and ought to be given by the United Kingdom and that it would be very disadvantageous to British interests to refuse it and run the risk of Britain's being justly accused of wantonly failing Europe in a crisis'.109 Balfour also appealed to the Cabinet; and as a result of his advocacy Home agreed to seek parliamentary approval for a guarantee of 20 per cent of an Austrian loan of approximately 650 million gold crowns, provided France, Italy, 107

108

109

DBFP, Ser. I, Vol. 24, N o s . 1 6 2 , 1 6 6 , 1 6 7 ; note from de Martino, 12 Sep. 1922; Phillpotts to Akers Douglas, 15 Sep., C 13329, 13213/74/3, F O 371/7340. LNOJ, 1922, pp. 1463-8; Phillpotts to Akers Douglas, 20 Sep. 1922, C 13339/74/3, FO 371/7341. Blackett to Niemeyer, 12 Sep. 1922; Niemeyer to Home, 14 Sep., T160/584/F2073/012/1; Blackett to Home, 23 Sep., DBFP, Ser. I, Vol. 24, No. 172.

Austria and central Europe

137

and Czechoslovakia gave the same undertaking and the other conditions of the Financial Committee's report were accepted.110 This was a great step forward, but the form of control and of political guarantees still had to be agreed. On 28 September the Austrian SubCommittee of the Council discussed draft protocols embodying the scheme of stabilisation, but largely owing to Italian attempts to obtain a special position, signature of the protocols was delayed until 4 October, when the Italians agreed to the commissioner-general being responsible to the Council and undertook to guarantee slightly less of the loan than Britain, France, and Czechoslovakia. The commissioner-general was not to be a national of any of the major European powers nor of any state bordering on Austria. The committee of the guaranteeing powers was to have an Italian president.111 As far as political guarantees were concerned, Balfour's original proposal for an undertaking by states giving help to Austria that they would not seek special advantage was replaced by a protocol in which on the one hand the British, French, Italian, and Czechoslovak governments declared that they would respect the political independence, territorial integrity and sovereignty of Austria, would not seek to obtain any special economic advantage calculated to compromise that independence, and would abstain from any act that might be contrary to the spirit of the arrangements for the reconstruction of Austria; while on the other hand the Austrian government undertook not to alienate Austria's independence nor to enter any economic engagements calculated to compromise that independence.112 This text was produced by French officials, discussed in meetings with the British and Czechoslovak delegations, and preferred to drafts proposed by the League secretariat. The Foreign Office assumed that the Austrian undertaking was due to French insistence.113 Thus for the first time, three years after the signature of the Treaty of Saint-Germain, a complete scheme with the mechanism for its execution was prepared and adopted as a whole. As Sir Arthur Salter, Director of the Financial and Economic Section of the League, wrote in 1926: 'Adoption of the more difficult features was made easier by the impossibility of picking and choosing and the knowledge that the plan 110

Balfour to FO, 24 Sep. 1922, C 13429/74/3, FO 371/7341; Home to Balfour, 25 Sep., DBFP, Ser. I, Vol. 24, No. 174. 111 DBFP, Ser. I, Vol. 24, Nos. 175,177; Phillpotts to Akers Douglas, 4 Oct. 1922, C 13928/ 74/3, FO 371/7341. The arrangements for sharing out the guarantees are contained in annexes to Protocol No. II signed on 4 October; League of Nations, The Restoration of Austria, Geneva 1922; British and Foreign State Papers, London 1841ff., hereafter cited as BFSP, Vol. 116, pp. 850-60. 112 Protocol No. I, printed as in n. 111. 113 Clauzel, Geneva, to MAE, 26 Sep. 1922, MAE, Europe, Autriche, Vol. 127; Phillpotts to Akers Douglas, 4 Oct., C 13987/74/3, FO 371/7341.

138

East central Europe: relief and reconstruction

must go through as a whole or not at all; and confidence was inspired by knowledge of the complete plan and its adoption as a whole.' It was also, he noted at the time, a fortunate circumstance that the Austrian request came when the Council and Assembly were meeting anyway, so that sufficient authority was concentrated at Geneva for a long enough period.114 Adoption of the plan did not, of course, ensure its success, but at least everyone was clear at the beginning of October that a significant step had been taken. One of the reasons why the Czechoslovak government was able to express its interest in Austria's fate in the form of practical help was that it had recently succeeded in raising a loan in London. This success was in turn the result of protracted negotiations over the reorganisation of the AngloAustrian Bank and the settlement of a problem concerning claims of British nationals in respect of prewar interests in what was now Czechoslovakia. In addition Czechoslovakia was earning favourable estimates of its stability and its potential role in the economy of central Europe. In March 1920 the Treasury had turned down a suggestion from an Austrian banker, Baron Ofenheim, for the creation of an Austrian state bank either with its headquarters in London or founded with British capital, both governmental and private. Apart from the impossibility of granting Austria further large credits except as part of a general scheme with United States participation, there were obvious political objections to the British government owning part of the capital of any foreign country's state bank. On the other hand the Treasury considered that the rehabilitation of the currencies of east central Europe was very important and thought that, if the element of government finance were removed, the scheme would have much to commend it. The Treasury suggested that a revised version should be put to the Brussels conference.115 This suggestion was not followed up, but another form was found by the Bank of England, which was owed more than £1.5 million by the AngloAustrian Bank and therefore had a direct interest in its postwar reorganisation. Norman hoped, moreover, to see the bank rebuilt to take a part, with British support, in the economic reconstruction of central Europe. During June and July 1921 Michael Spencer Smith, a director of the Bank of England, visited Vienna and Prague for negotiations about the bank. In Vienna a preliminary agreement was signed, by which a British banking syndicate including the Bank of England would take over the bank in Austria and its branches in the successor states. The negotiations in Czechoslovakia, where the largest interests of the Anglo-Austrian Bank were, were more complicated because the Czechs wanted either the whole 114 115

League of Nations, The Financial Reconstruction of Austria, Geneva 1926, p. 75; Salter to McFadyean, 4 Oct. 1922, LN Arch., S 107. Treasury to FO, 6 Mar. 1920, 183608/5445/3, FO 371/7535.

Austria and central Europe

139

bank to be converted into an Anglo-Czechoslovak Bank with its headquarters in Prague or a smaller Anglo-Czechoslovak Bank to be founded on the basis of the Anglo-Austrian's assets in Czechoslovakia, whereas the Bank of England preferred a single large bank with its headquarters in London. Such a bank, in the opinion of Robert Bruce Lockhart, the British commercial secretary in Prague, might be of great value in helping to break down the barriers between the central European states, which were the most serious obstacle to the restoration of normal economic conditions in the region. The scheme, he thought, offered a real hope of reconstruction work in central Europe and would check the future economic expansion of Germany.116 Although Clerk impressed on Benes that the Czechoslovak government's chances of raising a loan in London might depend on its acceptance of the Bank of England's proposals, Czechoslovak nationalism proved invincible, and the Bank of England eventually agreed to the conversion of the branches in Czechoslovakia of the Anglo-Austrian Bank into an Anglo-Czechoslovak Bank with participation by the Bank of England and the Czechoslovak government. The agreement was signed on 10 October 1921, and the possibility of a loan in London was immediately raised. Bruce Lockhart recommended it warmly. Benes, he wrote, was perhaps the greatest factor for peace in central Europe: in supporting him and his economic policy, Britain would be taking the first steps towards securing better economic relations between the countries of central Europe and so restoring its economic life.117 Spencer Smith, who had gone to Vienna to assist the passage of the Austrian legislation on the Anglo-Austrian Bank, delayed, it was thought, by Austrian disappointment at the small size of the British and French advances of September, was consulted about a Czechoslovak loan, and on his return he discussed the suggestion with Baring Brothers, who agreed to study it. But as Spencer Smith wrote to Bruce Lockhart on 1 November, the news of the Czechoslovak mobilisation on the ex-Emperor Karl's second attempt to return to Hungary was very unwelcome: 'Even the study of any financial operation will be quite 116

Clerk to FO, 18 Aug. 1921, C 16831/13400/3, FO 371/5785. See also Lindley to FO, 15 Jun.; Clerk to FO, 23 Sep., 10 Oct., C 13400, 18842, 19508/13400/3, FO 371/5785-6; memorandum by Laverack, n.d. BE, OV 28/52; Norman to Blackett, 17 Mar., 13 Apr., 27 Jun., T 160/91/F3277/1; DBFP, Ser. I, Vol. 22, Nos. 253, 392; Marz, Austrian Banking, pp. 444,457-61; Alice Teichova, 'Versailles and the expansion of the Bank of England into Central Europe', in Norbert Horn and Jiirgen Kocka, eds., Recht und Entwicklung der Grossunternehmen im 19. und ftWhen 20. Jahrbundert, Gottingen 1979; P.L. Cottrell, 'Aspects of western equity investment in the banking systems of east central Europe', in Alice Teichova and P.L. Cottrell, eds. International Business and Central Europe 19181939, Leicester 1983. 117 Clerk to FO, 23 Sep., 10 Oct., 14 Oct. 1921, C 18842, 19508, 19833/13400/3, FO 371/ 5786; DBFPy Ser. I, Vol. 22, No. 392.

140

East central Europe: relief and reconstruction

impossible here until it is abundantly evident that there are to be no more wars or rumours of wars, and that the Czecho-Slovakia [sic] Government is in full accord and amity with the representatives of the Great Powers.'118 The crisis over the ex-Emperor was overcome and amity with the Great Powers was restored, but another obstacle remained in the dilatory treatment by the Czechoslovak government of private claims for prewar debts. In response to Clerk's urgings Benes promised to do his best, but he did not have complete control over his government or parliament, and delays continued. Clerk, who came to London in January 1922 to help with the loan negotiations, found Barings willing to take the lead in launching a loan provided they were assured of British government approval; but he told Benes that this would not be given without a satisfactory Czechoslovak declaration on the debts. On the other hand there was reason to fear that the Czechs would only carry out such an assurance if the loan went through.119 The banking concession to the Anglo-Czechoslovak Bank was issued on 31 January, and the bank opened its doors on 12 April. Spencer Smith, G. M. Young of the Anglo-Austrian Bank, and two other British directors were on the board. But at the end of January Barings were reluctant to proceed with the loan without guarantees that the Czechoslovak government had the power to pledge the revenues necessary as security, and without explicit British government approval.120 For the latter, satisfactory arrangements about the debts were necessary. Negotiations on the loan and the debts continued during February, some problems being dealt with when Benes visited London: he and the Czech financial delegate, Dr Pospisil, made a good impression in the City. Eventually the Czechoslovak minister in London was told that his government's assurances on the debts were satisfactory, but when the legislation on the subject was tabled the guarantees were regarded as too vague. However, with Norman's encouragement Barings decided to go ahead without a letter of approval from the British government, and on 6 April the first instalment of the Czechoslovak state loan of £10 million was issued in London and New York. It was quickly subscribed. The whole outcome was greeted as a great achievement. Bruce Lockhart wrote that the loan gave Czechoslovakia a first-class introduction to the London money market, while the Bank of England had secured its objectives and was the 118

Spencer Smith to Bruce Lockhart, 1 Nov. 1921, BB, PF 229; memorandum by Laverack, n.d., BE, OV 28/52. For the ex-Emperor's return to Hungary see DBFP, Ser. I, Vol. 22, Nos. 394tf., passim. 119 Clerk to Crowe, 29 Nov. 1921; Crowe to Clerk, 9 D e c ; Clerk to FO, 16 D e c , C 23034, 23552/12572/12, FO 371/5829; DBFPy Ser. I, Vol. 24, Nos. 562,575; Clerk to Cadogan, 13 Jan. 1922; Clerk to Benes, 19 Jan.; Clerk to Revelstoke, 26 Jan., C300, 664, 921/388/12, FO 371/7384; BB, PF 229. 120 Revelstoke to Clerk, 31 Jan. 1922, BB, PF 229; C 1567/388/12, FO 371/7384.

Austria and central Europe

141

only foreign bank allowed to own a majority share in the capital of a Czechoslovak bank.121 The Financial Section of the League of Nations also took credit for devising a form of arbitration by the League in case of dispute between the Czechoslovak government and the bondholders about the security for the loan. F. H. Nixon, with the professional optimism characteristic of a League of Nations official (but rather misplaced in view of the Austrian situation at that point), thought that this method opened a way for arrangements for the reconstruction of central and eastern Europe without subjecting the countries to control by foreign governments or financial groups, arrangements which they would accept because they were themselves equal members of the League.122 The promise of guarantees for an external loan did not in itself ensure success for the League of Nations scheme for reconstructing Austria's finances, and many observers in the autumn of 1922 were extremely doubtful about the prospects. Norman, for example, told Strong that he thought the League plans were 'practically unworkable'. Blackett's successor at the Treasury and on the League of Nations Financial Committee, Otto Niemeyer, returning to London in the middle of November from a visit to Vienna with a League delegation, told Lampson that he thought there was 'about a hundred to one chance' that Austria would pull through - not more, but that was more than he had given it before he went.123 The first step, the passing of necessary legislation by the Austrian parliament, was achieved by the beginning of December despite serious doubts on the part of the Social Democrats as to the use that the government might make of its full powers.124 After some delay in finding a suitable and willing candidate, the League of Nations Commissioner-General was appointed and took up his post in the middle of December: he was Dr Alfred Zimmermann, the Burgomaster of Rotterdam.125 The appointment of the head of the new bank of issue caused still greater difficulty. For reasons of internal politics, and in defence against Italian insistence that if any foreigner were appointed it must be an Italian, the Austrian government at 121

DBFP, Ser. I, Vol. 24, No. 51; Clerk to FO, 14 Apr. 1922, C 5367/388/12, FO 371/7385; BB, PF 229, 230, passim. The banking group consisted of Barings, Rothschilds, and Schroders in London; Kidder Peabody, Kuhn Loeb, and National City Bank in New York. Hope and Co. in Amsterdam also took a share. 122 Pospisil to Drummond, 5 Apr. 1922, BB, PF 231; Nixon to 'Dear Mr Governor', 5 Aug., LN Arch., S 123. 123 Norman to Strong, 31 Oct. 1922, Strong Papers, 1116.3(2); BE, OV 31/6; J.P. Morgan, London, to J.P. Morgan & Co., 17 Nov., MG Papers, Bundle 156, file 2; DBFP, Ser. I, Vol. 24, Nos. 192, 198 and n. 10. Blackett had just been appointed Finance Member of the Executive Council in India. 124 DBFP, Ser. I, Vol. 24, Nos. 179,185,194,198,211,214,218; Marz, Austrian Banking, pp. 495-9. 125 DBFP, Ser. I, Vol. 24, Nos. 186, 192, 205, 206, 218, 225.

142

East central Europe: relief and reconstruction

the end of December appointed an Austrian, Dr Reisch, a former Minister of Finance. Although attempts were then made to secure a foreign adviser for the bank, the government incurred British accusations that it was jeopardising the foreign confidence upon which the success of the external loan would depend: Norman went so far as to say that 'in these circumstances nothing could be done for Austria'.126 Norman was not, however, as bad as his word: on the contrary, he put a great deal of work into securing the success first of an interim loan authorised at the beginning of February 1923 by the Commission of Control, and then of the long-term loan. On 15 January London bankers, meeting at Norman's invitation at the Bank of England, agreed that American participation in the long-term loan would be necessary. Morgan Grenfell therefore asked J. P. Morgan and Co. for their views on the possibility of placing some of the loan in New York. They themselves were not enthusiastic, in view of the situation in Europe created by the FrancoBelgian occupation of the Ruhr, but said that if the Bank of England and other London banks went ahead they would not be able to stand out.127 Morgans replied that they saw no prospect of placing any Austrian bonds in the United States. The firm was still deeply interested in Austria and hoped that if the League scheme succeeded it might form a useful precedent for Germany, but they could not encourage the idea that the United States could take much of a loan soon.128 Lamont recommended to Hughes that the United States should guarantee part of the loan, as it might open out into 'a very much broader situation'; but the matter was not brought before Congress before it adjourned in March, as the Administration wished to give first priority to the ratification of the British debt agreement.129 After negotiations between an Austrian government mission and foreign bankers, the Council of the League of Nations on 22 April authorised the issue of the long-term loan of 650 million gold crowns. Whilst recognising the progress made in Austria, it specially noted Zimmermann's opinion that further drastic and energetic reforms would have to be made in the near future, especially in the railway administration and in reducing the number of government officials.130 126

DBFP, Ser. I, Vol. 2 4 , N o s . 218, 225, 226, 229, 230, 2 3 1 , 233, 346, 361, 364, 370. M . Schnyder of the Swiss Bank was eventually appointed special adviser, after further trouble with the Italians. 127 Bank of England m e m o r a n d u m , 15 Jan. 1923, B E , O V 2 8 / 5 4 ; Morgan Grenfell & C o . t o J.P. Morgan & C o . , 16 Jan., M G Papers, Bundle 156, file 2 . 128 J.P. Morgan & Co. to Morgan Grenfell & Co., 18 Jan. 1923, ibid. On 14 February Morgans reiterated that they were unable to do anything. 129 Lamont to Hughes, 26 Jan. 1923; Lamont to Grenfell, 9 Mar., Lamont Papers, II, 82-17 and 18; Strong to Norman, 20 Feb., FRBNY, C. 261 England, Bank of England General 1923-5. For the British debt agreement see ch. 7. 130 DBFP, Ser. I, Vol. 24, Nos. 328, 332, 342, 343; League of Nations, The Financial

Austria and central Europe

143

From this point until the issue of the loan began in June, efforts to ensure its success were continuous and intensive. Despite much urging of both Vissering and Ter Meulen, Norman was not able to overcome Dutch hesitations.131 The Netherlands government had agreed to guarantee 1 per cent of the loan, and the eventual Dutch share taken amounted to less than that.132 Norman had rather greater success with Sweden. The government had agreed to guarantee 2 per cent, and the amount subscribed was slightly more.133 The really significant change was in New York. Norman wrote to Strong on 9 April of his aim, after Austria had been 'set up', to tackle Hungary and then the other successor states and then perhaps the Balkan countries. When the various parts had been made economically sound and independent, it would be possible to reach what Norman believed was the ultimate solution for eastern Europe, 'an Economic Federation to include half a dozen countries on or near the Danube free of customs barriers, etc.'134 These distant prospects, however, did not make the immediate task any easier. Morgans were still very doubtful whether much could be done with the American public: the best hope was that banks would take a fair amount out of friendly feeling and keep it until Austrian recovery had progressed. They agreed to form a syndicate, but were unable to get government approval of the loan. Hughes refused, despite what he said was his wish to help the rehabilitation of Austria, because he feared that endorsement of the flotation might be an embarrassing precedent. Lamont, accepting Hughes's difficulties, replied that what he and his associates had in mind was the possibility that a successful plan of international cooperation over Austria might serve as a precedent for the German situation.135 Even when Lamont reached agreement with the Austrian loan delegation to take $25 million dollars of the loan, Morgans were anxious for all possible help in placing this sum;136 but in the event the Austrian loan was Reconstruction of Austria, pp. 207-9. Pierre Bark's letters to Norman recounting the tour of Europe are in BE, OV 28/55. Copies of Franckenstein's reports to his government are in LNArch.,C5. 131 Norman to Vissering, 20 Apr. 1923; Vissering to Norman, 26 Apr.; Norman to Vissering, 28 Apr.; Vissering to Norman, 3 May; Ter Meulen to Norman, 7 May; Norman to Ter Meulen, 9 May; Vissering to Norman, 25 May; Norman to Vissering, 29 May, BE, OV 28/ 55,56. According to a member of the League of Nations commission in Austria, the Dutch were anxious not to be involved in underwriting the Treaty of Saint-Germain with regard to Austro-German relations and accused the western powers of aggravating the much more important problem of Germany; Pelt to Nixon, 22 May, LN Arch., C 5. 132 League of Nations, The Financial Reconstruction of Austria, pp. 39, 41. 133 Ibid.; Norman to Moll, Riksbank, 30 Apr. 1923; Moll to Norman, 5 May, BE, OV 28/55. 134 Norman to Strong, 9 Apr. 1923, Strong Papers, 1116.4(2). 135 Correspondence, April 1923, in MG Papers, Bundle 156, file 2; Hughes to Lamont, 26 Apr.; Lamont to Hughes, 27 Apr., Lamont Papers, II, 82-18. 136 Morgan Harjes, Paris - J.P. Morgan & Co. - Morgan Grenfell & Co. correspondence, 624 May 1923, MG Papers, Bundle 156, file 2; BE, OV 28/56; Upson, Vienna, to Klein, Bureau of Foreign and Domestic Commerce, 1 Jun., NA, RG 151, 640 Austria.

144

£ast

central

Europe: relief and reconstruction

oversubscribed in New York, as in London, on the first day. Norman, after thanking J. P. Morgan for his willingness to take a hand, cabled to him on 11 June: 'Let us remember in days to come that this sort of international cooperation, of which you have now set such an example, is just what the world needs.' Morgan for his part sent a message to Norman: 'We may all feel satisfied at the first experiment in international cooperation of the markets.'137 The net yield of the loan amounted to 611 million gold crowns, rather under £27 million. Of this total about 17 per cent was subscribed in New York. The British government guaranteed 24.5 per cent of the loan: almost 40 per cent was subscribed in London.138 The years 1921 and 1922 saw important changes in the objectives and methods of European reconstruction, and in attitudes towards it; and a pattern was laid down that prevailed for the next four or five years. Whether out of real conviction that, as a League of Nations official put it, 'the reconstruction of Europe turns entirely upon the reconstruction of the finances of the different states (because so long as their finances are not sound you get inflation and the steady depreciation of the exchanges)'139 and hence obstacles to the development of trade; or whether out of inability to devise international economic plans that would be both useful and acceptable, the objective became almost solely that of reconstructing public finances and central banking. The method eventually applied to Austria at the end of 1922, of a scheme of financial reform worked out by League of Nations experts and supervised by a League-appointed controller with extensive powers, was the last of a series of abortive attempts and the first to prove acceptable and fairly effective. It largely held the field for the next few years, even influencing the arrangements made for Germany in 1924. Then, for reasons which will be discussed later, it fell out of favour and use. Equally interesting are the changes in attitude of those providing the reconstruction, all within the framework of liberal economic theory, a liberal international trading and monetary system, and a system of sovereign states. Throughout 1921 the method envisaged was extraordinarily ambitious: - the taking over by international or national capitalist groups of the running of public enterprises and the supervision of public expenditure in the states being reconstructed, in the interest of the foreign providers of capital and credits. This was the basis of the Loucheur plan for Austria early in the year, and of the international consortium at its end. The notion was reminiscent of the Ottoman Debt Commission or the 137

138 139

N o r m a n to Morgan, 11 Jun. 1923; Morgan t o N o r m a n , 11 Jun., B E , O V 28/56; M G Papers, Bundle 156, file 3. League of Nations, The Financial Reconstruction of Austria, p. 41. Nixon to 'Dear Mr Governor', 5 Aug. 1923, LN Arch., S 123.

Austria and central Europe

145

Chinese Maritime Customs but went well beyond these models. As Avenol pointed out, the Debt Commission in Turkey had never interfered with the state's financial or monetary policy nor imposed a balanced budget.140 The purpose of industrialists such as Loucheur seems to have been frankly a combination of business and political advantage. Bankers such as Norman seem genuinely to have believed that their far-reaching control had no political taint, whilst they supposed that all governments, including their own, had arriere-pensees. Norman's own attitude underwent striking changes. Having in 1921 first preferred the League of Nations to Allied governmental control in Austria, he then regarded, and encouraged the City to regard, the League itself as 'political'. Once having decided, however, to back the League scheme for Austria, Norman became an enthusiast for this method, attempting to have it applied everywhere and helping to cause the Financial Committee of the League to be seen as a tool of British finance. Norman certainly wished to see the Bank of England take the lead in European financial reconstruction, and he had great ideas about the organisation of and cooperation between central banks. He was not, at the start, anxious to take full responsibility for Austria, but was converted to support of the League scheme and the League loan, initially perhaps for lack of any viable alternative but later apparently with real zeal. Balfour's part in securing British approval and the adoption of the League scheme appears to have been vital, but it was his sole contribution to reconstruction. From 1922 the active role of the League Financial Committee owed much to Niemeyer, who worked closely with Norman. How far later foreign suspicions of the Bank of England and the Financial Committee were justified will be discussed in Chapter 8. At this point, in the early summer of 1923, the successful flotation of the Austrian loan was one of the few bright features of a very troubled central European landscape. 140

Avenol to MF, 28 Feb. 1922, MAE, PA Avenol, Vol. 18.

Chapter 5

From Brussels to Cannes, 1920-2

In the fifteen months following the Brussels financial conference the achievements and future prospects of reconstruction were patchy. Economic recovery was now overshadowed by world depression. The postwar boom had broken earlier in 1920, and the downward slide was sharp, aggravated even if not precipitated by strict deflationary policies in the United States and Britain. Between 1920 and 1921 world industrial production fell by 13 per cent: the fall was 20 per cent in the United States, 18.6 per cent in Britain, 11 per cent in France. In the United States wholesale prices fell on average by 3.4 per cent per month, production by 2.4 per cent: unemployment reached 12 per cent in 1921. In Britain, on average 2.4 per cent of trade-union members were unemployed in 1920, in 1921 14.8 per cent. At the bottom of the slump, in the summer of 1921,2.4 million insured people in Britain were out of work, 22 per cent of the total insured population. By contrast in Germany industrial production continued to rise - by 20.4 per cent between 1920 and 1921, after a 46 per cent rise from 1919 to 1920. Domestic demand was buoyant, interest rates low, prices fairly stable. This was due to continued expansion of the money supply and the Reich floating debt. Public sector investment was increased as a work-creating measure: full employment took priority over currency stabilisation. World depression reduced demand for German exports, but imports continued to grow, financed largely by foreign credit. This, it is suggested, was an important contribution to the early end to the world depression and the speed with which recovery took place from late 1921, especially in the United States for whose commodity exports Germany was a very important customer.1 1

Carl-Ludwig Holtfrerich, The German Inflation 1914-1923, Berlin and New York 1986, pp. 206-20; Aldcroft, The Inter-War Economy, pp. 32, 36-7; Mitchell, European Historical Statistics, Tables C 2, E 1; League of Nations, Industrialization and Foreign Trade, Table III; B.R. Mitchell, International Historical Statistics. The Americas and Australasia,

London 1983, Tables C 2, E 1, F 1, F 2; and, for Britain, the works cited in n. 49 below.

146

From Brussels to Cannes

147

Other European countries, too, such as the Netherlands and the Scandinavian states, benefited from Germany's growth. In France the repair of damage was making progress. The government paid out in 1921 for this purpose the largest sum of the whole reconstruction period: the system of claims was well established and 45 per cent of all the sums eventually paid was expended by the end of 1921.2 The economic picture of Europe was thus variegated. In terms of political stabilisation, too, 1921 saw some progress and much continuing uncertainty. In eastern Europe, in addition to the developments already discussed, the signature of a peace treaty between Poland and Soviet Russia was a relief, but the dispute between Poland and Lithuania defeated the efforts at a settlement by the League of Nations. Despite the signature in August 1920 of the Treaty of Sevres there was no peace between the Allies and the new nationalist Turkey, and actual hostilities continued between Turkey and Greece. In Italy the liberal state had contained the challenge from the left in the form of industrial disruption in 1920, but was visibly failing to meet the challenge of fascism. Britain was involved in virtual war in Ireland and faced difficult problems of imperial administration in the Middle East; but problems of naval building and of Pacific relations were settled at the end of the year.3 In Germany, domestic political conditions were more settled, but the execution of the peace treaty caused internal as well as external strain. The worst of these problems, apart from reparations, was the fate of Upper Silesia. The last and most important of the plebiscites on the border with Poland was held there in March 1921 and gave rise to serious differences with the Allies (and between Britain and France) until the League of Nations decided in October to partition the territory between Germany, which had received a majority of the votes, and Poland.4 2

3

4

Mitchell, European Historical Statistics, Tables F 1, F 2; Sauvy, Histoire economique, Vol. 2, p. 259. For the Polish—Soviet peace settlement see Piotr S. Wandycz, Soviet—Polish Relations 1917-1921, Cambridge, Mass. 1969, ch. 11; for the Vilna question see RIIA, Survey, 19201923, pp. 248—56. For the Turkish settlement see Michael L. Dockrill and J. Douglas Goold, Peace without Promise. Britain and the Peace Conference 1919-1923, London 1981, ch. 5; DBFP, Ser. I, Vols. 13, 17. For Italy see Christopher Seton-Watson, Italy from Liberalism to Fascism, London 1969, ch. 13; Charles S. Maier, Recasting Bourgeois Europe. Stabilisation in France, Germany and Italy in the Decade after World War I, Princeton 1975, ch. 5. For the Washington Conference see Orde, Great Britain and International Security, pp. 164-8; Michael G. Fry, Illusions of Security, North Atlantic Diplomacy 1918-22, Toronto 1972, ch. 4; Ian R. Nish, Alliance in Decline, A Study in Anglo-Japanese Relations 1908-23, London 1972, chs. 21-2; DBFP, Ser. I, Vol. 14. For Germany and Upper Silesia see Maier, Recasting Bourgeois Europe, ch. 4; Erich Eyck, A History of the Weimar Republic, Cambridge, Mass. 1962-3, ch. 6; Temperley, History of the Peace Conference, Vol. 6, pp. 261-5 and Appendix III; Peter Kriiger, Die Aussenpolitik der Republik von Weimar, Darmstadt 1985, chs. 4, 5a, 5b; DBFP, Ser. I, Vols. 10, 11, 16.

148

From Brussels to Cannes

For the Germans, reparations were above all a question between their country and the Allies; but they were well aware of the importance of the United States in the background, and they began to try to enlist United States interest in a prosperous and stable Germany.5 For Britain and France, reparations and war debts were still inextricably entwined. No decisive change took place in the debt situation, but reparations entered on a new phase in May 1921. Finally, towards the end of the year, Lloyd George launched a great scheme bringing together all the elements of European reconstruction. He hoped at first for United States participation, but when that hope failed he went ahead none the less. Reparations and debts 1920-1 Despite the expenditure of an enormous amount of bureaucratic effort, no solution to the reparation problem was found before the date when the Reparation Commission was due to produce its total bill and plan for German payment. The Spa conference in July 1920 having been chiefly concerned with coal deliveries, and having come to no general conclusion, reparations were referred to a meeting of Allies and German delegates. They were to meet at Geneva two or three weeks later; but the conversations were delayed at French insistence, and largely because of French uncertainty about policy.6 The complexity of the reparation problem for France was not recognised in Britain at the time. It would be unjust to put all the blame for this failure on to government officials. True, the Foreign Office and the Diplomatic Service were not trained or accustomed to think about economic questions;7 but they were not in charge of reparation policy. True, the Treasury, which was responsible, does not seem to have had much greater understanding of anything but the technical financial aspects: Bradbury's correspondence seldom illuminates the fundamentals, being largely concerned with means of ensuring that the Allies should benefit from expected German recovery and that Britain should get her share. But economists,financiers,publicists, do not seem to have done any 5

6

7

Kriiger, Aussenpolitik, pp. 127-9, 147-8; Werner Link, Die amerikanische Stabilisierungspolitik in Deutschland 1921-32, Diisseldorf 1970, pp. 44f., 52ff., 76ff., 83ff.; Dieter B. Gescher, Die Vereinigten Staaten von Nordamerika und die Reparationen 19201924, Bonn 1956, pp. 57-77. A peace treaty between the United States and Germany was signed on 25 August 1921: it is printed in BFSP, Vol. 114, pp. 828-31. For the Spa decision see DBFP, Ser. I, Vol. 8, No. 77; for the postponement of the Geneva talks see Vol. 10, ch. 5. This aspect is discussed in, for example, Zara S. Steiner, The Foreign Office and Foreign Policy 1898-1914, Cambridge 1969, pp. 168, 184-5; Valerie Cromwell, The Foreign and Commonwealth Office', in The Times Survey of Foreign Ministries of the World, ed. Zara Steiner, London 1982, p. 561. The level of official understanding of French reparation policy is apparent from the volumes of DBFP.

Reparations and debts

149

better: it was a collective failure of perception, the causes of which presumably lie in the seldom explicitly stated British aim to shape international reconstruction in a way that would best suit British interests, maximising Britain's strengths and reducing her problems; and in the irritation with French policy on Germany that was felt from the peace conference onwards.8 The French also were not very good at explaining themselves, and in any case a solution to their problem amounted almost to squaring a circle.9 At the end of the war, in the first place, France needed money for reconstructing the devastated regions, stabilising the currency, and balancing payments. A fixed sum for reparations on which an international loan could be raised would therefore be an advantage. But that procedure, apart from possibly producing less than a recovered Germany could subsequently pay, would tend to restore the prewar structure of financial power or at most further the shift of financial power from London to New York. A second school of thought in France held that the sacrifices of the war would ultimately prove vain unless the military victory were reinforced by a shift of the balance of economic strength from Germany towards France greater than that provided by the recovery of Alsace and Lorraine. In the long term this might mean French participation in Ruhr industry: in the short term reparations in kind might be more important than cash. There was more to the distinction between reparations in money and in kind than the transfer question. The settlement of reparations in kind implied a stimulus to parts of the French economy and a close Franco-German relationship; settlement in money would, by the operation of international finance, strengthen the links between Germany and Britain and the United States. Reconciliation of these different long-term prospects was obviously difficult, but was needed because reparations were an Allied, not merely a French matter; because France needed Anglo-American capital as well as German coke; and because much of French public opinion was not prepared for a close relationship with Germany. French policy in 1920 reflected these uncertainties. The desire to fix a lump sum for Germany's liability roused opposition in France, which could not easily be overcome 8

9

See, for example, W.M. Jordan, Great Britain, France, and the German Problem 19181939, London 1943, especially ch. 4; R.B. McCallum, Public Opinion and the Last Peace, London 1944, pp. 162ff.; Arnold Wolfers, Britain and France between Two Wars, Hamden, Conn. 1963, especially chs. 14 and 15. For recent discussion of French policy, see Artaud, Question des dettes, pp. 287-94; Trachtenberg, Reparation in World Politics, pp. 110—25, 166-72; Jacques Bariety, Les Relations franco-allemandes apres la premiere guerre mondiale, Paris 1977, pp. 134-87; Walter A. McDougall, 'Political economy versus national sovereignty: French strategies for German economic integration after Versailles', in journal of Modern History, 51 (1979), pp. 4-23; Jon Jacobson, 'Strategies of French foreign policy after World War F, in Journal of Modern History, 55 (1983), pp. 78-95.

150

From Brussels to Cannes

because the concessions Millerand had made to Lloyd George would only bear real fruit if the United States would cooperate. The arrangement reached at Spa was not favourable to France. In order to get the Germans to make the coal deliveries laid down in the peace treaty the Allies, at Lloyd George's insistence, agreed to make advances to Germany for the purchase of food, and to pay a premium on coal delivered.10 This brought deliveries in the last quarter of 1920, but reduced the French advantage from low German domestic coal prices. After the Brussels financial conference it was plain that there was no chance of mobilising the German debt by means of an international loan, which would have been the chief advantage of fixing the liability, by agreement, in advance of May 1921 and the totalling of the claims. Seydoux, who in the summer had tried to reconcile the two methods of payment,11 now proposed a plan based on the assumption that there would be no cash payments for a number of years. The plan was for an active collaboration with - or rather exploitation of- German industry, by which the German government would put paper marks at the disposal of individual claimants, who could use them to buy direct from German suppliers and buy shares in German industry. The plan was not worked out in detail, and it suffered from certain defects. It did not give sufficient incentive to German industry to take part, compared with the advantages it saw in delay, and the cooperation would still require Anglo-American capital while being fundamentally aimed against Britain.12 Nevertheless the plan did offer an alternative solution to the reparation problem, and one that might have had far-reaching political consequences; and the initial reaction of the German experts to whom it was put at a meeting at Brussels in December was not unfavourable.13 However, 10

See DBFP, Ser. I, Vol. 8, No. 77. The text of the Spa protocol on coal is printed in Cmd 1325 of 1921, Protocols and correspondence between the Supreme Council and the Conference of Ambassadors and the German Government and the German Peace Delegation between January 10, 1920 and July 17, 1920, respecting the execution of the Treaty of Versailles of June 28, 1919\ pp. 175-6; and Calmette, Recueil de documents, pp. 274-8. 11 Memorandum by Seydoux, 15 Oct. 1920, MAE, PA Millerand, Vol. 15. See Artaud, Question des dettes, pp. 291-2; Trachtenberg, Reparation in World Politics, pp. 163-4. 12 Memorandum by Seydoux, 15 Oct. 1920, MAE, PA Millerand, Vol. 15; also memoranda of 10 and 12 Jul., ibid., Vol. 42. See Artaud, Question des dettes, pp. 295-300; Trachtenberg, Reparation in World Politics, pp. 172—4; Georges Soutou, 'Die deutschen Reparationen und das Seydoux-Projekt 1920/21', in Vierteljahrshefte fur Zeitgeschichte, 23 (1975), pp. 237-70. 13 Instructions to Seydoux and Cheysson, 11 Dec. 1920; Seydoux to MAE, 17 D e c ; Seydoux to Berthelot, 19 D e c , MAE, RC, Vol. 27; memorandum by Cheysson, 15 D e c ; report by Seydoux, 20 D e c , PA Millerand, Vol. 45; Germany, Reichskanzlei, Akten der Reichskanzlei, Weimarer Republik (hereafter cited as ARK, with name of chancellor), Das Kabinett Fehrenbach, 25. Juni 1920 bis 4. Mai 1921, Boppard am Rhein 1972, Nos. 142, 148, 156; France, Ministere des Affaires Etrangeres, Documents relatifs aux reparations,

Reparations and debts

151

acceptance depended on the Ruhr industrialists, and on the German government accepting a provisional five-year plan for money payments leaving the fixing of the total liability until later. As a result of internal disagreements the German government posed conditions for accepting the provisional payments scheme, and the industrialists refused to attend further talks. Then at a meeting of the Supreme Council in Paris in the last week of January 1921 the Allies themselves abandoned the idea of a provisional settlement. This was mainly British doing. They had accepted the plan as a compromise, but Lloyd George still wanted afixedsum and a quick solution; and since French opinion was uneasy at the concessions already made, Briand, who had come to office a fortnight earlier, gave way. The Allies therefore reverted to a purely financial plan, of fixed and variable annuities over forty-two years, which was slightly more severe on Germany than that considered in the previous summer.14 The Germans were now invited to a conference in London at the beginning of March. They had the choice between accepting the Paris plan, making proposals of their own, or waiting for the total of claims being drawn up by the Reparation Commission. They chose to make counter-proposals, which by various means reduced the Paris figures by about four- fifths and were therefore completely unacceptable to the Allies. Threatened with sanctions and a levy on imports into Britain, the German delegation then proposed to go back to the plan for a provisional settlement. The German government did not approve this concession, but was saved by Allied rejection.15 Lloyd George's impatience in the winter was due to the depression in Britain, which worsened in the second half of 1920 and reached its bottom in the middle of 1921. The depression continued a major concern in Lloyd George's foreign as well as domestic policy until well on in 1922, for although production began to recover, unemployment continued to rise, reaching 15.2 per cent;16 but attributing it to uncertainty over reparations and at the same time imposing a tax on German exports by the Reparation Recovery Act was neither a sufficient explanation nor a cure. A fresh look Paris 1922, Vol. 1, pp. 72-114; Calmette, Recueil de documents, pp. 354-77. See Trachtenberg, Reparation in World Politics, pp. 175—7. 14 French documentation in AN, AJ5 320; MAE, RC, Vol. 28; PA Millerand, Vols. 46-7. Paris conference, DBFP, Ser. I, Vol. 15, Ch. 1; correspondence, Vol. 15, Nos. 422-32; France, Documents relatifs aux reparations, pp. 115, 122-4. See Trachtenberg, Reparation in World Politics, pp. 177-91. 15 DBFP, Ser. I, Vol. 15, Ch. 2; Vol. 16, Nos. 445-8; ARK, Fehrenbach, Nos. 166-205, passim; Trachtenberg, Reparation in World Politics, pp. 202—5. The German Reparation (Recovery) Act of 24 March 1921 provided for the application of part of the purchase price of imported German goods to the account of reparations, the German exporters to be reimbursed by their government. The effect was to raise the price of German goods imported into the United Kingdom by the amount in question. 16 Mitchell, European Historical Statistics, Tables C 2, E 1.

152

From Brussels to Cannes

at the connection between reparations and debts was taken in the spring of 1921 by Bradbury and by Loucheur, the Minister for Liberated Territory in Briand's government. Bradbury sent his ideas to Chamberlain on 1 March, saying that the Belgian delegate to the Reparation Commission had seen them and seemed impressed. France, Bradbury wrote, would probably make her consent to a reasonable reparation scheme depend on an arrangement on debts, and indeed it was evident that world economic recovery was not possible until the two problems had been dealt with. On the other hand it was difficult to deal with debts before the United States was ready to discuss them; and if Britain made concessions to France before reparations were put on a practical basis she would throw away her principal lever for getting French consent to such a basis. The proper sequence therefore seemed to be tofixthe German liability at afiguremore or less commensurate with the inter-Allied debts and then consider redistributing the burden. If the German liability werefixedat an amount with the present value of 83.25 billion gold marks, Britain should offer to fund the interest on the Allies' debts to her for five years and then accept payment in German bonds. If the United States agreed to do the same for the European debts, she and Britain would eventually be left as the main reparation creditors. Some of the smaller Allies' deficits might be written off. France would be entirely relieved of her debts and would get about 31.25 billion gold marks; and the arrangement would be more favourable to Britain than one in which she cancelled the European Allies' debts to her without being relieved of her debt to the United States and with only the doubtful asset of German reparations to come.17 Unfortunately this scheme suffered from fatal defects. It assumed that a German debt with a present value of 83.25 billion gold marks was practical: this was indeed less than the Boulogne scheme, which was worth about 100 billion, and was about the same as the 85 billion on which D'Abernon, the British ambassador in Berlin, had been working in December; but it was probably more than the Schedule of Payments of 1 May. It assumed, despite all declarations to the contrary, that the United States would be willing to receive German bonds in payment of Allied debts. And it assumed (Bradbury was not alone in this, to be sure) that the debts were a possible lever to induce France to agree to a moderate reparation settlement, whereas the French did not contemplate paying anything until their reconstruction had been paid for by Germany. For his part Loucheur still hoped for cancellation and Allied solidarity. He suggested, among other things, that the British government should announce that, in order to help French reconstruction, it would not claim interest on the French debt for 17

Bradbury to Chamberlain, 1 Mar. 1921, T 194/7.

Reparations and debts

153

five years: during that time the two governments would examine the debt problem and would agree to a joint approach to the United States, with a private understanding that France would pass on a share in any benefit that was given to her but denied to Britain.18 After an unsuccessful German attempt in April to enlist American mediation, the reparation problem was transformed by the London conference at the beginning of May and the German acceptance, under ultimatum, of the Schedule of Payments.19 The German liability worked out by the Reparation Commission was now fixed at a nominal 132 billion gold marks. More than half this sum (82 billion gold marks) was to be represented by bonds (the C bonds) which would bear no interest and would not be issued until the Reparation Commission was satisfied that the necessary funds were available. The value of the liability was therefore greatly reduced, but by how much it is not possible to say and the estimates of historians differ.20 But whatever reduction in practice the future held, the immediately important point was that public opinion on both sides believed in the reality of 132 billion. A new German government led by Josef Wirth, convinced that the burden was impossible but that continued resistance was sterile, adopted a policy of 'fulfilment' in order to demonstrate the validity of its case;21 and the search for a solution to the reparation problem turned, for the next eighteen months, mainly on the questions whether Germany could make the scheduled payments and whether she could borrow on the security of the now fixed sum. One positive feature of the Schedule of Payments was that an Ally could now ask for deliveries in kind, not just for reconstruction of damage but for 'the restoration of its industrial or economic life'. When Bradbury was thinking of fixing the German liability at a sum corresponding to the total of inter-Allied debts a new United States administration was on the point of taking office. Its policy on debts did not differ substantially from that of its predecessor. After the breaking off of the Blackett-Rathbone negotiations in June 1920 the question of the British debt to the United States was left in suspense for some months. As 18 19

20

21

CP 2716, 15 Mar. 1921, CAB 24/121. See DBFP, Ser. I, Vol. 15, ch. 4; ARK, Fehrenbach, Nos. 244-52; France, Documents relatifs aux reparations, pp. 158-63. Sally Marks, 'Reparation reconsidered: a reminder', in Central European History, 2 (1969), pp. 356-65, discounts the C bonds altogether and comes down to a total of 50 billion; Stephen Schuker, The End of French Predominance in Europe, Chapel Hill 1976, pp. 14—15, calculates it at 64 billion; the highest estimate is the rather older 180 billion of Etienne Weill-Raynal, Les Reparations allemandes et la France, Paris 1947, Vol. 1, pp. 682-702. See Trachtenberg, Reparation in 'World Politics, p. 385, n. 85. Ernst Laubach, Die Politik der Kabinette Wirth 1921-22, Lubeck 1968, pp. 38-42.

154

From Brussels to Cannes

the American elections approached the British Embassy in Washington grew nervous about the political use that might be made of the debt and advised an early settlement. Neither of the two parties had included debts in its platform at the conventions in the summer; but with the onset of recession and falling prices, especially of farm products, in the autumn the Republican candidate, Warren G. Harding, began to introduce the question into his campaign. In a speech on 8 October he said that there should be an agreement by which the debts would be consolidated and the Allies would undertake to pay at a fixed term in negotiable bonds.22 A few days later Harding connected the debts with the public demand for tax cuts. If the debts were consolidated, he said, they could be commercialised and the proceeds used to reduce the American floating debt and hence the burden on the American taxpayer.23 Chamberlain circulated Geddes's recommendation to the Cabinet, but it decided to wait and see what the next Administration would be like. There was still a strong objection to an arrangement that included saleable bonds, because once they had been sold the United States government would be unable to remit or postpone any part of the British debt in a general scheme.24 Even if the Cabinet had accepted Geddes's advice, funding arrangements could hardly have been concluded before the elections in the middle of November, but when these were over both the Washington embassy and Chamberlain returned to the subject. On 2 December Geddes conveyed a message from Colonel House, recommending continued British inactivity because the Administration would be forced by the stagnation in exports to cancel the war debts. Geddes did not agree with House's diagnosis: he thought rather that if economic distress got worse the clamour to make Britain pay would drown all voices favouring cancellation.25 Chamberlain had already told the Cabinet that he thought he must offer to negotiate on funding, because whilst the United States government was most unlikely to demand payment of the principal, it was obliged by the Liberty Loan Acts to demand interest unless the debt were funded or Congress remitted it; and that, as Wilson had said in his reply to Lloyd George, Congress would not do. Moreover, Britain was bound to convert the debt certificates into 22 23 24

25

New York Times, 9 Oct. 1920; Geddes to FO, 22 Oct., A 7431/182/45, FO 371/4563. New York Times, 15 Oct. 1920. Minute by Chamberlain, 29 Oct. 1920, T 160/365/F557/2; CP 2029, CAB 24/114; Cabinet, 3 Nov., C 59(20), CAB 23/23; Curzon to Geddes, 5 Nov., A 7812/182/45, FO 371/4563. Geddes to FO, 2 Dec. 1920; minute by Sperling, 6 Dec, A 8471, 9109/182/45, FO 371/ 4563. Houston, in his report to Congress of 20 November, had again dismissed the idea of cancellation and pointed out that interest could only be deferred as part of an exchange of obligations: Annual Report of the Secretary of the Treasury, pp. 61-5; Calmette, Recueil de documents, pp. 518-22.

Reparations and debts

155

gold bonds if called upon to do so. If the United States did demand the arrears of interest, which amounted to $314 million, it would be possible to pay, but Britain's resources would be drained. It would be better to negotiate.26 A few days later Chamberlain wrote that the embassy's forecast of a clamour in the United States reinforced his conviction that Britain must try to reach a settlement and led him to ask the Cabinet to reconsider its refusal to cancel the Allied debts. British industry was suffering because Europe could not buy for want of credit. Britain could not afford to give further credits, but she could free the Allies' credit by remitting their debts. These obligations could not in fact be paid; even the interest could not be collected for some years and then only at the cost of a debased exchange and increased trade competition. There was also the political aspect: good relations in the world were not possible when the chief connection between the countries which should be most closely united was that of debtor and creditor. Since the United States would not understand the point Britain should face her obligations, but she should c do the wise thing' by the European allies.27 Harding was elected president with a large majority, and the Republicans retained control of the Senate and the House of Representatives. On 15 December the Washington embassy telegraphed again urging acceptance of the American terms for funding and the postponement of interest. The retiring Administration was not in a position to do anything new, and the incoming Republicans would certainly insist on stiffer terms.28 Confronted with all this advice and Chamberlain's renewed insistence that the Americans were about to make some demand, the Cabinet on 17 December decided that since repudiation of the debt was out of the question a funding arrangement would have to be made. A special commissioner, Lord Chalmers, former Joint Secretary to the Treasury, would be sent to the United States to negotiate it. But the Cabinet was still unwilling to cancel the European debts even though it recognised that making a demand on France was impossible since the only result would be to depress the European currencies further and thus hit British exports more than ever.29 The instructions to Chalmers drawn up at the beginning of January 1921 said that his general attitude should be that the government wished to fulfil Britain's obligations without raising the question of general cancellation again; but it still believed that cancellation was desirable and so an 26 27 28 29

CP 2214, 30 Nov. 1920, CAB 24/116. CP 2214A, 3 Dec. 1920, CAB 24/116. Geddes to FO, 15 Dec. 1920, A 8798/182/45, FO 371/4563. Cabinet, 17 Dec. 1920, C 72(20), CAB 23/23; FO to Geddes, 17 Dec, A 8798/182/45, FO 371/4563.

156

From Brussels to Cannes

agreement must not take a form that would make future reconsideration of the whole question impossible. There must therefore be no stipulation about Britain's treatment of the other Allies, nor about Britishfinancialor commercial policy. It could be stated that Britain had every intention of giving her debtors terms at least as good as those the United States gave her. The object in the negotiations would be to give the British obligations a form which reduced the obstacle to generalfinancialrecovery and international trade that was posed by the existing debt.30At the same time Lindsay, on leave from the Washington embassy, was describing the American position to people in London. Leffingwell and Norman Davis, he said, had always told him that they hated the debts and were inclined to think that it was in the United States' own interest that they should be cancelled. But public opinion would not contemplate the idea, and any proposal tending to suggest it even indirectly was self-defeating. Thus cancelling the French and Italian debts to Britain, however desirable for the sake of relations with those countries, would be bad psychology just when Chalmers was going to negotiate about funding. Leffingwell and Davis had always stressed that any gesture must come from the United States spontaneously. After a funding arrangement had been reached, remitting the French and Italian debts would be a useful lesson to the American public as an act of disinterested generosity. Lindsay thought it inconceivable that the United States would not spontaneously give Britain any facilities that she might be forced by circumstances to give to other countries; but Sperling, the head of the American Department of the Foreign Office, was less sure. Curzon commented that as far as he knew there was no present intention of cancelling the French and Italian debts.31 Chalmers was at first expected to go to Washington in January. It was then decided to call Geddes to London for consultation first, and the date of his return would mean that Chalmers could not reach Washington in time for useful negotiations before the change of Administration on 15 March. In view of the government's reluctance to start negotiations this was a not unwelcome hitch, and Chalmers's mission was postponed, in effect indefinitely.32 But during January the Americans used the prospect of his arrival to urge the French into talks. After some prodding by Treasury officials before Christmas, Casenave, the French financial attache, asked for instructions from Paris. He said that the lack of a settlement was making a bad impression on public opinion, and since (as he thought) matters were far advanced with the 30 31

32

C P 2404, 3 Jan. 1921, C A B 24/118. Memorandum b y Lindsay, 4 Jan. 1921, with minutes b y Sperling and C u r z o n , A 2 4 7 / 2 4 7 / 45, F O 371/5661. The Times, 15, 17, 19 Jan. 1921; Norman to Strong, 22 Feb., Strong Papers, 1116.2(2); BE, OV 31/4.

Reparations and debts

157

British, France's credit in the American market would be seriously harmed if she did not take the same path.33 However, the French government refused to be drawn into negotiations, being determined to stick to the line which Lloyd George had briefly accepted at Lympne, namely that the payment of war debts must be linked with the receipt of reparation payments from Germany. Casenave was instructed to get the Americans to understand that whilst there was admittedly no juridical link, it was obvious that the various settlements were bound to affect each other and the conditions of one could not be fixed in isolation.34 In these circumstances Chamberlain's revelation, in a speech on 6 February, that the British government had proposed all-round cancellation after the armistice, caused unfavourable comment in the United States, where the fact that Britain was owed a good deal more than she owed was generally overlooked.35 On 12 February Houston explained to the Senate Foreign Affairs Committee that the United States government had always refused to contemplate cancellation. At the same time the Senate Judiciary Committee decided to enquire into the debt question and asked Houston not to pay out on credits already authorised without consulting the Committee.36 The arrival in office of the new Republican Administration did not bring about any substantial change in American policy. Shortly after President Harding's inauguration Geddes reported that the pressure of the economic situation seemed to be making the Administration and the Senate anxious to do something for world tranquillity. The new Secretary of State, Charles Evans Hughes, apparently wanted to express an intention to support those who were trying to get Germany to fulfil the peace treaty, but without increasing French intransigence. Geddes thought that he could suggest to Hughes that some declaration of solidarity with the Allies would be useful in connection with British efforts to secure the restoration of 'real peace' in Europe. But the Foreign Office was not impressed with the suggestion. Sydney Waterlow, a member of the Central Department, noted that the only way in which the United States could help to promote real peace in Europe was to cancel the Allied debts; and Crowe thought that British 33

34

35

36

Memorandum by Kelley, 15 Dec. 1920; Houston to Jusserand, 20 Dec. 1920, 5 Jan. 1921, MF, F30 781 = B 31707; MAE, Amerique 1918-40, Etats-Unis, Vol. 227. MAE to Jusserand, 15 Nov. 1920, MF, F30 785 = B 31710; Jusserand to MAE, 24 Dec, MAE, Amerique, Etats-Unis, Vol. 226; Leygues to Franc.ois-Marsal, 29 Dec, MF, F30 781 = B 31706; Frangois-Marsal to Millerand, 15 Jan. 1921, MAE, Amerique, Etats-Unis, Vol. 227, PA Millerand, Vol. 6; MF to Casenave, 17 Jan., MF, F30 782 = B 31707; MAE, Amerique, Etats-Unis, Vol. 227. See Artaud, Question des dettes, pp. 313-16. Craigie to FO, 9 and 17 Feb. 1921, A 966, 1478/247/45, FO 371/5661. Strong, too, thought that Chamberlain's statement had done harm: Strong to Norman, 8 Feb., Strong Papers, 1116.2(1); BE, OV 31/4. New York Times, 8, 13, 14 Feb. 1921; The Times, 8, 9, 14 Feb.; Congressional Record, 66th Congress, Third Session, p. 4252.

158

From Brussels to Cannes

advice - which had not been asked - would not be welcomed in Washington.37 That this caution was wise was shown by the reception given at the end of March to the former French prime minister Rene Viviani, sent to Washington by Briand to restore Franco-American friendship. Viviani was given a friendly welcome, but his attempts to persuade the new Administration to ratify the Treaty of Versailles came up against the decision, now taken, to sign a separate peace with Germany; and all that Harding would say about the French debt was that the United States would not be an unreasonable creditor.38 But in dealing with the German approach of 24 April for American mediation in reparations Hughes told Geddes that he wished to help the Allies.39 Geddes thought that a conversation he had with Hughes and Mellon, the new Secretary of the Treasury, on 2 May about debts might have made the Americans appreciate the importance of the Allies receiving as much as possible in reparations. Asked for his views on how the matter should be approached, Mellon said that he substantially agreed with the position in the arrangement that Rathbone had negotiated the previous year. He understood that negotiations would be entirely self-contained, i.e. that British observance of any agreement with the United States would not be made conditional on any British agreement with the continental Allies. Geddes agreed, but pointed out that what Britain could offer the United States would naturally depend a good deal on what the other Allies could pay her. It was clear that none of them could pay either Britain or the United States for a long time, and some of the debts would probably have to be written off; but it would be impossible for Britain to be more generous to the continental countries than the United States was. Mellon admitted the importance of this consideration; but it was clear to Geddes that he had no thought of cancellation.40 Others, however, were less sure either that there was no American thought of cancellation or that Britain could not be more generous than the United States was to the continental Allies. Lamont, for example, who was in Europe in April, told his partners that Britain was likely to forgo the most important Allied debts due to her, although it would be politically awkward to announce this intention and at the same time to have to say that 37

38 39 40

Geddes to FO, 18 Mar. 1921, and minutes, C 5807/2740/18, FO 371/6019; DBFP, Ser. I, Vol. 16, No. 470. Artaud, Question des dettes, pp. 331-3; FRUS, 1921, Vol. 1, pp. 962-7. DBFP, Ser. I, Vol. 16, Nos. 532-5, 549-52; FRUS, 1921, Vol. 2, pp. 36-55. Geddes to FO, 26 Apr., 3 May 1921, A 2927, 3096/247/45, FO 371/5661. In his budget statement on 25 April Chamberlain (who was about to hand over the Treasury to Sir Robert Home) said that the total British debt to the United States had been reduced by nearly £75 million in the previous year. No account was being taken in the budget of interest due to the United States, at present in suspense: the arrears amounted to approximately £65 million on 31 March: HCDeb., Vol. 141, cols.70-1.

Reparations and debts

159

she must meet her debt to the United States.41 McFadyean wrote to Fred Kent at the beginning of May that he believed Britain could pay the United States without great hardship, but he had always supported the idea of treating reparations and inter-Allied debts as a single problem, and recent events confirmed him in his view that no solution could be found to reparations until the United States joined the Allies in finding a reparation settlement.42 Also early in May a member of the American staff in Paris told Frederick Leith Ross, a Treasury official on the British reparation delegation, that the Administration was coming round to the idea of cancellation, and that a British initiative in cancelling Allied debts would create a favourable impression and gain the government much credit.43 But when Lamont, after returning home, asked the new Assistant Secretary of the Treasury, Eliot Wadsworth, what he thought the effect on American opinion would be if Britain announced the writing off of a large part of her claim on France, Wadsworth replied that he did not think it would arouse much interest. In any case he doubted whether Britain would do it without consulting the United States. If France had only two francs to pay with, why should Britain voluntarily give up her claim and let America have both?44 The British Treasury was not in fact contemplating any initiative. When Geddes asked for enlightenment on the government's wishes, the Treasury was unable to help. Officials thought that the government did not have any policy on the general question of debts, other than postponing discussion in the hope that conditions would improve. Ministers certainly thought it inequitable that Britain should have to pay the United States unless the continental Allies simultaneously began to pay her; but they also seemed to accept that interest payments to the United States would have to begin in October 1922 and did not exclude the possibility that the Allies would not begin to pay then. The policy seemed to be to wait and aim in due course to get a round-table discussion of the whole problem. Explaining this to the Foreign Office, the Treasury said that it was not prepared to lay down, before a round-table discussion, principles for dealing with the debt to the United States other than the general one that it could not be dealt with in isolation. Geddes was accordingly told to be extremely cautious.45 The United States government was not much clearer than the British 41

42 43 44 45

Morgan Grenfell & Co. to J.P. Morgan & Co., 26 Apr. 1921, Lamont Papers, IV-B, 172-19. McFadyean t o Kent, 4 M a y 1921, McFadyean Papers, Correspondence. Leith Ross to Blackett, 9 May 1921, T 160/365/F557/2. Lamont t o Grenfell, 1 7 J u n . 1921, L a m o n t Papers, II, 132-6. FO to Geddes, 6 Jun. 1921; Geddes to FO, 20 Jun.; Treasury to FO, 14 Jul.; FO to Geddes, 21 Jul., A 4272, 4446, 5144/247/45, FO 371/5662; minute by Rowe Dutton, 7 Jul., T 160/365/F557/2.

160

From Brussels to Cannes

about its policy. Some business circles were coming round to the idea of cancelling or reducing Allied debts in return for economic advantages for the United States; but most public and Congressional opinion was convinced that the Allies had done well out of their territorial gains and that debt payment would alleviate the lot of the American taxpayer. Mellon and Hoover, the dynamic Secretary of Commerce, were equally sure that payment was eventually possible and necessary. Mellon wanted maximum freedom of action and asked on 21 June for legislation giving the Treasury complete authority to negotiate terms with the debtor governments. The Senate Finance Committee at the end of July approved his draft bill with two important conditions: there must be no cancellation and no acceptance of German bonds in payment of Allied obligations. In October the House of Representatives Ways and Means Committee decided to put future negotiations in the hands of a commission with wide discretion. Eventually the Senate adopted a more closely defined form, more out of jealousy of the Executive than of fear that it would be over-generous. The World War Foreign Debt Commission, set up for three years, was to consist of five members, the Secretaries of the Treasury, State, and Commerce, one Senator and one Congressman, to conduct negotiations for the repayment of the debts within twenty-five years at an interest rate of not less than 4 per cent. Debtors would not be allowed to pay in the obligations of another country. The only discretion allowed to the Commission was over deferring interest payments.46 The bill became law on 6 February 1922. The origins of Lloyd George's grand design While this legislation was under discussion in the United States all parties to possible negotiations carefully avoided mentioning the subject of debts at the Washington conference held between November 1921 and February 1922 to discuss the limitation of naval armaments and the Pacific. When the conference was being planned Wadsworth told the Frenchfinancialattache that debts would only be discussed if others took the initiative.47 The French did not wish to do so but were afraid that the Americans would raise reparations and debts because of the pressure for disarmament and trade expansion. Briand was advised, before he left for Washington, to avoid the subject of debts unless cancellation were offered in return for 46

47

Artaud, Question des dettes, pp. 338-55; Melvin P. Leffler, 'The origins of Republican war debt policy 1921—1923: a case study in the applicability of the Open D o o r interpretation', in Journal of American History, 59 (1972), pp. 585-601. Casenave to MF 27 Aug. 1981, MF, F30 782 = B 31707. Reports that a financal conference was to be held simultaneously with the naval one were rousing interest in Germany: P. Warburg to Hoover, 29 Aug. 1921, Warburg Papers, Box 10.

The origins of Lloyd George's grand design

161

concessions that France could make. What she wanted, the Ministry of Finance said, was that all the debts and claims should be considered as a whole, but at present the United States government was not ready to do this, and any discussion of debts would only reveal the divergence of views.48 The pressure over disarmament was indeed great: according to the press in the United States and to some extent in Britain, excessive spending on arms was keeping the world in turmoil, preventing recovery, and standing in the way of debt payment; but the Americans were unable to use the debts as a lever for getting political concessions since they were not able to offer concessions themselves either on the debts or on such matters as renewing the failed 1919 guarantee to France. Nevertheless, it was in the late autumn of 1921 that the problem of reconstruction with all its ramifications and the widest geographical spread was raised by Lloyd George in a single grand design. A number of different factors came together to produce it. At home, unemployment continued high and business confidence low. Some of the causes of the depression were domestic. The deflationary dear money policy adopted by the government, with general agreement, to check the speculative boom of 1919 and to prepare the way for a return to gold at the prewar parity made it worse and damaged the social programmes adopted at the end of the war. The government's standing suffered, and Lloyd George's personal position was affected.49 The fall in demand was world-wide, affecting all the industrial nations but Britain more than those with better adapted industry or with a smaller share of the economy dependent on overseas trade. Government and business opinion believed that Britain's recovery depended on that of other countries, and that in so far as the economic problems were caused or aggravated by lack of peace, the situation might be susceptible to political and semi-political remedies as well as economic ones. In this respect an important factor was Russia. Since the spring of 1921 Soviet policy had seen a number of new developments amounting, or appearing to amount, to a far-reaching transformation. The New Economic Policy was introduced, allowing for small-scale private enterprise under overall state control. A trade agreement was signed with Britain in March and one with Germany in May: others were forecast, and foreign capitalists were invited to apply for concessions to develop mining and 48

49

Memorandum by Seydoux, 19 Oct. 1921, MF, F30 1360 = B 32266; Doumer to Briand, 22 Oct., F30 782 = B 31707. For the position of the government in the autumn of 1921 see Morgan, Consensus and Disunity, pp. 256-62. For the depression see Pigou, Aspects of British Economic History, pp. 38-40, 71-3, 184-97; E. Victor Morgan, Studies in British Financial Policy 1914-1925, London 1952, pp. 67-86; S. Howson, The origins of dear money, 1919-20', in Economic History Review, 27 (1974), pp. 88-107.

162

From Brussels to Cannes

industry.50 These openings were shortly followed by a disastrous crop failure in the Volga region; and in the face of widespread famine Lenin appealed to the world for help and credits. The first, and the largest, response came from Hoover on behalf of the American Relief Administration. Characteristically the ARA insisted on working on its own, and it was able to exclude Soviet officials from its operations.51 European Red Cross societies and other agencies, having smaller resources, had to deal with the Soviet authorities. The British Cabinet was averse to giving government money, but agreed to a French proposal to set up a commission on the famine.52 The commission first decided to send Emission of enquiry to find out what was most needed in Russia and then, when that was refused by the Soviet government on the ground that the needs, and the need for haste, were well known, called a meeting of all interested countries to concert action and a general attitude on credit.53 It was hoped by this means to prevent the Soviet government playing one country off against another, as well as to prevent duplication of effort. In a speech in the House of Commons on 16 August Lloyd George said that the famine was 'so appalling a disaster that it ought to sweep every prejudice out of one's mind and only appeal to one sentiment - pity and human sympathy'. But in order to receive outside assistance the Soviet government ought to recognise its financial obligations towards foreign governments and their nationals. This was not seeking to use the famine for a political purpose that would be 'diabolical' - but supplies would have to come from outside and would not do so unless confidence were restored. If the Soviet government wished to create confidence and obtain the support of the western trading community, 'they must say they will recognise all these obligations'.54 In line with this the British put forward a resolution on credits which was adopted by the international meeting at Brussels on 6-8 October, saying that no adequate or final solution to the famine could be found until conditions were established in which internal trade in Russia 50

51

52 53 54

See E . H . Carr, A History of Soviet Russia. The Bolshevik Revolution, Vol. 3, L o n d o n 1953, chs. 27 and 29; Richard H. Ullman, Anglo-Soviet Relations 1917-1921, Vol. 3, The Anglo-Soviet Accord', Princeton 1972, Part 4; Horst-Giinther Linke, Deutsch-sowjetische Beziehungen bis Rapallo, Cologne 1970, chs. 5 and 6; Giinter Rosenfeld, Sowjetrussland und Deutschland 1917-1922, Berlin 1960, ch. 7; DBFP, Ser. I, Vol. 20, Nos. 387, 388. Carr, The Bolshevik Revolution, Vol. 3, pp. 341-3; Benjamin M. Weissman, Herbert Hoover and Famine Relief to Soviet Russia 1921-1923, Stanford 1974. DBFP, Ser. I, Vol. 15, Nos. 95, 103; Vol. 20, Nos. 390, 392, 394. DBFP, Ser. I, Vol. 15, Nos. 413, 416, 417, 419. HCDeb., Vol. 146, cols. 1237-42. In interviews with Lloyd George and at the Board of Trade on 5 and 6 August, Soviet representatives asked for the supply, on credit, of goods such as textiles and boots, which the Soviet government could barter for food with peasants who had grain but would not part with it without material recompense: Lloyd George Papers, F/48/3/38, F/207/3/7-8.

The origins of Lloyd George's grand design

163

was revived and foreign exporters had the confidence to send goods to Russia. Credit must rest on confidence; so the effective creation of credits for helping the export to Russia of essential goods to meet the existing distress and prevent its recurrence would only be practicable if the Soviet government recognised existing debts and gave adequate security for future credits.55 In his reply of 28 October the Soviet Commissar for Foreign Affairs, Chicherin, said that his government was ready to recognise responsibility for prewar Russian state loans, provided it was given the facilities to do so. The western powers for their part must conclude a definite and general peace with the Soviet republic and give it full recognition. All these questions should be settled by an international conference.56 An opening was thus now created for a much more comprehensive discussion and settlement with the new Russia than had been possible hitherto. The country, it was widely thought, was moving back to a 'normal' system. Lenin was believed to have admitted that war communism had failed and that NEP was a retreat. Well-informed quarters, said The Times, 'believed that it only required hitting on a suitable formula' to reintroduce capitalism into Russia. The prospect unfolded not merely of the trade which would alleviate the depression, but of peace in eastern Europe, which would redound directly to the benefit of the countries concerned and thence indirectly to British recovery.57 Another major element in the situation at the end of 1921 was the prospect of a further crisis over reparations and a growing conviction in London that the Schedule of Payments was impossible. The Wirth government's foreign policy of 'fulfilling' the peace treaty differed from that of its predecessor more in appearance than in substance, and its domestic monetary policy remained very much the same. No government of the republic so far had seriously tried to reduce the budget deficits which were the chief cause of the increase in the quantity of money and the continuing inflation. After major reforms in the taxation system in 1919, the central government had the right to levy a wide range of taxes; but no government had been strong enough politically to push through the severe taxation that would have been needed to halt inflation. Inflation reduced unemployment 55 56

57

DBFP, Ser. I, Vol. 20, No. 430. Soviet Documents on Foreign Policy, ed. Jane Degras, Vol. 1, London 1951, pp. 270-2; DBFP, Ser. I, Vol. 20, No. 438. Stephen White, Britain and the Bolshevik Revolution, London 1979, pp. 55-6; Stephen White, The Origins of Detente, Cambridge 1985, pp. 31-7; The Times, 19 Dec. 1921; DBFP, Ser. I, Vol. 20, No. 467 (Lenin's speech of 23 December to the All-Russian Congress of Soviets). Lloyd George seems to have been particularly struck by a speech of Lenin's on 1 November and later described it to the House of Commons as an 'admission of the complete failure of the Communist system': Lloyd George Papers, F/149/2/12; HCDeh., Vol. 152, col. 1900.

164

From Brussels to Cannes

and the risk of social discontent. It also meant depreciation in the external value of the mark. Up to May 1921, uncertainty about the total of reparations was blamed for Germany's inability to raise foreign loans to stabilise the currency; but in practice, even in 1919, no one seriously contemplated returning to prewar currency conditions, and some advisers regarded even stabilisation at current values as worse than inflation. After May 1921 the reparation total was theoretically fixed; but quite apart from the uncertainty over the future of the C bonds, the payments under the Schedule of Payments would probably have represented over 5 per cent per annum of Germany's national income, a very considerable burden. Continued budget deficits reduced Germany's credit-worthiness abroad; but meanwhile the trade deficit - large notwithstanding the stimulus given to exports by inflation - was financed by foreigners maintaining mark balances in Germany, mainly for speculative reasons, and buying German assets. The payment of the first billion gold marks due under the Schedule of Payments in the summer of 1921 was carried out with the help of the London and Amsterdam money markets. It induced a sharp fall in the mark exchange and unsettled confidence in the currency. From the summer the dollar rate of the mark, the wholesale price index, and the money supply rose steeply, after about a year of comparative stability.58 From the point of view of the German budget, the distribution of reparation payments between those in cash and those in kind was not important, since both required government expenditure. But from other points of view the negotiation between Walther Rathenau, the Minister of Reconstruction, and Loucheur, of an agreement on reparations in kind, was significant. The agreement, completed at Wiesbaden on 27 August, was a revival and extension of Seydoux's plan of the previous autumn. It provided for three billion gold marks' worth of deliveries to France for three years by a German company set up for the purpose.59 Since this would be a good deal more than France's share of German annuities under 58

59

For the above I have relied heavily on Holtfrerich, The German Inflation, passim. Also the contributions by Karl Hardach, Peter Czada, and Peter-Christian Witt in Industrielles System und politische Entwicklung in der Weimarer Republik, ed. Hans Mommsen, Dietmar Petzina, and Bernd Weisbrod, Diisseldorf 1974, pp. 368—75, 386-426. See Louis Loucheur, Garnets secrets 1908-1932, ed. Jacques de Launay, Brussels and Paris 1962, pp. 85-92; memorandum by Seydoux, 9 Jun. 1921; conversations between Loucheur and Rathenau, 12-13 Jun.; proces-verbaux of negotiations, 28 Jun.-l Jul.; memorandum by Seydoux, 2 Jul., MAE, PA Millerand, Vol. 18; Weill-Raynal, Les Reparations allemandes et la France, Vol. 2, ch. 20; Laubach, Kabinette Wirth, pp. 73-9. Text of Wiesbaden agreements printed in France, Documents relatifs aux reparations, pp. 253-80; Cmd 1547 of 1921, Papers relating to the agreement between the French and German Governments concerning the application of Part VIII of the Treaty of Versailles regarding deliveries in kind, and in BFSP, Vol. 116, pp. 745—57.

The origins of Lloyd George's grand design

165

the Schedule of Payments, only part would be debited to France's reparation account for the year and the balance would be carried forward for twelve years. It thus represented an anticipation of reparation receipts for France for the most urgent purposes of reconstructing the devastated regions. Since the deliveries were to be made over and above the annuities, it also represented an additional burden on Germany. On both these scores doubts and objections were raised in Britain. Whilst Foreign Office officials and the embassy in Berlin were inclined to welcome evidence of Franco-German cooperation, Bradbury was more critical of the priority attained by France.60 Rathenau had from the start disclaimed any intention of doing anything displeasing to Britain and expressed a wish to negotiate something equivalent with other reparation creditors. This suggests that he intended, not to burden Germany with additional obligations, but rather to shift the emphasis as much as possible away from cash payments.61 At all events the Wiesbaden agreements required approval by the Reparation Commission, and it proposed modifications. Furthermore, German policy hardened after the decision by the League of Nations on 12 October to partition Upper Silesia. There was industrial resistance also in both Germany and France and so the Wiesbaden agreements never produced substantial deliveries. Cash payments were the looming problem late in 1921. Having made the payment of the first billion in the summer, Germany was due to make further payments on 15 January and 15 February 1922. The government tried to get industry to make its holdings of foreign exchange available, but without success,62 and the mark fell sharply on the foreign exchanges in September, October, and November. The Committee of Guarantees, set up under the Schedule of Payments to supervise (without any executive powers) the application of the revenues assigned as security by Germany, visited Berlin in the last week of September. It found that a large deficit was to be expected in the German budgets for 1921-2 and 1922-3, and that deliveries in kind and the proceeds of the Reparation Recovery Act would produce less than a quarter of the payment due in January. It concluded that the German government's first priority must be to stabilise the mark and stop issuing Treasury bills to cover the budget deficit. The Reparation Commission itself visited Berlin on 8 November and afterwards wrote to the German government urging it to make every effort to obtain the foreign exchange for the forthcoming payments either from its own 60

61

62

DBFP, Ser. I, Vol. 16, Nos. 656, 657, 658, 659, 661, 677, 710, 711, 713, 729, 734, 737; Cmd 1547 of 1921. DBFP, Ser. I, Vol. 16, Nos. 677, 705, 711, 714, 720; Laubach, Kabinette Wirtb, pp. 89-93; Trachtenberg, Reparation in World Politics, pp. 216-18. ARK, Wirth, Nos. 82, 91, 93, 115, 133, 135, 137, 138; Laubach, Kabinette Wirth, pp. 846, 120-2; Paul Warburg to Hoover, 29 Aug. 1921, Warburg Papers, Box 10.

166

From Brussels to Cannes

nationals or from foreign lenders. The prospect was that if Germany failed to pay, the Ruhr would be occupied.63 Having failed with its own industrialists and bankers, the German government turned to bankers in London and New York. The reparation expert Carl Bergmann asked Strong about the possibility of an American loan to stabilise the mark; but Strong thought that the only possible basis for a loan would be at the request or on the authority of the Reparation Commission, with repayment taking priority over reparation payments.64 On 25 November the Governor of the Reichsbank, Havenstein, officially asked Norman whether British finance houses would be prepared to grant the German government a credit for the January and February payments. Norman replied on 3 December: 'I have to say .. . that under the conditions which at the present time govern the payments due during the next few years by the German Government to the Reparation Commission, such advances cannot be obtained in this Country.'65 By this time a variety of opinion in London had come to the conclusion that not only must the Schedule of Payments be revised but some further action on debts was needed. On 7 November the French charge d'affaires in London reported home that, having been advised that the means to British recovery were the cancellation of Allied debts and the revision of reparations, Lloyd George intended to take an initiative with proposals for the cancellation of debts due to Britain even if the United States did not follow her example, and for revision of the Schedule of Payments in such a way as to limit Germany's obligations to deliveries in kind for the reconstruction of the devastated regions.66 As regards Lloyd George's intentions this information was premature. He was absorbed in the negotiations going on for peace in Ireland, and such attention as he had to spare was given to the Washington conference which the Irish negotiations prevented him from attending.67 But on 16 November the Treasury sent the Cabinet a memorandum on the necessity for a 63

64

65

66 67

See Trachtenberg, Reparation in World Politics, pp. 222-6; DBF?, Ser. I, Vol. 16, Nos. 727, 733, 741;ARK,Wirtb, Nos. 13CM. Strong to Harding, Governor of the Federal Reserve Board, 4 Nov. 1921, FRBNY, C 797, Reparations, Strong-Logan correspondence; Geddes to FO, 25 Nov., C 23115/ 416/18, FO 371/5979; DBFP, Ser. I, Vol. 16, No. 723. Havenstein to Norman, 25 Nov. 1921; Norman to Havenstein, 3 Dec, BE, OV 34/100; Sir Henry Clay, Montagu Norman, London 1957, pp. 200—1; Laubach, Kabinette Wirth, pp.126-9. De Montille to MAE, 7 Nov. 1921, MAE, PA Millerand, Vol. 19. Negotiations between the British government and Sinn Fein began in October 1921 and were concluded on 6 December with the signature of a treaty by which the twenty-six counties, without Ulster, gained dominion status. The classic account is still Frank Pakenham, Peace by Ordeal, London 1935. For the negotiations from the British side see also Thomas Jones, Whitehall Diary, ed. Keith Middlemas, Vol. 3, Ireland 1918-1925, London 1971.

The origins of Lloyd George's grand design

167

moratorium for Germany and a revision of the Schedule of Payments. It was not, the memorandum said, in Britain's interest that Germany should collapse and the whole of central Europe lose its purchasing power; but if the reparation system could be made to work smoothly British receipts would help to pay the interest on the debt to the United States.68 At the same time Monnet, in England on business concerned with the economic arrangements for Upper Silesia, talked to Blackett, Norman, Kindersley, and others. Monnet found them all convinced that it was a mistake to ask Germany to make frequent payments in the first few years, and that those due shortly should be postponed. Some, especially Kindersley, also thought it necessary to see how France and Belgium could be assured of some capital for reconstruction andfinancialstabilisation, for example by a series of international loans secured on German assets, the product of which could largely go to France while the British share could be postponed to a later date. In proposing a postponement of German payments the British believed that they were pursuing the restoration of order in Germany's economic and financial life, which would allow the general reconstruction of Europe. Kindersley, whose bank (Lazard Brothers) had helped the German government with the payment of the first billion in August, had just come back from a visit to Berlin, where he had been asked by the German government to consider a loan to make the January reparation payment. Kindersley did not think that the German government would be able to raise such a loan anywhere; but rather than simply refusing the German request he thought that he should indicate conditions which, if met, would make loans possible. He proposed, after consulting the British government unofficially, to call a meeting of bankers who would reply to the German .government and state the conditions which must be met. These were that the next reparation payments must be postponed, precise assets must be pledged as security for foreign loans, and Germany's finances must be restored to order under a plan of control. British circles in general, reported Monnet, considered that the internationalfinancialsituation must be taken in hand, Germany'sfinancesmust be put in order, reparations given a practical and realisable form, and a definitive settlement of war debts achieved. Some of them said that Britain was making arrangements to pay interest to the United States in the following spring, but was determined to see a definitive settlement. Either the United States would call a further conference at the end of the present one on naval limitation, to deal with the worldfinancialproblem and war debts in particular, or Britain would go ahead alone, settle with her debtors and then see how this related to the reparation question. Some made it clear 68

CP 3556, 16 Nov. 1921, CAB 24/131.

168

From Brussels to Cannes

that they favoured cancelling the continental Allies' debts; some suggested that if Germany acknowledged the reparation liability as an ordinary foreign obligation, it could be considered along with other debts in a general settlement.69 The idea of a meeting of bankers was conveyed to Strong, who thought better of it than he did of an idea sent him by Norman at the end of October, that the British government should give the German government, in exchange for its bills, French and Italian Treasury bills in British possession, and that Germany should make the reparation payments in these bills which the French government would be unable to refuse. Strong favoured sending an official American representative to a bankers' meeting, but preferred the idea of the United States joining in a general economic conference to deal with the whole subject of reparations, debts, and exchanges. If such a conference were held, the United States government, he thought, should issue a simple preliminary declaration to the effect that the United States could not finance the world while it indulged in wholesale inflation; that the government was willing to adjust and defer the war debts but could not cancel them altogether; that German reparations must be dealt with 'decently'; and that the other governments must stop printing paper money, tax their people adequately, and balance their budgets.70 On 24 November Norman gave the Chancellor of the Exchequer a memorandum saying that under present circumstances Germany could not make her reparation payments without borrowing, but could not borrow for the purpose of making such payments. There was a general loss of confidence, and business and the exchanges were generally disorganised as the dates of payment approached. It was urgently necessary that Germany should be given time and that the occupation of further territory should be avoided. Germany should be given a six or twelve months' moratorium and required to reform her finances; but further than this, in order to obtain a settlement of the world's uncertainties, during the period of the 69

70

Monnet to Mauclere and Vignon, 20 Nov. 1921, MAE, PA Millerand, Vol. 19; memorandum by Kindersley, n.d. [late Nov.], BE, OV 34/100. About this time the American Embassy and Chamber of Commerce in London were collecting the views of some leading British bankers on war debts. Three out of four favoured general cancellation; all thought that short of this Britain should pay the United States and could do so given time and opportunity; Brand, and Vassar Smith of Lloyds Bank, thought that Britain would have done well to cancel the debts due to her regardless of American action: Brand to Grant Forbes, 24 Nov. 1921, Brand Papers, file 46; memorandum on opinions of British bankers, Nov.-Dec, NA, RG 151 640/Inter-Allied Debts. For the Mendelssohn credit of August 1921 see ARK, Wirth, No. 68, n. 3; for Kindersley in Berlin, No. 142. Norman to Strong, 28 Oct. 1921; Strong to Norman, 25 Nov., Strong Papers, 1116.2(1, 2, 3); Strong to Wadsworth, 26 Nov., FRBNY, C 797, Reparations, Strong-Logan correspondence; Clay, Norman, pp. 197-9.

The origins of Lloyd George's grand design

169

moratorium a comprehensive readjustment of reparation payments should be agreed as part of a general settlement of all the international indebtedness arising from the war.71 Norman evidently helped to draft a Cabinet paper for Home, saying that a decision on reparations must be taken before Germany defaulted on the January payment, and proposing a moratorium during which she must reorganise her finances.72 On the day that this more limited proposal was circulated to the Cabinet, Rathenau arrived in London to explore the possibility of a loan to Germany. He brought with him Havenstein's letter to Norman and stayed until 10 December, seeing Norman, various bankers, Home, and Treasury officials, and meeting Lloyd George. Norman described him to Strong as panic-stricken at the thought of an occupation of the Ruhr. People in London, Norman wrote, were most anxious that the Ruhr should not be occupied; but more than that they wanted to allow international - or at least European - business to start up again. He himself therefore was keen to see reparations linked with the inter-Allied debts and somehow tackled as a whole: We are as it were in jeopardy today of making a temporary European adjustment of the Reparation payments, which adjustment may last long enough to allow the Inter-Allied Debts to be settled next spring or summer in a totally different and separate question. Such a possibility is too ridiculous. Having, let us suppose, steadied the Exchanges by some Reparation adjustment, we are immediately to see them unsteadied by Inter-Allied Debt payments? Norman went on to talk gloomily about Austria and showed signs of having caught Rathenau's panic: I do not believe it would take a great deal of financial or political stupidity to bring chaos into Austria similar to what we see in Russia; to break up Germany, and beginning in Portugal to spread revolution right through the Peninsula.73 The Cabinet Finance Committee met on 1 and 6 December. Home explained that Bradbury considered that Germany was likely to default in January, and if she did so the effect on the whole of Europe would be disastrous beyond calculation. The effect on Britain would be very serious. 71

72 73

Memorandum by Norman, 24 Nov. 1921, 'Handed to Chancellor of the Exchequer. Reported to Committee of Treasury 30 November', BE, OV 34/100; meeting of Committee of Treasury, 30 Nov., G8/54. 'Draft for the Cabinet', 28 Nov. 1921, BE, OV 34/100; CP 3512, 28 Nov., CAB 24/131. Norman to Strong, 1 Dec. 1921, BE, OV 31/5; Strong Papers, 1116.2(2); Clay, Norman, p. 200. Rathenau, giving German ministers an account of his visit, said that he had been invited by the British government: ARK, Wirth, No. 166; Rathenau's diary of the visit, Walther Rathenau, Tagebiicher 1907-1922, ed. Hartmut Pogge von Strandmann, Diisseldorf 1967, pp. 263-73; English translation, Walther Rathenau, Industrialist, Banker, Intellectual and Politician: Notes and Diaries 1907-1922, ed. Hartmut Pogge von Strandmann, Oxford 1985, pp. 273-83.

170

From Brussels to Cannes

London banks would stand to lose some £5-6 million in respect of trade transactions which they had been financing for German firms. Rathenau had come hoping to raise a loan, but the City was unwilling to find the money unless it got an assurance that Germany's finances would be rehabilitated. Home thought that the City would welcome the abandonment of German reparation payments: it would certainly support a moratorium. France would object, but pressure could be put on France. Curzon, with an eye to wider foreign policy considerations, was opposed to putting pressure on France and urged that every effort should be made to carry the French government's assent, if necessary offering compensation in other directions. Someone (not named in the minutes) suggested that Britain might offer to forgo some of the benefits of the agreement of the previous August on dividing the first German billion (an agreement which the French government had not ratified because it gave France no cash), or that, if the United States would help, the two governments could surrender some of the French and Belgian obligations that they held. Other ministers, however, contended that as far as the United States was concerned Britain should keep her hold on the French debt, and that her position in the United States would not be improved by making proposals for cancelling the French debt at present.74 A Treasury official was despatched to Brussels and Rome to try to persuade the Belgian and Italian governments to agree to a moratorium, without talking about compensation in other directions. A visit by Home to Paris was suggested, but instead Loucheur was invited to England - not Doumer, the Minister of Finance, who was not liked. Loucheur arrived in England on 8 December.75 By this time the French were uneasy about what might be going on in London. There was agitation in the Paris press.76 On 29 November Seydoux urged on his superiors the necessity of deciding on a position on reparations if the government did not wish to be confronted with a plan, concerted between the British and the Germans and possibly sprung on France in a way that could put the government in a most difficult position. It was evident, Seydoux wrote, that in both London and Washington European recovery was increasingly seen as linked with reparations. The British believed that they had more to gain from German recovery than from receiving payments, and all were afraid of the present situation. France must have a concrete plan and must come to an agreement with Britain so that she could not be left isolated, a situation in which she would have no alternative to using force against Germany. Further than this, Seydoux feared an Anglo-German entente extending to such matters as 74

75

FC 36th and 37th conclusions, 1 and 6 Dec. 1921, CAB 27/71; CP 3551, CAB 24/131. For the agreement of 13 August see DBFP, Ser. I, Vol. 16, Nos. 672, 684, 691, 710, 731. 76 DBFP, Ser. I, Vol. 16, Nos. 746-55. DBFP, Ser. I, Vol. 16, No. 745.

The origins of Lloyd George's grand design

171

railways in Poland and Russia and threatening the whole basis of French policy in Europe.77 The policy that Seydoux proposed was based on his conviction that Germany could pay and that the transfer problem could largely be solved by reparations in kind. Thus an international loan secured on German industrial assets would enable the A bonds of the Schedule of Payments to be paid in cash; the service of the B bonds could be achieved by deliveries in kind or public works by Germany in the British and French empires; the C bonds would be reducedparipassu with the cancellation of inter-Allied debts.78 The secretary-general of the French delegation to the Reparation Commission, Alexandre Aron, started from different premises. The problem of reparations, and of international relations so far as the two were linked, would in his view not be solved until the German debt was reduced to a sum of the order of 50 billion gold marks present value, payable in fifteen years and with serious, simple, and automatic guarantees. This could not be done at once, but France could use the request for a moratorium to work towards it and improve her own position, while giving her Allies some satisfaction. The British Treasury favoured a moratorium because, whilst anxious to encourage a revival of trade, it did not want to abandon any of Britain's claim. It would not be possible to cancel all the inter-Allied debts and reduce the German liability by the same amount until the United States was ready to join in the discussion; but France could agree to some reduction of the German total if Britain and the other Allies would agree to revise the shares of reparation in such a way as to give priority to the reconstruction of the devastated regions. Aron apparently believed that such an agreement was possible.79 At a meeting with Briand before he left for London Loucheur outlined a plan involving a loan to Germany, reorganisation of Germany's finances, abandonment of the bulk of Britain's reparation claim, and a reduction of Germany's liability commensurate with the cancellation of debts.80 There is no British record of Loucheur's conversation with Lloyd George and Home at Chequers on 8 December, and Loucheur's own account is not very precise. They talked about European reconstruction and collaboration in the restoration of Russia, and the need for a simultaneous settlement of reparations and war debts. Loucheur's account suggests that Lloyd 77

78

79

80

Memorandum by Seydoux, 29 Nov. 1921, MAE, PA Millerand, Vol. 19; Parmentier, the Directeur du Mouvement General des Fonds, was also worried at the lack of a clear French policy, attributing it to the multiplicity of government departments involved in the reparation question: memorandum, 3 D e c , MF, F30 1275 = B 32181. Memoranda by Seydoux, 5 and 16 Dec. 1921, MAE, PA Millerand, Vol. 19. See Artaud, Question des dettes, pp. 374-7. Memorandum by Aron, 6 Dec. 1921, MF, F30 1275 = B 32181; Artaud, Question des dettesy pp. 378-9. Record of meeting, 7 Dec. 1921, MAE, PA Millerand, Vol. 19; Artaud, Question des dettes, pp. 378-9.

172

From Brussels to Cannes

George proposed to abandon Britain's reparation claims, but the British evidence suggests that the idea came from Loucheur. Lloyd George said that in any cancellation of debts American cooperation was essential: Britain could not renounce her claims unless the United States did so, too. 81 Loucheur seems to have taken this condition somewhat lightly, but this is perhaps understandable in view of what Monnet had reported about British willingness to cancel regardless of the United States. And in any case optimism about involving the United States seems to have reigned for a few days in London, on what basis it is harder to discern. The atmosphere at the Washington conference was, it is true, encouraging. The instant British acceptance of the American proposals on capital ship limitation made a good impression; the British and American delegations worked well together over the problem of getting a Sino-Japanese agreement on Shantung; American public opinion was pleased at the successful start of the conference; the easy relations between British and American officials that had obtained at the peace conference were recreated, and so were hopes of more profound Anglo-American cooperation. Hankey wrote to Lloyd George on 29 November: All the Americans and big politicans whom I talk to tell me that if only the Conference succeeds they have great hopes that the better atmosphere created among nations may lead to a settlement of many other outstanding questions. I have an idea that in their minds they have the question of the debt.82 If current good feeling at the Washington conference was the sole ground for the optimism in London, the memory of the aftermath of the peace conference ought to have provided a corrective. If there was more solid ground, the evidence is not obvious. But at all events, after Loucheur went back to France Norman had another long conversation with Rathenau, 81

82

Loucheur, Carnets secrets, pp. 185—8; the British evidence is the account given to the Cabinet on 16 December, C 93(21), CAB 23/27, and the conversation with Briand on 20 December, DBFP, Ser. I, Vol. 15, No. 107. Churchill, who saw Loucheur on 9 December, found him 'delighted' with the way in which Lloyd George 'envisaged the whole of the great economic situation'. For themselves, Churchill and Loucheur agreed that matters should be handled in the following stages: 'First, a combined effort to bring America into a general forgiveness of war debts and indemnities (except the restoration of the devastated areas); second, if this failed and America would not come in, independent action of the same character by both England and France; third, though the moment was not yet ripe for it, a consortium or triple arrangement between England, France and Germany for the reorganisation of Russia': Martin Gilbert, Winston S. Churchill, Vol. 4, Companion, Part III, London 1977, pp. 1686-8. See also Artaud, Question des dettes, pp. 379-80. Hankey to Lloyd George, 29 Nov. 1921, Hankey Papers, 8/22. On 13 January 1922 Hankey wrote again: 'One result of this conference has been that the British are more popular than they have ever been, and the Americans genuinely believe that at any rate we stand for the same ideals as they do' {ibid.). For a summary of the prospects for Atlanticism see Fry, Illusions of Security, pp. 187—9.

The origins of Lloyd George ys grand design

173

which persuaded him (so he wrote a week later to Strong) that at present only a temporary moratorium for Germany was possible, but that the ultimate settlement would depend on a general economic conference to be called if possible by the United States. Rathenau recorded in his diary his understanding of the British programme: All international debts and reparations are to be cancelled. France is to retain reparations for reconstruction. England is to receive certain sums for 'actual damages'. Small nations to be compensated - Occupation expenses to be limited, occupation to be reduced - Trade agreements between England, France, America, Germany - America is to convoke an Economic Congress - Norman calls this 'America and England summoning their debtors'. 83

Not knowing whether a brief moratorium without 'other rearrangements' was possible, nor what the prospects were of the United States calling a general economic conference 'within reasonable time', Norman sent on 12 December cables to Strong inquiring about the possibility of bringing] together the United States, France and Great Britain, not for a General Economic Conference but for a meeting in the persons of their Prime Ministers and President who should determine more or less unofficially but in principle the general lines to be followed when the time came for a General Economic Conference to be called, and in the meantime should establish the necessity . . . of a brief moratorium in respect of German Reparations.84

Norman told Strong afterwards that the government knew nothing of this initiative. This does not seem to be true. In the first place, he himself recorded lunching with Home on 12 December and 'Cable to go to Strong as drafted by him'.85 Secondly Home, with Lloyd George's knowledge, on 12 December asked the Deputy Secretary to the Cabinet, Tom Jones, to send a cable to the British delegation at Washington with the object of discovering what were the chances of an invitation from President Harding to Lloyd George and Briand and Loucheur to go to Washington to discuss the economic condition of Europe with special reference to the impending crisis over Germany.86 Norman's disclaimer was made after the initiative had become public knowledge and was presumably meant for Strong to spread as a piece of damage limitation. The idea of a meeting in Washington between Lloyd George, Briand, and Harding got into the London press on 83 84

85 86

Rathenau, Notes and Diaries, p . 282. N o r m a n t o Strong, 17 D e c . 1921, B E , O V 3 1 / 5 ; Strong Papers, 1116.2(2). I have not been able t o trace the telegrams referred t o in this letter in the Bank of England o r Federal Reserve Bank archives. Norman diary, 12 Dec. 1921, BE, ADM 20/10. Jones, Whitehall Diary, Vol. 1, London 1969, pp. 184-5. The telegram has not been traced. Jones had recorded on 6 December (p. 183) Lloyd George thinking that he might go to an economic conference in Washington; also Jones to Hankey, 6 Dec, CAB 63/34.

174

From Brussels to Cannes

13 December and started a wave of discussion. The American ambassador in London, who was not involved, described a denial in the Daily Chronicle (a paper close to Lloyd George, edited by Philip Kerr) that the Prime Minister had suggested a world economic conference as a trial balloon, intended to get the United States to take the initiative in discussing debts since success would add greatly to his prestige.87 The press reports led to a semi-official denial in Washington of any intention to call an economic conference, to an official denial by the British delegation that they had any intention of discussing economic questions with the United States government, and to the introduction of a resolution in the Senate by Senator Harris of Georgia that the United States had no intention of cancelling any debt due to her.88 Geddes, reporting that Loucheur was understood to have urged the Belgian government to sound out the idea of an economic conference in Washington, said that his Belgian colleague thought that broaching such an idea might do irremediable harm and knew that he (Geddes) agreed.89 All this publicity made an enquiry about a meeting virtually impossible, and Norman called it off although he still hoped that Strong would make personal enquiries about future prospects. He and Strong, he wrote, both knew that the most desirable policy was simultaneous consideration of reparations and inter-Allied debts. Since it was evident that that was not practical politics at the moment, European countries would have to try to make some arrangement among themselves, but he did not know how far it would be possible to do so without the United States. As far as Germany was concerned, the best that could be hoped for was a three or six months' moratorium without an occupation of the Ruhr.90 Briand's visit to London between 18 and 22 December was not a substitute for the joint trip to Washington. If that had come off London would have been a preliminary, but the visit was also intended to restore Anglo-French relations after recent differences.91 After sharp disagreement in the summer about Upper Silesia, the French had signed in October with Mustapha Kemal's Nationalist Turks an agreement which signified an open abandonment of Anglo-French cooperation in the Near East.92 87 88 89

90 91

92

U S Embassy, L o n d o n , to State Department, 13 Dec. 1921, N A , R G 59, 550.E1/-. J a y to N o r m a n , 16 Dec. 1921, Strong Papers, 1116.2(1); BE, O V 31/5. Geddes to F O , 16 Dec. 1921, A 9369/247/45, F O 271/5662. T h e Foreign Office, which knew nothing of Lloyd George's and N o r m a n ' s enquiries, thought that Loucheur had started the hare after his visit to England: minutes o n A 9361, 9553/182/45, F O 371/5662. N o r m a n to Strong, 17 Dec. 1921, B E , O V 3 1 / 5 ; Strong Papers, 1116.2(2). See DBFP, Ser. I, Vol. 14, N o s . 437, 438, 447; Georges Suarez, Briand. Sa vie, son ceuvre, Vol. 5, Paris 1941, chs. 7 and 8. For the differences over Upper Silesia see DBFP, Ser. I, Vol. 16, chs. 1-2; for the Ankara agreement see Vol. 17, ch. 2; Harold Nicolson, Curzon, The Last Phase 1919-1925, London 1934, pp. 260-4.

The origins of Lloyd George's grand design

175

Briand's insistence at the Washington conference that France could not disarm on land unless assured of Allied solidarity in face of Germany provoked an anger in London that caused the normally detached Balfour to contemplate resignation.93 But some ministers, including Churchill, wished to heal the breach, and Briand himself, on returning from Washington, indicated that he would like a general discussion.94 However, when the Cabinet met on 16 December it could not think of much to offer France. There was now no prospect of a discussion with the Americans. If, Home said, the United States had agreed to cancel the European debts Britain could have done the same, and perhaps could have forgone further reparation payments from Germany except for actual damage. That would have left France in a good position to receive reparation for the devastated regions, and Loucheur had said that she might abandon her claim for pensions. But it was now clear that there was no hope of the Americans agreeing to a discussion, so the Allies must discuss reparations on their own. Germany's inability to pay in January was largely due to bad financial management; but a weak government could hardly raise the money, and even France did not want Germany to collapse. One or two alternatives to a moratorium were discussed, but they seemed only to involve sacrifices by Britain in favour of France, sacrifices which the Cabinet was not inclined to embrace. Nor was it willing to start paying interest to the United States on Britain's debt, nor to make funding proposals unless compelled to do so. The probability that Briand would fall from power if he returned from London empty-handed was accepted with equanimity. The idea of offering France a defensive alliance was mentioned, but some ministers doubted whether the French wanted one. On the other hand ministers urged the need to hold an economic conference to discuss the European situation even if the United States would not join in a discussion of debts, in view of the great importance to Britain of the reconstruction of Europe in general and eastern Europe in particular. Germany was the country best placed to rehabilitate Russia, and 93

94

DBFP, Ser. I, Vol. 16, Nos. 439, 442, 443, 452, 517; Hankey to Grigg, 25 Nov. 1921, CAB 63/34. Further offence was caused when the First Lord of the Admiralty, Lord Lee, quoted in a speech a work by a French naval officer expounding in sympathetic terms German policy on submarine warfare. The press proprietor and British spokesman at Washington, Lord Riddell, 'put down the most terrific press barrage' on the French claim for capital ship tonnage, and Hankey referred in letters to 'bashing the French': Hankey to Lloyd George, n.d. [19 Dec] and 29 Dec. 1921, Hankey Papers 8/22; Orde, Great Britain and International Securityp, pp. 9—11. Churchill to Lloyd George, 28 Nov. 1921, Gilbert, Churchill, Vol. 4, Companion, Part III, p. 1677; Lloyd George Papers, F/10/1/48; Orde, Great Britain and International Security, p. 11. Churchill began his conversation with Loucheur on 9 December (see n. 81) by urging on him the importance of avoiding a naval quarrel, especially over submarines.

176

From Brussels to Cannes

it had been suggested that if the Allies facilitated Germany's task some of the resulting German profits should be earmarked for reparations. Rathenau and Stinnes were said to be strongly in favour of a scheme on these lines, and the whole question might be discussed with Briand and Loucheur. Soviet cooperation would be needed, some foreign control of railways and customs might be involved, and the Russians would have to recognise debts. The Cabinet agreed that Lloyd George might discuss with Briand not merely all aspects of proposals for dealing with reparations but also a scheme for a syndicate of western European countries (and perhaps the United States) for the economic reconstruction of Russia; but the Cabinet must be consulted again before diplomatic recognition of the Soviet government was agreed. Churchill and Montagu, the Secretary of State for India, asked for their reservations on recognition to be recorded (a fairly unusual occurrence in Cabinet minutes), and Curzon, who had left the meeting before this item was discussed, wrote afterwards to ask for his reservation to be recorded also.95 Whether the reconstruction of Russia and eastern Europe really was of enormous economic importance to Britain was a question that received remarkably little consideration during the run-up to the Genoa conference. It will be considered in the next chapter. One advantage to Britain of encouraging German efforts in this direction was that it might divert German exports away from markets where their competition with British goods would be more damaging. The idea of an international syndicate to undertake reconstruction in Russia had been developing since the summer, along with suggestions for cooperation between British and German firms. The idea seems to have originated in Germany, possibly in the AUgemeine Elektrizitatsgesellschaft (AEG), Rathenau's own firm, and to have been largely intended to help German firms short of liquid capital. Rathenau mentioned the idea of chartered companies to work in Russia, with British, American, French, and German capital, to Loucheur at Wiesbaden in June; and Felix Deutsch, the General Director of AEG, spoke favourably of an international syndicate at the same time. In August Leslie Urquhart, chairman of Russo-Asiatic Consolidated, the largest of the pre-revolution British mining and metallurgical companies in Russia and president of the Association of British Creditors of Russia, stopped in Berlin on his way to Moscow for negotiations on a concession to work his former enterprise, and had talks with Deutsch and a representative of Krupps who was interested in participating in a joint concession.96 Stinnes, who was also 95 96

Cabinet, 16 Dec. 1921, C 93(21), CAB 23/27. Conversations between Loucheur and Rathenau, Wiesbaden, 12-13 Jun. 1921, MAE, PA Millerand, Vol. 18; Loucheur, Carnets secrets, p. 91; H. Pogge von Strandmann, 'Grossindustrie und Rapallopolitik. Deutsch-sowjetische Handelsbeziehungen in der Weimarer

The origins of Lloyd George's grand design

177

reported to have had negotiations with British firms, was in London between 21 and 24 November. He met Lloyd George and talked to him of a large financial combination to develop Russia.97 Lloyd George spoke of the idea first with Rathenau and then with Loucheur, and broached it to the Soviet trade representative, Krasin, on 16 December. He suggested that a syndicate of private financiers might develop Russian railways and undertake direct investment in appropriate branches of industry and agriculture. Control of some railways might serve as a guarantee of the investment. Krasin replied that the Soviet government would hardly surrender control of the railway system, and the main hindrance to trade was the lack of recognition of the Soviet government and the absence of a peace treaty. The scale of investment required was beyond the scope of private finance: it would need the participation of western governments.98 The subject was considered further with Briand. By the time that he arrived in London the German government had officially told the Reparation Commission that it could not make the January and February payments in full, and the French government had proposed a plan for the revision of the Schedule of Payments and a series of loans to cover the first 53 billion gold marks of the German obligations.99 But this was based on the expectation that Britain would reduce her claims regardless of United States action; and Lloyd George at once made it plain to Briand both that this would not be the case and that Britain would stick to the Schedule of Payments with only minor modifications in France's favour concerning the reduced payments to be asked of Germany in 1922. Germany should be required to make financial reforms, but Britain was firmly opposed to any measures of Allied control. The only real way to get cash out of Germany, said Lloyd George, was to increase German exports; and the way to do that

97

98

99

Republik', in Historische Zeitschrift, 222 (1976), pp. 265-341 (p. 290); Thomas S. Martin, 'The Urquhart concession and Anglo-Soviet relations 1921-1922', in Jabrbucher fur Geschichte Osteuropas, 20 (1972), pp. 551-70. Kilmarnock to FO, 20 Jun. 1921; FO to D'Abernon, 26 Jul.; D'Abernon to FO, 3 Oct., N 7330, 8416/6510/38, FO 371/6913. A summary of the origins of the international corporation is given in Christoph Stamm, Lloyd George zwischen Innen- und Aussenpolitik. Die britische Deutschlandpolitik 192122, Cologne 1977, p p . 205-10. Lloyd George. A Diary by Frances Stevenson, ed. A J . P . Taylor, London 1971, p. 239; Rathenau, Notes and Diaries, p . 279; The Times, 2 1 , 22, 2 3 , 24, 25 N o v . 1921. T h e report of a meeting between Stinnes and Lloyd George was denied in the press; b u t Frances Stevenson, Lloyd George's secretary and mistress, recorded it in h e r diary, and Rathenau recorded Lloyd George telling him of it. Rathenau, Notes and Diaries, pp. 269-70; Loucheur, Garnets secrets, pp. 185-8; White, Origins of Detente, p. 39, citing Krasin's report to Chicherin of 17 December. No British record of the conversation has been traced. DBFP, Ser. I, Vol. 16, N o . 761; France, Documents relatifs aux reparations p. 206; ARK, Wirth, Nos. 167-8; Trachtenberg, Reparation in World Politics, pp. 226-7; Weill-Raynal, Les Reparations allemandes et la France, Vol. 2, pp. 86-95.

178

From Brussels to Cannes

was to open up eastern and central Europe to German trade. Germany must have time to put her house in order, and if for the next few years this meant that reparation payments would be virtually confined to those in kind under arrangements such as the Wiesbaden agreements, Britain would get very little. British public opinion would need an inducement to forgo the right to reparation, and the best one would be the promise of a world trade revival. Britain had a devastated area, too: it was her trade; and France would be asked to help promote a general world trade recovery. In particular Lloyd George wished to propose a great economic conference, to which all European industrial countries would be invited, to discuss the rehabilitation of central and eastern Europe.100 At Lloyd George's suggestion Home, Loucheur, and WorthingtonEvans, the Secretary of State for War, discussed details with Rathenau and produced a proposal for an international syndicate with capital, initially of £10 million, subscribed in the participating countries. Its primary purpose would be to organise transport and harbour facilities and related enterprises in countries which accepted certain conditions. The right of private ownership must be recognised: this implied the recognition of public debts and the obligation to compensate those whose property had been expropriated. There must be a legal system which upheld contracts impartially; and there must be reasonably securefinancialand currency conditions. If, said the memorandum finally approved, any country refuses to fulfil these conditions, trade with that country will remain impossible except to a limited extent, and all Europe will suffer in consequence. The markets of Central and Eastern Europe are essential to the well-being of European industry. If those markets cannot be reconstituted, Eastern and South-Eastern Europe will lose millions of their population and reconstruction will become progressively more difficult; and the conditions which produce misery and starvation in the East will doom the industrial population of Western Europe to a long period of under-employment, during which they will compete with each other in markets incapable of taking more than a part of the goods they are anxious to produce. In such circumstances the economic rehabilitation of Europe will be impossible. Inflation will continue, the cost of living will rise, the standard of life will be depressed; and in the West of Europe as in the East, starvation and underfeeding will waste the fibre of the wage-earning and the professional classes and cause widespread misery until the producing power of Europe is scaled down to a consuming capacity far below the level of 1914.

It was agreed to hold a meeting of the Supreme Council at Cannes early in January to discuss reconstruction, an economic conference, and reparations; meanwhile details of the syndicate would be discussed by Allied experts. Loucheur and Rathenau said that they were confident that i Ser

I? V o l

15) N o s

106>

107.

The origins of Lloyd George's grand design

179

industrialists and capital would be forthcoming; Home was less sure. The French delegates were very doubtful about any recognition of the Soviet government.101 In addition the British and French experts agreed on some proposals for a partial reparation moratorium for Germany for 1922 on condition that certain financial reforms were made. These would be discussed with the Germans by the Reparation Commission.102 Briand outlined to Lloyd George a proposal for an Anglo-French alliance: Lloyd George countered with a suggestion of a British guarantee of France against German attack.103 Thus Lloyd George's great scheme for European reconstruction was initiated. The disappointment over the United States' position was put on one side. The hope of an eventual American participation remained for several months more; but at any rate Europe was to try to tackle the overall problem as a single though complex whole. At this stage the various elements seemed fairly well balanced. Later, as will be seen, one achieved a preponderance that greatly exceeded its intrinsic importance in the problem of reconstruction. Meanwhile, however, a good deal of optimism reigned in London. In the fortnight after the meeting with Briand the Russian aspect was taken further. Lloyd George's private secretary, Edward Grigg, and his specialist on Russian affairs, E. F. Wise, had meetings with Krasin and with some of the businessmen who were expected to take part in organising the syndicate. Krasin accepted a formula for the basis of a settlement, by which the Soviet government would accept the financial obligations of the Tsarist and Provisional governments towards other states and their citizens, and would recognise its liability to pay compensation in respect of claims for actual losses for which it could be held responsible by a special tribunal, provided that its own claims were also recognised. Asked what Russia chiefly needed, Krasin said the rehabilitation of agriculture - food production was vital - reorganisation of transport, and development of fuel supplies. Credits were essential. Krasin was doubtful about foreign control, but 'took the general position that if once the Soviet Government were convinced that economic reconstruction was not a cloak for an underground attack upon its position, it would go a long way to meet foreign assistance and enterprise'.104 The syndicate scheme was discussed further in Paris in the last days of December and explained to Belgian, Italian, and Japanese representatives. The British delegation, in addition to Worthington-Evans, Grigg, and Blackett, con101 102 103

104

DBFPy Ser. I, Vol. 15, Nos. 108, 109, 111. DBFP, Ser. I, Vol. 15, No. 111. DBFP, Ser. I, Vol. 15, No. 110; Orde, Great Britain and International Security, pp. 12-13. Draft formula on debts, 24 Dec. 1921, Lloyd George Papers, F203/3/12; note by Grigg, 28 Dec, F/86/1/15; Wise to Jones, 29 Dec, AJ 309, CAB 29/35.

180

From Brussels to Cannes

sisted of Lord Inverforth, Kindersley, Sir Allan Smith (of the Engineering and Allied Employers' National Federation) and W. L. Hichens (chairman of the shipbuilding and engineering firm Cammell Laird). The French, Belgian, and Italian delegations likewise included bankers and industrialists. The meeting was not able to reach agreement on the form of the syndicate because the French objected to its capital all being subscribed in sterling. They were afraid that if the franc appreciated in value French shareholders would lose heavily: they also feared, but did not mention, excessive British control.105 At the Supreme Council meeting at Cannes between 4 and 13 January Lloyd George again took the initiative, delivering at the first full meeting a speech on Europe's need for peace and recovery, and moving a resolution to the effect that an economic and financial conference should be summoned in February or early March, to which all European countries should be invited including Russia, Germany, and the smaller ex-enemies, as an 'urgent and essential step towards the economic reconstruction of Central and Eastern Europe'. The resolution went on to lay down six fundamental conditions necessary to secure the cooperation of all nations in the restoration of 'normal prosperity'. Thefirststated that nations had no right to dictate to each other regarding the principles on which they were to regulate their system of ownership, internal economy or government; but the other conditions then stipulated that before foreign capital could be made available, investors must be assured that property rights would be respected; governments must acknowledge public debts and the obligation to restore or compensate those whose property had been confiscated or withheld; there must be an impartial legal system, and securefinancialand currency conditions. Nations should refrain from subversive propaganda against others' political systems and should join in an undertaking to refrain from aggression against their neighbours. If, in order to secure assistance in developing trade, the Soviet government demanded official recognition, it would only be granted if these conditions were accepted.106 As far as reparations were concerned, the conference on 12 January heard a report from the Reparation Commission on its recent discussions with the Germans and asked a German delegation headed by Rathenau to explain why Germany had not been able to comply with the Schedule of Payments and what it proposed to do to remedy the situation. By this time Briand had had to return to Paris to confront growing criticism of his policy within the government and parliament, from the press and the President of the Republic; and while Rathenau was making his statement news arrived that Briand had resigned. The conference therefore could do nothing more 105 106

DBFP, Ser. I, Vol. 15, Nos. 112-17. DBFPy Ser. I, Vol. 19, N o . 6, appendix.

The origins of Lloyd George ys grand design

181

107

on reparations. The Reparation Commission decided to grant Germany a provisional postponement of part of the January and February payments, but the German government was required to produce a scheme of budgetary and currency reform with appropriate guarantees. The conference, however, reached agreement on the agenda for the economic conference, the form of invitation to it, and the international corporation, although some questions were left unresolved. On the agenda and the form of invitation there were considerable differences between the British and the French. The latter wanted to exclude all discussion of reparations, because they feared that inroads would be made on the peace treaty. Lloyd George was equally sure that it was impossible to discuss the European economic situation without touching on reparations. This issue was smoothed over rather than decided. The outline agenda adopted consisted of: examination of methods of putting into practice the principles in the resolution of 6 January; the establishment of European peace on a firm basis; essential conditions for re-establishing confidence without injury to existing treaties; financial subjects including currencies, central banks, exchanges, organisation of credit, but not including war debts; economic and commercial subjects of a fairly technical kind such as facilities for international trade and protection of industrial property; and transport.10S Reparations were not mentioned in the agenda, and existing treaties were safeguarded, but how far the issue could be brought in under other heads was left unresolved. On the form of the invitation, the French were anxious to state to the Soviet government the assurances required and to make its admission to the conference conditional on explicit acceptance of the conditions in the resolution of 6 January. Lloyd George was anxious to get the Russians to the conference and discuss business there. The Russians had already sent, on 8 January, a telegram accepting an invitation to the conference; the invitation approved on 10 January enclosed a copy of the conditions and pointed out their importance.109 As for the international corporation, the problem of currency was settled by a decision that there should be a central corporation with a capital of £2 million sterling, and affiliated national corporations with their capital in the currency of each. The functions of the corporation would be to examine the opportunities for work in connection with European reconstruction, help finance such undertakings, obtain security for payment, arrange for the distribution of contracts, and promote or help promote subsidiary companies for special purposes in 107

DBFP, Ser. I, Vol. 19, Nos. 22, 23, 24, 25; Trachtenberg, Reparation in World Politics, pp. 231-6. For Briand's position see Suarez, Briand, Vol. 5, chs. 10 and 11. DBFP, Ser. I, Vol. 19, Nos. 15, 20, 21. 109 pBfp^ s e r iy Vol. 19, Nos. 14,15,19; Degras, Soviet Documents on Foreign Policy, Vol. 1, pp. 287-8. 108

182

From Brussels to Cannes

various countries. It was agreed that an organising committee should start at once.110 Lloyd George had therefore achieved a great deal of what he wanted. He had harnessed Italian support by agreeing that the conference should be held at Genoa, and by assuring the prime minister that he did not want an alliance with France.111 He had persuaded Briand to abandon French positions on reparations and Russia, and had offered little in return. Not only did he, with the Cabinet's agreement, reject Briand's proposal for an alliance and a general understanding on maintaining the peace of Europe; the simple guarantee of France against unprovoked German attack that he offered, with Cabinet assent, was conditional on the settlement of various problems outstanding between Britain and France. France must cooperate in European reconstruction and agree to the economic conference, her policy in the Near East must be aligned with Britain's, and she must reduce her submarine building programme.112 There was no real British intention to undertake obligations on French or European security: renewal of the failed 1919 guarantee was conceived as part of a general scheme for European recovery and pacification. The issue of the pact was not concluded at Cannes, and Briand's fall was due less to it than to French doubts about his conciliatory attitudes on reparations and Russia. But Lloyd George's insensitive pressurising of France on all these questions contributed to Briand's fall, and that did not augur well for the success of the general scheme. 110

DBFP, Ser. I, Vol. 19, Nos. 8, 13, 16, 19, 25. DBFP, Ser. I, Vol. 19, Nos. 2, 4; Carole Fink, The Genoa Conference, Chapel Hill and London 1984, pp. 38-9. 112 DBFP, Ser. I, Vol. 16, No. 768; Vol. 19, Nos. 1, 2, 3, 10, 11, 17, 18; see Orde, Great Britain and International Security', pp. 14—19.

111

Chapter 6

From Genoa to the Ruhr, 1922-3

The failure of Lloyd George's grand design Raymond Poincare, who became French President of the Council and Minister for Foreign Affairs on 18 January 1922, was a politician of a very different stamp from his predecessor Briand, although his policy was not as different as used to be suggested. A lawyer and a Lorrainer, Poincare mastered his brief carefully, stuck to it doggedly, and was suspicious of improvisation. He disliked conferences and believed that in most of the Allied meetings since 1919 France had been over-persuaded into making unjustified and unrequited sacrifices. In the last few months he had been waiting in the political wings as the man who stood for the strict application of the peace treaty. He now accepted that France was committed to the economic conference - which in a recent newspaper article he had described as a 'projet theatral' - but devoted considerable attention in the next few weeks to ensuring that its scope was precisely circumscribed and to pinning the British government down in order to minimise the risk of surprises.1 In a series of notes, interviews and declarations Poincare insisted that the conference required the most careful preparation and so the opening date must be postponed; and he asked the British to define precisely in writing their position on the interpretation of the Cannes resolution. Existing treaties, he said in a memorandum issued to the press on 31 January, must not be discussed in any way. The conference must not substitute itself for 1

For Poincare and his policy see Pierre Miquel, Poincare, Paris 1961. His article, 'Chronique de la quinzaine', in Revue des deux mondes, 1 Jan. 1922. His acceptance that France was committed to the conference, conversation with Lloyd George, 14 Jan., ICP 235A, CAB 29/95; MAE, Europe, Grande Bretagne, Vol. 69; France, Ministere des Affaires Etrangeres, Documents relatifs aux negotiations concernant les garanties de securite contre une agression de VAllemagne 10 Janvier 1919—7 decembre 1923, Paris 1924. See Fink, Genoa Conference, pp. 44—5; Orde, Great Britain and International Security,

pp. 24-5.

183

184

From Genoa to the Ruhr

the League of Nations. The principle of non-intervention in the affairs of other countries must not be taken to apply to the Allies' treaty rights over German or Hungarian affairs, notably the veto on a Hohenzollern or Habsburg restoration. Respect for private property should be secured by international stipulations amounting to a system of capitulations in countries where property rights had been abolished. The means of putting into effect the recognition of public debts and the need for compensation must be considered, and the question how Russian claims would be received. The undertaking to abstain from propaganda would have to lead to legislation in each country, making propaganda a punishable offence; but this would be difficult to supervise. Finally, a non-aggression undertaking could not deprive the Allies of their right to take coercive action under the Treaty of Versailles in case of German failure to meet reparation obligations. The principles of the Cannes resolution having been examined, the rest of the draft agenda should be considered. If the reference to 'establishment of European peace on a solid basis' meant more than the non-aggression undertaking, this must be spelled out. Similarly 'conditions necessary for restoring confidence' must be defined, keeping in mind the limitation 'without infringing existing treaties'. The technical matters financial, economic and commercial, and transport questions - had already been the subject of conferences at Brussels and Porto Rose, and all needed precise definition.2 The British refused to follow Poincare down the path of written exchanges on the precise meaning of political words. The argument having become threatened with deadlock, Benes, who visited Paris and London in the middle of February, acted as go-between in arranging a meeting between Lloyd George and Poincare at Boulogne on 25 February.3 The Italian government had just announced that the conference would have to be delayed because of a cabinet crisis, and Lloyd George consented to a postponement until April: he also agreed that the substance of reparations and the Allies' treaty rights could not be discussed. He still hoped, however, that the discussion of economic recovery would allow reparations to be tackled indirectly. He dismissed the French fear that he wanted the Genoa conference to become some sort of new international institu2

3

France, Ministere des Affaires Etrangeres, Documents diplomatiques. Conference economique international de Genes, 9 avril—19 mai 1922, Paris 1922, pp. 18—22; translation in Cmd 1742 of 1922, Correspondence between His Majesty's Government and the French Government respecting the Genoa Conference. The memorandum was given to the Foreign Office on 5 February: see DBFP, Ser. I, Vol. 19, No. 26, n.2. DBFP, Ser. I, Vol. 19, Nos. 26-32; Derby to Lloyd George, Lloyd George to Derby, 18 Feb. 1922, Lloyd George Papers F/14/5/38-9; De Montille to MAE, 6 Feb.; Saint-Aulaire to MAE, 10 Feb.; Poincare to Saint-Aulaire, 12 Feb.; Saint-Aulaire to MAE, 13 Feb., 16 Feb.; memorandum by Benes, 21 Feb.; memorandum by Seydoux, 23 Feb., MAE, PA Millerand, Vol. 73. See Fink, Genoa Conference, pp. 75—9.

The failure of Lloyd George}s grand design

185

tion, but made it plain that he did not want to see Russian matters dealt with by the League of Nations. He refused to go farther to meet the French desire for proof of good Russian behaviour before recognition was considered than Benes's suggestion that the decision should depend on the results of the conference. Lloyd George agreed that French and British armaments could not be called into question at the conference, but he clearly hoped to be able to use the non-aggression undertaking to press for reductions in the armaments of the east European countries.4 Although Lloyd George boasted of having got all that he wanted from Poincare, and actually had kept his hands fairly free on the questions of recognising Russia and of peace in eastern Europe, he had had to consent to a serious limitation of the scope of the conference. A meeting including the former neutrals was certainly not suitable for a formal discussion of reparations, and if the major Allies had not been able to agree among themselves enlarging the forum would not increase the chances of success. Nevertheless the position of Germany was far more central to the reconstruction of Europe than was Russia, and Lloyd George's hope of getting reparations into the conference again by the back door could not but be fragile if pitted against French determination to exclude them. If Germany could not be discussed, the political aspect of the conference would be reduced to the Russian question, and the whole of Lloyd George's design would hang on a slender and secondary thread.5 However, for the immediate future Poincare had conceded that experts could meet to consider the technical aspects of the conference. Preparations of various kinds had already begun in London and Paris. In London Home set up an inter-departmental committee to consider the economic and financial items of the agenda. The committee, chaired by the Permanent Secretary of the Board of Trade Sir Sidney Chapman, originally consisted only of representatives of the Board of Trade and the Treasury. But it quickly recognised that the technical items had a political aspect, and when Curzon asked for Foreign Office representation, three Foreign Office officials were added. On 26 January the committee produced a draft framework for a 'convention for the restoration of Europe' to be signed by states at the conference. The signatory governments were to agree to 4

5

DBFP, Ser. I, Vol. 19, No. 34; record of conversation, MAE, PA Millerand, Vol. 73; RC, Vol. 88; see Fink, Genoa Conference, pp. 82-7. As Sir Edward Grigg, Lloyd George's private secretary, noted on 24 February, if Poincare meant that the conference must not mention the peace treaties, and still more if it must not discuss the method of reparation at all, CI do not see how it can discuss the economic reconstruction of Europe in any way': Lloyd George Papers, F/86/1/19. Hope for progress on reparations revived, however, with the appointment by the Reparation Commission in early April of a committee of bankers to consider the possibility of a loan to Germany. See below, pp. 211-12.

186

From Genoa to the Ruhr

cooperate in establishing and working the international consortium, to make assets available as security for loans for the resumption or improvement of production and trade, to arrange for legal protection for foreign creditors, to abolish import and export prohibitions, to remove restrictions on the entry of foreigners into their countries which had been imposed as a result of the war, to check inflation and improve their banking systems; and, once the exchanges had been substantially stabilised, to abandon special measures taken against countries with abnormally depreciated currencies. At the same time the Treasury produced a draft resolution on the financial subjects, according to which countries would adopt as their aim a return to the gold standard, promise cooperation between central banks, and agree that the restoration of sound currency was the way to remedy the exchange problem. Thereafter, 'the rehabilitation of currency and the exchanges will suffice to restart the machinery of international credit. The machinery of private credit, perfected before the war, is still intact. It does not require to be supplemented by public credit.'6 A sub-committee entrusted with drafting the bases of a convention with Russia immediately raised the question of recognition, which it thought would be necessary if large-scale trade were to be developed. Submitting the question to Curzon, Gregory, the Assistant Secretary superintending the Northern Department of the Foreign Office, wrote: It is quite clear, I think, that the Russians will be forced into making all the concessions we wish as a price for recognition. That indeed is the object of our Committee and the most stringent clauses are in process of being drafted the effect of which will be to tie the Russians down on nearly every conceivable point, political and economic. But without recognition we shall of course get nothing. Curzon commented: 'I certainly never contemplated and do not contemplate recognition (which is a political aim) unless our practical conditions are satisfied also.'7 At a meeting of ministers on 10 February Lloyd George said that he intended to tell Krasin that it was not much use the Soviet government sending representatives to Genoa unless it accepted the Cannes conditions.8 Accompanied by Curzon Lloyd George did so on the same afternoon, expatiating on the need for acknowledgment of the debts before new business could be done but saying that no one expected Russia to be able to pay the whole debt at once. He also told Krasin about the idea of the international corporation. Krasin refused to give unconditional assent to the Cannes conditions: his government, he said, regarded them as 6

7 8

C 1248, 1249, 1250/458/62, 26 Jan. 1922, FO 371/7418; see DBFP, Ser. I, Vol. 19, No. 29, n. 1. DBFP, Ser. I, Vol. 19, No. 28, n. 4. C 12 (22), Appendix II, CAB 23/29; DBFP, Ser. I, Vol. 19, No. 28, n. 3.

The failure of Lloyd George's grand design

187

extremely one-sided, and if acceptance were made a condition of attendance at the conference it would be put in a very difficult position.9 By 7 March the inter-departmental committee had produced detailed suggestions for resolutions on financial, economic and transport questions, and a draft convention embodying their substance. The financial resolutions recommended currency stabilisation, the ending of inflation, central bank cooperation, return to the gold standard (each country to decide whether to adopt the old parity or fix a new one), and an agreement, based on a gold exchange standard, for the purpose of centralising the demand for gold as currency and avoiding the fluctuations in the purchasing power of gold which might result from competition for metallic reserves. On credits, the draft resolution declared confidence that private credit would become available as soon as currencies were stabilised, but recognised that at present special machinery was needed to facilitate the immediate cooperation of the economically stronger countries for reconstruction purposes. It therefore commended the international corporation. The economic and transport resolutions were concerned with the removal of restrictions on trade and the improvement of transport.10 The committee also produced suggestions for a convention with Russia. Detailed provisions covered political matters (mutual abstention from subversive propaganda, a Soviet undertaking not to support revolutionary movements, recognition of the postwar territorial settlement) as well as recognition of debts, provision for tribunals to adjudicate claims and for compensation to be paid in new Russian bonds, and provisions for such matters as the administration of justice and the protection of persons and companies in Russia. There was also a summary, without the political provisions.11 This, and the general proposals, were taken to Paris by Chapman on 8 March, and copies were sent to the Italian, French, Belgian, and Japanese ambassadors in London. Chapman got the impression in Paris that the French had made little general preparation for Genoa and that they had misunderstood British intentions, supposing that the main object was to overcome Britain's present economic difficulties by using Russia and eastern Europe as markets at once.12 This was indeed the general French belief, and they feared that British and German interests would so drain Russia and other countries of the means of payment that their recovery would be actually prejudiced. France for her part had little capital to spare, and French industry did not need the Russian market. French, and Belgian, interests were overwhelmingly bound up with the recognition of debts and the restoration of property. The only way of recovering these assets was for the 9 11

S 39, 10 Feb. 1922, CAB 23/35. DBFP, Ser. I, Vol. 19, Nos. 40, 44, end. 2.

10

DBFP, Ser. I, Vol. 19, No. 44, end. 1. u DBFP, Ser. I, Vol. 19, No. 41.

188

From Genoa to the Ruhr

Russian economy as a whole to be restored and for property owners to be able to run their former businesses again.13 French preparations for Genoa began in the middle of February. An inter-departmental committee on Russia devoted much more thought to the actual reconstruction of Russia than its British counterpart, suggesting special regions where a quick impact could be made on restoring both agriculture and industry, perhaps by chartered companies. Long-term concessions were envisaged, former property must be restored; debts could not be cancelled and might eventually be paid, like new loans, out of the proceeds of Soviet taxation of, for example, foreign oil companies. Credits for trade should be kept to the minimum needed for the purpose of reconstruction. On central Europe the committee reported that it had not studied the ex-enemy countries, but the German problem could not be entirely excluded from the conference because it affected the whole of Europe. Most of the other countries were suffering from budget deficits, depreciating exchanges, low purchasing power and general disequilibrium. They must make vigorous efforts to reform and conclude understandings with their neighbours. Credits should only be given on the realisation of a plan of reform, and a financial adviser with wide powers might be appointed for each country.14 When Chapman visited Paris on 8 March Seydoux realised from his conversation that the British had no plan for reconstructing Russia and that Chapman was personally sceptical about the prospects of trade.15 Seydoux recommended to his superiors the desirability of a positive Russian policy, since if there were no plan of reconstruction there was no point in the Russians coming to Genoa. Poincare, however, was not prepared to take any initiative, and Seydoux's instructions for the meeting of experts in London told him simply to try to find out the British intentions.16 By this time some progress had been made with the international consortium. A meeting of the organising committee was held in London from 20 to 25 February: the members were nearly all bankers and 13

14

15

16

Memorandum by Cheysson, 27 Dec. 1921, MAE, RC, Vol. 105. See my article Trance and the Genoa Conference', in Mitteilungen des Osterreicbiscben Staatsarcbivs, 37 (1984), pp. 325-61 (p. 334). Report of interministerial committee, 8 Mar. 1922, MAE, RC, Vol. 113. In a meeting on 15 February of the French central committee of experts for the study of questions for Genoa (RC, Vol. 112), Sergent was particularly emphatic that promises of credits were not the way to reconstruct the countries of eastern Europe. He instanced the case of Romania, which was still in a deplorable state despite much assistance and credit since the end of the war. See Orde, Trance and the Genoa Conference*, pp. 336-9. Memorandum by Seydoux, 10 Mar. 1922, MAE, RC, Vol. 89; DBFP, Ser. I, Vol. 19, No. 41. Memorandum by Seydoux, 17 Mar. 1922, MAE, PA Millerand, Vol. 75; instructions to Seydoux, 18 Mar., RC, Vol. 89.

The failure of Lloyd George *s grand design

189

businessmen except for the Germans who joined after the first day and were both officials. The British delegates were Lord Inverforth and Sir John Ferguson, the chairman of Lloyds Bank; the French ones were M. Schneider of the Creusot Company and Sergent of the Banque de PUnion Parisienne. At thefirstsession the British announced that their government had decided to guarantee the capital to be raised by their national corporation; the Italians and later the Germans said the same. But on the form of the corporation the British did not have it all their own way. They had wanted joint participation in all undertakings and overall control by the central corporation; but the other delegations did not wish their national corporations to be obliged to take part in projects they did not approve; and the Germans, who expected theirs to be the most successful, did not wish to pool profits. It was decided that the central corporation would be a private company based in London but exempt from United Kingdom taxes, with an initial capital of £2 million subscribed in equal shares by the British, French, Italian, Belgian, and German corporations. The United States, Japan, Czechoslovakia, Switzerland, Denmark, and the Netherlands would be invited to participate. Other countries might be invited to join later, but the French did not succeed in getting Poland admitted: as the British pointed out, she was herself in need of reconstruction. Draft articles of association for the British corporation were approved and were to be the model for the others: their aggregate capital was initially to be £20 million. The date of 11 March was set as the deadline for producing the initial subscription and the governments' guarantees of the funds for the national corporations. When three governments had accepted, the international corporation would be formed. But at French instance it was agreed that the corporation would not operate in any country that failed to recognise its debts and obligations and did not provide security for commerce.17 Sergent, when he returned to Paris, told Seydoux that he thought the French public would not subscribe to the national corporation unless there was a government guarantee; but Poincare said to Lloyd George at Boulogne that it would be very difficult to get parliamentary approval. Sergent also gathered that British businessmen with former interests in Russia, such as Urquhart, were not keen on the corporation, but that Inverforth and Ferguson intended first to set up banks of issue in the Baltic States, thus introducing British capital first into the border states and 17

Saint-Aulaire to MAE, 21, 23, 24, 25 Feb. 1922; memorandum by Seydoux, 26 Feb.; minutes of meetings, MAE, RC, Vols. 102, 103; DBFP, Ser. I, Vol. 19, No. 34, n. 34; German Foreign Ministry archives, W Konferenz Genua, Wirtschaftsgesellschaft, microfilm L991/L285740-43, L285749-61, report of meeting and minutes; The Times, 28 Feb.; Fink, Genoa Conference, pp. 103-4.

190

From Genoa to the Ruhr

thence into Russia, and then to re-equip the railways. The British seemed to Sergent to attach great importance to the corporation and he thought it would be set up since enough promises of government guarantees had been given. In these circumstances, and even though it strongly resembled an exploitation of Russia and might damage existing French interests, Seydoux advised that the risks of abstention might be greater than those of joining, since 'we can be sure that what is done without us will be done against us'.18 However, this was the high point of the international corporation plan. The deadline of 11 March passed without it being constituted. The French and Belgian governments decided to wait until after the Genoa conference before making up their minds,19 and German interest began to wane. Although Rathenau referred to the corporation favourably in a speech to the Reichstag Foreign Affairs Committee on 21 February, he did so in the context of a report on direct negotiations that had been taking place with Karl Radek and that it was hoped would be concluded satisfactorily. German industrialists had always preferred the idea of individual links with Russia even while some would have welcomed the help of British and American finance; and as the chances of a bilateral agreement improved in the spring of 1922, so the consortium fell into the background. On 17 March the German embassy in London informed the Foreign Office that the government was prepared to guarantee the German share of the capital, but wondered whether it might not be necessary to guarantee the interest as well.20 Representatives of the neutral countries meeting in Stockholm in March expressed interest in the scheme, but the Dutch were opposed; and the Russians had made their serious reservations clear from the outset.21 All in all it is hard to regard the international corporation as a serious proposition. Its only possible economic justification would have been ability to attract funds of a kind and quantity not available to ordinary companies, and ability to coordinate projects in an overall reconstruction 18

19

20

21

Memorandum by Seydoux, 26 Feb. 1922, MAE, RC, Vol. 102; DBFP, Ser. I, Vol. 19, No. 34. The British and French ambassadors in Brussels reported that Belgian opinion generally agreed that the country could not afford not to take part in the consortium but was divided about a government guarantee of its funds: De Margerie to MAE, 2 Mar. 1922, MAE, RC, Vol. 102; Grahame to FO, 18 Mar., C 4238/458/62, FO 371/7422. H. Pogge von Strandmann, 'Grossindustrie und Rapallopolitik. Deutsch-sowjetische Handelsbeziehungen in der Weimarer Republik', in Historische Zeitschrift, 222 (1976), pp. 294-6; H. Pogge von Strandmann, 'Rapallo - Strategy in preventive diplomacy: new sources and new interpretations', in Germany in the Age of Total War, ed. Volker R. Berghahn and Martin Kitchen, London 1981, pp. 123-46, esp. pp. 127-30; German Embassy to FO, 17 Mar. 1922, C 4207/458/62, FO 371/7422; German Foreign Ministry archives, L991/L285807-73, passim. Fink, Genoa Conference, pp. 115-16; Russian reservations, e.g. Radek in Le Matin, 1 Feb. 1922; Carr, Bolshevik Revolution, Vol. 3, pp. 359-61.

The failure of Lloyd George's grand design

191

scheme. At no time did it show signs of trying to do either. Avenol, who was less unsympathetic to British ideas than some of his compatriots and thought that the scheme corresponded to a real need on the part of European countries for help to restore themselves, nevertheless wrote that it seemed excessively grandiose: there was no room for chartered companies in Russia, and if business were resumed there it would be by more modest methods. Elsewhere in Europe the corporation could not possibly do everything: it would have to be limited to really necessary works, projects would have to be precise, and ordinary enterprises would be reluctant to compete with its privileges.22 The political rationale of the consortium was that it might enable foreign interests to combine to impose conditions on the Soviet government and prevent it from playing one off against another. For its activities outside Russia the fear expressed by Seydoux to Chapman, that defenceless countries might be delivered into the exploiting hands of a powerful capitalist organisation,23 was not as justified as it would have been if the corporation had shown signs of being able to exercise a monopoly. As it emerged from the meeting of the organising committee in February the corporation was neither a great threat nor a substantial promise. The corporation was commended in the report of the experts meeting in London in March; and at Genoa the Credits sub-commission of the Financial Commission recommended governments to support it. But, to the disappointment of delegates from eastern European countries, there was no discussion of what it would do. The acting director of the League of Nations Economic and Financial Section, who was present, gathered that no plan of work had been prepared. He thought that the corporation had always been intended for trade with Russia, and until there was some decision in that field the moving spirits were not prepared to say anything about activities elsewhere.24 A further meeting of the organising committee was held at Genoa on 29 April, with eighteen countries represented. It confirmed the agreement of February and laid down that countries should give notice within thirty days of the end of the conference whether they would take part. The deadline was then extended to thirty days after the end of the Hague Conference organised to continue negotiations with the Russians, and equally passed without action. Finally in January 1923 the London chartered accountant who was secretary of the organising committee announced that the corporation was not being set up and the committee was disbanded.25 22 23 24

25

Avenol t o M F , 6 Mar. 1922, M A E , R C , Vols. 89, 102. M e m o r a n d u m b y Seydoux, 10 Mar. 1922, M A E , R C , Vol. 89; P A Millerand, Vol. 75. DBFP, Ser. I, Vol. 19, N o . 56, appendix; resolutions o f Credits subcommission, 1 M a y 1922, CAB 31/12; report by Nixon, May, LN Arch., S 145. Inverforth to Home, 29 Apr., 1922, C 6281/458/62, FO 371/7430; minutes of meeting, 29

192

From Genoa to the Ruhr

But to return to 1922, the experts of the Genoa inviting powers met in London from 20 to 28 March to discuss the agenda for the conference. Their report was not binding on their governments but was intended to serve as the basis for the conference discussions. The purely political questions of existing treaties, recognition of Russia, and disarmament, were not discussed at all. Other political questions such as whether the term 'Russian Soviet Government' included all the Soviet governments in the territory of the former Russian empire were reserved as they cropped up: the USSR had not yet been constituted, and the point might be of practical import in respect, for example, of the Caucasus states. The proposals on Russia were not given the form of a convention (as they had been by the British committee) because of French objections, but were framed as resolutions about the conditions on which foreign capital and enterprise might be enlisted for reconstruction. No plan was put forward, but the preamble said that help could be given to agriculture and that foreign firms could work in industry and transport. The proposals dealt in detail with debts and claims and the conditions under which foreigners might reside and work in Russia. On the whole these corresponded with the articles prepared by the British, with some points left open because of differences of opinion. The less detailed resolutions on the restoration of Europe were substantially the same as the British proposals. The proposed agreement on currency was dropped because some of the experts thought it premature, but there was a recommendation for an international agreement at some suitable later date.26 Chapman, in his report on the meeting, wrote that apart from the Russian question there had been no very marked grouping among the experts. Differences of economic outlook became more apparent at Genoa, when representatives of smaller poorer countries were present as well. Edward Grigg, who did not attend the experts' meetings, told the prime minister in a characteristically anti-French note, that the French seemed to be manoeuvring to line up all their satellites and to leave Britain in the uneviable position of sole patron of Germany and Russia. Seydoux reported that the proposals were a careful whole and that he had got on well with his British counterparts. Hankey learned from the

26

Apr., German Foreign Ministry L991/L285839-43; correspondence Apr.-Jul. 1922, MAE, RC, Vol. 102; B.H. Binder to Dufour Feronce, 10 Jan. 1923, L991/L285880-81; Binder to Sergent, 11 Jan., MAE, RC, Vol. 102. Edward Peacock, a director of the Bank of England, wrote to Norman on 30 May that if the international corporation was 'being formed with the idea of doing any substantial part of its business with Russia, it had better not be formed at a l l . . . I am convinced that there is comparatively little to be done direct with Russia for a considerable time': Peacock to Norman, 30 May 1922, BE, OV 34/100. DBFP, Ser. I, Vol. 19, No. 56.

The failure of Lloyd George's grand design

193

French experts that it would be politically impossible for France to recognise the Soviet government at Genoa.27 Meanwhile the United States government had decided to decline the invitation to Genoa. The first reactions to the news of the conference had been divided. The Foreign Trade adviser to the State Department recommended full participation, subject to reserve on the attitude to Russia and the exclusion of inter-governmental debts from the agenda. The ambassador in Rome advised against participation, because the other countries would band together to try to extract American favours. Hankey, before returning from Washington to organise the British delegation, wrote to Lloyd George of an Administration fear that somehow participation would prejudice the passage through the Senate of the naval and Pacific treaties.28 Hoover had just suggested to Harding a plan of his own for tackling Europe's problems at the key point of Franco-German relations, by a reparation settlement and a severe reduction in expenditure on armaments. He may have hoped to attend the conference himself, but a couple of weeks later he was showing great anxiety about the embarrassment for the Administration if it either accepted or declined the invitation. He hoped now that the conference could be cancelled or postponed for six months: by that time the French people, he thought, would have lost their illusions about reparations, and the American people would have ceased to believe in the possibility of a miraculous cure for all existing unfortunate economic conditions.29 Strong and Lamont also favoured postponing the conference. Strong wrote to Norman on 18 February that whilst there was a feeling in favour of participation, the conference ought not to take place until a moratorium had been granted to Germany and the World War Debt Funding Commission had been set up. There should then be prompt debt discussions with Britain, France, and Italy, and a plan for an agreement after the autumn elections.30 Lamont, too, thought it would take six months before American opinion would consider a more liberal attitude on debts. Moreover, as far as America was concerned no economic conference would accomplish much unless it was held in Washington. The naval conference had been a great education for the American people; an economic one would have a similar effect; and 27

28

29

30

Ibid.; report by Seydoux, 30 Mar. 1922, MAE, PA Millerand, Vol. 75; Grigg to Lloyd George, 23 Mar., Grigg Papers, reel 9; Hankey to Lloyd George, 24 Mar., Lloyd George Papers, F/26/1/23. Memorandum by Young, 7 Jan. 1922; Child (Rome) to Hughes, 13 Jan., NA, RG 59, 550.E1/144, El/144-8; Hankey to Lloyd George, 20 Jan., Hankey Papers 8/22. Hoover to Hughes, 4 Jan. 1922; State Department memorandum, 23 Jan., NA, RG 59, 5 5 0 . E l / 3 , E l / 3 6 1 . See Link, Die amerikanische Stabilisierungspolitik, pp. 106-14. Strong to Norman, 18 Feb. 1922, Strong Papers, 1116.3(1); BE, OV 31/5; also Strong to Blackett, 18 Feb. 1922, Strong Papers, 1111.1.

194

From Genoa to the Ruhr

this education is what we must have if we are ever to get anywhere in the solution of these international economic matters. I think it would be a great deal better for Britain and France to make Genoa a sort of preliminary canter and then get themselves invited to Washington for something real in the early autumn.31 But whilst on some other occasions the British government refrained from action in the hope of future American cooperation, this time the advice had no effect in London. The pressures for an early conference were strong and hopes of a change in American attitudes not high. As soon as the Washington treaties had been submitted to the Senate, the United States government formally declined the invitation to Genoa.32 While the experts were meeting in London Lloyd George was engaged in a battle with some of his Cabinet colleagues over the question of recognising Russia. In December the Cabinet had concluded that full de jure recognition was not to be granted without further consideration. Now Lloyd George wanted a free hand to act in the light of progress at Genoa. His chief opponent was Churchill, who whilst still a Liberal was on the subject of Russia more vehement than many Conservatives and thus caused especial embarrassment to Austen Chamberlain as Conservative leader in the Coalition. After Lloyd George had been driven to use the ultimate weapon of a threat to resign, the Cabinet on 28 March gave the Genoa delegation limited discretion: Britain must not act alone over recognition; the Russians must fully accept the Cannes conditions; if recognition were promised there should be a probationary period, when only charges d'affaires would be appointed, until an agreement was seen to be being loyally observed.33 On 3 April the House of Commons endorsed the government's policy by a large majority. The British delegation to the Genoa conference consisted of Lloyd George, Home, Worthington-Evans, and Lloyd-Greame, the Secretary to the Department of Overseas Trade. There were also Dominion representatives. The delegation was faced with a difficult task. The financial and economic parts of the agenda occupied the attention of many delegates and experts for much of the time; but in the public eye they were overshadowed by the political problems. The concentration on Russia can hardly have been Lloyd George's original intention. He was indeed not interested in the technical questions which, although needing the application of political 31 32 33

Lamont to Grenfell, 20 Feb. 1922, Lamont Papers, II, 113-13. FRUS, 1922, Vol. 1, pp. 392-4. See Fink, Genoa Conference, pp. 47-9, 97-8. Meetings of Ministers, 27 and 28 Mar. 1922, C 21(22), and appendixes, CAB 23/29; correspondence in Lloyd George Papers, Austen Chamberlain Papers, Curzon Papers. Published accounts of the episode include Morgan, Consensus and Disunity, pp. 309-11; Gilbert, Churchill, Vol. 4, pp. 775-80; Jones, Whitehall Diary, Vol. 1, pp. 195-7; White, Britain and the Bolshevik Revolution, pp. 63-6; Fink, Genoa Conference, pp. 134-9; White, Origins of Detente, pp. 83-96.

The failure of Lloyd George ys grand design

195

will, as the lack of results flowing from previous technical conferences at Brussels, Porto Rose and Barcelona showed, were not the usual stuff for prime ministers. Lloyd George had at first represented Russia as a key or the key to economic recovery; but after a while he began to admit that prospects for trade were not good in the short term and stressed instead the importance of peace in eastern Europe. That is to say, he was looking primarily for political rather than economic results from an agreement with Russia. In Lloyd George's grand design for transforming the political and economic situation of Europe, Russia had not originally been the only element, and possibly not the most important one. But he was prevented by French refusal from raising the critical problem of Germany; he had already more or less abandoned the Anglo-French pact proposal and the questions of the non-aggression pact and disarmament largely depended on success with Russia.34 The chances of such success were not high. In the first place Russian acceptance of the Cannes conditions was still doubtful, and the experts' report contained terms amounting to Ottoman-style capitulations. The evidence about Russian intentions available on the eve of the conference suggested that the Soviet authorities were willing to make large concessions in return for dejure recognition and substantial credits, but it was not clear that they were willing to sacrifice principles.35 Nor is it even clear that the west recognised that the Russians had principles: the tendency was to speak and write of the Bolshevik leaders as unscrupulous criminals, and Lloyd George's frequently used analogy with the French Revolution was hardly helpful. But secondly, even if the Russians were prepared to go a long way on debts and foreign property - there is evidence that Chicherin and Krasin at Genoa were ready to go a good deal farther than Lenin - they always made it plain that they would only do so in return for recognition and credits. The western powers were divided on recognition, and the 34

35

On 6 February Norman wrote to Havenstein that whilst the first object of Genoa was nominally the opening up of trade with Russia and eastern Europe, it was also hoped that something would be done towards a further settlement of reparations and perhaps of inter-Allied debts, both of which he regarded as essential before general stability could be promoted at Genoa. But America would not discuss debts and France would not agree to a long-term readjustment of reparations until debt arrangements were settled: Norman to Havenstein, 6 Feb. 1922, BE, OV 34/71. On 23 March Tom Jones told Albert Thomas, the director of the International Labour Office, that he thought Lloyd George had the aim of a reduction in armaments at the back of his mind: Jones, Whitehall Diary, Vol. 1, pp. 194-5. For the non-aggression pact see below, pp. 202-4. For the Anglo-French guarantee pact see Orde, Great Britain and International Security, pp. 25-9. See, for example, DBFP, Ser. I, Vol. 19, N o s . 3 1 , n n . 4 - 6 ; 46, n. 3 ; Wilton (Riga) t o G r e g o r y , 29 Mar. 1922; H o d g s o n t o F O , 4 Apr., N 3130, 3610/646/38, F O 371/8187; Fink, Genoa Conference, p p . 9 4 - 7 ; White, Origins of Detente, p p . 9 7 - 1 0 1 . Chicherin rejected the international corporation in an interview published in the Berliner Tageblatt on 2 April.

196

From Genoa to the Ruhr

British government had just shown itself to be internally divided. This difficulty was perhaps surmountable; but the prospect of large credits was conspicuous by its absence. Even if the international corporation had come into being, and an agreement on debts and property had enabled it to work in Russia, it could not have been compelled to undertake highly risky and doubtfully profitable enterprises; if the British government was unwilling to grant any more small credits to Austria, there was no chance of either the Treasury or Parliament approving large credits for Russia; and the prospect held out to Chicherin at Genoa of assistance under the Trade Facilities Act and the Export Credits Scheme were, as Lloyd-Greame said, ambiguous and potentially misleading. It is certain that some officials were aware of all this: it is less certain whether Lloyd George knew or cared to know, whether he thought political success would somehow bring everything else in its train, or whether he was forced to fall back on the chance of a political coup de theatre and to pursue it increasingly frantically, because the rest of the grand design had slipped from his hands. Press discussion of Genoa was not solely devoted to Russia. The Manchester Guardian Commercial published twelve special supplements between April and December 1922, followed by four more in 1923, on 'Reconstruction in Europe'. These were edited by Keynes and included articles by statesmen, by industrial, financial, and commercial experts, and economists, adding up to what was intended as an authoritative guide to all aspects of European recovery.36 The first issue, for example, was devoted to the question of foreign exchanges, with a proposal for resolutions on stabilisation to be adopted at Genoa. Later numbers dealt with such matters as agriculture, railways, coal and population. There was one on Russia with articles by Soviet contributors (a journalistic achievement), one on reparations, and one on relations between the United States and Europe.37 Full accounts of the negotiations with the Soviet delegation have been published,38 and only a summary will be given here as the foundation for a discussion of some British problems and of the financial and economic work of the conference. While the technical commissions started work at once on the experts' recommendations, the first, political, commission set up a sub-commission 36

37

38

For the origins and organisation of the supplements see Keynes, Collected Writings, Vol. 7, pp. 317-53. Manchester Guardian Commercial, 'Reconstruction in Europe', ed. J.M. Keynes, 16 parts, Manchester 1922-3. Fink, Genoa Conference, is an account of the whole conference, mainly from the political angle. White, Origins of Detente, concentrates on Russia. Pogge von Strandmann, 'Rapallo - strategy in preventive diplomacy', in Germany in the Age of Total War, ed. Berghahn and Kitchen, discusses the problems of interpreting German policy.

The failure of Lloyd Georgeys grand design

197

of the inviting powers, Russia, Germany, and four other countries to consider the method of applying the principles of the Cannes resolution. The task of exploring the prospects for agreement with the Russians was taken up in private conversations by a small group of British, French, Belgian, and Italian delegates.39 In these discussions the Soviet delegates said that it was impossible both in principle and in practice to restore private property, but bonds might be given in compensation, or leases in certain circumstances. As regards debts, the Soviet government would of course honour its own undertakings; it could not accept the principle of recognising its predecessors' debts but would shoulder them on the basis of reciprocity. The delegates then put forward a claim for loss and damage resulting from the Allied intervention in 1917-20, which amounted to about six times the total of the Tsarist war debt to the Allied governments, and suggested that those governments should compensate their own nationals out of the sum due to Russia. In reply the Allied delegates handed over, on 15 April, a note saying that their governments could not accept any liability in respect of the Soviet claim but would be prepared to write down (not write off) the war debt: no allowance could be made against debts due to foreign nationals or their claims to property. The talks were then adjourned for the note to be sent to Moscow.40 The adjournment was less than twenty-four hours old when there burst upon the conference the news of the German-Soviet treaty. The Germans had been worried and resentful at their exclusion from the Allied-Soviet talks. It was either a mistaken belief that agreement was imminent (in which case the Germans might be faced with a Soviet claim for reparations under Article 116 of the Treaty of Versailles), or more likely a fear that the conference was about to break down, that drove Rathenau to complete the agreement which had already been negotiated, and to sign it at Rapallo on Easter Sunday, 16 April.41 Under this treaty the two countries resumed diplomatic and 39 40 41

DBFP, Ser. I, Vol. 19, Nos. 68, 69, 70. DBFP, Ser. I, Vol. 19, Nos. 71-4; Fink, Genoa Conference, pp. 143-70. Pogge von Strandmann, 'Rapallo', pp. 131-9. The provisions of Art. 116 of the Treaty of Versailles (by which Germany recognised the abrogation of the Treaty of Brest-Litovsk of March 1918 and the Allies reserved Russia's right to claim reparation and restitution from Germany) were reserved in the experts' report. Rumours that Art. 116 was under discussion appeared in the German press at intervals in the early months of 1922, fuelled by articles in the Soviet press alleging that France was trying to get the Soviet government to adhere to the Treaty of Versailles and by hints from Soviet negotiators to the Germans that Art. 116 was under discussion. They undoubtedly caused the German government anxiety: see Theodor Schieder, 'Die Entstehungsgeschichte des Rapallo-Vertrages', in Historische Zeitschrift, 204 (1967), pp. 545-609; Orde, 'France and the Genoa Conference', pp. 331-2; Renate Bournazel, Rapallo, Naissance d'un my the, Paris 1974, pp. 65-9. There does not appear to be any evidence that any of the Allied governments intended, in the event of agreement being reached with the Russians, to encourage a Soviet claim for reparations: such a proceeding, by greatly increasing the total reparation

198

From Genoa to the Ruhr

consular relations, mutually renounced financial claims, and undertook to cooperate.42 Lloyd George's role was and remains subject to speculation. He had forecast a German-Soviet accommodation as long ago as March 1919, in his Fontainebleau Memorandum (which he had published as a White Paper just before the conference);43 London knew of the GermanSoviet negotiations in January-February; Lloyd George knew of GermanSoviet contacts at Genoa. He may have contributed to German nervousness by ignoring Rathenau's approaches and concentrating all his attention on the Allied talks with the Russians; he may even have failed to heed messages given to Wise (although evidence that he received them is lacking). But immediately after the event and later Lloyd George invariably denied that he knew that signature of an agreement was imminent; and there is no evidence that his surprise and anger were not genuine. French journalists at the time, and some French writers since, have claimed that Lloyd George knew and approved in advance in order to put pressure on France. The terms of the treaty might not have been distasteful to him; but that he deliberately encouraged a proceeding that threatened to wreck his conference strains credulity too far.44 After a few days of confusion about an appropriate reaction to Rapallo, the Allied negotiations with the Russians were resumed, the Germans now excluded on the ground that they had made their own arrangements. On 21 April the Soviet delegation delivered a reply to the Allied note of 15 April. The claim to compensation for the intervention was dropped and debts due to foreign nationals were acknowledged on condition that war debts and all arrears of interest were written down, that substantial help was given for reconstruction, and dejure recognition was granted. The terms of the note were discussed with Lloyd George and some changes made, after a British official had on instructions told Chicherin that it was impossible to promise a definite amount of credit but the facilities of the Trade Facilities Act and the Export Credits Act would be available and private credit would thus be stimulated. There was the international corporation; other countries would no doubt come in when political stability was reached; the most useful source of credit would be the companies which had previously

42 43

44

bill and adding another claimant for a substantial percentage, could only have been detrimental to their own interests, particularly to French hopes of getting money for reconstruction. BFSPy Vol. 118, pp. 586-7. Cmd 1614 of 1922, Memorandum circulated by the Prime Minister on March 25th, 1919. Some Considerations for the Peace Conference before they Finally Draft their Terms. Extracts in Lloyd George, The Truth about the Peace Treaties, pp. 404-16. Pogge von Strandmann, 'Rapallo', pp. 134, 139-41; Fink, Genoa Conference, pp. 170-6; Francis Conte, 'Lloyd George et le traite de Rapallo', in Revue dhistoire moderne et contemporaine, 23 (1976), pp. 44-67.

The failure of Lloyd George 's grand design

199

45

worked in Russia. A committee of experts was set up to discuss the reply with the Russians and heard them ask for financial assistance to be considered before the experts' report, to which the Russian also put forward counter-proposals. These acknowledged government debts contracted before 1 August 1914, but treated all later debts as war debts to be cancelled; earlier debts would be subject to a long moratorium and arrears of interest would be cancelled; foreign owners would in suitable cases be given the enjoyment of their property through a lease or a share in a trust, but would have no absolute right to either compensation or restitution. After some discussion the other delegations decided to put to the Russians a list of their minimum requirements and a statement of what could be done for reconstruction.46 After a fortnight, the negotiations with the Russians now approached their climax. Drafting the note occupied six days, accompanied by signs of strain among the other powers both at Genoa and at home. The French press made much of allusions by Lloyd George to Allied chauvinism, the British much of a declaration by Poincare at Bar-le-Duc that France might act alone against a German failure to fulfil reparation obligations. The note to the Russians was sent on 2 May: it was a document of thirteen clauses with a long preamble on Russia's need for western assistance in reconstruction and the help that could be given as soon as conditions were established that commanded the confidence of those able to resume former undertakings and to supply goods or capital. Examples of what was on offer were given. The initial capital of the international corporation might, it was admitted, seem small in comparison with the work to be done; but behind it stood the resources of all the subscribing countries, which were available for financing approved operations. Certain countries were also in a position to advance money to their own nationals prepared to trade with or work in Russia, and manufacturers would be able to get credit from banks in their own countries. The British government could guarantee funds for capital undertakings under the Trade Facilities Act and Parliament could be asked to increase the amount available. The duration of the Export Credits scheme might be extended. France could not give direct financial assistance but could supply seeds, machinery and technical assistance for agriculture, and railway material; and French industrialists would be able to restart their former establishments in Russia. Italy could help with transport and provide technical help for agriculture. Offers of help were also held out by Japan. The conditions laid down included Russian recognition of all public debts, with the creditor powers undertaking to 45

46

DBFP, Ser. I, Vol. 19, Nos. 80-3; memorandum by Maxse, 20 Apr. 1922, Grigg Papers, reel 9; Fink, Genoa Conference, pp. 189—90. DBFP, Ser. I, Vol. 19, Nos. 84, 87, 89-92, 94; Fink, Genoa Conference, pp. 189-90.

200

From Genoa to the Ruhr

make no claim at present for war debts and to treat Russia equitably in any arrangement reached on inter-Allied debts. On property, the Soviet government would recognise its obligation to restore or compensate all foreign interests for loss or damage caused when property was confiscated or withheld. If the previous owner was not enabled to resume possession of his rights, he would be offered compensation; if the property could not be given back the Soviet government would not be entitled to hand it over later to other parties; and if the property had to be merged into a larger group the previous owner would be entitled to a proportionate share. This property clause was the subject of intense inter-Allied discussion and eventual disagreement. The chief stumbling block was the Belgian government, which under pressure from industrialists afraid of being given worthless bonds or of seeing their former property leased to a higher bidder, insisted on an absolute right to the restoration of property. When the other delegations said that this was impossible the Belgians refused to sign the note to the Russians. The French government in the end decided to stand with the Belgians rather than with their own experts and the British, thus creating further press recrimination and another painful interview between Lloyd George and Barthou.47 No one was now very optimistic about Soviet acceptance, and some, looking farther ahead, were doubtful about the prospects even if an agreement were reached. Lloyd-Greame, writing to Baldwin, the President of the Board of Trade, on 6 May, recalled that he had said some time earlier that the negotiations were starting too soon and it would be very difficult to arrive at an agreement reconciling diametrically opposed systems 'until the Russian evolution had moved much further towards our point of view'. Everything that had happened at Genoa had borne out this view. There 47

DBFP, Ser. I, Vol. 19, Nos. 96-108; Orde, Trance and the Genoa Conference', pp. 34656; Fink, Genoa Conference, pp. 198-225. Austen Chamberlain thought that British public opinion, too, would be reluctant to accept a proposal for bonds of little value if the French and Belgians refused: Chamberlain to Worthington-Evans, Genoa, 3 May, Worthington-Evans Papers, C 930. The question of war debts was also a difficulty. The British draft of the note to the Russians proposed to reduce the war debt by half, and Barthou suggested to Poincare that acceptance of this would create a useful precedent for France to use in her turn against a British claim. Poincare was not convinced, because Britain would still be able to use the American claim to justify demanding full French payment; but Barthou might ask Lloyd George for an undertaking that France would be given the same reduction as that proposed for Russia. In his conversation with Barthou on 29 April Lloyd George refused to make such a promise; but he said that if the United States would cancel its claims on Europe Britain would cancel her claims on her European debtors, including that on Germany for pensions on condition that all other claims for pensions were remitted, too. He also said that he understood the United States government was waiting for the results of Genoa to deal with the debt question: Hankey later admitted that he believed this statement was bluff. Barthou to Poincare, 27 Apr. 1922; Poincare to Barthou, 27, 28 Apr., MAE, RC, Vols. 110, 95; DBFPy Ser. I, Vol. 19, No. 101; minute on A 3360/236/45, FO 371/7282.

The failure of Lloyd George's grand design

201

would be immediate political advantages in a settlement, but the practical outcome was more doubtful. The Russians have pressed very hard for definite credits. They have asked repeatedly for a Government to Government loan and have been told that this is impossible. They have with some astuteness enquired what guarantee there is that if trade facilities, export credits and the International Corporation are thrown open to Russia, that Russia will, in fact, get any credit. The Prime Minister is anxious that a definite sum, say £20,000,000, should be earmarked for Russia. If this is done the question naturally arises on what terms?... Our whole argument is that we are making a reasonable arrangement with Russia which will command confidence but if we say that in spite of this arrangement we must have an export credits scheme which not only gives long credit but puts upon the Government a great proportion of the risk, and that we do so because manufacturers will not take the risk, that rather cuts the ground from under our argument that we have made a sound business settlement.48 Lloyd-Greame was not a party to the memorandum drawn up on 6 May by Worthington-Evans, Grigg, Wise, and the Italian expert Jung in response to a Russian request for more information about possible credits. This memorandum explained that a direct government credit was impossible, that money could only be raised on the market, and it had to be convinced that a project wasfinanciallysound. A commercial loan to the Soviet government was also quite impossible at present: credits would have to be found by other means: Three methods are indicated, namely, the International Corporation, the Trade Facilities Act and the Export Credits Act. When once these methods are in operation confidence in Russia will begin to grow; and once it has begun to grow, the British Government are convinced that it will grow fast. The time will then . . . come when the Soviet Government will have sufficient credit to be able to borrow money in the London market direct. The difficulty lies in the first steps, and the only way of surmounting that difficulty is to be found in the methods already indicated, that is, by guaranteeing credits to individuals who undertake particular works of reconstructon in Russia upon sound lines. Let this pioneer method once be applied with success, and the whole business world will be quick to respond.49 But, Lloyd-Greame wrote, the document might mean anything or nothing . . . It commits the International Corporation (without the assent of any members of the Organising Committee, ex. the Italians) to earmark half of its capital and much of its activities for Russia. That alone may kill the Corporation. It holds out hopes of immediate export credits with the risk shared between the government and the manufacturer, though the manufacturers 48 49

Lloyd-Greame to Baldwin, 6 May 1922, Churchill College, Cambridge, Swinton Papers, 270/2/3. See J.A. Cross, Lord Swinton, Oxford 1982, pp. 29-35. DBFP, Ser. I, Vol. 19, Nos. 114, 115 and n. 15; Lloyd George Papers, F/204/1/13.

202

From Genoa to the Ruhr

advised me that they would not take any material share of risk, till they saw conditions in Russia, which would ensure repayment. It implicitly commits the Trade Facilities Act Committee in a way which they have always stipulated they should not be committed. Lloyd-Greame foresaw trouble in the Cabinet, Treasury, International Corporation and Trade Facilities Act Committee, denials and explanations, which while satisfying one side would dissatisfy the other, and the revelation of different assumptions and conflict of interest after the agreement had been signed. That was hardly likely to induce the Russians to carry out their agreement in good faith. 'I think it is the least adroit thing yet.'50 Lloyd-Greame's fears were not realised only because the Russians were not seduced by the promises in the document. On the contrary their reply on 11 May rejected not merely the western memorandum but to a large extent the Cannes conditions. It criticised the entire basis of the Genoa negotiations and denounced the western powers for subordinating the future to the interests of the past and for making the sovereignty of the Russian state the plaything of chance. But at the very end the Russians proposed that negotiations should continue in mixed commissions of experts.51 The Russian note thus satisfied both parties at home, the hardliners who were opposed to any sacrifice of principle and those in favour of trade with the west who were prepared to make considerable concessions for its sake. The suggestion of further negotiations was accepted, and although the subsequent talks at The Hague in June and July, conducted at a lower level, were no more successful in rinding a solution to the problems of debts and property, the proposal rescued the Genoa conference from complete failure on its most conspicuous topic and gave Lloyd George both a brief renewal of hope of American cooperation52 and the chance to salvage something of his non-aggression pact. This arose out of Lloyd George's conception of the conference as promoting European peace and disarmament, lack of which was said to be the great obstacle to economic recovery. It arose directly out of the clause in the Cannes resolution that countries should join in an undertaking to refrain from aggression against their neighbours. Lloyd George took with 50

Lloyd-Greame to his wife, 8 May 1922, Swinton Papers, 270/2/3. Degras, Soviet Documents on Foreign Policy', Vol. 1, pp. 308—18; see Fink, Genoa Conference^ p p . 263—6. 52 The idea of commissions was favoured by Child, the United States ambassador in Rome and unofficial observer at Genoa, who indicated to Lloyd George that his country might take part and even call a subsequent conference at governmental level. But within a few days Hughes rejected both an informal and a formal invitation: FRUS, 1922, Vol. 2, pp. 804-12; DBFP, Ser. I, Vol. 19, Nos. 117, 132 and n. 17; Hankey to Chamberlain, 11, 13, and 16 May 1922, Hankey Papers, 8/23. 51

The failure of Lloyd George's grand design

203

him to Genoa a draft pact, which involved no obligations beyond those of the League of Nations Covenant.53 As soon as discussions began with other delegates problems reared their heads. The simple declaration that each party would refrain from any act of aggression against the territorial integrity of any of the others, and would use all the means at its disposal for the settlement of disputes by peaceful means, was criticised on all sides. The Italians complained that it contained no commitment to collective security; Poincare said it encouraged German defiance of the Allies and Soviet threats to Poland; and Benes accused it of raising the problem of unrecognised frontiers, such as Poland's eastern and northern boundaries, which might cause conflict and which he was not prepared to underwrite.54 Benes produced a new draft binding the parties to loyal observance of treaties and providing for regional mutual assistance undertakings. In turn the British and the Italians objected to these ideas, and the Germans and the neutrals were opposed to any requirement to recognise the peace treaties.55 The pact was then left on one side while the note to the Russians was drafted, although Lloyd George referred at meetings to the desirability of settling outstanding territorial questions before the end of the conference and to the danger of a Soviet attack on Poland if agreement were not reached.56 While they waited for the Russian reply Lloyd George became increasingly gloomy about the prospects for peace. However, the proposal for continuing commissions gave him the idea that while they were sitting 'there should be a provisional Pact of Non-Aggression - in fact a sort of Truce of Non-Aggression'. 57 Two days later Hankey wrote again: The boundaries affected by the Pact of Non-Aggression will be the boundaries actually observed in practice at this moment. The ultimate delimitation of the boundaries, however, will not be prejudiced by this provisional Pact. This will save the Genoa Conference from the long and difficult task of permanently settling these boundaries. This plan also has the advantage of not bringing in the difficult question of the Peace Treaties, and the rights of the Allies to advance into the Ruhr, which made the acceptance of the original draft of the Pact so difficult for France.58 53

54

55

57 58

Minute by Hurst, 16 Mar. 1922; Crowe to Hankey, 24 Mar.; Hankey to Crowe, 25 Mar., C 4343,4356/458/62, FO 371/7423; BED 74th conference, 10 Apr., BED 285, CAB 31/1. Memorandum by Grigg, 21 Apr. 1922, Grigg Papers, reel 9; Gregory to Crowe, 23 Apr.; FO to Genoa, 27 Apr., N 3952/646/38, FO 371/8188; memorandum by Benes, 26 Apr., Lloyd George Papers, F/199/3/5; DBFP, Ser. I, Vol. 19, No. 95; Fink, Genoa Conference, pp.193—6. Memorandum by Benes, 26 Apr. 1922, Lloyd George Papers, F/199/3/5; DBFP, Ser. I, Vol. 19, Nos. 95, n. 14, 107, 111, 113; Wigram to Waterlow, 2 May, C 6652/458/62, FO 56 371/7431. DBF?, Ser. I, Vol. 19, Nos. 102, 106, 107. H a n k e y t o Chamberlain, 11 M a y 1922, H a n k e y Papers, 8/23. Hankey to Chamberlain, 13 May 1922, Hankey Papers, 8/23. The text of the clause adopted by the First Commission on 18 May is in DBFP, Ser. I, Vol. 19, No. 138, annex: see also Nos. 132, 133, 134, 136, 137.

204

From Genoa to the Ruhr

In its last stage the 'truce of non-aggression' received an amount of attention that seems surprising in view of its platonic nature. Although much of the discussion had little to do with the substance, some of the participants evidently thought it important. Perhaps Lloyd-Greame's comment explains the feeling, on the British side at least: If we keep contact, we keep the peace; and this means a great deal, because there is no doubt that a complete break will not now leave the position the same as before, but would leave it definitely worse . . . I think that some statesmen probably exaggerate the immediate results of the Russo-German Treaty and the capacity and likelihood of Russian armies marching out across their frontiers. But there is no doubt that a break now would leave all the border states nervous, anxious and unable to settle down. They will maintain their armies; they will go on inflating. They will fail to produce exportable surpluses. In a word, all my old argument about the immediate effect of the Russian peace on the trade revival of the limitrophe countries applies.59

But how a verbal promise of freedom from Soviet attack for four months after the end of The Hague conference was going to help the border states settle down, Lloyd-Greame did not say. While political activity occupied the attention of the chief delegates and the press, the technical commissions of the conference pursued their discussions without marked disagreement and with some passing reference to the problems of reparations and war debts. At a meeting on 13 April of the currency sub-commission of the Financial Commission, for example, the German delegates said that the question of balancing the budget was closely related to that of the balance of payments; and the Russians suggested that countries with adverse exchanges needed help from stronger countries.60 But on the whole Nixon, the acting Director of the League of Nations Economic and Financial Section, thought that the report of the currency sub-commission, drawn up by experts from the major countries, was not an attempt to reconstruct Europe but one 'to improve the currency position and policy of the countries of western Europe, to bind them closer to the United States, with little regard for the countries with seriously deteriorated currencies'. There was no suggestion of help to eastern Europe, 'no discussion of the causes which create government deficits, nor any analysis of the financial problems which create currency difficulties'. Nixon thought the delegates had been acutely conscious of the significance of excluding reparations and debts from the agenda, and several delegates from eastern European countries told him that they had felt out of the discussion from the start and had not felt able to introduce the questions in 59 60

Lloyd-Greame t o Baldwin, 14 M a y 1922, Swinton Papers, 2 7 0 / 2 / 3 . Financial Commission, Currency Sub-Commission, 2nd meeting, CAB 31/12.

The failure of Lloyd George's grand design

205

which they were interested. Like Austria, he said, these countries were prepared to subscribe to general statements about sound financial policy, but would only undertake an obligation to apply such conditions if a credit were assured at the same time. The resolutions adopted by the Financial Commission on 20 April said that the essential requirement for economic reconstruction was currency stability, and representatives of central banks should meet to consider cooperation. It was desirable that all European currencies should be based on a common standard, and governments should declare their intention to return to gold at the old or a new parity. A convention to coordinate the demand for gold and economise its use by some means such as a gold exchange standard was desirable, but no scheme for stabilising monetary units could be effective without American cooperation. Until budgets were balanced there could be no currency reform, and balancing budgets would go far to remedy an adverse balance of payments; but it was recognised that some countries' adverse balance was such as to make balancing their budgets very difficult without external help.61 The ideas of a meeting of central bankers and a gold exchange standard were particularly dear to Montagu Norman. The Bank of England was asked to call the meeting, and Norman immediately cabled to Strong to ask when he could come, and to suggest that the conference to agree on a convention should be held in Washington. Strong sent a tepid reply, and Norman, on a visit to the United States in May, found the atmosphere very uncertain.62 The central bank meeting was in fact never held. The proposal, with that for a gold exchange standard, revealed a clear conflict of interest and aim between the Bank of England and the Americans, a conflict which the latter were able to win.63 On 1 May the credits sub-commission of the Financial Commission adopted resolutions, saying in particular that European reconstruction depended on the restoration of conditions in which private credit and capital could move freely from countries with a surplus to those in need of help. The chief of these conditions were that all countries should restore their public finances and currencies, and borrowing countries provide satisfactory guarantees. Inter-governmental loans should only be resorted 61

62

63

Report b y N i x o n , M a y 1922, L N Arch., S 145; Financial C o m m i s s i o n , resolutions, 20 Apr., C A B 3 1 / 1 2 ; adopted b y the Conference, 3 May, C A B 3 1 / 1 1 . Correspondence N o r m a n - S t r o n g , N o r m a n - B a n k o f England, 2 2 Apr.-31 M a y 1922, F R B N Y , C 261 England, Bank of England General 1918-1922. See Frank C . Costigliola, ' A n g l o - A m e r i c a n financial rivalry in the 1920s', in Journal of Economic History, 37 (1977), pp. 911-34; Stephen V.O. Clarke, Central Bank Cooperation 1924-31, New York 1967, pp. 33-40; Stephen V.O. Clarke, The Reconstruction of the International Monetary System. The Attempts of 1922 and 1933, Princeton 1973, pp. 4-17; and below, pp. 299, 305-9.

206

From Genoa to the Ruhr

to in the most exceptional cases; but some special machinery was needed in the short term to start the flow and make the stronger countries' cooperation immediately effective. Therefore governments should support the international corporation.64 The Transport and Economic Commissions produced reports recommending cooperation in improving communications and the reduction of all kinds of obstacles to trade. The Board of Trade representatives were reasonably satisfied with these proceedings; but the actual resolutions in the Economic Commission, according to a League of Nations official, were often no more than concise statements of incompatible views. The discussion, Loveday wrote, had been more realistic than that at Brussels in 1920, and Europe had moved a long way towards economic freedom since then, but the fact that 'the articles finally accepted should be so weak and so much a series of carefully formulated compromises, brings out strongly the extent to which the economic policies of the different European states are at the moment incompatible one with the other'.65 There was an oblique reference to reparations, with indebtedness in general, in the financial resolutions, in a passage saying that 'if the burden of any country's external obligations is beyond its capacity to pay, so drastic a lowering of the standard of living' would be brought about there that willingness to pay a just debt might be 'converted into a spirit of despair and revolt'.66 Since Poincare refused Lloyd George's suggestion of a meeting at Genoa of the signatories of the peace treaty,67 there was no discussion of reparations on the margins of the conference. Nor was progress made with international help to Austria.68 There was therefore no solid gain to set against the failure over Russia, except perhaps in the creation of atmosphere, which was genuine although ephemeral. For the rest, Keynes's cruel judgment was not wide of the mark. In the special Manchester Guardian Commercial supplement for 10 June Keynes wrote: Never, I think, at any Conference has the intellectual standard of the official policy sunk so low. The discussions - I am limiting myself in this commentary to the Russian question - seldom touched reality. The greater part of the time was occupied by excited and sometimes melodramatic controversy between the British and French Delegations about alternative versions of a formula of which it was 64

Financial Commission, Credits Sub-Commission, resolutions, 1 May 1922, CAB 31/12; adopted by the Conference, 3 May, CAB 31/11. The reports of all the commissions were published in Cmd 1667 of 1922, Papers Relating to the International Economic Conference, Genoa, April-May 1922. 65 Board of Trade memoranda, May 1922, BT 90/18, BT 11/22/CRT 1930/22; report by Loveday, May, LN Arch., S 145; reports of Transport and Economic Commissions, CAB 31/12. 66 See Wigram to Lampson, 2 May 1922, C 6587/458/62, FO 371/7431. 67 DBFP, Ser. I, Vol. 19, Nos. 96, 106, 116; Orde, Trance and the Genoa Conference', p. 351; Fink, Genoa Conference, pp. 221, 229, 260. 68 See above, p. 132.

The failure of Lloyd George's grand design

207

certain beforehand that the Russians would accept neither, and of which their acceptance would have led to no practical consequence . . . Russia, like many other countries now and heretofore, is in default, and nobody expects that the present authorities can or will pay anything. But she is also doctrinaire, which, though not unprecedented is less common. We did not ask her to pay, for that would have been absurd, except hypothetically at a distant date; we asked her to unsay her doctrine. Now Bolshevik doctrine is cheap, and I do not doubt that Mr Tchitcherin would have uttered Homoousion or any other phrase at quite a modest price - if one had been offered him. But as Mr Lloyd George's sleeves were empty, or sewn up by Sir Robert Home, no price was forthcoming and there was no basis for a bargain. It was, surely, a delusion that, even if Mr Tchitcherin had repeated our formula, it would have done any good either to us or to him. No use to us because we should not have got paid, no use to him because it would not have enabled him to borrow. The expectation constantly held out to him, that, if only he repeated the formula, the pockets of the private investor would then be open to him, was baseless. The private investor of western Europe is quite justified, in view of what has happened, in refusing to lend any more; and he is not so foolish as to be placated by a few hollow words. In no circumstances will the investment markets of the world be open to the Soviet Government in the near future, and suggestions to the contrary were a falsehood.69

Keynes considered that the British government ought to send to Russia, on credit, substantial quantities of goods to promote agriculture and repair transport, 'with our eyes open, prepared to lose our money - partly on the general grounds of our eventual advantage in promoting the health of Europe; but also because of the direct interest which we have in Russia's exporting wheat in the years to come'. But such a prospect was as remote as that of the private investor putting money into Russia in the near future. The existing export credits scheme and Trade Facilities Act would not suffice; it would have needed direct government grants; and a government that was about to decide to let Austria collapse rather than give another advance was not going to approve credits for Russia - nor if it had done so would a Conservative-dominated House of Commons agree. As for his assessment of the Soviet position, Keynes showed no greater understanding of Communist principles than others in the west, where the general level of ignorance was high. It is evidently the case that the Russians were divided among themselves as to the length they could go in concessions on property. It was the hard line that eventually triumphed; but it was certainly true that if they were to sacrifice principle at all it would only be for a very tangible benefit.70 69

70

Manchester Guardian Commercial, 'Reconstruction in Europe', No. 3, 10 Jun. 1922, pp. 132-3. Fink, Genoa Conference, pp. 202-4.

208

From Genoa to the Ruhr The circle of reparations and debts

The United States World War Foreign Debt Commission was constituted by law in February 1922. Until it met in April and asked the government to invite foreign gov rnments to make proposals for settling their debts, the prospects remained uncertain. The British Treasury still wanted, as the best solution, a round-table conference with France, Italy, and the other Allied debtors, and Germany either present or coming in soon afterwards, at which the whole problem of debts and reparations and European reconstruction could be thrashed out. A settlement of the British debt to the United States alone, Geddes was told, or even a settlement of interEuropean debts which left open the whole question of Europe's debts to the United States, could not contribute much to the economic and financial recovery of the world. Nor could France, for example, reasonably be expected to agree to a large reduction in her claim against Germany so long as her debt to the United States hung over her.71 Blackett had drawn up in December 1921 a plan for a reparation settlement, the central feature of which was a reduction of the unconditional German obligation to 45 billion gold marks, with a further contingent liability of 65 billion for such inter-Allied debts as might be exacted. Britain and France would agree not to call for payment of debts due to them unless they were called on to pay the United States. Germany would thus benefit from any allied debt reduction, but France's position would be safeguarded.72 Blackett sent a copy of his plan to Strong in January 1922, asking for his comments and saying that he personally thought that Britain should cancel the debts due to her and pay the United States, but the idea was not favoured in London. Strong replied that the congressional hearings on the funding bill had shown strong objections to any possibility of American claims being converted into claims on Germany. Now that the bill had been passed Strong believed that the best course was for negotiations to start promptly and the commission to be given all the facts and a thorough knowledge of the economic problems involved in collecting all debts, including reparations. Strong was confident that in the long run the American people would deal honourably and even generously with the debts, but meanwhile he dreaded the possibility of drifting into a position of on the one hand insisting that the Allies must pay in full while on the other hand complaining that they were too rigorous in insisting that Germany must pay.73 71

72

73

Geddes to FO, 10 and 22 Feb. 1922; FO to Geddes, 16 Mar., A 997, 1279, 1813/236/45, FO 371/7281; memorandum by Blackett, 18 Feb., C 4220/99/18, FO 371/7475. Memorandum by Blackett, 18 Feb. 1922, C 4220/99/18, FO 371/7475; Blackett to Strong, 25 Jan. FRBNY, C 797, Reparations, Strong-Logan correspondence; CP 3878,23 Mar., CAB 24/134. Strong t o Blackett, 18 F e b . 1922, Strong Papers, 1111.1.

The circle of reparations and debts

209

Lamont, too, hoped that the Commission, after some weeks or months of discussion with foreign representatives, would have to report to Congress that funding on the terms laid down in the bill was impossible, and that by that time the public would be ready to handle the question with greater regard for the interests of the United States as well as those of other countries.74 At the same time Norman wrote to Strong that if the United States was determined to treat Britain separately, Britain ought to negotiate an arrangement as quickly as possible and then with the United States call a meeting of all their debtors and Germany.75 Unfortunately none of these suggested procedures was practicable, but it was still some months before the fact was appreciated in London. Desire to postpone doing anything, and desire for a round-table discussion, continued after the arrival of the official American invitation to funding negotiations. Hughes told Geddes that the Debt Commission could only deal with individual countries and only had power to arrange individual funding operations. However, he thought it might be possible to make a parallel agreement that British consent would be necessary before the United States gave another country better terms than it had given Britain. In that case negotiations with other countries would be postponed, and after the first round of negotiations there would be in effect an AngloAmerican partnership in dealing with the other debtors.76 Geddes recommended sending a British delegation to Washington as soon as possible; but the Treasury favoured delay unless the government decided to pay the United States regardless of what was done about the Allied debts and reparations. Geddes was told that the Treasury would welcome an American invitation to a discussion, with or without the Allies, of the general problems of debts and reparations, but would send a delegation to Washington to discuss Britain's own funding if the United States government pressed for it and sent a formal invitation.77 Geddes replied that the American note of 24 April was a formal invitation, he could see no advantage in delay, and there was no prospect of a more general discussion at least until the British debt had been dealt with. If there were insuperable objections to Britain accepting anything within the strictly limited terms which the Debt Commission could offer- subject of course to insisting on not being worse treated than other debtors - it would be better to say so in a reasoned reply rather than send a mission which would be bound to fail. Geddes believed that postponing discussion 74 75 76

77

Lamont to Grenfell, 20 Feb. 1922, Lamont Papers, II, 113-18. N o r m a n to Strong, 6 and 25 Feb. 1922, Strong Papers, 1116.3(2); BE, O V 31/5. Geddes to F O , 24 and 25 Apr. 1922, A 2735, 2766/236/45, F O 371/7281; memorandum by Hughes, 25 Apr., L C , Charles Evans Hughes Papers, b o x 175, file 72(b), b B. Minute by Blackett, early May 1922; Treasury to F O , 8 May, T 160/365/F557/5; F O to Geddes, 13 May, A 3041/236/45, F O 371/7281.

210

From Genoa to the Ruhr

of funding would be a mistake: it was accepted that it was to Britain's advantage that the United States should take a real and effective interest in European affairs, and there was no chance of this happening until the debt question, especially the British one, was settled in some way sufficiently satisfactory to American opinion to remove it from the political field.78 Since the Treasury remained unconvinced, it was decided to discuss the matter personally with Geddes when he returned to England on leave. Meanwhile Balfour, who was in charge of the Foreign Office throughout the summer of 1922 as Curzon was ill, discussed the problem with Home and found that the Treasury did not expect circumstances to change before November. Their real objection to early funding was that it put an end to any possibility of the British debt being reduced, whatever happened to reparations or other debts. So long as the United States could not deal with the debts on anything but a narrow basis there was nothing to be lost by not funding, provided that current interest was paid.79 The Cabinet would have to decide, and it was no easier for it to do so than it had ever been. The factors to be weighed had not changed. In the first place, there was no solid foundation for a hope that Britain could succeed with a demand that she be given no harder terms than other debtors of the United States. She could and did try for what by analogy was called most-favoured-nation treatment; but there was no logic in such a claim and its equity was contestable - Britain herself rejected it when made by her own debtors. To that extent the Treasury was realistic in believing that once a funding arrangement was made Britain would have to pay, whatever happened to the other debts. But, secondly, to go on hoping that something would turn up was no more than Micawberism: there was no solid foundation for a hope that by the autumn or any other foreseeable date the United States government would be either willing or able to deal with the debts on a basis other than that of the Debt Funding Act. Thirdly, there was the strong advice that the unfunded state of the debts - or at least the British one - was an obstacle to American willingness to be involved in European affairs: such advice could only be reinforced by knowledge of American discussion of political restrictions on bank lending to foreign governments.80 Yet fourthly, previous experience gave reason for doubting the accuracy of forecasts that funding would transform political relations between the two countries. Finally, it was as ever politically difficult 78 79

80

Geddes to FO, 16 May 1922, A 3237/236/45, FO 371/7283. Treasury to FO, 22 May 1922, with minute by Sperling, 24 May; minute by Leeper, 6 Jun.; draft tel. to Geddes, n.d., A 3360, 3689, 3952/236/45, FO 371/7282. Logan to Strong, 10 Mar. 1922; Strong to Logan, 28 Mar., FRBNY, C 797, Reparations, Strong-Logan correspondence; Strong to Hughes, 14 Apr., NA, RG 59, 800.51/312; Strong to Hoover, 22 Apr., Strong Papers, 013.1; Hoover to Hughes, 29 Apr., NA, RG 59, 800.51/316. See Leffler, The Elusive Quest, pp. 59-64.

The circle of reparations and debts

211

Lloyd George at a Cabinet meeting on 23 May said it was impossible - for the government to tell the country, burdened with a national debt of £8,000 million and two million unemployed, 'that we were going to forgive the debts owing to us by France, Italy, Germany and so forth, while at the same time we were to pay our own debt of £1,000 million to the United States'.81 Having considered these aspects all over again Home advised the Cabinet to go ahead with funding now, above all on the ground that the government would thus regain its freedom to deal with reparations and the other debts without waiting for the United States, and the country had more to gain by the restoration of Europe than it had to lose by paying the United States.82 On 16 June the Cabinet discussed the whole question. It was argued that Britain was chiefly interested in reaching a settlement in Europe, and that could not be reached until reparations had been settled. France would not settle reparations until she knew the position about her debts. The United States would not help with the European problem until an arrangement had been reached with Britain. Therefore a delay in funding meant postponement of European reconstruction. Any proposal that involved requiring Britain's debtors to fund their debts would increase French reluctance to make any concessions to Germany: the latter would go bankrupt and European recovery would be postponed indefinitely. On the other hand it was urged (the minutes do not name individual ministers) that Britain should take the position that she ought not to be given less favourable treatment than other debtors, and the United States ought not to be allowed to deal with her debtors individually. Europe should present a united front to the United States, and from that point of view it would be unfortunate if the French started negotiations first. The suggestion was then made that a despatch to Britain's debtors should be drafted, explaining the position and emphasising that American action made it necessary for Britain to demand payment from them, and a despatch to the United States acknowledging Britain's intention to fulfil her obligations but saying that she could not make definite proposals on funding until she had completed discussions with her Allies on their debts. It was eventually agreed that Balfour should draft these despatches, but he warned his colleagues that he would not be able to do so at once.83 By the time of this Cabinet meeting, the report had been published of a 81 82 83

Cabinet, 23 May 1922, C 29(22), CAB 23/30. CP 4020, 8 Jun. 1922, CAB 24/137. Churchill to Home, 13 Jun. 1922; Home to Churchill, 15 Jun., T 160/365/F557/6; Cabinet, 16 Jun., C 35(22), CAB 23/30. The French government had decided to send a mission to the United States to explain the impossibility of giving any undertaking about the payment of France's debt. The British Treasury was told of Parmentier's instructions: see Artaud, Question des dettes, pp. 399-403.

212

From Genoa to the Ruhr

committee of bankers, invited by the Reparation Commission to consider the conditions under which Germany could raise a loan to be applied in part to reducing the capital of the reparation debt. The committee, chaired by J. P. Morgan and including Kindersley, Vissering, Sergent, Bergmann, Delacroix of Belgium, and D'Amelio of Italy, asked the Reparation Commission whether their terms of reference allowed them to consider solutions involving modifying the reparation clauses of the peace treaty and the Schedule of Payments. Against the dissenting voice of the French delegate the Reparation Commission replied that the bankers were free to consider any conditions. They then reported that a foreign loan was impossible unless investors could be sure that Germany's obligations were within her capacity, that she genuinely intended to meet them, and that the loan would promote a permanent solution of the reparation problem. The absence of unanimity in the Reparation Commission showed that some of these conditions were not present. If in the future a loan were to be possible the lending public must be convinced that Germany was making a genuine effort to put her finances in order and restore her credit; the existing uncertainty regarding her liabilities must be removed; if American participation were desired the Allies must ask for the loan unanimously, and their nationals must subscribe; uncertainty regarding the external debts of the Allied countries must also be removed. Such questions as inter-Allied indebtedness were among the factors in the problem of securing the Allied agreement that was necessary for a loan to Germany.84 When Poincare visited London on 19 June to talk about reparations and other matters, the subject of debts was avoided. All that Lloyd George said was that a settlement could not take place until the United States was ready to discuss it. Britain could not forgo her claims until the United States would forgo hers, and she would not do so this year.85 On 30 June the Cabinet approved Balfour's draft note to the Allies and decided to consult the Dominion governments;86 but thefinaldecision was not yet taken. The Bank of England had urged on Home on 22 June starting funding negotiations without further delay, to pave the way to greater stability of 84

85 86

Artaud, Question des dettes, pp. 4 2 0 - 8 ; text in The Times, 12 Jun. 1922. See also ARK, Wirth, N o s . 2 9 1 - 2 . A t the Reparation Commission's discussion of the answer to be given to the bankers, B o y d e n , the American unofficial delegate, said that only the D e b t C o m mission was competent to deal with Allied debts, that he believed any emphasis o n the relation between reparations and debts was likely t o make things more difficult, and that he thought a reduction in Germany's liability w o u l d increase the amount likely t o be received from her: see DBFP, Ser. I, Vol. 20, N o . 268 n. 6. The last point was also made by Logan in a letter to Strong of 2 June, Strong Papers, C 797 Reparations, Strong—Logan correspondence. DBFP, Ser. I, Vol. 20, N o . 30. Cabinet, 30 Jun. 1922, C 36(22), C A B 23/30. The D o m i n i o n s did not dissent.

The circle of reparations and debts

213

87

the exchanges and the recovery of trade. On 5 July the American Chief Justice Taft, lunching with Lloyd George, said that the Funding Act was not necessarily immutable: the Debt Commission could ask for the law to be changed. Colonel Harvey, the United States ambassador, urged that a British delegation should be sent to Washington at once. The Administration, he said, wanted to make common action with Britain possible, by clearing the debt out of the way and so putting the two countries in a position to stand together as creditors and deal with the problems of Europe.88 Impressed by this advice the Cabinet decided on 7 July to send a delegation to Washington in September; so the idea of a note to the United States to the contrary effect was dropped. Geddes, who had now arrived in England and was present, said he thought that it would be possible to insist on most-favoured-nation treatment.89 Geddes also recommended sending Balfour's despatch to the Allies, but other advisers strongly disagreed. Grigg urged the necessity of agreeing to fund the debt to the United States unconditionally. He was sure that the United States would follow Britain's lead in generosity, whereas linking the two would therefore be regarded as an attempt to put the United States in the wrong. The City would prefer to pay every penny rather than face the loss of credit involved in trying to get out of doing so. Balfour's draft should be amended to omit all reference to the United States and present only the generous view of inter-Allied debts, offering to cancel them all as part of a settlement of reparations and a joint effort to rehabilitate Austria. The United States should be told that Britain preferred to fund her debt in order to be able to cooperate with her as two good creditors helping others and would like her to call another Washington conference. 'Europe would hope again if we did this.'90 Blackett advised that the whole premise on which the note was based was wrong, since Germany could not pay enough in reparations to produce a share for Britain as large as her debt payments to the United States, and France's financial position was precarious, with large budget deficits on reconstruction based on expectation of German payments and meanwhilefinancedby short-term borrowing. A reparation settlement was urgently needed if central Europe were not to collapse, with repercussions on British finance and employment as well as 87

88 89

90

Bank of England to Home, 22 Jun. 1922, T 160/365/F557/6; Norman to Strong, 19 Jun., Strong Papers, 1116.3(2). Memorandum by Grigg, 5 Jul. 1922, A 4621/236/45, FO 371/7282. Cabinet, 7 Jul. 1922, C 38(22), CAB 23/30. The American Embassy was informed of the decision on 14 July: note in A 4533/236/45, FO 371/7282. On the same day Home stated in the House of Commons that the American request for a discussion on funding would be met: HCDeb., Vol. 156, col. 1575. The mission was later postponed to October and then put off because of the change of government: see below. Grigg to Lloyd George, 6 Jul. 1922; Grigg to Balfour, 8 Jul., Lloyd George Papers, F/86/ 2/4,5; Grigg Papers, reel 10.

214

From Genoa to the Ruhr

the danger of new wars; and if France were obdurate the debt weapon was little more than an idle threat: If the USA were able to come in and cooperate whole-heartedly there would be good reason for believing that the problem could be solved. But the USA Government cannot bring its people in so long as the British debt is unsettled. The first necessity is that this country should agree sincerely to fund the debt to the US Government without reference to what Europe owes. It will then be possible to deal broadly with the European problem. The draft despatch to our Allied Debtors will make both problems more difficult.91

Despite all this advice the Cabinet on 25 July reaffirmed its approval of the draft despatch, with some amendment designed to emphasise the generosity of Britain's position. It was not affected by the change in the internationalfinancialsituation caused by the recent sharp fall in the mark. Home and Chamberlain were the only ministers who contended that the policy was wrong, that Britain must pay the United States whatever happened, and that the despatch could only anger both the Americans and the Allies. The majority of ministers evidently agreed with Lloyd George's summing up: It was time we asserted ourselves and made clear that the whole trouble ought not to be settled at our expense. We were enduring a most burdensome taxation. In other countries taxes were less high and they were not, in fact, all being collected. We were expected to bear this unexampled burden and also to pay all our debts.. . Why should we be apologetic to the United States?. . . They had taken advantage of our complications in War to try and capture our International shipping position . . . They had done their best to wrest our Naval supremacy from us . . . Today they were trying to wrest our financial and commercial supremacy . . . With regard to France, she was one of the richest countries in Europe, and he [Lloyd George] was not sure that we could not obtain something from France. We could point to the large number of Air Squadrons she was building - a policy if which [sic] persisted in would force us to do the same. Europe owed us £3,300,000,000. We were offering to forgive this if the United States were prepared to forgive us £950,000,000. Our policy should be put forward as an attempt to wipe out international indebtedness in order to give the world a fresh start. The Americans were ignorant of some of the great facts of the War. They had no idea of the magnitude of the war effort of the Allies. The United States lost what Australia lost. The publication of this document, and the controversy to which it would give rise, would have important educational results on American opinion. He would have a paragraph stating quite unequivocally that we were prepared to forgive the whole of the debt of the Allies and of Germany to us. That was the basis of our new policy, and he would like a paragraph which even if torn out of its context, would make that absolutely plain.92 91 92

Memorandum by Blacken, 24 Jul. 1922, Grigg Papers, reel 10. Cabinet, 25 Jul. 1922, C 42(22), CAB 23/30.

The circle of reparations and debts

215

In the face of this kind of feeling, last-minute attempts by City bankers to change ministers' minds were of no avail. On 31 July the Cabinet Finance Committee decided that the despatch should be sent next day, and laid before Parliament.93 The Balfour Note was sent to the representatives in London of all the Allies owing war debts to Britain (with the exception, of course, of Russia). In Balfour's most lucid and courteous style it said, after quoting global figures (Britain was owed some £3,400 million by her Allies and Germany, and owed the United States some £850 million), that the British government favoured surrendering Britain's share of German reparation and writing off all inter-Allied indebtedness in one great transaction. If that was impossible, Britain did not intend to make any profit out of a less satisfactory arrangement. She would not in any circumstances ask more from her debtors than was necessary to pay her creditors, but all would admit that she could hardly be content with less.94 It does not appear from the Cabinet discussions that ministers really thought the Balfour Note would have the effect of, as Brand put it to Balfour, 'persuadfing] the American nation to forgive us our debts'. What then was their object? It is tempting to suggest that they meant the note as a bargaining counter in a serious attempt to force a general settlement of reparations and debts on the Allies, and the speed with which the government began to offer to recede from the note's terms would support such a suggestion. But if so, why limit its freedom of action in the first place? Avenol feared the authority that cancellation of the Allied debts would give Britain. The evidence of Cabinet discussions and decisions in the next few months does not suggest such a calculation on their part; and when the bargaining weapon was eventually used, admittedly in much worse circumstances, in the Bonar Law plan, it proved ineffective. It looks much more as though, having accepted long since that for the sake of Britain's credit the debt to the United States must be paid, and accepting now that negotiations could not be further delayed, ministers wished not to throw away the hope of some future payment from others and meanwhile to express human resentment at Britain's unenviable position. The debate in the House of Commons on 3 August did not cast light on the subject. It was mainly concerned with reparations. The Balfour Note was not a central issue, but it was criticised by most of those members who referred to it, and it was not defended with any vigour by government 93

94

Brand to Norman, 29 Jul. 1922, Brand Papers, file 37; Brand to Balfour, 30 Jul., 31 JuL, 4 Aug.; Balfour to Brand, 1 Aug., Brand Papers, file 93; FC 40th conclusions, 31 Jul. 1922, CAB 27/71. DBFP, Ser. I, Vol. 20, No. 45. The note was published as Cmd 1737 of 1922, Despatch to the Representatives of France, Italy, Serb-Croat-Slovene State, Roumania, Portugal and Greece at London respecting War Debts. Balfour had given Avenol an outline of the principles early in July: Avenol to MF, 5 Jul., MF, F30 926 = B 31846.

216

From Genoa to the Ruhr

supporters. In the informed press it received no greater approval.95 Elsewhere the effect was exactly that predicted by critics. Despite Norman's efforts to convince Strong that the real object was to induce France to face realities, even well-disposed Americans thought the note ill-advised and likely to be fruitless. Geddes, however, was philosophical about the anger of anti-British circles.96 As regards France, the ambassador in London, Saint-Aulaire, advised that the note was really addressed to the United States and the French should not allow themselves to be upset. Avenol noted that people concerned with European reconstruction were apt to forget France because she was paying for her own reconstruction and indebting herself in the process. He suggested that France should emphasise that payment for material damage was part of European reconstruction.97 The long-term significance of the Balfour Note was not very great. In making funding agreements with Allied debtors in 1925-7, the Treasury maintained the principle that Britain would not seek more than what, with reparation receipts, was needed to cover payments to the United States, but aimed at eventually receiving as much as was needed. In the event there was a substantial shortfall, and it seems unlikely that Britain could have demanded more. The timing of the note, however, had some effect on the discussion of reparations. After correspondence with the Reparation Commission in the spring, the German government put forward at the end of May a plan for additional taxation. This was accepted by the Commission despite French misgivings, and the partial moratorium was confirmed for the rest of the year. The Committee of Guarantees visited Berlin in June and presented a report on the way in which the supervision of Germany's finances that had been accepted was to be exercised (it involved considerable rights of observation, but no control). In London on 19 June Poincare was prepared to await another report from the Reparation Commission on the real position of German finances.98 On 12 July the German government, with British encouragement, addressed a note to the Reparation Commission asking for a moratorium to the end of 1924; the Commission promised a reply by 15 August, Bradbury proposing a complete 95

96

97

98

HCDeb., Vol. 157, cols. 1731-1815. For the press see, for example, The Times, 2 and 3 Aug. 1922; Economist, 5 and 12 Aug.; Contemporary Review, 122 (Jul.-Dec. 1922), pp. 274-81, where J.A. Spender wrote: T o pay and be nasty is to get the worst of all worlds/ N o r m a n t o Strong, 26 Jul. 1922, Strong Papers, 1116.3(2); J.P. M o r g a n & C o . t o E . C . Grenfell, 4 Aug., M G Papers, Box Hist. 5, file 2 8 ; Strong t o Logan, 25 Aug., F R B N Y , C 797 Reparations, Strong-Logan correspondence; Geddes to F O , 14 Aug., W 7063/ 2618/50, F O 371/8295. Saint-Aulaire to M A E , 2 Aug. 1922, M A E , P A Millerand, Vol. 6; Avenol to M F , 14 Jul., M F , F 3 0 926 = B 31846. Trachtenberg, Reparation in World Politics, pp. 242-9; DBFP, Ser. I, Vol. 20, No. 30; ARK, Wirth, Nos. 272-3, 275-80, 283-4, 319.

The circle of reparations and debts

217

moratorium for the rest of 1922 and urgent consideration of the conditions that would have to be imposed for a moratorium for 1923 and 1924." At French request a new meeting of Allied ministers was arranged for the second week of August in London.100 Meanwhile the German inflation was accelerating fast. The report of the bankers' committee on 10 June, that nothing could be done about loans to Germany until reparation terms were revised and Allied debts funded, shattered hopes of early monetary stabilisation and ended foreigners' willingness to accept payment in marks. The murder of Rathenau on 22 June generated further anxiety about Germany's political stability. From July, the mark exchange-rate and domestic prices entered the hyperinflationary phase. The wholesale price index rose by 55 per cent between June and July, more than doubled in August, and rose another 30 per cent in September. The mark fell from a rate of 374 to the dollar on 30 June to 670 on 31 July, 1,460 on 31 August, and 1,647 on 30 September.101 At the same time the French were becoming increasingly willing to contemplate a breach with Britain and increasingly interested in the idea of 'gages' (pledges or guarantees). There were a number of elements in this new course. The idea of financial control over Germany was becoming discredited. It might have worked earlier in the year, but had then been obstructed by German inertia and British refusal to consider putting German finances under foreign executive authority. Now with the mark collapsing it was too late, and even though at the August conference the British were willing to see the Committee of Guarantees given a veto over German monetary policy it was not certain that they would use it. Stronger measures to make Germany put her house in order seemed to be needed. In the second place French Rhineland policy was developing in the direction of exploiting the Rhineland and the Ruhr economically, although the means were as yet neither clearly defined nor agreed. But it does not seem that in August Poincare was at all anxious to act independently. He wanted to prevent a new moratorium being granted to Germany, and he wanted to put pressure on Britain and indirectly on the United States.102 Thus in his opening statement at the London conference on 7 August Poincare said 99

DBFP, Ser. I, Vol. 20, Nos. 31, 36, 38, 46,49; Trachtenberg, Reparation in World Politics, pp. 249-50; ARK, Wirth, Nos. 313-14. 100 DBFP, Ser. I, Vol. 20, Nos. 40, 41, 42, 44. 101 Holtfrerich, The German Inflation, pp. 17, 77, 191, 290; Economist, 11 Nov. 1922. 102 Trachtenberg, Reparation in World Politics, pp. 250-75, considers that French policy changed radically in the summer of 1922; Artaud, Question des dettes, pp. 430-5, considers that Poincare's policy was not fundamentally different from that of Millerand and Loucheur. For the development of French Rhineland policy at this time see Bariety, Les Relations franco-allemandes apres la premiere guerre mondiale, pp. 91-104; Walter A. McDougall, France's Rhineland Diplomacy 1914-1924, Princeton 1978, pp. 199-231.

218

From Genoa to the Ruhr

that the three series of bonds provided for in the Schedule of Payments could have provided a basis for the settlement of inter-Allied debts. Had it not been for the Balfour Note France would have put forward proposals, involving using the C bonds to liquidate the debts. Britain having closed the way to a reduction of the German debt - and hence Germany's chances of raising a loan - in a way compatible with French interests, the French government, which had advanced 55 billion francs on physical reconstruction and was in direfinancialneed, must insist that Germany be forced to pay, by controls and the taking of productive pledges.103 In other words Britain must either make concessions on debts sufficient to allow a reparation settlement acceptable to France or must accept the risk that France would take independent action. The London conference was even more confused than others of its kind. The issue was the German request for a moratorium and the conditions on which it might be granted; but the conditions proposed by the French were intended to produce money during the moratorium. Also involved were the powers of the Reparation Commission and the governments' control over it. The French at first put forward proposals for measures such as customs controls in the occupied territories and exploitation of state mines and forests, which were criticised not only by the British but also by the Belgian and Italian experts as productive only of paper marks and likely to cost more than they were worth.104 In the face of this criticism Poincare receded and asked only that in addition to closer control by the Committee of Guarantees over Germanfinancesthe state mines and forests should be taken as a guarantee in case of future German failure to pay, 'some control in the widest sense so as not to be confronted with something null and void'.105 The British Cabinet, called back from holiday for a meeting on 10 August, agreed that it could not accept any of Poincare's proposals. Curzon, in view of the crisis in the Near East where the Greeks were being decisively defeated by the Nationalist Turks, was extremely worried at the 103

DBFPj Ser. I, Vol. 20, No. 51. According to the Temps of 27 August, the proposal that Poincare would have made was not the use of the C bonds (which a number of his advisers did not recommend) but fixing the German debt at 120 billion gold marks, divided into two parts, 50 billion on which a loan could be raised and paid by annuities, and a second part of 70 billion which would be cancelled to the extent that the Allies abandoned their mutual claims and the United States reduced its claim. The Spa percentages would also be changed, Britain receiving about 10 per cent of German payments, the other Allies approximately the cost of material damage. See DBFP, Ser. I, Vol. 20, No. 77; Weill-Raynal, Les Reparations allemandes et la France, Vol. 2, pp. 201-2, nn. 5 and 7. The point about the Spa percentages was that concomitant reduction of the reparation liability and war debts would not allow for priority for French reconstruction of the devastated regions unless France got a larger percentage of German payments. Such a priority was a cardinal part of French policy: Artaud, Question des dettes, p. 421. 104 £)Bfp9 Ser. I, Vol. 20, No. 58. 105 DBFP, Ser. I, Vol. 20, Nos. 61, 62 (11 Aug. 1922).

The circle of reparations and debts

219

possible repercussions of a breach with France, but Lloyd George was 'convinced that any policy involving the handing over of Europe to the tender mercies of M. Poincare and the French militarists would be directly contrary to the traditional policy of Great Britain and would be fatal to the reconstruction of Europe and highly dangerous to the British Empire'.106 The Cabinet did not actually welcome the prospect of a breach and agreed to stronger control over German finances than it had been willing to contemplate earlier, but these were not enough for Poincare. The Belgians and Italians struggled to find a compromise, but to no avail. But since Poincare, too, did not want a breach and was conscious of being isolated, the conference did not record its failure to agree but handed the problem of a German moratorium back to the Reparation Commission and adjourned, possibly for three or four months until the position with regard to the United States would be clearer and it might be possible to consider the whole problem, as the Belgian prime minister put it, 'on a much broader issue than a settlement with Germany alone and including all questions of debt5. Lloyd George was quite willing to undertake not to demand payment of interest on the Allies' debts in the mean time. Poincare made no promises about French action.107 Immediately after this last meeting the Cabinet met to consider whether Britain should make some further offer on debts 'so that it could not be urged against her that she had taken no step in this direction and had allowed the collapse of Germany and the deterioration of the European situation without making any concrete proposals to her debtors'. The arguments were rehearsed all over again; the form of the minutes suggests less emotion than recently but no greater decisiveness. On the one hand it was said to be vital that there should be a financial and economic settlement and the only way to get one was to raise a substantial sum of money equivalent to the capitalisation of Germany's capacity to pay. This would be a good deal less than the total reparation bill, but France would not agree to any reduction unless it was accompanied by a corresponding reduction of inter-Allied debts. Britain, too, faced a budget deficit and would benefit from getting some of the funds to be raised by a loan. The Balfour Note had indicated the government's general line of policy: The question was whether we had really examined as fully and as carefully as we might do the whole question of Inter-Allied debts so that we could say sincerely that there was no proposition which we could make to our Allies which if adopted would help to ease the situation. Should France take any extreme step it was most 106 107

Cabinet, 10 Aug. 1922, C 44(22), CAB 23/30. DBFP, Ser. I, Vol. 20, No. 63; Poincare to Millerand, 13 and 14 Aug., 1922, MAE, PA Millerand, Vol. 51.

220

From Genoa to the Ruhr

undesirable that she should lay the blame of having had to do so on Great Britain's failure to make a reasonable proposition regarding Inter-Allied debts. On the other hand the United States was pressing for payment and the Cabinet had taken the considered view that in this case Britain must press her own debtors. 'The essence of the Balfour Note . . . was that it should be brought home to the United States that the delay in the reconstruction of Europe and the chaotic financial and economic condition of the world, was attributable in the main to America's debt policy.' To make further concessions to the Allies now would deprive Britain of bargaining power in the forthcoming negotiations with the United States. It was also clear that the Allies would not entertain any proposition that Britain could make, since they had 'no intention whatever of ever paying anything to Great Britain or America'. A breach now was perhaps not altogether to be regretted; the compromises of the past three years had been largely illusory; the time had come to try to get a final settlement, and France must take the responsibility of failure. 'It would be a mistake from every point of view to depart in any respect from the position previously taken up by the Cabinet, or to fritter away the policy embodied in the Balfour Note.' Ministers decided merely to approve the British line at the conference, and to ask Lloyd George to publicise the British case.108 A fortnight later came the French reply to the Balfour Note, which predictably fastened on all its weaknesses and refused to admit a connection between reparations and war debts contracted for the common cause. But the French government was ready to consider, at a conference embracing the two subjects, abandoning the claim on Germany going beyond the cost of restoring the devastated regions, provided that this had priority over debts and the latter were equitably redistributed. This in effect meant debt cancellation, Britain's abandonment of most of her claim on Germany, and Britain providing much of a loan to Germany to pay reparations to France so that, as Bradbury said, 'when the crash comes they will have got their reparations and we shall be left with the German bonds'. 109 It was decided not to send any reply to the French note, and the idea of a conference on the broad issue rapidly became unattractive and even embarrassing. One can question indeed whether the British acceptance of the idea had ever been very serious. At the London conference they had envisaged it taking place after not only their own but other Allied financial delegations had been to Washington; but the reparation question had its own timetable and the Belgians were anxious to get 108 109

Cabinet, 14 Aug. 1922, C 46(22), CAB 23/30. Hardinge to FO, 2 Sep. 1922, Treasury to FO, n.d., W 7327. 7560/2618/50, FO 371/ 8295; Treasury to FO, 21 Sep., C 13358/12995/62, FO 371/7445. See Artaud, question des dettes, pp. 438-41.

The circle of reparations and debts

221

matters moving. In the middle of September they asked for British views and on 23 September asked for an early reply.110 The Treasury suggested replying that a conference seemed inopportune at present. Once the funding mission to the United States had been concluded the Treasury would not be averse to a conference, but at present the whole future was so uncertain that it was doubtful whether there was any basis for attempting a permanent settlement. The Cabinet decided to take no action, and on 9 October Curzon wrote to the Belgian charge d'affaires that at any rate until it was in a position to appreciate the results of the various Allied negotiations in Washington, the government thought it would be premature to do anything about a conference.111 On 19 October Saint-Aulaire told Curzon that France could not acquiesce in a long postponement of the conference; but as this was the very day of the Carlton Club meeting at which Unionist MPs voted by a large majority in favour of breaking up the Coalition government, Curzon was able to put the ambassador off.112 Bonar Law formed a new Conservative government on 23 October, with Curzon again as Foreign Secretary and Baldwin as Chancellor of the Exchequer. Bonar Law's first action was to obtain the dissolution of Parliament, and a general election was called for 15 November. Until then no major policy decisions could be expected. The change of government also had the effect of postponing the debt mission to the United States which, originally promised for September, had already been put off till later in the autumn. Forecasts of how it might fare had been varied. The United States ambassador in London told Curzon that feeling towards Britain was very bad; Geddes thought it 'more nearly cordial' than at any time since 1917, although he admitted to some anxiety about the forthcoming debates in Congress on a bill to provide subsidies for American merchant shipping.113 A new American tariff act also cast some gloom in London, as it threatened to make earning dollars by exporting to the 110

Note from Belgian charge d'affaires, 23 Sep. 1922, C 13468/12995/62, FO 371/7445. Bradbury to Niemeyer, 8 and 19 Sep. 1922, T 194/9; Treasury to FO, 29 Sep.; Curzon to Belgian charge d'affaires, 9 Oct., C 13638, 13977/12995/62, FO 371/7445; meeting of ministers, 29 Sep., C 52(22), Appendix V, CAB 23/31; DBFP, Ser. I, Vol. 20, No. 103, n. 5. 112 MAE to Saint-Aulaire, 16 Oct. 1922; Saint-Aulaire to MAE, 20 Oct., MAE, RC, Vol. 138; FO to Hardinge, 19 Oct., C 14441/12995/62, FO 371/7445. For the end of the Coalition government see, among many other accounts, Morgan, Consensus and Disunity, pp.346-56. 113 Geddes to FO, 6 Oct. 1922, A 6198/236/45, FO 371/7283; FO to Geddes, 12 Oct., 30 Oct.; Geddes to FO, 24 Oct., 27 Oct., 28 Oct., A 6327, 6356, 6376, 6733/6327/45, FO 371/7315-16. The Ship Subsidy Bill, a contentious measure, came before a special session of Congress in the last week of November. It passed the House of Representatives but was shelved by the Senate. During the proceedings the British Embassy in Washington was accused by the Hearst press of bribing an editor to print material unfavourable to the 111

bill.

222

From Genoa to the Ruhr

United States more difficult; and the utterances on a visit to London of Congressman Burton, one of the members of the Debt Commission, did not indicate any spirit of generosity.114 Hoover, in a speech on 16 October, announced his conviction that Europe could pay without difficulty if the countries would restore peace and reduce armaments, and could do so without large exports to the United States. Mellon was believed to favour retaining all the United States claims as a means of exerting political power over European countries.115 Even references to the United States Treasury's desire to sit down with the British 'on the same side of the table' to discuss continental Europe's indebtedness116 did not necessarily indicate any intention of giving Britain favourable terms. Hughes hoped that once a settlement had been reached with Britain, American opinion would soften on Allied indebtedness as a whole.117 But that offered no particular hope to Britain, and Hughes could not countenance any suggestion of American cooperation with a general conference in Brussels.118 No one encouraged a suggestion by the President of the New York State Chamber of Commerce, Irving Bush, for a private conference of European and American bankers and businessmen.119 On the day before Lloyd George's government fell Strong wrote to Norman that the situation was very difficult to assess, and he hoped that Norman might be able to arrive before the rest of the British delegation to make his own soundings.120 Once Bonar Law was confirmed in office Baldwin arranged to sail for New York immediately after Christmas. Attempts were being made to reach a temporary arrangement over reparations: the Reparation Commission and a group of bankers visited Berlin to re-examine Germany's finances and the possibility of a loan.121 Meanwhile the issue of a conference was not settled. The Foreign Office thought that any attempt to make the 114

Grenfell to Lamont, 3 and 9 Oct. 1922; Lamont to Grenfell, 19 Oct., Lamont Papers, II, 111-14. For the Fordney-McCumber Tariff, the highest so far in United States history, see Leffler, Elusive Quest, pp. 44-51. 115 Lamont to Morgan, 6 Oct. 1922, Lamont Papers, II, 108-13. 116 Lamont to Grenfell, 27 Sep. 1922, Lamont Papers, II, 111-14. 117 Lamont to Morgan, 6 Oct. 1922, Lamont Papers, II, 108-13; Herrick, Paris, to State Dept., 14 Oct.; State Dept. to Paris, 17 Oct., FRUS, 1922, Vol. 2, pp. 165-70. 118 Correspondence in NA, RG 59, 462.00, 800.51; FRUS, 1922, Vol. 2, pp. 171-5,178-82; Jusserand to MAE, 3, 7 and 8 Nov., MAE, RC, Vol. 95. 119 Lamont to Grenfell, 20 Sep. 1922; Grenfell to Lamont, 3 Oct., Lamont Papers, II, 11114; Lamont to Morgan, 6 Oct., Lamont Papers, II, 108-13; Strong to Logan, 6 Oct., FRBNY, C 797 Reparations, Strong-Logan correspondence. 120 Strong to Norman, 18 Oct. 1922, Strong Papers, 1116.3(1). For opinion in the United States see also Artaud, Question des dettes, pp. 462-76. 121 Lamont to Grenfell, 24 Oct. 1922, Lamont Papers, II, 111-14; Strong to Gilbert, US Treasury, 20 Oct., Strong Papers, 012.5; DBFP, Ser. I, Vol. 20, Nos. 103, 105, 107, 110; Brand report [7 Nov.]; Brand to Lazard Freres, 10 Nov., Brand Papers, file 25. See Artaud, Question des dettes, pp. 441—4.

The circle of reparations and debts

223

French agree to some temporary arrangement for reparations for 1923 without discussing the general question would make Anglo-French relations increasingly difficult at a time when, in view of the situation in the Near East, close relations were essential. There was, moreover, no indication that postponing the conference would deter the French from independent action in Germany if the question of payments for 1923 was not settled. It would be best, therefore, to agree to a conference in December whether or not the funding mission had returned from the United States.122 The Treasury had no very useful advice to offer. Blackett believed that an early settlement of reparations and debts was essential to save Europe from collapse, but there was no real prospect of a big solution to justify going to Brussels. On the other hand he was hopeful that France would not use her power to bring about a general catastrophe merely in order to wring concessions from her Allies. Other Treasury officials thought that Britain could neither back France in steps that would mean the economic ruin of Germany nor allow France to act alone, but must see to it that Germany did not wilfully evade her obligations.123 On 28 November the French ambassador brought to Bonar Law (Curzon was at the peace conference with Turkey which opened at Lausanne on 20 November) a message from Poincare that the Brussels conference ought to be held on 15 December, but the Allied prime ministers should meet first. Since Bonar Law could not leave London because of parliamentary commitments, it was agreed to meet there on 9 December. There were reports of a comprehensive plan that Poincare intended to put forward at Brussels, and the Cabinet on 7 December agreed that every effort should be made to get him to produce it in London, that counter-proposals genuinely intended to lead to a settlement should be promised, but that whilst the conference at Brussels could not be rejected any proposal to put debts on the agenda should be refused as Britain would be the only large creditor present among many debtors.124 Poincare, 122

DBFP, Ser. I, Vol. 20, Nos. 102, 104, 108, 109; Bradbury to Baldwin, 11 Nov. 1922, T 194/9; note from Belgian ambassador, 13 Nov.; FO to Treasury, 14 Nov., C 15040/ 12995/62, FO 371/7446. 123 Minutes by Blackett, Rowe Dutton and Phillips, Nov.-Dec. 1922, T 160/141/F5232/1. Bradbury was preparing a new plan which gave no guarantee that Germany would restore her finances if she were given a moratorium. It proposed a moratorium for four years and reduction of Germany's total liability to something not much over 50 billion gold marks. As regards the Allied debts, Britain would be credited with the gold deposited by France and Italy as security for their debts; all except a small percentage of the rest would be written off at once; and the deferred and contingent part of the German obligation would, so far as it ever materialised, be treated as a common fund for the discharge of European obligations to the United States. See DBFP, Ser. I, Vol. 20, Nos. 114, 142. 124 DBFP, Ser. I, Vol. 20, Nos. 115, 116, 117, 119, 120, 121, 122, 125, 126, 127; Cabinet, 7 Dec. 1922, C 69(22), CAB 23/32.

224

From Genoa to the Ruhr

however, had no intention of putting forward any proposals in London. Various suggestions for Brussels had been drawn up in the Ministry of Foreign Affairs and the Ministry of Finance; but at a meeting with the Minister of Finance and officials on 3 December Poincare outlined a scenario that left little room for Brussels even though he still apparently expected it. The fact was, Poincare said, that he was going to London to ask for the liquidation of Allied debts: he would be told it was impossible. He would then ask for loans to be made to Germany: he would be told that was impossible. He would then come back and put France's policy into execution. It would be impossible not to say in London that 'gages' would be taken if agreement were not reached, but it was not necessary to specify what they would be. The French plan would be published at Brussels. A paper drawn up after the meeting and marked *Not to be put to the British' said that before a moratorium for Germany could be discussed the Allies must agree on various matters, including debts. If the British said there could be no discussion now, France would propose that no payments should be made until reconstruction had been paid for. In any discussion with or without the United States, France would offer to pay in German C bonds. On reparations, there must be a plan of German financial reform approved by the Reparation Commission and a bankers' committee, and as a guarantee that the German government would carry it out the Allies would occupy the Ruhr coal mines during the period of the moratorium.125 In London on 9-10 December it was agreed that unless a common policy for Brussels could be devised it would be useless to hold the conference; and it was soon clear that the chances of such agreement were remote. Bonar Law offered that if an arrangement could be reached that led to a complete reparation settlement, Britain would be willing to remit Allied debts to her even to an extent that meant she might have to pay the United States more than she received from Germany and the Allies together. Poincare welcomed this announcement, but declared that if Germany insisted on a fresh moratorium after 15 January, France would occupy Essen and Bochum, jointly with the Allies if possible but alone if necessary, to compel Germany to make acceptable proposals and guarantee their execution, or to enforce such payments as might be possible. A new tentative German offer of financial stabilisation without guarantees was found to be unacceptable. Since it was not possible to reach a conclusion in the time available, the prime ministers agreed to adjourn and meet again in Paris early in the new year.126 125

Memoranda by Seydoux, 21 Nov. and 2 Dec. 1922; memorandum by Tannery, 1 D e c ; meeting with Poincare, 3 D e c ; memorandum by Seydoux and Tannery, 5 D e c , MAE, PA Millerand, Vol. 24. See Trachtenberg, Reparation in World Politics, pp. 275-82; Artaud, Question des dettesy p p . 447—8. 126 DBFP, Ser. I, Vol. 20, Nos. 133-6; Poincare to MAE, 9 and 11 D e c 1922, MAE, PA Millerand, Vol. 51. The proceedings of the conference are printed in Cmd 1812 of 1923,

The circle of reparations and debts

225

The interval was spent, so far as the French were concerned, largely in planning the occupation of the Ruhr. The Germans, more or less resigned to the inevitable, thought about making another reparation proposal and sounded the United States government about an offer on French security.127 Hughes passed this on to Poincare without arousing his interest and refused suggestions, from various quarters, of United States involvement that went farther than his speech at New Haven on 29 December offering to collaborate in an expert enquiry into Germany's capacity to pay.128 The British drew up a new reparation plan based on a scheme by Bradbury. In the House of Commons on 12 December Bonar Law repeated what he had said at the conference, that Britain would be willing to risk receiving less than she had to pay the United States, if that would lead to a complete settlement. But in a debate two days later he made it clear that he did not think Britain could abandon all her claims. It would not be just, he said, that Britain alone should make payment, and to do so without receiving anything from outside sources would reduce the British standard of living for a generation.129 The new British scheme involved the mutual cancellation of war debts between Britain and the continental Allies (except Russia) and between those Allies themselves, leaving the debts to the United States intact: Britain would be credited with the French and Italian gold originally deposited in London as security but long since shipped to the United States. Germany would get a four-year moratorium and her outstanding liability would be reduced to 50 billion gold marks. The liabilities of Austria, Hungary, and Bulgaria would be cancelled or greatly reduced. Belgium would surrender her priority in receiving reparation payments. The percentage shares would remain unaltered. There were provisions for a new type of control over German finances, but no occupation of further territory. According to a summary, Britain would lose on paper £1,690 million, France £1,035 millon; Italy would gain £176 million. Officials considered whether, in addition, to offer the security guarantee to France again and to ask for French ratification of the Washington treaties and a settlement on Tangier; but Bonar Law decided not to bring in extraneous questions. The Cabinet approved the plan on 29 December, but no one was sanguine of French acceptance.130 Inter-Allied Conferences on Reparations and Inter-Allied Debts. Held in London and Paris, December 1922 and January 1923. Reports and Secretaries* Notes of Conversations. Trachtenberg, Reparation in World Politics, p p . 2 8 2 - 6 ; H e r m a n n J. Rupieper, The Cuno Government and Reparation 1922-1923, The Hague 1979, pp. 59-77; FRUS, 1922, Vol. 2, pp. 203-11. 128 Correspondence in NA, RG 59,462.00; memorandum by Hughes, 18 D e c , LC, Hughes Papers, Box 175; FRUS, 1922, pp. 192-5,199-202; DBFP, Ser. I, Vol. 20, Nos. 143,145. See Artaud, Question des dettes, pp. 476-90. 129 HCDeb., Vol. 159, cols. 2585-6, 3229-37. 130 Minute by Lampson, 20 D e c . 1922, C 17656/99/18, F O 371/7491; Cabinet, 29 D e c , C 72(22), C A B 23/32. The Bonar Law plan is printed in Cmd 1812 of 1923, also in The

127

226

From Genoa to the Ruhr

They were right. The Bonar Law plan, presented to the Allied conference in Paris on 2 January, received the condemnation not only of the French but also of the Belgians and Italians. This unanimous instant hostility can mainly be attributed to the complicated form of the proposal and its presentation without any prior explanation. Whether in other circumstances it would have stood a better chance of acceptance cannot be known; but it is ironic that the British government's willingness at last to abandon most of its claims regardless of the United States should have received such a dusty answer. In the different circumstances after the Ruhr occupation the offer was never repeated. The Paris conference ended by recording an irreconcilable difference of view between the French and British governments, although without the recrimination that had become customary between Poincare and Lloyd George.131 As soon as the Reparation Commission, against Bradbury's vote, had declared Germany in default on deliveries of coal as well as timber, the French and Belgians proceeded to the occupation of the Ruhr on 11 January 1923. Times, 3 Jan. 1923. See Artaud, Question des dettes, pp. 451-5; Denise Artaud, 'Die Hintergriinde der Ruhrbesetzung 1923. Das Problem der interalliierten Schulden', in Vierteljahrshefte fur Zeitgeschicbte, 27 (1979), pp. 241-59, reckons that the plan effectively altered the Spa percentages to Britain's advantage and France's disadvantage. 131 DBFP, Ser. I, Vol. 12, Nos. 2, 3,4. The proceedings of the conference are printed in Cmd 1812 of 1923.

Chapter 7

The first debt settlement and revision of reparations, 1923-4

The years 1923-4 were momentous for European reconstruction. The Franco-Belgian occupation of the Ruhr, and the German reaction to it, brought the mark to collapse and the German republic near to disintegration. The repercussions of the crisis spread far beyond the borders of Germany. France, the victor in the battle of wills, was herself weakened and failed to profit from the venture. The cataclysm at last brought American intervention and led to a new settlement of reparations and thence to a high level of United States involvement in European financial stabilisation and investment. The whole system of international credit got going again. It proved fragile, but at least gave a few years of greater allround recovery. In the events of 1923-4 Britain's part, although central, was not pre-eminent. In the occupation of the Ruhr the British government neither would take part nor could detach itself. In the settlement of the Dawes Plan British finance, in cooperation with United States money, could force an end to French predominance over Germany but could not itself have the last word. Anglo-American cooperation in European reconstruction had been desired in Britain since 1918. It was facilitated in 1924 by the achievement, after so much hesitation and soon after the start of the Ruhr occupation, of a settlement of the British war debt to the United States. That agreement in turn, after the reparation settlement of 1924, facilitated further debt agreements between both the United States and Britain and their respective European Allied debtors. But at no time did the two countries cooperate over individual debt agreements, still less in finding a collective settlement; and once European stabilisation was under way the shift offinancialpredominance away from London to New York became increasingly marked. The British debt settlement The long-heralded British mission to conduct debt-funding negotiations arrived in Washington on 4 January 1923. Baldwin, the new Chancellor of 227

228

The first debt settlement and revision of reparations

the Exchequer, was accompanied by Norman: the third member of the delegation was Geddes. They did not know what terms might be obtainable. On the one hand the American Refunding Act laid down that interest on the war debts should not be less than 4 per cent and the period of repayment not more than twenty-five years, which with sinking fund amounted to something over 6 per cent (current interest rates in London were about 3 per cent), and Hughes told Geddes again on 18 December that the Debt Commission was bound by the terms of the Act unless Congress would change them, a contingency which he did not contemplate.1 On the other hand the American ambassador in London, Colonel Harvey, had been assuring Bonar Law that the Commission might accept an interest rate as low as 2 per cent including sinking fund, and Bonar Law apparently contemplated an annual payment not exceeding £25 million.2 Efforts were being made to convince American opinion that it would not be possible to settle within the terms of the Funding Act, and on 29 December President Harding told the Senate that the Commission's hands ought to be freed. There was therefore some ground to hope for conditions that the British might think reasonable, but no certainty; and the gap between hope and the reality of the negotiations led to serious disagreement between Bonar Law and the delegation. On 7 January Baldwin had an informal meeting with Mellon, Secretary of the Treasury and Chairman of the Debt Commission, and Hughes. The Americans gave no indication of their views, but asked Baldwin to start the formal proceedings with a statement of the British position, which would be given to the press. This was duly done at the first meeting with the Commission, on 8 January. Baldwin pointed out that the debt was incurred not for dollars sent to Europe but for goods bought in the United States cotton, wheat, food, and munitions. All the money had been spent in the United States and Americans had profited from the purchases. Britain could not repay with goods because prices had fallen so much since the war that to repay $4,000 million worth would require far more than the same quantity of British exports, and regardless of the tariff the United States could not accept so much. Britain intended to pay, and means must be found to enable her do to so. What was needed was a 'fair business settlement' that would secure for the United States repayment 'on such terms as will produce the least possible disturbance in the trade relations of the two countries'.3 1 2

3

Geddes to FO, 18 Dec. 1922, DBFP, Ser. I, Vol. 20, No. 145. T. Jones, biography of Bonar Law in Dictionary of National Biography, 1922—1930, Oxford 1937, p. 489; Keith Middlemas and John Barnes, Baldwin, London 1969, p. 136. Geddes to FO, 7 Jan. 1923, A 136/136/45, FO 371/8503; T 160/365/F557/7; The Times, 9

Jan.

The British debt settlement

229

Baldwin reported home that he and Norman thought the atmosphere was favourable, and Geddes believed the Commission would recommend to Congress a settlement that was not unfavourable but would involve an annual payment some £5 million higher than the maximum Baldwin had been authorised to accept. Bonar Law agreed to the additional authority, provided that the period of repayment was not more than fifty years.4 Geddes's optimism seemed to be supported by a statement from Harding to the press that neither he nor the Commission expected an agreement within the terms laid down by Congress, because they were impossible. He thought the Commission ought to make the best settlement that it could, and he was confident that Congress would act quickly on its recommendation. The second meeting showed that the Commission was prepared to discuss payment, in bonds, on terms more favourable than those of the Funding Act, although payment by terminable annuity, which the British had hoped for, was rejected.5 On 12 January the Commission outlined a definite proposal. It would recommend, and thought Congress would accept, 3.5 per cent interest and 0.5 per cent sinking fund to pay off the debt in 61 years. The outstanding principal of the debt plus accumulated interest came to $4,686 million: the annual payment would therefore be $187 million (nearly £39.5 million). This was much more than Baldwin had been authorised to accept: he replied that he did not think the British government could possibly agree to pay more than $140 million for fifty years, and so he must refer home.6 Baldwin also reported that Geddes thought the Commission could be induced to recommend 3 per cent interest plus 0.5 per cent sinking fund to extinguish the debt in 66 years, but that was the best that could be hoped for. Geddes and Norman advised acceptance, on political and financial grounds: these terms were better than the Treasury had forecast some months earlier and of course were much better than those of the Funding Act. The mission agreed that they ought to go as far as this; and Baldwin urged that he should be allowed to make an offer on this basis, in the hope of agreement but at least as being seen to make an offer that many Americans would regard as fair.7 Before he received Baldwin's advice, Bonar Law had replied to the report of the American proposal that it was quite impossible for the government to accept. He raised again the old consideration that the debt was incurred in a common cause and Britain would have had no external 4

5 6

7

Geddes to FO, 365/F577/7. Geddes to FO, Geddes to FO, CAB 24/138. Geddes to FO, CAB 24/138.

7 Jan. 1923; FO to Geddes, 10 Jan., A 216/136/45, FO 371/8503; T 160/ 10 Jan. 1923, A 244, 245/136/45, FO 371/8503; T 160/365/F557/7. 13 Jan. 1923, A 273/136/45, FO 371/8503; T 160/365/F557/7; CP 16(23), 13 Jan. 1923, A 279/136/45, FO 371/8503; T 160/365/F557/7; CP 16(23),

230

The first debt settlement and revision of reparations

debt if she had not lent to her Allies; and he again questioned the whole idea of settling with the United States before Britain had had time to deal with the debts due to her. Further, since Britain could not pay unless she was solvent, the rate of interest ought not to exceed what would have to be paid to lenders on the joint security of the United States and British government, and over a long term of years that would probably not be more than 2.5 per cent. If Baldwin could not get a settlement on reasonable terms, he must ask for time for consideration and come home. 8 After getting Baldwin's second cable, Bonar Law replied that he could not call the Cabinet together before the next meeting with the Commission, but he thought the interest ought not to exceed 2.5 per cent. If Baldwin considered that the Commission might remit the arrears of interest he would call a Cabinet for 15 January and, if Baldwin insisted, would recommend acceptance of an offer amended in this way. But Baldwin should bear in mind that 'as I believe we both think the proposal is most ungenerous, we might easily pay too big a price for momentary increase of good will between the countries. I believe also that time is on our side in this matter.' It would also be a mistake to make the offer unless it was certain to be accepted, because once made it could hardly be reduced in the future.9 Baldwin, on receiving these instructions, immediately went to see Mellon, who was friendly but could not negotiate on his own. As a result, at the meeting with the Commission on the afternoon of 14 January Baldwin offered to recommend to the Cabinet, if the Commission would agree, 3 per cent interest plus 0.5 per cent sinking fund. After an adjournment for the Commission to discuss the offer, the meeting was resumed at 10 p.m. Mellon said that the Commission would recommend 3 per cent interest for the first ten years and 3.5 per cent thereafter, payment spread over sixty-two years, and back interest calculated at 4.5 per cent instead of 5 per cent. This would mean payments of $161 million for ten years and $184 million for the remaining fifty-two years. The whole mission, Baldwin reported, thought that this was the best that could be got and should be accepted. Britain was bound by her existing obligations, and unless they accepted quickly it would be too late to get Congressional approval that year. 'No reasonable settlement could then be expected until after the 1924 presidential election and how that will go no one can say except that it will not mark return to the policies of Mr Wilson.' We feel very strongly [Baldwin went on] that a settlement is well nigh essential and that without it we cannot expect improvement in generalfinancialconditions. Any 8 9

FO to Geddes, 13 Jan. 1923, A 279/136/45, FO 371/8503; T 160/365/F557/7; CP 16(23), CAB 24/138. FO to Geddes, 13 Jan. 1923, A 312/136/45, FO 371/8503; T 160/365/F557/7; CP 16(23), CAB 24/138.

The British debt settlement

231

such improvement will presumably be preceded by a general economic conference and at this it is vital that we should not have to take a place amongst the ranks of the defaulters. Baldwin thought that the settlement proposed was not so burdensome as to outweigh the disadvantages of not settling. What is quite certain is that if we fail to settle now not only American opinion but world opinion would question our willingness to pay, with serious damage to our prestige . . . It appears to me in all circumstances that honesty and expediency for once go hand in hand and I gravely fear lest by trying for shadow we lose the bone.10 The ministers whom Bonar Law was able to assemble on 15 January (a Monday) were not the whole Cabinet. Besides the prime minister only Devonshire (Secretary of State for the Colonies), Derby (Secretary of State for War), Amery (First Lord of the Admiralty), Griffith-Boscawen (Minister of Health), Barlow (Minister of Pensions), and Novar (Secretary of State for Scotland) were present: Curzon was at Lausanne. They agreed, as Bonar Law informed Baldwin, that the American offer could not be accepted. It was 'intolerably unjust' and would give rise to much hostility in Britain that would be bad for Anglo-American relations. Baldwin must tell the Commission that he was not empowered to accept and must return home for discussion. He might say that he was prepared to recommend 3 per cent interest although he thought even that too high. Bonar Law also sent Baldwin a private message that McKenna definitely thought the government could not accept, despite the risks of refusing, and he suggested that Baldwin was too much influenced by the atmosphere in Washington.11 In face of this instruction Baldwin had no alternative but to return home, but he hoped to persuade the Cabinet and wanted to bring Geddes with him. Bonar Law refused: it would look as though Geddes was coming to put pressure on the government.12 Baldwin delivered the news of his recall to the Americans on 16 January. The Debt Commission agreed to adjourn the discussions, but it urged the importance of an early settlement while Congress was still in session. Details of the two sides' proposals now appeared in the press, thus adding to public discussion and reducing the chances of further manoeuvre.13 10

Geddes to FO, 15 Jan. 1923, A 313/136/45, FO 371/8503; T 160/365/F557/7; CP 18(23), CAB 24/138. 11 FO to Geddes, 15 Jan. 1923, A 313/136/45, FO 371/8503; T 160/365/6577/7; Middlemas and Barnes, Baldwin, p. 142; P.J. Grigg, Prejudice and Judgment, London 1948, p. 101. 12 Geddes to FO, 16 Jan. 1923; FO to Geddes, 17 Jan., T 160/365/F557/7; A 345/136/45, FO 371/8503; CP 21(23), CAB 24/138. 13 Geddes to FO, 16 Jan. 1923, A 335/136/45, FO 371/8503; T 160/365/F557/7; The Times, 17, 18, 19 Jan. Several authors (Robert Blake, The Unknown Prime Minister, London 1955, p. 492; Randolph S. Churchill, Lord Derby, 'King of Lancashire', London 1959, pp.

232

The first debt settlement and revision of reparations

Baldwin sailed from New York (with Norman but without Geddes) on 20 January and reached Southampton on 27 January. While they were at sea the argument continued. Before sailing Norman had suggested to the Bank of England the lines on which the press and public opinion might be 'educated' in favour of the view that almost any settlement was better than none. Home (the former Chancellor, now out of office) and Lord Burnham, the newspaper proprietor, who were in New York, telegraphed to Bonar Law that all their friends there, such as J.P. Morgan, Cravath, and the banker Otto Kahn, agreed that the American terms ought to be accepted without delay and were not likely to be repeated. Geddes, too, thought that better terms could not be got at present and the next Congress was likely to be less generous. The Americans were accustomed to high interest rates and thought that 3 per cent was generous; the government was satisfied that it was no longer open to the criticism implied in the Balfour Note. 14 But Bonar Law was not convinced. He replied to Burnham and Home that the burden of the American terms would amount to about £1 of additional taxation per head of the British population over two generations. The occupation of the Ruhr had greatly reduced the chance of receiving German reparations or payments from Britain's debtors and in my opinion at a time when the future is so dark and uncertain the American government ought not to expect us to sign bonds on such terms and my feeling at present is that no British Government would be justified in doing it. I quite believe that at present better terms could not be secured and I know how friendly are the gentlemen you name but I have more faith in the American people than to believe that they would permanently insist on demands which seem to be utterly unjust.15 On the day of Baldwin's arrival The Times (which favoured settling) printed an article by 'A Colonial' arguing against acceptance on the grounds that the debt had been incurred in the common cause and the burden was excessive: the 'Colonial' was Bonar Law.16 Baldwin, on landing in England, did not help matters by explaining to journalists the attitude of American opinion in terms which could easily be made to sound patronising and so caused offence in the United States, and by admitting that he favoured acceptance of the American offer.17 On 29

14

15 16

17

493-4; J.C. Davidson, Memoirs of a Conservative•, ed. Robert Rhodes James, London 1969, p. 142) say that Baldwin first revealed the terms when he arrived at Southampton; but this is not the case: they had already appeared in the press on 17 January. Norman to Bank of England, 19 Jan. 1923, T 160/365/F557/7; FRBNY, C 261 England, Bank of England 1923-5; Burnham and Home to Bonar Law, 21 Jan., A 395/136/45, FO 371/8503; Geddes to FO, 26 Jan., A 521/136/45, FO 371/8504. Bonar Law to Burnham and Home, 23 Jan. 1923, A 440/136/45, FO 371/8503. The Times, 27 Jan. 1923; Sir Evelyn Wrench, Geoffrey Dawson and our Times, London 1955, p. 215; Davidson, Memoirs of a Conservative, p. 143. The Times, 29 Jan. 1923; Middlemas and Barnes, Baldwin, pp. 143-4, according to which

The British debt settlement

233

January Bonar Law discussed the problem with Harvey: Baldwin was present but apparently said nothing. Harvey, misleadingly optimistic, suggested that if Britain accepted the American proposal she would have the right to raise a tax-free loan in the United States, which would cost a good deal less than 3 per cent. Geddes, instructed to make enquiries, was told not to give the impression that Britain would accept even if Harvey was right. But he replied at once that both Mellon and Hughes said that Harvey was completely wrong and had been told to say no more. There was no such idea, nor would such a loan be legally possible.18 Finally on 30 January the Cabinet had a full discussion of the debt question. The official minutes19 do not record the discussion, but accounts preserved by Derby and J.C.C. Davidson, Bonar Law's parliamentary private secretary, indicate that Baldwin outlined the history of the debt and stated his belief that the American proposals were the best terms that could be got and ought to be accepted, for general financial and political reasons. After some debate Bonar Law intervened to make his own position clear: he thought the burden of payment would be intolerable, the American demand was unfair, and if the Cabinet decided to accept it would have to do so without him. After two hours, however, it was plain that the great majority of the Cabinet was in favour of acceptance, and the discussion was adjourned until the following day. In the interval Bonar Law was pressed to withdraw his threat of resignation and, having found that McKenna had changed his mind and being conscious of the damage that his departure would do to the government and the Conservative party, he gave in. When the Cabinet met again in the afternoon of 31 January, it therefore decided to accept the United States proposal in principle.20 Geddes was told that it had been reluctant to accept, not because it did not appreciate the concessions the Debt Commission was prepared to recommend, but because it was afraid that events in Europe would so damage Britain's economic and financial position that an undertaking to make annual payments for a long term of years would be imprudent and even dishonest. But after hearing Baldwin and reviewing all the circumstances, the Cabinet had decided that if the Commission would recommend terms not less

18

19 20

it was for the latter remark (not the disclosure of the proposals, which had already taken place) that Baldwin later said that he would rather his tongue had been torn out. Middlemas and Barnes, Baldwin, p. 144; FO to Geddes; Geddes to FO, 29 Jan. 1923, A 562, 571/136/45, FO 371/8504; Hughes to Harvey, 26 Jan., NA, RG 59, 800.51 W 89 Great Britain/9/a. C 4(23), CAB 23/45. Churchill, Lord Derby, pp. 494-7; Davidson, Memoirs of a Conservative, pp. 142-3; Dictionary of National Biography 1922-30, pp. 489-90; Middlemas and Barnes, Baldwin, pp. 144—7; C 5(23), CAB 23/45. I have not been able to find in Davidson's papers in the House of Lords Records Office the account that he is said to have preserved.

234

Thefirstdebt settlement and revision of reparations

favourable than those arrived at on 15 January, and Congress agreed, the British government would undertake to make payments accordingly.21 What caused Bonar Law's resistance and change of mind? It has been suggested that his judgement was already being impaired by the cancer that was to cause his resignation in May and his death in October 1923. It is suggested that he was influenced, before Baldwin set off for Washington, by Harvey's misplaced optimism as to the terms that might be obtainable. It is likely that in January the Ruhr occupation cast a very dark shadow over the prospects for the economy. But no new element had entered the situation since the Cabinet had decided that the debt to the United States must be funded whatever became of the debts due to Britain. That decision was based primarily on the belief that Britain's reputation and credit required payment of the debt, that payment was possible, and that funding was the necessary first step towards restoring orderly world financial conditions, from which Britain would gain more than would be lost in the extra burden of taxation. Bonar Law's resistance looks like a late (though not the last) expression of the instinctive resentment felt at having to pay when one had little hope of being paid. Bonar Law had receded from the strict interpretation of the Balfour Note and had accepted that Britain might have to pay a good deal more than she received, but his speech in the House of Commons on 14 December showed that he maintained in his own mind a close connection between receipts and payments. Exactly the same feeling prompted French refusal to pay war debts before receiving reparation from Germany. But the British only very briefly in 1920 considered making a common front of debtors against the United States. They preferred to think of themselves as creditors; they thought that Britain's interest was better served by such a position; and some, with varying degrees of confidence, hoped to gain from Anglo-American cooperation. The question whether the Cabinet's eventual decision was right cannot be answered categorically. The burden laid upon the taxpayer and the balance of payments for the next sixty-two years was heavy, but it is not possible to say whether or not it was absolutely too heavy: whether it could be borne would depend on future circumstances. At the time most informed opinion thought that it could be borne. McKenna, having opined in October 1922 that it would be possible to pay on the terms of the Funding Act, thought in the middle of January that the easier interest but longer time-span proposed by the Debt Commission were too hard, and then changed his mind again. Keynes was alone in recommending refusal to settle on any terms, on the ground that the debtor always had the last 21

FO to Geddes, 31 Jan. 1923, A 636/136/45, FO 371/8504; T 160/365/F557/7.

The British debt settlement

235

22

word. But that ignored not only the argument about Britain's financial standing but the political considerations. The United States Treasury did find the demand obligations an embarrassment and never used them to put pressure on Britain; but Congress and American public opinion were less sophisticated, and the bulk of informed friendly American opinion was convinced that settlement was necessary and would improve relations between the two countries. Anglo-American relations had their ups and downs during the next ten years, while Britain was paying, and were not permanently damaged when she ceased to pay. Relations certainly improved immediately after the debt settlement, but this did not mean that the United States made concessions on the forms of the debt agreement or showed consideration for British trade. Sperling, an assistant secretary in the Foreign Office, had commented tartly on Geddes's advocacy of acceptance: Stated shortly this telegram is a recommendation that the taxpayers' burden should be increased because * Anglo- American unity of ideals' will have some real value in the future. Unity of ideals presumably implies friendship or at any rate mutual consideration. No evidence of such feelings, I should say no practical evidence, is yet noticeable. In their place we find the Ship Subsidy Bill which the Administration would pass if it could, and the Fordney Tariff .. ,23 When instructing Geddes to tell the Debt Commission of the British acceptance, Baldwin expressed the hope that the Commission would be able to meet British wishes on some points that had been discussed informally, notably that the bonds should not be marketable.24 No such concession was recommended in the report sent by the Debt Commission to the President, nor did it include a sentence drafted by Parker Gilbert, under-secretary of the United States Treasury, expressing a hope for Anglo-American cooperation in the reorganisation of European indebtedness. Gilbert wrote to Mellon that he was sure the hope of progress towards a world settlement had been an important consideration for the British government. Sooner or later the United States and Britain would 22

23 24

Keynes t o Davidson, 30 Jan. 1923, Davidson Papers, cited b y Middlemas and Barnes, Baldwin, pp. 146-7 and (without date) b y G.M. Y o u n g , Baldwin, L o n d o n 1952, p. 46. In an article in The Nation and Athenaeum o n 4 August, after the funding agreement had been completed and published, Keynes listed the social improvements that could be made with the m o n e y that w o u l d have t o be raised for the annual payments: Collected Writings, Vol. 18, pp. 193-7. McKenna had said in a speech to the American Bankers' Association o n 4 October 1922 that Britain, alone of the debtor countries, had adequate resources t o meet her obligations t o the United States. Brand argued in December that what w o u l d make payment possible was n o t large receipts from other countries but renewed prosperity: Brand address t o Tuesday Club, 13 D e c . 1922; Brand t o Salisbury, 27 D e c , Brand Papers, file 37. Minute by Sperling, 21 Jan. 1923, on A 521/136/45, FO 371/8504. FO to Geddes, 31 Jan. 1923, A 636/136/45, FO 371/8504; T 160/365/F557/7.

236

Thefirstdebt settlement and revision of reparations

have to get together and work out some plans for the reconstruction of Europe, and if the report did not say anything on the subject it was the more important that the President's message to Congress transmitting the funding bill should contain something on these lines for the benefit of public opinion.25 But presumably Mellon and Harding thought public opinion would not react favourably to such a commendation. The message to Congress on 7 February described the funding of the British debt as an important contribution to peace and the restoration of world economic stability, but it did not talk of Anglo-American cooperation. Geddes, reporting on the discussions with the Debt Commission, suggested that the Administration might move towards the idea of a general economic conference.26 Such a proposal had been made in December 1922 by Senator Borah, but it was dismissed as impracticable by Harding in a letter to Senator Lodge, the Republican leader in the Senate, and the Administration did not change its view. The bill that passed the House of Representatives and the Senate in February gave the Administration authority to conclude a settlement with the British government on the terms agreed, and to negotiate analogous settlements with the other debtors. But there was no undertaking that the British terms would be altered if other countries were subsequently treated more favourably, nor even that Britain would be consulted before other settlements were made. The Administration was nervous about allowing any hopes to be raised in Europe. Fred Kent was floating a suggestion for organising groups of European and American businessmen to hold discussions and express views to their respective governments. Hughes was alarmed lest the Administration might be put in a false position and unrealistic hopes awakened. He warned Kent not to suggest to anyone that any debt cancellation was possible.27 Lamont, too, warned Dean Jay, who was going to a meeting in Rome of the International Chamber of Commerce,, not to encourage the passing of impracticable resolutions.28 Negotiation of the details of the British funding agreement took three months. Much of the discussion was concerned with exchange stability, which both sides wanted. The agreement was signed on 18 June.29 It 25

26

27 28 29

Geddes to F O , 2 Feb. 1923, A 674/136/45, F O 371/8504; Gilbert to Mellon, 4 Feb., N A , R G 39, Country files, b o x 113. But Gilbert opposed giving any undertaking to consult Britain before settlements were made with other debtors, since that w o u l d come close to giving the most-favoured-nation treatment Baldwin had sought and the Debt C o m m i s sion had refused: memorandum b y Gilbert, 9 Feb., ibid. Geddes to F O , 7 Feb. 1923, A 1003/136/45, F O 371/8504. Harding's message was reported in The Times, 9 Feb. Hughes to Kent, 8 Feb. 1923, N A , R G 59, 800.51/457a. Jay t o Lamont, 15 Feb. 1923; Lamont to Jay, 9 Mar., Lamont Papers, II, 112-19. Cmd 1912 of 1923, American Debt. Arrangements for the Funding of the British Debt to the United States of America; BFSP, Vol. 126, pp. 307-17; H.G. Moulton and Leo Pasvolsky, World War Debt Settlement, New York 1926, pp. 226-40.

Britain and the occupation of the Ruhr

237

maintained the initial capital of the debt, $4,074,818,358, plus interest accumulated from April 1919 to December 1922 at 4.25 per cent per annum, less payments made on account in October and November 1922 and a cash payment in March 1923, to produce a total of $4,600 million to be funded into British bonds and payable over 62 years at 3 per cent interest for the first ten years and 3.5 per cent thereafter. Britain had the right to fund half the amount payable on account of interest for thefirstfiveyears, to anticipate payments, and to make payments in United States government bonds and in gold bullion. The settlement involved annual payments of $161 million (about £33 million) for the first ten years and of $185 million (about £38 million) from 1933 to 1984. The interest rate was less and the time for repayment longer than were originally envisaged when the debt was incurred, and these concessions were said at the time, and have generally been said since, to constitute a reduction of the debt by nearly 20 per cent. But as by 1984 Britain would have paid more than $11 billion for an initial $4 billion borrowed, estimating the concession depends on a rather arbitrary calculation of interest rates and time scales. The agreement was based on the assumption of an early recovery of Britain's balance of payments and London's financial position, at the same time as American policy was being deliberately directed at securing the predominance of New York. There seems to be little sign that American policy-makers or bankers were aware of the contradiction. On the British side the settlement was a gamble, undertaken in the hope of recovering prosperity and independence, of Anglo-American cooperation, and of ability to convince the Americans long before 1984 that the debts should be cancelled.30 Britain and the occupation of the Ruhr During the spring and summer of 1923, the Anglo-American debt settlement had no visible impact on the reparation problem. At the beginning of the Ruhr occupation the British government refused to be associated with the action but wished to maintain friendship with France and tried to avoid friction in the Rhineland. German invitations to intervene were turned down. Bonar Law assured Poincare that Britain was as anxious as France that Germany should pay reparations to the utmost of her capacity, but did not think this method of coercion was likely to produce results. There was no official discussion of reparations between the Allies until May, but Loucheur had visited England a month earlier, with Poincare's knowledge, and had suggestedfixingGermany's liability at 40 billion gold marks, all of 30

By the time of the Hoover Moratorium, in July 1931, Britain's aggregate payments came to $9754 million (£326 million): Moulton and Pasvolsky, War Debts and World Prosperity, App. D; Economist, Supplement on Reparations and War Debts, 23 Jan. 1932. See Artaud, Question des defies, pp. 516-22.

238

Thefirstdebt settlement and revision of reparations

which would go to France, Belgium, and Italy, plus 20 billion to cover continental European debts to the United States. Not surprisingly this total absence of any money for Britain, either from Germany or from the Allied debtors, did not appeal to Baldwin, who suggested modifications which would have raised the total and reduced the priority for the devastated areas. Loucheur returned to Paris hopeful that the French and British positions were coming closer together, but his ideas had not taken concrete shape before they were repudiated by Poincare.31 At this point and later Poincare would have liked an agreement with Britain, but not at the price of French sacrifices; and at this stage he saw no reason to hasten a solution since meanwhile the 'gage' of the Ruhr could be exploited and France's security assured; whilst Germany's eventual capitulation would make Britain more conciliatory. Towards the end of April the official French position was that France claimed 52 per cent (the Spa percentage) of the A and B reparation bonds, 26 billion gold marks: this was not enough to pay for the reconstruction of the devastated regions, so Germany would have to raise the balance by loans. The C bonds could be applied to the payment of inter-Allied debts: France's 52 per cent share would be more than her debts, and she would keep the balance.32 But at the same time British officials were discussing whether the main lines of the Bonar Law plan could be maintained, or whether the Ruhr occupation had so reduced Germany's capacity that the concession on debts offered in January would have to be withdrawn. Niemeyer observed that Britain could not give up both reparations and her claim on the Allies without getting anything in return. Bradbury suggested maintaining the main lines of the Bonar Law plan, with modifications to take account of the effects of the Ruhr occupation; but he admitted that a version less favourable to France would hardly be accepted now.33 Consideration was also given in May to the possibility of putting pressure on France to refer the determination of Germany's capacity to an independent body, by making difficulties 31

32

33

See DBFP, Ser. I, Vol. 21, Nos. 172 n. 4,176,180; C 6300,6480, 6482/1/18, FO 371/8632, 8633; Loucheur to Poincare, 4 and 5 Apr. 1923, Paris, Bibliotheque Nationale, Papiers Poincare, N.a.fr. 16007; Poincare to Herbette, Brussels, 7 Apr.; Poincare to Saint-Aulaire, 14 Apr., MAE, Europe, Grande Bretagne, Vol. 51; Loucheur, Carnets secrets, pp. 117-21; Artaud, Question des dettes, pp. 525-35. Poincare to Saint-Aulaire, 14 Apr. 1923, MAE, Europe, Grande Bretagne, Vol. 51; memoranda by Seydoux, de Lasteyrie, Mauclere and Aron, 16 Feb., 11 Apr., 24 Apr., MAE, PA Millerand, Vol. 25. For the larger, Rhenish aspects of French policy see Trachtenberg, Reparation in World Politics, pp. 297-309. Niemeyer to Baldwin, 13 Mar. 1923, T 160/114/F4399/2; Niemeyer to Lampson, 16 Mar., C 4966/1/18, FO 371/8632; memoranda by Niemeyer and Phillips, 18 Apr.; Bradbury to Baldwin, 25 Apr., C 7301, 7649/1/18, FO 371/8633; DBFP, Ser. I, Vol. 21, Nos. 194, 229, 237. Niemeyer also suggested asking the European allies to fund their debts, as he thought the lever was getting rusty from disuse; but the suggestion was turned down in the Treasury.

Britain and the occupation of the Ruhr

239

for French borrowers in the London money market. Norman, however, advised that since France showed no sign of needing to borrow abroad, systematically withholding British capital would hardly inconvenience her. And since the French government had no intention of paying its debt, an offer to cancel it would produce no advantage.34 At the beginning of May the German government made an offer (of 30 billion gold marks plus deliveries in kind) which was rejected out of hand by the French and Belgians. The British government, too, thought the offer inadequate, but in its reply invited the Germans to make a better one.35 After the next German note, offering some specific guarantee for payment, had been received on 7 June,36 the British government tried to get discussion of the basis of future reparation policy and of what might follow a German abandonment of passive resistance. When attempts to clarify the French position proved unsuccessful, Curzon on 6 July told the French ambassador that he would draft a joint reply to the Germans, and if the Allied governments could not accept it he would send it as from the British government alone. Opinion was becoming restive; the possibility of Britain taking some independent action was being discussed; and something would have to be said in Parliament before it rose for the summer recess. Curzon also forecast a statement to the French government on the whole issue of reparations and inter-Allied debts.37 The government's statement, made on 12 July by Baldwin in the House of Commons and Curzon in the House of Lords, expressed again Britain's sympathy for France and desire that Germany should pay, but said that the occupation of the Ruhr was having a serious effect on trade and employment; the period of conflict must be brought to an end as soon as possible; and a solution must be found to the problems of reparations, war debts, and security.38 The actual effect of the Ruhr occupation on British, European, and world trade was a matter of some dispute at the time, and the figures are not conclusive. Some British industries received an initial 34

35

36

37

38

DBFP, Ser. I, Vol. 21, No. 212; Treasury to FO, 12 May 1923, C 8895/1/18, FO 371/ 8636; Board of Trade to FO, 14 May, C 10294/1/18, FO 371/8639; minute by Crowe, 31 May. Baldwin Papers, F.3.1. (Vol. 125). See DBFP, Ser. I, Vol. 21, Nos. 201, 224, 226; Curzon to Sthamer, 13 May, C 8311/1/18, FO 371/8635; France, Ministere des Affaires Etrangeres, Documents diplomatiques. Documents relatifs aux notes allemandes des 2 mai et 5 juin sur les reparations (2 mai—3 aout 1923), Paris 1923; ARK, Cuno, Nos. 144, 146. See DBFP, Ser. I, Vol. 2 1 , N o . 254; France, Documents relatifs aux notes allemandes; C m d 1943 of 1923, Correspondence with the Allied Governments respecting Reparation Payments by Germany. DBFP, Ser. I, Vol. 2 1 , N o s . 2 5 5 , 257, 2 6 1 , 262, 264, 2 6 6 , 2 7 5 , 2 7 8 , 2 8 1 , 2 8 5 , 286, 2 8 7 , 2 9 0 , 291, 292, 293; France, Documents relatifs aux notes allemandes. HCDeb., Vol. 166, cols. 1584-9; The Parliamentary Debates, House of Lords, 5th ser., hereafter cited as HLDeb., Vol. 54, cols. 992-6.

240

Thefirstdebt settlement and revision of reparations

fillip. Coal exports, for example, rose from a monthly average of 5.1 million tons in 1922 to 7.2 million tons in March 1923 and remained above 6 million tons for the summer: over the year as whole they were markedly higher than in either 1922 or 1924. Imports and exports overall, having recovered somewhat from the 1922 levels, remained fairly static. Trade with Germany, both exports and imports, was significantly higher than in 1922, and the share of total British exports going to Germany improved. Unemployment fell from 12.7 per cent in January 1923 to 11.4 per cent in September. The argument therefore was and is largely about what would have happened to trade had the Ruhr not been occupied. In July and August The Economist thought that the occupation had definitely checked a steady improvement in world trade; but in the autumn it saw a slight movement towards expansion; and its picture of trade in western, northern, and central Europe was a mixture of light and shade. The short-term effects on the European economy of the occupation and the German hyperinflation were not dramatic. Even in Germany itself, a serious fall in industrial production and high unemployment were confined to the autumn and winter: the long-term social effects, even on the middle classes, were more mixed than is often suggested.39 The British draft of a reply to the Germans was sent with a note to the French, Belgian, and Italian governments on 20 July. The note proposed an end to passive resistance, progressive evacuation of the Ruhr, an independent enquiry into Germany's capacity to pay and the nature of suitable guarantees of payment, and inter-Allied discussions on a comprehensive financial settlement.40 This last point was a reference to interAllied debts. The Treasury was opposed to submitting them to the proposed expert enquiry into reparations, because the United States would not allow its claims to be discussed, and an international body of this type would be almost bound to try to make its reparation proposals acceptable to the European Allies by suggesting very generous terms on their debts.41 39

40 41

Economist, 21 Jul., 25 A u g . , 22 Sep., 29 Sep., 2 7 Oct., 24 N o v . 1923; B.R. Mitchell and Phyllis Deane, Abstract of British Historical Statistics, Cambridge 1962, pp. 284, 305, 323; Supple, History of the British Coal Industry, Vol. 4, pp. 8, 172, 188; Holtfrerich, The German Inflation, pp. 1 8 3 - 4 , 1 9 9 , 2 2 1 - 7 8 . U n e m p l o y m e n t in Germany rose from 3.5 per cent of trade union members in July 1923 t o 19.1 per cent in October and 28.2 per cent in December: it did not fall b e l o w 15 per cent again until April 1924: Statistisches Jahrbuch fur das Deutsche Reich, 1924-5, Berlin 1925. DBFP, Ser. I, Vol. 2 1 , N o . 306. Treasury memorandum, 10 Jul. 1923, C 12173/1/18, F O 371/8643. Poincare and Jaspar complained that there was n o mention of debts in the note and were told that they might be part of the 'general and final financial settlement' mentioned: DBFP, Ser. I, Vol. 2 1 , N o s . 307, 310. In April an Italian financial expert had discussions at the Treasury about British and Italian plans for a reparation settlement, including cancellation of the Italian government's war debt except for a non-interest-bearing sum of £25 million: see ibid., Nos. 238, 315.

Britain and the occupation of the Ruhr

241

The Belgian and French replies to the British note were both unfavourable: Curzon described the French one as a rebuff. It maintained the French position unchanged and said that France would never consent to a reduction of Germany's liability except to the extent that France's debts were reduced. The Belgians said that if Germany's liability were reduced at all, priority must be given to the devastated regions of France, Italy, and Belgium, and the Spa percentages must be revised.42 The Cabinet now decided not to pursue the correspondence with the German government but to publish what had already passed, with a final note in the nature of an attempt to convince the world of the necessity of united action to deal with the problem.43 In the drafting of the final note, the relationship between reparations and debts was again discussed exhaustively and inconclusively. The Treasury advised some departure from the principles of the Balfour Note, by aiming to fix the German liability and Britain's share of it first, and then claiming from the Allies, with due consideration for their capacity, the sums needed to make up the present value of the British debt to the United States.44 Cecil was more optimistic about Germany's capacity: he thought it would be greater than the French and Belgian claims for their devastated regions, so that Italy could probably be satisfied as well, and Britain should go a long way in accepting French and Belgian priority. He said as much not only to the Cabinet but to Millerand and was rebuked by Baldwin and Curzon.45 Derby also wanted to go farther than the Treasury towards the French position.46 The note finally approved by the Cabinet and given to the French and Belgian ambassadors on 11 August deplored the rejection of the proposal for an independent enquiry, and contested the legality of the Ruhr occupation and the justice of the French and Belgian claims for priority. A separate memorandum on Allied debts followed the Treasury proposal and said that Britain was prepared to limit her demands for payment from Germany and the Allies together to 14.2 billion gold marks, the sum representing the present value of Britain's debt to the United States. This was already a great concession, for the British debt could not be 42

43 44

45

46

See DBFP, Ser. I, Vol. 2 1 , N o s . 316, 318, 327; C m d 1943 of 1923; France, Documents relatifs aux notes allemandes; Belgium, Documents diplomatiques relatifs aux reparations, du 26 decembre 1922 au 27 aout 1923, Brussels 1923. Cabinet, 1 and 9 Aug. 1923, C 44(23), C 46(23), C A B 23/46. Treasury memorandum, 26 Jul. 1923, C 12928/1/18, F O 371/8645; memorandum, 26 Jul., Baldwin Papers, V o l . 126; C P 358(23), 30 Jul., C A B 2 4 / 1 6 1 ; Treasury memorandum, 3 Aug., C 13591/1/18, F O 371/8647. Memorandum b y Cecil, 4 Aug. 1923, C P 376(23), C A B 2 4 / 1 6 1 ; C u r z o n t o Cecil, Cecil to Baldwin, 7 Aug., C 13536, 13547/1/18, F O 371/8647; Cecil t o Baldwin, 9 Aug., B L A d d . MS 51080; C u r z o n to Baldwin, 7 A u g . , Baldwin Papers, F.2 (Vol. 114); M o n n e t to Cecil, 25 Aug. with m e m o b y Cecil, 5 Aug., B L A d d . MS 51096. Churchill, Lord Derby, pp. 512-17.

242

Thefirstdebt settlement and revision of reparations

redeemed on such favourable terms. Britain was furthermore willing to accept payment of Allied debts in the form of new German obligations. The government could not admit that the repayment of the French debt was dependent on receipts from Germany. It was willing to go on renewing the French Treasury bills for the time being, but payment of at any rate part of the interest should begin as soon as the sterling-franc exchange became reasonably stable.47 It was not to be expected that Poincare would allow this note to be the last. His reply, sent on 20 August, justified the Ruhr occupation at length, refused to admit the need for an impartial assessment of Germany's capacity, repeated that France must receive 26 billion gold marks plus whatever she had to pay to Britain and the United States, and asserted that war debts could only by paid after Germany's reparation liability had been liquidated. Even then France could not abandon the whole of her share of C bonds in a partial debt settlement. The Belgian reply was less contentious, but it maintained the claim to 5 billion gold marks over and above what Belgium had already received, and the demand for the revision of the Spa percentages.48 In these circumstances there seemed to be nothing that the British government could do except wait for the now foreseeable end of German passive resistance. Cuno's government fell on 11 August, over its failure to master the economic situation and the increasing danger to the fabric of society; it was replaced by a 'great coalition' government led by Gustav Stresemann. The mark had fallen from 21,000 to the dollar in mid-April to 160,000 in early July, 353,000 by the end of the month, an average of 4.6 million in August and an average of 98.8 million in September. The Reich floating debt rose from 8,442 billion marks in April to 1,196,294 billion in August and 46,716,616 billion in September. Traders were refusing to accept marks, and strikes and rioting broke out. Baldwin went to Aix-lesBains for a holiday and saw Poincare in Paris on his way back. Bradbury advised him to make clear that the offer on debts in the Bonar Law plan was a concession and if the French government was unwilling to take any substantial steps in the direction of the British proposals and had no new suggestion to offer, the British government would have to take steps to protect its own interest, steps which might include financial pressure on Britain's debtors.49 Baldwin did not follow Bradbury's advice, but tried to 47 48

49

DBFP, Ser. I, Vol. 2 1 , N o . 330; C m d 1943 of 1923. See DBFP, Ser. I, Vol. 21, Nos. 337, 341, 362; C 14380, 14680/1/18, FO 371/8650, 8651; France, Ministere des Affaires Etrangeres, Documents diplomatiques. Reponse du gouvernement franqais a la lettre du gouvernement britannique sur les reparations, 20 aout 1923, Paris 1923; Belgium, Documents diplomatiques relatifs aux reparations. DBFP, Ser. I, Vol. 21, No. 352; minutes on C 14380/1/18, FO 371/8650; Bradbury to Baldwin, 5 Sep., T 194/11; C 15800/1/18, FO 371/8654. For the German situation see

Britain and the occupation of the Ruhr

243

impress on Poincare the British fear that delay made a final settlement of reparations more difficult, and that continuing occupation of the Ruhr made Anglo-French cooperation almost impossible. Poincare said that he would welcome consultation when German passive resistance ended, but Baldwin concluded that he had no plan.50 The same conclusion could be drawn when the German government ended passive resistance unconditionally on 26 September. Stresemann had been trying since the beginning of September to get informal talks with the French and Belgians on its termination, but Poincare had maintained his insistence on German capitulation. Even when resistance ended, Poincare was in no hurry to discuss anything except local arrangements with Ruhr industrialists for deliveries of coal. Poincare's motives remain somewhat obscure and possibly were confused. He may have wished to force a radical change in the structure of Germany, only to draw back when the extent and probable effects on France of the catastrophe became apparent; but the lack of planning in Paris for such an eventuality is striking.51 On the other hand suggestions for raising the matter at the League of Nations were bound to be unproductive, and the United States Administration was still maintaining the position that, whilst willing to consider being helpful on the lines of Hughes's New Haven speech, it could not do anything unless invited.52 In the first months of the Ruhr occupation there was a good deal of sympathy in the United States for France; but a campaign by Kent for a more liberal policy on debts was disavowed by Hughes; and a suggestion that the United States could in some way promote Franco-German negotiations was discouraged both by Norman and by J.P. Morgan.53 Maier, Recasting Bourgeois Europe, pp. 367—76; Holtfrerich, German Inflation, pp. 68, 50 310-13. DBFP, Ser. I, Vol. 21, No. 367. The question of French policy (including Rhineland separatism) in the autumn of 1923 is discussed in Trachtenberg, Reparation in World Politics, pp. 311-29; Bariety, Relations franco-allemandes, pp. 221—61; McDougall, France's Rhineland Diplomacy, pp. 250—304; Trachtenberg, 'Poincare eut-il en 1923 une politique rhenane?' in Revue d'histoire diplomatique, 95 (1981), pp. 223-35; Maier, Recasting Bourgeois Europe, pp. 403—14. For Stresemann's efforts to get discussions with France see ARKy Stresemann, Nos. 47, 51, 53, 59, 61, 62, 64, 79; Kriiger, Aussenpolitik, p. 206. Some anxiety was felt in London lest the Franco-German industrial negotiations should lead to a long-term alliance detrimental to British interests; but the actual MICUM agreements of 23 November were not regarded as dangerous in this sense: DBFP, Ser. I, Vol. 21, Nos. 374, 466, 467, 479, 482; FO to D'Abernon, 13 Sep. 1923, C 15859/8/18, F O 371/8666; file C 313/18, F O 371/8744-8, passim. See Maier, Recasting Bourgeois Europe, pp. 387-96. Early in 1924 enquiries made in Paris and Berlin about a proposal for French participation in German industry, by Arnold Rechberg, a chemical industry magnate, received reassuring answers: file C 25/18, FO 371/9729; T 160/38/F1247/03. 52 See DBFP, Ser. I, Vol. 21, Nos. 118, 152, 296, 312, 368; Chilton to FO, 15 Aug. 1923, C 14093/1/18, FO 371/8649, reporting the first press interview with Coolidge, who became president on the death of Harding on 2 August. 53 See Artaud, Question des dettes, pp. 571-9; Lamont and Morrow to Grenfell, 15 Sep. 51

244

Thefirstdebt settlement and revision of reparations

The deadlock began to break in the second week in October. On 5 October Curzon, in his speech on foreign affairs to the Imperial Conference meeting in London, said that France must produce a plan. On the same day the Belgian government proposed that the Reparation Commission should examine some studies that Belgian experts had made of Germany's capacity. On 9 October President Coolidge stated publicly that the United States government stood by Hughes's New Haven speech; on 12 October Curzon asked the United States government whether it would accept an invitation to join in an enquiry, by an independent body or under the auspices of the Reparation Commission, even if the invitation did not come from all the Allies.54 When Hughes in reply expressed American willingness to take part in an economic conference with all the Allies, or to see an American citizen take part in an enquiry set up by the Reparation Commission (though not to join the Commission itself), Curzon on 19 October asked the French, Belgian, and Italian governments to join in sending an invitation to the United States.55 The Belgian and Italian governments agreed to an enquiry by experts appointed by the Reparation Commission: the French were more hesitant, on form and substance. Difficult negotiations followed, about the authority of the Reparation Commission and the scope of the enquiry, until eventually, on 30 November, the Commission set up two committees of experts to enquire respectively into the steps to be taken to balance the German budget and restore the currency, and the means of securing the repatriation of exported German capital.56 Behind these negotiations lay a struggle for advantage. Germany's capacity to pay was at present almost nil and would probably remain very low for the next few years. Any recommendations on revising the reparation liability that were made now were likely to reduce it drastically. But Germany's present weakness would not last, and recommendations made under the impression of present circumstances might later prove unnecessarily modest. A definitive revision of reparations now would therefore not be in France's interest, unless the United States would cancel her debt. The French government was to all appearances in a very strong bargaining position: Germany had surrendered; the 'gage' was firmly in hand; agreements were signed on 23 November with the Ruhr industrialists for the delivery of reparation coal and payment of the coal tax. But the French government did not hold all

54

55 56

1923; Morgan Grenfell & Co. to Lamont, 17 Sep.; J.P. Morgan to J.P. Morgan & Co., 17 Sep.; Morrow to Morgan Grenfell & Co., 19 Sep., MG Papers, Box Hist. 5, file 30. Cabinet, 26 Sep. 1923, C 47(23), CAB 23/46; DBFP, Ser. I, Vol. 21, Nos. 386, 387, 388, 392; Coolidge's statement in The Times, 11 Oct. DBFP, Ser. I, Vol. 21, Nos. 399, 403; FRUS, 1923, Vol. 2, pp. 70-3. DBFP, Ser. I, Vol. 21, Nos. 409-517, passim; FRUS, 1923, Vol. 2, pp. 73-108; Artaud, Question des dettes, pp. 584-609.

The Dawes plan

245

the cards. Poincare wanted American involvement; a renewed discussion of the debts in the United States did not favour cancellation; separatist movements in the Rhineland were failing and bringing discredit on France; the franc had suffered a fall.57 The form in which the expert committees were set up was a compromise: they would not discuss a long-term reparation settlement, but they could not be prevented from considering the Ruhr. It was largely a Franco-American compromise. Bradbury was active in the discussions between the Reparation Commission and Logan, the unofficial American representative, but the Americans as always refused joint approaches to the French government and were particularly careful not to suggest the existence of Anglo-American cooperation. At the end of 1923 the future of reparations was still an open question, and the British government had, for the moment at least, little power to influence events. What was more, a change of government seemed to be imminent. Baldwin had decided that Britain ought to adopt protection and sought a fresh mandate from the electorate on 6 December. As a result the Conservatives, whilst still the largest single party, no longer had an overall majority in the House of Commons. Baldwin remained in office, but was likely to be defeated when the new Parliament met on 8 January.58 Future British policy was uncertain. The Dawes plan It could not be assumed that the expert committees set up by the Reparation Commission would produce a generally acceptable solution to the problem. Poincare had done his best to limit their field of inquiry and would doubtless do his best to give instructions to the French members even though the other nationals were appointed as individuals.59 But meanwhile the French position was weakening. Attempts to set up a 57

58

59

There does not seem t o be any evidence that this was due to British or American pressure. The possibility of exercising pressure was considered in the Treasury in December, but no conclusion was reached before the expert committees were set up. See below, pp. 2 4 6 - 7 . See Middlemas and Barnes, Baldwin, pp. 212-53; David Marquand, Ramsay MacDonald, London 1977, pp. 294-9; A.J.P. Taylor, English History 1914-1945, Oxford 1965, pp. 206-9. DBFP, Ser. I, Vol. 21, N o s . 481, 484, 488, 505, 511, 515, 517; Poincare to Barthou, 3 D e c . 1923, M A E , P A Millerand, Vol. 3 3 . Poincare laid it d o w n that the experts were n o t t o look at the long-term future of reparations, nor at the total German liability, nor FrancoBelgian measures in the Ruhr. T h e period of German recovery should n o t be taken beyond 1926. T h e railways in the occupied territory must remain a separate network under Allied control; during the recovery period France must receive capital payments including the production of certain Ruhr mines; she w o u l d retain the administration of customs and other machinery seized in the occupied territories. For the British experts, N o r m a n was approached b y Bradbury, but the Bank of England decided that he could not be spared: Committee of Treasury, 2 0 D e c , B E , G 8/55; Clay, Norman, p. 209.

246

The first debt settlement and revision of reparations

separate Rhenish currency and bank of issue were past their peak by the end of 1923. A suggestion for such a currency, that had been vetoed earlier in the year by the French Minister of Finance, was revived in the autumn in view of the shortage of currency caused by the German hyperinflation; and it was given an impetus in October by the prospect of the end of central German government relief in the occupied territories and the introduction of the new currency, the Rentenmark. Local Rhineland banking interests were willing to set up a Rhenish bank, and French and Belgian banking participation was secured. But French capital was not enough, and the Rhineland interests concerned were not the irresponsible separatists but respectable businessmen and local politicians such as the Oberburgermeister of Cologne, Konrad Adenauer. These men were not opposed to greater local autonomy but did not want separation from the Reich and were not prepared to go against the wishes of the Reichsbank or the Reich government. The Rentenmark was successfully introduced into the occupied territory. The Bank of England discouraged British banks from taking part in the projected Rhenish bank, on the ground that monetary separation of the Rhineland would lead to economic and political separation. At the beginning of December the German government expressed strong objection to the constitution of a new bank and rejected the idea of any permanent separate Rhineland currency. Efforts to set up the new bank continued; but it could not operate without being registered with the InterAllied High Commission, and the British and Belgians refused to allow registration in the absence of German government permission for the bank's existence.60 At the same time France was entering a financial crisis and the franc was falling badly. In November 1923, when Poincare was causing difficulties about the expert enquiry, the Foreign Office had again raised with the Treasury the question whether there was any means of exercising pressure on France to adopt a moderate reparation policy, such as putting French Treasury bills on the market. Bradbury was not in favour of doing this, but suggested inviting all the debtor countries to start funding negotiations.61 The Treasury, after consulting Norman, replied with some other suggestions for possible action and saying, in contrast to the previous May, that it was in Britain's power to produce in France such a fear of a fall in the franc 60

61

McDougall, France's Rhineland Diplomacy, pp. 262-3, 323-8; DBFP, Ser. I, Vol. 21, Nos. 470 n. 1, 483, 491, 494; Bank of England, Committee of Treasury, 2 Jan. 1924, BE, G 8/55. R.S. Sayers, The Bank of England, Cambridge 1976, Vol. 1, pp. 177-9; Niemeyer to Crowe, 16 Nov. 1923, C 19979/129/18, FO 371/8689 and other correspondence in the same file. Minutes by Lampson, Crowe and Curzon, 12 Nov. 1923; FO to Treasury, 14 Nov.; Bradbury to Phillips, 15 Nov.; memorandum by Bradbury, n.d., C 19472/1/18, FO 371/ 8661; T 160/185/F7029;T 194/11.

The Dawes plan

247

that the government would be susceptible to pressure. The French shortterm debts could be made a lever which, if it were used resolutely, could incline the French government towards a general settlement of reparations. The Treasury's views were sent to the Cabinet on 10 January 1924 with a comment by Neville Chamberlain, the Chancellor of the Exchequer, that the Americans might be willing to exchange ideas informally.62 But by this time the days of the Conservative government were numbered. Ramsay MacDonald, who became Foreign Secretary as well as Prime Minister of the new minority Labour government, was at first attracted by the idea of attacking the franc, but he soon decided to do nothing before the expert committee reported.63 The British government, then, did not intervene directly against the franc in the winter of 1923-4: French domestic fiscal problems and the speculation of currency dealers were sufficient cause of its fall. But the decline was not unwelcome in London, as it was likely to weaken Poincare's hand; and there was some disappointment in Liberal and Labour circles when in the middle of March London banking houses arranged a £5 million credit for the Bank of France. It was intended to tide the Bank of France over in supporting the exchange after the negotiation but before the announcement of a $100 million loan from J.P. Morgan and Co., which was granted on condition that the French government's proposed tax changes were accepted by the Senate and no more uncovered domestic loans were issued. The £5 million credit was organised by Lazard Brothers, whose chairman, Kindersley, was a member of the Dawes committee. The American government, and Dawes, approved of the Morgan loan: they now wanted, not to put pressure on France but to ensure the government's solvency. Norman was not keen to help France, but he wanted French cooperation over the setting up of the new German gold discount bank and so did not obstruct the Lazard credit, and the Treasury was not prepared to interfere.64 The Morgan loan solved the problem for the French government whether it would have to negotiate about funding the war debts. Poincare did not wish to postpone it indefinitely: he was also fairly optimistic, on the basis of reports from 62

63

64

Treasury to Norman, 28 Nov. 1923, T 160/185/F7029; T 194/11; Treasury to FO, 3 Dec, T 160/185/F7029; C 22023/1/18, FO 371/8662; Treasury to FO, 4 Jan. 1924, C 203/11/ 62, FO 371/9682; CP 29(24), 10 Jan., CAB 24/164. Minutes by MacDonald, Lampson and Crowe, 28 Jan.-2 Feb. 1924, C 1540/11/62, FO 371/9682. For a full account of the French financial crisis and the speculation against the franc, and a discussion of the evidence of foreign government pressure see Schuker, End of French Predominance, pp. 47—104. Schuker, End of French Predominance, pp. 104-15; Clay, Norman, pp. 144-5; Brand to J.L. Garvin, 31 Mar. 1924; Garvin to Brand, 2 Apr.; Brand to Garvin, 3 Apr., Brand Papers, file 67.

248

Thefirstdebt settlement and revision of reparations

Jusserand, the ambassador in Washington, about the terms that the Debt Commission might consider, and he reckoned that it would be in France's interest to come to an arrangement with the United States before talking to the British. But at this point the United States government was in no hurry to begin discussion of the war debt.65 Part of the German financial reform undertaken in the winter of 1923 was the creation of a new gold bank to finance Germany's foreign business and eventually to replace the Rentenbank. Schacht, appointed president of the Reichsbank on 22 December, came to London to see Norman, who was sympathetic to the idea of foreign help. He wrote to Vissering and sent an outline scheme for a German gold bank to the Treasury, to Bradbury (who was wholly in sympathy with the idea), and to Strong; and he wrote to Central Bank colleagues in Denmark, Ireland, Japan, Austria, and elsewhere asking for cooperation. Unlike Vissering, who favoured a gold dollar standard for the new German currency, Norman wanted it to be based on sterling. 'Europe', he wrote, 'obtains no financial assistance or cooperation from America, Europe should no further attach herself to the basis which for the present America controls.'66 Norman of course wished to strengthen the position of sterling and gain German business for London: the Americans equally wanted to secure the primacy of the dollar by spreading the gold standard. Schacht wanted the support of both Britain and the United States, especially at this early point in 1924 when there was no assurance that American money would be forthcoming. After talks with the Dawes committee in Paris Schacht established the Gold Discount Bank in March, with an advance of £5 million from the Bank of England and with the provision that the bank would be incorporated into the Reichsbank when the latter was reformed in accordance with the recommendations of the Dawes committee. A credit to the bank by Warburgs in April kept the dollar interest involved, and the Americans won the day at the end of August, when Germany established de facto convertibility with gold.67 The expert committees had begun work in Paris in the middle of January 1924. French officials at once began to discuss what guarantees in Germany it was essential to retain. Seydoux was now gloomy about Poincare's 65

66

67

Artaud, Question des dettes, pp. 615-21; note by Vignon, 27 Dec. 1923, MAE, PA Millerand, Vol. 33; Poincare to de Lasteyrie, 31 Jan. 1924; note by de Moiiy, 5 Feb.; MF to Boyer, New York, 5 Feb.; Boyer to MF, 13 Feb.; Poincare to de Lasteyrie, 16 Feb.; de Lasteyrie to Poincare, 20 Feb., MF, F30 783A = B 31708; MAE, PA Millerand, Vol. 35; Lamont to Harjes, 31 D e c ; Harjes to Lamont, 31 Jan., Lamont Papers, II, 113-2. N o r m a n t o Vissering, 5 Jan., 14 Jan. 1924; correspondence with Bradbury, N i e m e y e r , Strong, Gluckstad, and others, B E , O V 34/117; Clay, Norman, pp. 2 1 1 - 1 2 . Frank C . Costigliola, 'The Politics of Financial Stabilisation: American reconstruction policy in Europe 1924-30', P h . D . dissertation, Cornell, 1973, p p . 115-24; Link, Die amerikanische Stabilisierungspolitik, pp. 2 2 3 - 4 0 .

The Dawes plan

249

ability to influence the rehabilitation of Germany's finances. He recommended an effort to reach a new understanding with Britain, since France depended on the Anglo-American financial market, and the key to Wall Street was in the City. With the Political Director in the Quai d'Orsay, Peretti, Seydoux tried to influence President Millerand in the hoped-for direction. Poincare and MacDonald exchanged polite letters when the latter took office, and in the middle of March Saint-Aulaire was instructed to speak to MacDonald about security.68 Bradbury also forecast a French attempt at an understanding with Britain on the war debt, but advised Snowden against any abandonment of British claims on France unless there were much better guarantees that the trouble would not begin again in a couple of years than he anticipated from the experts' report. He thought it was likely to be vague and would not advance matters much.69 At the end of March Brand wrote to his partner Kindersley that the sort of sums being mentioned for German payments sounded far too high and the transfer protection suggested would not solve the problem. Kindersley replied, after the report had appeared on 9 April, that the transfer protection proposed was certainly experimental and might not prove satisfactory, but the committee had been concerned to satisfy world opinion on the point of justice and at the same time not to risk 'busting' the German exchange. In a few years the world would probably accept a demonstration of what was possible, but I am equally certain that the world is not prepared to see a figure fixed which is based on the guesses of economists and which must in the nature of things be on the low side and be one which must disregard the one point which interests 95 per cent of the allies, i.e. 'How much as a taxpayer in his own country should the average German pay in comparison to taxpayers in the allied countries?'70 Kindersley was well aware of the political side of the problem; and it is clear from other correspondence and from recent studies that this was also the approach of Dawes and of Owen Young, the second American delegate who is generally credited with the chief authorship of the report. In introducing it the committee itself observed that there were political limits 68

69 70

N o t e s b y V i g n o n , 7 Jan., 1, 7, 11, 12 and 14 Feb. 1924; memoranda b y Seydoux, 4 Feb., M A E , P A Millerand, Vols. 3 4 , 35; m e m o r a n d u m o n guarantees, 21 Feb.; Poincare t o Saint-Aulaire, 17 Mar., M A E , Y Internationale, Vol. 426; Phipps t o F O , 17 and 18 Mar., C 4545, 4546, 4 6 0 4 / 1 2 8 8 / 1 8 , F O 3 7 1 / 9 8 1 3 ; The Times, 4 Feb. and 3 Mar.; Bariety, Relations franco-allemandes, pp. 295—8. O n 24 March Saint-Aulaire told M a c D o n a l d that in the French v i e w reparations and security were b o u n d u p together; and M a c D o n a l d indicated that he thought a satisfactory reparation settlement w o u l d g o far t o solving the security problem as well: Saint-Aulaire t o Poincare, 24 Mar., M A E , Europe, Grande Bretagne, Vol. 71; FO to Crewe, 24 Mar., C 4992/32/18, FO 371/9730. Bradbury to Snowden, 12 Mar., 15 Apr. 1924, C 4525, 5807/70/18, FO 371/9739. Brand t o Kindersley, 28 Mar. 1924; Kindersley t o Brand, 14 Apr., Brand Papers, file 67.

250

The first debt settlement and revision of reparations

within which a solution would have to be found if it were to have a chance of acceptance, but claimed that business and not politics had governed its deliberations. The report disclaimed any intention of offering definitive solutions and did not address the issue of Germany's total liability. Instead it offered a schedule of annual payments to last 'for a sufficient time to restore confidence5 and so framed as to 'facilitate a final and comprehensive agreement upon all the problems of Reparations and connected questions, as soon as circumstances make this possible'. The report recommended German payments rising from 1 billion gold marks in 1924-5 to a standard 2.5 billion in 1928-9, increased thereafter according to an index of prosperity. These annuities would cover all Germany's liabilities, for occupation costs, interest on the foreign loan which would launch the plan, and other payments as well as reparations. Only half the standard annuity would come from the German state budget: the rest would come from interest on first mortgage bonds issued on the assets of German industry and the railways. The problem of transferring payments abroad, and that of conflicting views as to what Germany might be able to do, was met by providing that the money raised internally would be paid into the new bank of issue, from which the foreign agent-general for reparations, advised by a transfer committee, would pay it out to the creditors. If the Transfer Committee thought the delivery of the full amount would endanger the exchange, it could authorise accumulation and long-term investment in the German economy. The plan assumed that German fiscal and economic unity would be restored, but left room for a purely military occupation of the Ruhr. Germany would balance her budget. The Reichsbank would be reformed to act as a bank of issue of notes on a basis stable in relation to gold, free of government control and with foreign members on its general board. A foreign loan of 800 million gold marks was regarded as essential for starting the plan, partly to provide a foreign currency reserve for the new bank of issue, partly to finance deliveries in kind during the initial period of German recovery, and in general 'to create the confidence on which the whole success of the scheme depends'. The experts made it plain that the plan stood or fell as a whole.71 The Dawes plan, in short, was a mixture of economics and politics, of concrete proposals for Germany's financial reconstruction (said to be part of the reconstruction of Europe as a whole), deliberate vagueness where 71

Reparation Commission, Report of the First Committee of Experts, Paris 1924; Cmd 2105 of 1924, Reparations. Reports of the Expert Committees appointed by the Reparation Commission; BFSP, Vol. 120, pp. 405-549. For recent studies of the experts' work see Schuker, End of French Predominance, pp. 171-86; Frank Costigliola, Awkward Dominion. American Political, Economic, and Cultural Relations with Europe, 1919— 1933, Ithaca 1984, pp. 114-19.

The Dawes plan

251

different national positions were irreconcilable, and promises for the future that might mean different things to different audiences or in different circumstances. It now remained to be seen whether the governments would accept it and whether the bankers would be able to produce the loan. 800 million marks was not a large sum compared with earlier suggestions of what Germany ought to raise, but in the country's present state and with American investors not yet accustomed to foreign lending, the outcome was not certain. On 25 March 1924, when the outline of the plan was known unofficially, J.P. Morgan and Co., told their Paris partners Morgan Harjes that they thought that with proper presentation in the American market investors might take the $100 million suggested.72 When the plan was published Morgans were less sure and turned down a suggestion from Young for a statement that no loan would be possible if the report were made a matter of bargaining among the European governments, because it would imply that a loan would be forthcoming if the plan were fully accepted.73 Opinion in Morgans remained gloomy: Leffingwell, in particular, subjected the plan to an almost wholly pessimistic analysis. Strong, however, who was in London when it was published and attended meetings to discuss the conditions of a loan, wrote to Jay that whereas he had at first been prejudiced against the plan he now, after studying it, liked it on the whole. He thought that American bankers should take the position that they wished to help provided the plan was accepted in good faith and with enough evidence of good will to suggest that all concerned, including the Germans, would try to make it a success. It would do great harm if they said, as one had already done, that European war debts must be settled before the loan could be made.74 And J.P. Morgan himself, in Paris, had a satisfactory interview with Bradbury and Barthou, the French reparation delegate, and told them that if the governments settled outstanding questions between themselves before too long, there should be no insurmountable difficulty in arranging an international loan with the United States taking a very considerable part.75 The various governments did accept the Dawes report as a whole, Chancellor Marx making it clear that the German government did so in 72

73

74

75

J.P. Morgan & Co. to Morgan Harjes, 25 Mar. 1924, Lamont Papers, IV-C, 176-8; MG Papers, Bundle 54, file 1. Morgan Harjes to J.P. Morgan & Co., 17 Apr. 1924; J.P. Morgan & Co. to Morgan Harjes, 18 Apr.; J.P. Morgan & Co. to Morgan Grenfell & Co., 19 Apr., Lamont Papers, IV-C, 176-8; MG Papers, Bundle 54, file 1. Strong to Jay, 23-8 Apr. 1924, FRBNY, Strong Papers, 1000.5 (Strong did not identify the banker in question). Memoranda by Leffingwell, 18 Apr., 5 May, 1 Jul. 1924, Lamont Papers, IV-C, 176-8, 9, 11. See Schuker, End of French Predominance, pp. 278-83. Morgan Harjes to J.P. Morgan & Co., 26 Apr. 1924, Lamont Papers, IV-C, 176-9; MG Papers, Bundle 54, file 1.

252

The first debt settlement and revision of reparations

order to gain a breathing space and the evacuation of the Ruhr.76 But negotiations would be necessary about putting the plan into effect; and the French and Belgian governments were concerned to get from Britain assurances not only about the application of sanctions against Germany in case of future default but also about debts and security. MacDonald was unwilling to do more than promise Allied solidarity in case of a wilful German default and refused to discuss security until the reparation problem was settled.77 He also refused to discuss debts in connection with the Dawes report. The debts, he told the Belgian ambassador, could only be dealt with in relation to a complete settlement of the European situation. France and Belgium seemed to have 'a mythical idea of England's capacity to pay other people's debts and . . . I thought it was about time for the Allies to feel a little more than they apparently did their financial obligations to us', obligations on which Britain was paying the interest. He was not inclined to take a lenient view of the debts and would not write them off; but if he could get 'removed from Europe the inheritance of troubles that the war had given us' he would not be a 'hard-fisted business man'.78 Bradbury suggested that funding negotiations be taken up and proposed an arrangement; but the Treasury was not contemplating debt negotiations at present.79 At the end of June the Foreign Office asked for a definite statement as to whether the offer of August 1923 still stood. The Treasury replied that the principle still stood, that Britain would not claim more from its debtors than, with her share of reparations, would cover the payments to the United States. But the offer to accept German bonds in payment had lapsed. The Bonar Law offer had been made as an inducement to the Allies not to occupy the Ruhr. Now the German asset had lost much of its value and the Dawes plan was based on different principles and lower expectations. In general, the Treasury did not think debts ought to be discussed until the Dawes scheme was actually working and the German loan had been floated. Discussion of the American position ought to be avoided until after the presidential election in the autumn: there might then be more chance of American participation in a conference on debts. The present position of the debts was, moreover, a useful weapon to ensure that the Dawes plan was given a fair chance. It would, however, be reasonable to indicate to the Allies that cash payments would not be demanded meanwhile.80 76

77 78 79

80

Artaud, Question des dettes, pp. 6 3 2 - 9 ; Schuker, End of French Predominance, pp. 204-11. See Orde, Great Britain and International Security', pp. 59-63. F O to Grahame, 17 Apr. 1924, C 6562/70/18, F O 371/9741. Bradbury to Snowden, 22 Apr. 1924; Niemeyer to Bradbury, 28 Apr.; Bradbury to Niemeyer, 29 Apr., T 194/13; Treasury to F O , 28 Apr., C 6913/70/18, F O 371/9742. Lampson to Niemeyer, 30 Jun. 1924; Treasury to F O , 4 JuL, C 10426, 10720/70/18, F O

The London conference and the German loan

253

By this time the London conference on putting the Dawes plan into effect was about to meet, and a major political change had taken place in France. Elections on 11 May had given a majority to the Left, and the Radical Socialist leader Edouard Herriot took on responsibility for French policy. In conversations with MacDonald at Chequers on 21 and 22 June Herriot failed to get concrete assurances about security, and apprehensions grew in Paris as the British sent out invitations to the London conference in a form that showed no regard for French wishes about guarantees against German default and about the powers of the Reparation Commission. French socialists warned MacDonald that Herriot's position was in danger, and the prime minister agreed to pay a visit to Paris to repair the damage. He consented to some changes in the conference agenda, but remained adamant in his refusal to discuss security or debts until after the Dawes plan was out of the way. The most he would allow was that experts could examine the debt question and Herriot might send him a note on security.81 The London conference and the German loan The London conference of July-August 1924 fell into two parts, first a conference among the Allies on putting the Dawes plan into effect and then one between the Allies and the Germans on the terms of an agreement. It was an occasion of Anglo-American cooperation against France and French ideas of reconstruction. The cooperation was less between governments than between bankers. The United States government was invited to the conference, although it would not be directly involved in the implementation of the Dawes plan; and a number of high officials 'happened' to be in London at the time in addition to the official delegates Kellogg (the ambassador in London) and Logan. Hughes was scheduled to address the meeting in London of the American Bar Association, and Mellon appeared as a holiday visitor. Young was virtually a member of the delegation, and the ambassador in Berlin, Houghton, came to advise the Germans. In some ways even more important was the House of Morgan and its collaboration with Norman and the British government. It had been accepted since the spring that Morgans would lead the raising of the loan in

81

371/9749; T 160/207/F7768/1. See also minutes by Lampson, 12 Apr.; memorandum by Niemeyer, 14 Apr.; FO to Treasury, 16 Apr., C 6073, 6331/70/18, FO 371/9741.

See Orde, Great Britain and International Security(, pp. 59-63; Schuker, End of French Predominancey pp. 235-45, 256-63; Bariety, Relations franco-allemandes, pp. 388-423,

477-85; Marquand, Ramsay MacDonald, pp. 338-42; FO to Treasury, 12 Jul. 1924; Treasury to FO, 21 Jul., C 11184, 11740/70/18, FO 371/9750, 9751; T 160/207/F7768/1. The Treasury remained opposed to any discussion of debts, even among experts, until much later in the year.

254

Thefirstdebt settlement and revision of reparations

the United States. They had long been bankers to both the British and the French governments, had recently helped the latter, and genuinely sympathised with France. They favoured American participation in European affairs and, for example, over the Austrian loan had stressed their belief in an American duty to help Europe recover, even at the cost of a temporary lack of profit on an investment. Among the partners Lamont, who came to London to handle the European end of the business, was in particular known as an internationalist. But Morgans now took a leading part in forcing France to yield all the gains won from the occupation of the Ruhr. Partly indeed because they had never been pro-German and distrusted the German record, they were determined that the security for the loan should be absolutely sound. In consequence they demanded changes in the Dawes plan and guarantees against future allied sanctions against Germany that were of far-reaching political significance; but they were remarkably reluctant to recognise that that was what they were doing, taking refuge in the fiction that they were merely interpreting the feeling of the American financial market, while at the same time taking pride in the superiority of their own advice to that market.82 In this endeavour Morgans were encouraged and even egged on by Norman. His motives, as so often, are less clearly documented. Norman was deeply interested in European reconstruction; he wanted to restore Britain's leading position in worldfinancialaffairs; he had great visions of central bank cooperation and Anglo-American cooperation. He was also, certainly, anti-French and inclined to be pro-German; but he was not yet, as he became later, a personal friend of Schacht.83 Norman was not averse to acting politically so long as he could remain in the background. It is not clear in this case whether he took into account the long-term political implications of weakening France's position. The French government was vulnerable to pressure. It needed to retain Morgans' good will, and the financial authorities realised the country's dependence on Anglo-American resources: another loan might be needed in the autumn. The government's position was much weakened by the lack 82

83

For Morgans' position see Schuker, End of French Predominance, pp. 272-8. Leffingwell, for example, wrote to Lamont on 15 August: 'What the American investment market will take is, of course, a matter of opinion, and the opinion of such men as [Clarence Dillon and Mortimer Schiff] is entitled to attention. On the other hand, what we can conscientiously recommend to the American investor is a matter for ourselves to decide, of course. Pretty much the whole world would be inclined to admit that we were better qualified to reach a conclusion on that question than anyone else in this country.' Morrow Papers, Morgan Partners 1919-30. Schacht stayed with Norman when he first came to London in early January 1924, and began what became a personal friendship; but the correspondence between the two men in 1924 was quite impersonal (very different from Norman's correspondence with Strong) and infrequent: it became warmer in 1925. See BE, OV 34/72.

The London conference and the German loan

255

of grip shown by Herriot. Whether Poincare could have saved much more for France cannot of course be known, but it does seem clear that Herriot was not merely inexperienced but incompetent.84 In contrast to Poincare's intransigence, he threw away positions in advance, in hope of gaining good will; but although in some ways he and MacDonald talked the same language and shared the same ideals, MacDonald for all his cloudy rhetoric was a shrewd political operator, was clear about his objectives, had no scruple about letting Herriot down, and ended the conference quite out of sympathy with Herriot's position. Snowden, the Chancellor of the Exchequer, who chaired the important committee of the conference set up to consider the position of the Reparation Commission and whether American membership would be adequate security for the loan, felt no obligation whatever to respect French wishes or susceptibilities. As early as 24 June Norman formulated his ideas of the conditions that lenders would require before they subscribed to a German loan. The object of this and subsequent versions was to prevent any repetition of the Ruhr occupation. The conditions included priority of transfer for the service of the loan, complete military evacuation of the Ruhr, 'specific military evacuation' of the occupied Rhineland, abolition of the Franco-Belgian Rhineland railway administration, economic and administrative freedom throughout Germany, and guarantees by the Allies in case they occupied German territory in future or interfered in any way with the security pledged for the loan.85 J.P. Morgan was reluctant to put forward any opinion before the governments had agreed among themselves, but Logan had sent advice that suggestions on security and the protection of bondholders ought to be made before the situation was completely crystallised: otherwise the bank would have to take the business or leave it as it stood. When Lamont arrived in London on 7 July Norman suggested to him various ways of ensuring the safety of the loan and found Morgans ready to demand that the principal European governments should be bound by a protocol or some equivalent means to refrain from any military, political or economic action against Germany which would impair the security or the service of the loan. If the governments were obliged to take such action they would themselves undertake the obligations of the loan.86 When MacDonald came back from Paris he summoned Norman and Lamont and asked them 84

85 86

Recent evaluations of the French position and Herriot's leadership include Artaud, Question des dettes, pp. 6 6 3 - 8 ; Schuker, End of French Predominance, pp. 232-7', 2 9 8 300; Bariety, Relations franco-allemandes, pp. 3 7 1 - 4 . Norman to Bradbury, 24 Jun. 1924, BE, OV 34/102. Morgan Grenfell & Co. to J.P. Morgan & Co., 1 Jul. 1924; J.P. Morgan & Co. to Morgan Grenfell & Co., 3 Jul.; Morgan Grenfell & Co. to J.P. Morgan & Co., 9 Jul.; J.P. Morgan & Co. to Morgan Grenfell & Co., 9 Jul., Lamont Papers, IV-C, 176-11, 12; MG Papers, Bundle 54, file 2; Leffingwell to Lamont, 5 Jul., Yale, Leffingwell Papers, Box 4.

256

The first debt settlement and revision of reparations

for a statement on the power of the Reparation Commission or some other body to declare Germany in default. Lamont was clear that the Commission (whose powers the French wished to preserve) 'would queer the pitch altogether', but thought the Transfer Committee would be acceptable. He did not think it possible to go so far as to specify that the Allies should be bound in all circumstances to refrain from action that might conceivably impair the security or the service of the loan; and MacDonald rejected out of hand Norman's suggestion that the Allies might in some circumstances guarantee the loan. The statement MacDonald asked for was delivered to him on 12 July, after being approved by Morgans. It said that no loan could be acceptable to the American market if the Reparation Commission had power to declare a German default, even if there were an American representative on the Commission or even if the chairman of the Transfer Committee had the last word. The power to declare a default should rest with the Committee from the start.87 The next points raised concerned the evacuation of the Ruhr and modification (at least) of the occupation of the Rhineland. Here again the initiative came from Norman, who on 15 July gave Grenfell a paper on conditions for a loan which he thought the bankers should demand. Lamont, passing it on to Logan and Young, reintroduced a provision that if the Allies took sanctions against Germany they would protect the revenues assigned for the loan.88 For Ramsay MacDonald much more hung on the London conference than the success of a loan. Hankey described it as the first stage of MacDonald's attempt to pacify Europe. If the Dawes report were put into effect, 'we are to continue to settlement of Inter-Allied debts; abolition of Military Control; entry of Germany to the League; and so to limitation of armaments on the other side of the stream'.89 But when the conference between the Allies opened on 16 July few people were sanguine about its chances of success. The precariousness of Herriot's position was understood. Norman was sure that pressure on the politicians would be needed and so was anxious to keep Lamont in London. J.P. Morgan agreed, at the same time warning Lamont not to let 'our desire to help the politicians straighten out the affairs of Europe lead us away from the fundamentals'.90 The work of the conference was divided among three committees and a 87

88 89 90

Morgan Grenfell & C o . to J.P. Morgan & C o . , 10 j u l . 1924; J.P. Morgan & C o . to Morgan Grenfell & C o . , 11 Jul.; Lamont to MacDonald, 12 Jul.; MacDonald to Lamont, 14 Jul., Lamont Papers, I V - C , 1 7 6 - 1 2 , 1 3 ; BE, O V 34/102; M G Papers, Bundle 54, file 2. Memoranda o n terms for a loan, 15-16 Jul. 1924, Lamont Papers, I V - C , 176-14. H a n k e y to Smuts, 17 Jul. 1924, H a n k e y Papers, 4/16. Morgan Grenfell & C o . to J.P. Morgan & C o . , 16 Jul. 1924; J.P. Morgan & C o . to Morgan Grenfell & C o . , 16 Jul., Lamont Papers, I V - C , 176-15; M G Papers, Bundle 54, file 2.

The London conference and the German loan

257

council of heads of delegations. The first committee was to determine procedure in case of a German default, the second to work out a plan for the economic evacuation of the Ruhr, and the third to consider the use of reparation payments, arrangements for deliveries in kind, and transfer procedures. On 19 July, after much hard negotiation, in which Young acted as a go-between between the French and the bankers, and in which MacDonald and the Treasury eventually agreed to meet the French half way, the first committee adopted a report leaving a circumscribed role to the Reparation Commission.91 This compromise did not satisfy Norman or Morgans, and a further ten days of intense activity followed, in which all kinds of political pressure were put on the French, the bankers reiterated their determination to get rid of the Reparation Commission, and the British delegation to the Commission found the answer in a proposal for arbitration. Morgans on the other side of the Atlantic made unhelpful suggestions about adjourning the conference while the governments consulted the bankers; but Lamont was becoming increasingly uneasy at his exposed position, and even he began to think that Norman was going too far. The American Embassy, too, found it hard to understand the attitude of Snowden, some Treasury officials, and Norman, and wondered whether they wanted to see the conference fail. But Hughes and Mellon consented to Lamont's renewal, on 25 July, of the demand for an Allied government guarantee to protect the investor in case of action being taken against Germany.92 MacDonald certainly did not want the conference to fail: it was very important for the success of his government and his whole foreign policy. The politicians, as Lamont tried to point out to his partners, did not even think they had come to London primarily to 'get the new money', but rather to settle important matters that had been in suspense for two years. If the conference failed at least two governments might well fall, but they would probably prefer that to admitting that they had had to hand over the running of affairs to the bankers. By the end of July MacDonald was worried at the extent to which the bankers were determining policy, the public reaction if this became known, and the prospect that the bankers' rigidity might cause the conference to fail. At a meeting of the British 91

92

Cmd 2270 of 1924, Proceedings of the London Reparation Conference, July and August 1924, pp. 114-16; proceedings of First Committee in CAB 29/103; Bariety, Relations franco-allemandes, pp. 540-7; Marquand, Ramsay MacDonald, pp. 342-4; Morgan Grenfell & Co. to J.P. Morgan & Co., 17 Jul. 1924, Lamont Papers, IV-C, 176-15; MG Papers, Bundle 54, file 2. See Schuker, End of French Predominance, pp. 3 0 4 - 1 5 ; Bariety, Relations franco-allemandes, pp. 572-80; correspondence in Lamont Papers, IV-C, 176-16, 17,18,19, 20; Lamont to MacDonald, 25 Jul. 1924, BE, OV 34/103; Kellogg and Logan to State Department, 30 Jul., NA, RG 59, 462.00 R 296/463; Proceedings of First Committee, CAB 29/103.

258

The first debt settlement and revision of reparations

Empire delegation he warned Snowden against continuing to voice the bankers' views.93 Did Norman or Morgans really want to create conditions in which Germany could default on reparations without fear of penalty and the Allies would not only bear that loss but service the loan for her? This was the position into which they got themselves, but it was presumably not their intention. In the absence of public institutions for channelling international capital movements, private bankers in this period in effect sometimes carried out quasi-governmental functions; but they had at the same time to respect their business obligations. The Morgan partners were deeply conscious of their responsibility to their banking clients and the bondholders who subscribed to loans on their recommendation. They were aware of the compromise and ambiguity at the heart of the Dawes plan. They thought the annuities might well prove too heavy for Germany, and they feared that if any loophole were left for unilateral French action it would be used in case of German default. Lamont suggested that it was unrealistic to try to provide against war between France and Germany; but Leffingwell denied that that was what he was attempting to do. Bankers and investors, he said, were accustomed to weighing the risks of war, and in a fresh war he as an investor would back Germany: But investors have never before been asked to buy the bonds of a country which under the terms of a Treaty of Peace is to be kept disarmed and helpless by all the powers while the greatest military Power of them all reserves the right, without declaring war, to take her territory and cut the heart out of her industrial and economic life. Of course under such a set-up Germany hasn't even a sporting chance. I do not for a minute suggest that she ought to have. But if Germany hasn't a sporting chance, what reason has the investor in German bonds to suppose that he will have a fair run for his money? Leffingwell himself rather sympathised with those Frenchmen who preferred a weak Germany to a strong reconstructed one which could pay reparations; but on the whole the Morgan partners, like most liberals, really believed that France, and Europe, and world peace, would benefit more from a rehabilitated Germany than from a broken one, and that it was to France's own interest that the loan be made sound. Beyond this lay the probability that the loan to Germany would be the harbinger of a number of other financial operations already being considered. It was therefore very important that it should command confidence: if it did so the 93

Morgan Grenfell & Co. to J.P. Morgan & Co., 20 and 21 Jul. 1924, Lamont Papers, IV-C, 176-17; MG Papers, Bundle 54, file 2; British Empire Delegation meeting, 31 TuL CAB* 29/105.

The London conference and the German loan

259

prospects for much more American lending and investment in Europe would be greatly improved.94 Norman as a central banker did not have the same obligation to clients and bondholders; but he took a high view of the responsibility of the Bank of England and was almost fanatical about central bank independence of government - while often working closely with government. Most of the large London bankers seem to have substantially agreed with Norman, although Kindersley and McKenna as members of the expert committees were more ready for compromise, and Kindersley as a director of the Bank of England was something of an embarrassment to the Governor. Grenfell, too, was aware that it was impossible to separate the banking and loan question from politics and found his own position as a Conservative MP somewhat equivocal.95 With greater access to information about Germany than the Morgan partners had, Norman was possibly more worried than they that the German government might not accept the terms offered and so wanted further concessions. Reports on German opinion were not encouraging: on the eve of his departure for London Schacht warned Norman bluntly that the Reichstag would not accept the Dawes charges unless 'freedom' for the Ruhr and the Rhine was obtained.96 Norman in fact was not satisfied with the arbitration formula adopted by the conference on 2 August, and in telling MacDonald so he raised again the other conditions that he had noted in June, including immediate military evacuation of the Ruhr, gradual military evacuation of the Rhineland, abolition of the Inter-Allied Rhineland High Commission and the Franco-Belgian railway administration, no right of an individual Ally to apply sanctions against Germany, and independent arbitration on the interpretation not merely of the Dawes report but of the Treaty of Versailles itself. Norman and Lamont saw MacDonald, at his request, on Sunday evening 3 August, and told him that until these points were settled to their satisfaction negotiations for a loan could not begin. They also 94

95

96

J.P. Morgan & Co. to Morgan Grenfell & Co., 19 Jul. 1924; Morgan Grenfell & Co. to J.P. Morgan & Co., 23 Jul., Lamont Papers, IV-C, 176-15, 18; MG Papers, Bundle 54, file 2; Leffingwell to Morrow, 26 Jul., Morrow Papers, Morgan Partners 1919-30; Leffingwell to Lamont, 13 Aug., 4 Sep., 15 Sep., Yale, Leffingwell Papers, Box 4. See also British Empire Delegation meeting, 28 Jul., CAB 29/105. Grenfell to Morrow, 24 Jul. 1924, Morrow Papers, E.C. Grenfell; Morgan Grenfell & Co. to J.P. Morgan & Co., 26 Jul., Morrow Papers, Morgan Partners. For Norman's principles see Andrew Boyle, Montagu Norman, London 1967, pp. 330-2; Emile Moreau, Souvenirs d'un gouverneur de la Banque de France, Paris 1954, pp. 136—7. Grenfell was Conservative MP for the City of London, 1922-35: by custom the City seat was less party-committed than others. Schacht to Norman, 4 Aug. 1924, BE, OV 34/103. For German opinion see, for example, Henry A. Turner, Stresemann and the Politics of the Weimar Republic, Princeton 1963, pp.

163-71.

260

The first debt settlement and revision of reparations

wanted to know the German attitude to the reports of the second and third committees. MacDonald replied that he hoped to make an optimistic report to the House of Commons the following day and to denounce the 'unwarranted' criticism that was being made of the bankers, but he could not hold out the prospect of rapid agreement with the French on all the points raised.97 MacDonald suggested that the Germans should bring up the controversial matters themselves, and Norman, having confirmed that Snowden entirely agreed with the bankers' attitude, proposed to explain the whole situation to Schacht.98 Lamont and Morgan, who had just arrived in England, declined to see Schacht themselves, but it was not long before they were involved in putting pressure on the French. While the negotiations over default and sanctions had been going on, the conference had made good progress with the technical questions of deliveries in kind and the restoration of German economic and financial unity. The Germans arrived on 5 August for the second part of the conference, and within a few days Herriot had given up the attempt to keep a vestige of control over the Rhineland railways and was prepared to concede early military evacuation of the Ruhr. Just before his departure for Paris to secure the government's consent to evacuation within a definite time limit, Herriot was reminded of France's dependence on foreign money.99 Norman had become concerned that the conference was heading towards a political agreement without further consultation with the bankers and was worried that MacDonald had not told the Cabinet or the Allied delegates of the points that the bankers required to be settled before loan negotiations could begin. On 6 August a Treasury official, or Snowden, passed on this warning to MacDonald.100 London financial houses had recently given substantial commercial credits to German firms in the expectation of an early settlement, German recovery, and future business. If the loan did not materialise by the autumn, confidence in the 97

Memoranda, 1 and [4] Aug. 1924, BE, OV 34/103; Morgan Grenfell & Co., to J.P. Morgan & Co., 1 Aug.; J.P. Morgan & Co. to Morgan Grenfell & Co., 2 and 3 Aug.; Morgan Grenfell & Co. to J.P. Morgan & Co., 4 Aug., Lamont Papers, IV-C, 176-21; MG Papers, Bundle 54, file 2; Report of the First Committee, approved by Plenary Meeting of the Conference, 2 Aug., Cmd 2270 of 1924, pp. 148—52. In the House of Commons on 4 August MacDonald gave details of the agreements between the Allies and expressed regret at the many reports that the difficulties encountered had been created by bankers. He hoped that the bankers would make a definite statement on the loan before the conference ended: HCDeb., Vol. 176, cols. 2526-35. 98 Memorandum by Norman, 6 Aug. 1924, BE, OV 34/103; Committee of Treasury, 6 Aug., BE, G 8/56; Morgan Grenfell & Co. to J.P. Morgan & Co., 6 Aug., Lamont Papers, IV-C, 176-22; MG Papers, Bundle 54, file 2. 99 See Schuker, End of French Predominance, pp. 3 1 8 - 4 8 ; Bariety, Relations franco-allemandes, pp. 608-26. 100 Marquand, Ramsay MacDonald, p. 345.

The London conference and the German loan

261

German currency would collapse again and the banks would lose. Morgans were not under this difficulty, but were worried by the impression being given that the formula on default had satisfied the bankers' requirements. While the partners in New York were thinking about possible direct help to France and Belgium if the conference did not provide a satisfactory basis for a German loan, they were worried at the arrival in London of other American financiers bringing rosy accounts of the willingness of the New York bond market to accept a German loan without the safeguards demanded by Morgans. Morgan and Lamont therefore decided to tell the French and Belgian ministers themselves what their conditions for a loan were. On the morning of 9 August they went to see Clementel, the French finance minister, and showed him a paper with the conditions. Clementel expressed no surprise, but asked them not to give him anything that Herriot might regard as an ultimatum, and in particular to wait until Herriot came back from Paris. The Americans then went to see Theunis, the Belgian prime minister. He offered to take the paper and give it to Clementel in such a way as to avoid any appearance of an ultimatum, and said that if the conference were broken up apparently by the bankers, a great chance of settling questions other than the German loan would be lost. He thought it better that the bankers should be out of the way, and was glad that Morgan was going to Scotland and Lamont to France. Morgan agreed: he was 'distinctly impressed' with the idea that the governments might find a way out which did not involve issuing the German loan in the United States at present, so that cwe shall get away from the responsibility without preventing a settlement. This would be great comfort to me personally.' But Lamont's letter to Theunis did not shirk the responsibility. The American investor, he wrote, did not want to lend money to Germany and would expect proper security and political conditions to assure the value of German revenues pledged as security for the loan. The conditions were then enumerated. They were (a) that power to declare Germany in default should not rest with the Reparation Commission (the latest report of the first committee was still not satisfactory on this point); (b) that unanimity among the Allies would be needed for the imposition of sanctions on Germany; (c) that the service of the loan would be a first charge on German revenues (therefore above reparations); (d) that there should be no French or Belgian officials on the railways; (e) that troops would be withdrawn from the Ruhr;

262

Thefirstdebt settlement and revision of reparations

(f) that there be a 'satisfactory' announcement about the evacuation of the Rhineland and the future proceedings of the Rhineland High Commission (Americans, Lamont wrote, were less well informed than Europeans about the difference between the occupation of the Rhineland and that of the Ruhr); (g) that 'satisfactory' means be provided for the future interpretation of the Treaty of Versailles; (h) that the German attitude on the reports of the second and third committees should be satisfactory; (i) that the Germans accept promptly the Dawes plan and all the measures involved for putting it into effect; and (j) that the loan be adequately subscribed in Allied and neutral countries. These points, Lamont said, did not in any sense constitute an ultimatum. Morgans' own attitude was that they were not seeking dealings with Germany. They would contemplate a loan only 'in the hope of rendering a service to the Allied governments and of assisting in the work of reconstruction of benefit to the European countries and secondarily to America'.101 Having delivered this non-ultimatum, Morgan and Lamont withdrew from London. Herriot returned from Paris on 11 August and the final round of negotiations over the evacuation of the Ruhr began, with the Germans pressing very hard on Herriot. MacDonald hoped to arbitrate between them and obtain immediate evacuation, but Kellogg had become convinced that the French could not accept a period of less than a year. With this the Germans, with ill grace, had to be content, but not before Snowden had apparently threatened to publicise Lamont's letter to Theunis in support of his contention that continued occupation would ruin the loan. Lamont was outraged at this use of a paper intended only for Morgan clients; but Norman reassured him that Snowden, although 101

Morgan Grenfell & Co. to J.P. Morgan & Co., 9,11 and 12 Aug. 1924; Lamont to Theunis, 9 Aug.; Lamont to Clementel, 11 Aug., Lamont Papers, IV-C, 176-23,24,25; MG Papers, Bundle 54, file 2; BE, OV 34/103; memoranda by Norman, 13 Aug., BE, OV 34/103. See Schuker, End of French Predominance, pp. 348-52. The problem about the evacuation of the Rhineland, occupied as a guarantee for the execution of the Treaty of Versailles as a whole, was twofold: communications with the Ruhr ran through the first zone, so that it could hardly be evacuated so long as the Ruhr was occupied; and secondly, whereas in the British view the period of the occupation had started to run from January 1920, when the Treaty of Versailles came into force, the French had argued earlier that the period only began when the treaty terms had been fulfilled. See Orde, Great Britain and International Security, p. 50 n. 1, pp. 80-1.

The London conference and the German loan

263

'distressed' at the way the conclusions of the conference were 'based too much on polities', had no intention of producing the letter.102 By 14 August the United States delegation, encouraged by Young, had come to think that Norman and Lamont had gone too far and feared that the responsibility for any difficulties that might arise in floating the loan would be put on the United States. Other American bankers were more or less openly criticising Morgans' subservience to the Bank of England, and the Embassy in Paris was alarmed at reports, even after the conference had reached agreement with the Germans on 16 August, that Lamont was saying that the Allies would have to make further concessions to the bankers. Mellon succeeded in persuading Lamont that the security agreed upon was good enough, and Morgans undertook to do their best for the loan; but efforts to get more concessions continued.103 When Herriot returned from Paris on 11 August he had sent MacDonald a letter on France's need for security; no answer was sent to this before the end of the conference.104 And Clementel had tried to follow up MacDonald's undertaking that experts might examine the debt question. On 4 August he wrote to MacDonald suggesting that the experts should seek an equitable settlement of all the debts between the European allies, and a British recognition that German payments for material damage must come before payment of war debts. MacDonald refused to go farther than his statement in Paris. He thought briefly that he was going to be able to get the Americans to join in a conference, but was soon disabused of the idea by 102

103

104

Schuker, End of French Predominance, pp. 373-81; Bariety, Relations franco-allemandes, pp. 635-72, 680-711; Marquand, Ramsay MacDonald, pp. 348-51; ARK, Marx, Nos. 273-8; Morgan Harjes to Morgan Grenfell & Co., 14 Aug. 1924; Morgan Grenfell & Co. to Morgan Harjes, 14 Aug.; Lamont to Norman, 14 Aug.; Norman to Lamont, 16 Aug., BE, OV 34/103; Lamont Papers, IV-C, 176-26,177-1; MG Papers, Bundle 54, file 2; Clay, Norman, pp. 214-15. At a meeting of the British Empire delegation on 15 August (CAB 29/105) Snowden repeatedly expressed his lack of confidence in any French undertaking and his conviction that continued occupation of the Ruhr for any length of time, even if it were agreed between the French and German governments, would make raising the loan impossible. Memorandum by Norman, 13 Aug. 1924, BE, OV 34/103; Kellogg to State Dept., 19 Aug.; Whitehouse (Paris) to State Dept., 19 and 20 Aug.; Kellogg to State Dept., 20 Aug., NA, RG 59, 462.00 R 296/496, 526, 527; Whigham to Lamont, 13 Aug., MG Papers, Bundle 54, file 2; Morgan Harjes to J.P. Morgan & Co., 19 Aug.; Kellogg to Lamont, 20 Aug.; J.P. Morgan & Co. to Morgan Grenfell & Co., 20 Aug.; Morgan Harjes to J.P. Morgan & Co., 20 Aug.; J.P. Morgan & Co. to Morgan Harjes, 21 Aug.; Lamont to Kellogg, 21 Aug., Lamont Papers, IV-C, 177-2, 3; MG Papers, Bundle 54, file 3. When Grenfell expressed concern at the reaction in the United States to reports of 'interference' by 'bankers' Morrow reassured him: 'The general impression that our press gives is that the bankers recognised their moral responsibility toward the investment world': Morrow to Grenfell, 11 Aug., Morrow Papers, E.C. Grenfell. Final Protocol of the Conference, 16 Aug., and agreements, Cmd 2270 of 1924, pp. 322-60. See Orde, Great Britain and International Security, pp. 64-5; Bariety, Relations francoallemandes, pp. 663—4.

264

The first debt settlement and revision of reparations 105

Kellogg. Clementel then hoped to influence the terms of a statement MacDonald would make at the end of the conference; but MacDonald refused even to promise to repeat the statement that French experts might come to London. Snowden even wanted suppression of the paragraph in the record of MacDonald's conversation with Herriot at Chequers in June containing the reaffirmation of the principle that Britain would not ask more from Germany and the Allies together than was needed to pay the United States. Eventually, after hearing again from Washington that there was no sign of a change in American policy, MacDonald replied to the president of the Finance Committee of the Chamber of Deputies, the socialist deputy Vincent Auriol, that he would confront the debt problem with a determination to settle it in such a way as to contribute to the rehabilitation and stabilisation of the world at large, but having in mind legitimate British interests.106 The actual raising of the loan for Germany required an agreement between the Allied governments, bankers, and Germanfinancialdelegates after the German laws for putting the Dawes plan into effect were passed by the Reichstag, and the French Chamber of Deputies had ratified the London agreements. Whilst the bitter opposition of the German nationalists was disturbing, Norman and Morgans were determined to get from the Allied governments more assurances about the evacuation of the Ruhr and that of the first zone of the occupied Rhineland in accordance with the Treaty. Morgans also wanted to ensure that a substantial part of the loan was subscribed in France and used the French government's expected need for a further loan as a lever.107 Norman was now convinced that the loan must go through - if it did not, 'we break Europe' - and assured Lamont 105

106

107

Memoranda, Jun.-Aug. 1924, AN, AJ5 310; memoranda by Dayras, 7 Jul., MF, F30 1280=B 32186; note from Clementel, 4 Aug.; Niemeyer to Crowe, 14 Aug., C 12664, 13073/11/62, FO 371/9683; Crowe to Niemeyer, 14 Aug., C 12760/11642/18, FO 371/ 9863; T 160/207/F7768/1; Schuker, End of French Predominance, pp. 356-8; Artaud, Question des dettes, pp. 672—6. Phipps to FO, 10 Aug. 1924; Phipps to MacDonald, 10 Aug.; FO to Treasury, 12 Aug.; Treasury to FO, 12 Aug.; minute by Hankey, 16 Aug.; Lampson to Phipps, 20 Aug.; Howard to FO, 22 Aug.; MacDonald to Auriol, 15 Sep., C 12760,12946,12877/11642/18, FO 371/9863; C 13266,13821/11/62, FO 371/9683; C 12851/75/18, FO 371/9761; T 160/ 207/F7768/1. In his final statement at the conference MacDonald did say that he intended to treat the debts in accordance with his declaration in Paris on 9 July: Cmd 2270 of 1924, p. 96. Lamont to Kellogg, 21 Aug. 1924; Morgan Harjes to J.P. Morgan & Co., 22 Aug.; J.P. Morgan & Co. to Morgan Harjes, 25 Aug.; Lamont to Morgan, 25 Aug.; Lamont to Kellogg, 25 Aug.; Lamont to Leffingwell, 25 Aug.; Morgan Harjes to J.P. Morgan & Co., 1 Sep.; Lamont to Norman, 8 Sep.; Norman to Lamont, 9 Sep.; Morgan Harjes to J.P. Morgan & Co., 12 Sep.; Morgan Grenfell & Co. to J.P. Morgan & Co., 16 Sep.; memorandum by Lamont, 16 Sep.; Morgan Grenfell & Co. to J.P. Morgan & Co. 17 Sep., Lamont Papers, IV-C, 177-3, 4, 6, 7, 9, 10, 11, 12; 172-26; MG Papers, Bundle 54, file 3; Bank of England, Committee of Treasury, 17 Sep., BE, G 8/56.

The London conference and the German loan

265

that its results would be favourable. He was sure that the Germans wanted peace; but he suggested to Schacht that one way of demonstrating this would be for the German government to refrain from sending the Allies a repudiation of war guilt.108 Norman made one last effort to get a collective 'satisfactory statement' from the Allies on three points: the future method of interpreting the Treaty of Versailles and the individual application of sanctions, the evacuation of the Ruhr, and the evacuation of the Cologne zone. MacDonald, however, refused to do more than give the British government's own view - that sanctions could only be taken against Germany if the Allies were unanimous, that the Ruhr would be evacuated in one year unless Germany was in a state of wilful default, and that under the Treaty the Cologne zone would be evacuated in January 1925 provided that the Treaty as a whole was being fulfilled. He declined to approach the Allied governments again, and Norman had to be content.109 Kellogg sent Lamont a letter giving his understanding of the meaning of the London agreements on these points. Clementel refused to give to a private party a written interpretation of a diplomatic agreement, but Herriot confirmed verbally that the evacuation of the Ruhr would only not be completed if Germany were in wilful default in August 1925.110 On 30 September Snowden sent the Bank of England a formal letter asking it to issue the German loan and thus support the government's earnest desire that it should be provided.111 On 10 October an agreement for a loan to the German government of 800 million gold marks (£40 million) was signed at the Bank of England. Banks of nine countries were to take part. The United States took about half, Britain about a quarter; the remainder was divided between France, Switzerland, the Netherlands, Belgium, Sweden, and Italy, with a small fraction for Germany. Most of the loan was immediately oversubscribed; but the French portion was not placed on the market at all and was apparently subscribed in part by British banks.112 Thus the Dawes plan entered into force, the reparation problem was for the time being removed from the political arena; and led by the loan to the government, American capital began to flow into Germany. 108

Memorandum by Lamont, 16 Sep. 1924; Morgan Grenfell & Co. to J.P. Morgan & Co., 17 Sep., Lamont Papers, IV-C, 177-12; MG Papers, Bundle 54, file 3; Norman to Schacht, 20 Sep., BE, OV 34/105. The German Nationalists had demanded such a statement from the government: ARK, Marx, Nos. 289,290,296,298; Eyck, History of the Weimar Republic, Vol. l,pp. 316-17; Turner, Stresemann and the Politics ofthe Weimar Republic, pp. 171-4. 109 Norman to MacDonald, 20 Sep. 1924; MacDonald to Norman, 24 Sep., T 194/281; BE, OV 34/105; Bank of England, Committee of Treasury, 24 Sep., BE, G 8/56. 110 Clementel to J.P. Morgan & Co., 24 Sep. 1924; Morgan Harjes to J.P. Morgan & Co., 26 Sep., Lamont Papers, IV-C, 177-14, 17; Kellogg to Lamont, 24 Sep., BE, OV 34/105. 111 Snowden to Norman, 30 Sep. 1924, BE, OV 34/105. Morgans got from Hughes a statement that the Administration hoped American banks would take part in the loan: J.P. Morgan & Co. to Morgan Grenfell & Co., 18 and 20 Sep., Lamont Papers, IV-C, 177-12,13,14; MG 112 Papers, Bundle 54, file 3. Bariety, Relations franco-allemandes, pp. 737-9.

Chapter 8

The spread of stability, 1923-8

The financial reconstruction of Hungary

Stabilisation of the German mark and a solution to the reparation crisis were, in view of Germany's central position in Europe, necessary preconditions for the general return of confidence and spread of stability that signified European recovery in the second half of the 1920s. But not everything could or needed to wait on Germany. As the Financial Committee of the League of Nations had finally succeeded, in 1922, in finding an answer to the desperate situation of Austria, the experience was used for the comparable problem of her fellow member of the losing side, Hungary. The formerly centralised and economically, though not ethnically, coherent Hungarian state suffered greater losses in the peace settlement than any of the other defeated countries. The territory transferred to neighbouring successor states included, in addition to peoples of the appropriate nationality, over three million Magyars and important economic resources - 84 per cent of prewar Hungary's timber reserves, 83 per cent of the iron ore, 29 per cent of the lignite, 27 per cent of the hard coal. Manufacturing industry, which had been concentrated round Budapest, was little affected but was separated from formerly domestic sources of raw materials and markets. Hungarian industry was therefore vulnerable to the commercial policies of neighbouring countries.1 Trianon Hungary still had considerable economic assets, but their development needed international economic cooperation, and that was the missing link in the Danubian area in the 1920s. On the one hand Hungarian outrage at the truncation of the country settled into a fixed and noisy revisionism. On the other hand Hungary's neighbours, pursuing their own economic development and determined to maintain their gains, saw no 1

For the effects of the Treaty of Trianon see Joseph Rothschild, East Central Europe between the Two World Wars, Seattle 1974, pp. 155-7; Kiraly, Pastor and Sanders, War and Society in East Central Europe, Vol. 6, esp. pp. 89-104, 529-44.

266

The financial reconstruction of Hungary

267

reason for reconciliation and were further deterred from it by Hungarian propaganda. Under the resourceful leadership of Count Istvan Bethlen in the 1920s the government kept the more extreme nationalists under control and eschewed any really dangerous adventures; but it tolerated and even encouraged perpetual propaganda, concentrated against Czechoslovakia, the most stable and influential of the Little Entente countries. Beyond the Danubian region Bethlen worked with fair success to gain international goodwill for Hungary. With the collaboration of the business class he undertook a programme of economic development, which achieved some success until it was destroyed by the depression. To begin with the government, as in Austria and Germany and elsewhere in eastern Europe, stimulated an inflation which placed the costs of the war and reconstruction on the wage- and salary-earners. By 1923 real wages had fallen to half their prewar value and were paid in depreciated currency (16,300 paper crowns were equivalent to one gold crown), while landowners paid off their mortgages and many new companies were launched.2 But by that time the inflation had served its purpose and, as in Germany, had begun to threaten its beneficiaries. The government therefore began to look for international financial help. The chief obstacle to such help, government policy, could be changed. Another obstacle was uncertainty about reparations, the sum for which had not yet been fixed. Early in 1923 Hungarian bankers tried and failed to raise a loan in Switzerland; and as a result the government sought the advice of Sir William Goode, the former head of the Austrian Section of the Reparation Commission.3 Goode advised an application to the Reparation Commission for the release of sufficient funds to allow the raising of a short-term loan, and asking governments which held liens for various claims, to release them so that a long-term loan could be raised.4 Niemeyer considered that Hungarian reparations should be fixed at nil; but since Italy and the successor states were unlikely to agree, Bethlen ought to ask for a twenty-year moratorium with priority to be given for the service of a loan. To get a long-term loan Hungary would probably have to agree to a pact of territorial guarantee with her neighbours under the aegis of the League, to allot specific revenues as security, and to accept a foreign adviser.5 2

3

5

Rothschild, East Central Europe, pp. 158-68; M.C. Kaser and E.A. Radice, eds., The Economic History of Eastern Europe 1919-1975, Vol. 1, Oxford 1985, pp. 44-50, 281-2, 298-300; Vol. 2, Oxford 1987, p. 121. Department of Overseas Trade to FO, 8 Feb. 1923; Balfour, Budapest, to FO, 16 Feb.; Hohler to FO, 2 Mar., C 2529, 3081, 4052/942/21, FO 371/8861; DBFP, Ser. I, Vol. 24, 4 Nos. 240, 288. DBFP, Ser. I, Vol. 24, No. 301. FO to Treasury, 15 Mar. 1923; Niemeyer to Lampson, 16 Mar., C 4052, 4996/942/21, FO 371/8861.

268

The spread of stability

The Foreign Office was not sure that a Hungarian application to the League was the best course. The French might object, regarding it as a precedent for an attempt to refer German reparations to Geneva, and the Hungarians would be very unwilling to accept a control in which the Little Entente countries had a voice. Niemeyer, however, argued that there was no real alternative. Mosr potential lenders distrusted Hungary and would insist on adequate safeguards on the Austrian model. The Hungarian government could choose; but if it was not convinced of the need to make sacrifices it would not get financial aid. The neighbouring countries would also have to be convinced of the need to exercise moderation, and that, too, would probably require the full influence of the League. It would be much more difficult to get international finance interested in Hungary than it had been in the Austrian case, and success could not be guaranteed even if the League did take the matter up. The Foreign Office then agreed that there would be no objection if the Hungarians themselves approached the League; and it suggested to the French and Italian governments that reparations should be postponed and liens released. The Hungarians were advised privately to approach the Reparation Commission.6 Briefing Baldwin for a projected visit by Bethlen, Niemeyer wrote that Hungary probably needed £500,000 at once and £10 million ultimately. There was a chance of getting the £500,000 in return for the deposit of gold in London, provided the Reparation Commission agreed to postpone its claims and there was a prospect of a League scheme. But it must be made clear to Bethlen that the British government could not promise that the market would agree to a loan, and that it was quite certain that nothing would be forthcoming unless there were a complete League scheme. The Financial Committee would certainly demand a territorial pact between Hungary and her neighbours, an outside financial controller, and a Hungarian undertaking to carry out an agreed scheme of reform; but it would probably not be necessary for foreign governments to guarantee the loan. Bethlen could be told that Britain would use her influence to see that any League scheme was impartial; there was no reason to suppose that it would not be; and anyway such a scheme would have to be accepted if Hungary were to avoid financial ruin.7 After hearing Bethlen the Reparation Commission on 23 May decided by the casting vote of the French chairman not to oppose in principle the raising of charges on certain Hungarian revenues which might be needed as 6

7

FO to Treasury, 23 Mar. 1923; Treasury to FO, 28 Mar.; minute by Lampson, 6 Apr.; Hohler to FO, 17 Apr., C 4996, 5820,6281, 6955/942/21, FO 371/8861; T 160/160/F6255/ 1; DBFP, Ser. I, Vol. 24, Nos. 315, 326, 334. Niemeyer to Baldwin, 26 Apr. 1923, T 160/160/F6255/1; C 7514/942/21, FO 371/8861. Bethlen visited London after being heard by the Reparation Commission. He saw Curzon on 9 May, but not Baldwin.

The financial reconstruction of Hungary

269

security for a loan, but also decided to insist that the loan be supervised by the Commission and part of it devoted to reparations. The Commission did not lay down conditions about a change of regime in Hungary, such as had been forecast in Belgrade and Budapest; but even so Bradbury made it plain that there would be no chance of raising a loan on these conditions in London.8 Bethlen spoke of resigning but then decided to appeal to the Allied governments against the Reparation Commission's decision. The Treasury was anxious to support his appeal, but the Foreign Office was less keen to appear as Hungary's patron. It also did not agree that the Czechs were the villains of the piece, but was ready to try to get Benes to influence the other Little Entente governments.9 One of the elements in Hungarian-Czech antipathy, and Hungarian suspicion of Czech motives, was a real difference in political culture. Hohler, the British minister in Budapest, shared the Hungarian suspicions; the Foreign Office on the whole did not. Benes said that he was not opposed to the suspension of Hungary's reparations obligations but had to take account of Romanian and Yugoslav wishes. He was prepared to meet Bethlen, and to try to persuade both his allies and Czechoslovak public opinion, but said that it would take time.10 Benes was therefore affronted when the Bank of England and the Treasury put financial pressure on Czechoslovakia. This action was possible because Barings and their friends were actively considering the issue of the second stage of the Czechoslovak government loan of 1922. On 25 May Niemeyer wrote to Pospisil, who in addition to his position as General Manager of the Prague Savings Bank, and Vice-President of the Banking Office committee in the Czechoslovak Ministry of Finance, was Czechfinancialrepresentative with the League of Nations, that the Reparation Commission's decision might have an unfortunate effect on the prospects of the Czech loan. If it were known in London that Czechoslovakia was opposing a scheme for completing the reconstruction of south-east Europe by settling Hungary's difficulties, the effect on Czech credit would be so bad that it would not be possible to place a further loan.11 Then Norman, who believed Hungary should be 8

DBFP, Ser. I, Vol. 24, Nos. 340, 352, 354, 359, 373, 379, 381, 382, 384, 386, 390; Young, Belgrade, to FO, 9 May 1923; Hohler to FO, 10 May; Crewe to FO, 15 May; FO to Crewe, 17 May, C 8437, 8605, 8731, 8884/942/21, FO 371/8862. 9 Treasury to FO, 29 May 1923; FO to Treasury, 7 Jun.; Treasury to FO, 8 Jun., C 9480/942/ 21, FO 371/8862; T 160/160/F6255/2; DBFP, Ser. I, Vol. 24, Nos. 390, 392, 395, 396, 398, 399. 10 DBFP, Ser. I, Vol. 24, Nos. 398, 399, 407, 426, 446; Clerk to FO, 4 Jun. 1923, C 9753, 10159/942/21, FO 371/8863; Clerk to Lampson, 20 Jun., C 11114/49/21, FO 371/8846; Clerk to FO, 6 Feb. 1924, C 2305/18/21, FO 371/9899. The problem of arranging a meeting between Bethlen and Benes dragged on all summer. They eventually met at Geneva in September: FO to Treasury, 3 Jul.; Treasury to FO, 5 Jul., T 160/160/F6255/3; FO 371/ 8864,passim; DBFP, Ser. I, Vol. 24, Nos. 465, 469, 473, 478, 485, 494, 500, 502, 505. 11 Niemeyer to Pospisil, 25 May 1923; Pospisil to Niemeyer, 5 Jun., T 160/160/F6255/2.

270

The spread of stability

tackled without delay, got Barings to tell Pospisil, on 7 June, that they thought the British government would not favour the issue of the second tranche of the loan so long as the Czechoslovak government, by its attitude before the Reparation Commission, continued to prevent the economic reconstruction of Hungary. Sending a copy of this telegram to Crowe on 27 June Norman wrote: We are determined to prevent both the Czechs and the Roumanians from raising money in London until the position of Hungary has been secured. This is a financial rather than a political question but I do not hesitate to ask for your support in the line we have taken - and intend to take - in the interests of Eastern Europe.12

Barings did not wish to be involved in the political question and told the Czechoslovak minister that they would be glad to help with the loan if only the government would approve. They sent the minister along to the Foreign Office, where he was told on 4 July that the government looked to Czechoslovakia to help with the rehabilitation of Hungary, and potential lenders to Czechoslovakia might well hesitate if they believed Hungary was on the verge of collapse. The Foreign Office told Clerk and CM. Young that it concurred with Norman's action, and asked the Treasury, what more to say.13 The Treasury replied that the government would indeed not favour a Czechoslovak loan until the Czech attitude on Hungary had changed. It thought the Little Entente attitude on the Reparation Commission was short-sighted, and it was trying to get the decision changed. In these circumstances it could not be expected that the government would use its influence in favour of a loan to a country which, though possibly desiring to avoid the ruin of Hungary, was in fact helping to produce it. British financial circles thought of south-east Europe as a whole and did not treat the countries as isolated individuals. They would certainly be deterred, whatever the government's attitude was, from assisting a Czechoslovak loan while a neighbouring country was being forced into collapse. Arrangements for a loan would come more naturally if before the autumn progress had been made with a scheme for saving Hungary.14 Most of this homily was conveyed to the Czechoslovak minister in a letter on 10 July, and Benes, who had for a time thought of abandoning a 12

Norman to Bradbury, 28 Apr. 1923, BE, OV 33/70; Revelstoke to Norman, 7 Jun.; Barings to Kidder Peabody, 8 Jun.; Norman to Revelstoke, 9 Jun.; Farrer to Ter Meulen, 15 Jun., BB, PF 233; Norman to Crowe, 27 Jun., C 11337/942/21, FO 371/8863; BE, OV 31/70. 13 Villiers (BB) to Cadogan and Clerk, 27 Jun. 1923, BB, PF 233; Crowe to Norman, 28 Jun.; Lampson to Clerk, 29 Jun., C 11337/942/21, FO 371/8863; Clerk to Lampson, 3 JuL; FO to Treasury, 6 JuL, C 11732, 11955/56/12, FO 371/8572. 14 Treasury to FO, 7 Jul. 1923, C 11816/56/12, FO 371/8572; Niemeyer to Young, 9 JuL, T 160/161/F6255/01/2; DBFP, Ser. I, Vol. 24, No. 471.

Thefinancialreconstruction of Hungary

271

projected visit to London unless he got assurances about the loan, came and promised to do his best with his Little Entente colleagues. The only guarantee he wanted from Hungary, he said, was one that the peace treaty would be strictly executed; and he was prepared to give a guarantee in return as had been done over Austria.15 By this time the Hungarian appeal against the Reparation Commission's decision had been received. The Foreign Office was anxious not to seem, in supporting the appeal, to be sponsoring Hungary nor to 'drive the Little Entente too hard', and therefore became active in pressing for the rapid settlement of an incident in which the Hungarian authorities had obstructed the inter-Allied military control commission. It was also ready to make it clear to the Little Entente countries that Britain had always intended to insist that any financial scheme should include definite controls on Hungary.16 On 29 June Crewe was instructed to tell the French government that the British very much hoped that the Hungarian question could be taken up at the meeting of the League of Nations due in August. Only the League, Crewe's instructions said, could secure political undertakings analogous to those in the Austrian protocol or possess the authority to maintain an impartial control on a plan of financial reform.17 Definite action at the League of Nations session of August-September 1923 was prevented by the Little Entente countries' demands for a share in financial and military control of Hungary, and by French reluctance to alter the Reparation Commission's May decision because of the possible German implications.18 Hints that continued delay was harming the financial prospects of the Little Entente countries in London did not produce much effect on Romania or Yugoslavia; and the Foreign Office did not wish to press Benes further.19 Nevertheless the Council resolved that, if invited by the Reparation Commission, the Secretariat and the Financial Committee would cooperate in producing a scheme for Hungary; and on 17 October the Reparation Commission agreed to ask the League to prepare a scheme of reconstruction, with states having claims 15

16

17 18

19

DBFP, Ser. I, Vol. 24, No. 484; Clerk to Lampson, 3 Jul. 1923, C 11732,11955/56/12, FO 371/8572. DBFP, Ser. I, Vol. 24, No. 452. For the Hungarian appeal see Nos. 405,407,426,429,439; Treasury to FO, 29 May 1923; FO to Treasury, 7 Jun., 21 Jun., C 9480, 10379/942/21, FO 371/8862, 8863; Treasury to FO, 26 Jun., 30 Jun., T 160/161/F6255/3. For the problems of military control and the Kecskemet incident see DBFP, Ser. I, Vol. 24, Nos. 362, 406, 415, 431, 436, 439, 441, 444, 448, 452, 456, 466, 467, 474, 482, 487. DBFP, Ser. I, Vol. 24, No. 461. DBFP, Ser. I, Vol. 24, Nos. 489, 490, 491, 495, 497, 498, 501, 506, 509, 510, 526, 528; instructions to French representatives at Geneva, 29 Aug. 1923, MAE, SDN, Vol. 1247. Niemeyer to Goode, 4 and 7 Aug. 1923; Niemeyer to Lampson, 9 Aug., T 160/161/F6255/ 01/2; Clerk to FO, 14 Aug.; Lampson to Clerk, 29 Aug.; Clerk to Lampson, 5 Sep., C 14274, 15698/56/12, FO 371/8572; DBFPy Ser. I, Vol. 24, Nos. 515, 522.

272

The spread of stability

against Hungary to be associated in the supervision. A scheme prepared by the League Financial Committee was adopted by the Council in December. It followed the Austrian pattern in providing for a foreign loan secured on certain Hungarian revenues, for a new bank of issue, a programme of financial reforms, and a neutral controller-general appointed by the League Council. Unlike the Austrian case there would be no government guarantees of portions of the loan: they were thought to be unnecessary and also unobtainable. There were also two protocols, by which some treaty payments would be made during the period of the loan, the major Allies and the Little Entente countries undertook to respect Hungary's independence and integrity, and Hungary undertook to fulfil the peace treaty and abstain from action that might prejudice the security of the loan.20 The protocols were not signed until March 1924; but meanwhile members of the League Financial Committee visited Budapest and worked out measures of financial reform, which were adopted by the Hungarian government and passed through parliament by Easter. After some delay in finding an acceptable candidate, Jeremiah Smith, an American, was appointed controller-general.21 It now only remained to raise the loan. On this Norman was committed as warmly, but not as confidently, as he had been for the Austrian case. In the middle of January he was expressing doubt to Niemeyer whether the loan could be raised in present conditions; and he told Hungarian representatives that there was no hope at present of raising a commercial loan in London.22 However, when a Hungarian delegation arrived in London to negotiate with Rothschilds and other bankers, Norman stifled the doubts he had been expressing very recently to Vissering, and did his best.23 Despite recommendations from Jeremiah Smith, Morgans decided that there was no chance of issuing a long-term loan for Hungary on the American market. The Hungarians themselves were averse to accepting money from Czechoslovakia and had to be told 20

21

22

23

DBFP, Ser. I, Vol. 24, N o s . 552 n. 3 , 5 8 9 , 5 9 0 , 5 9 5 , 6 0 1 , 6 0 2 , 6 0 4 ; N i e m e y e r t o L a m p s o n , 26 Nov. 1923; report of Financial Committee, 28 Nov.; memorandum by Niemeyer, 7 Dec, C 20514, 21113, 21377/942/21, FO 371/8866; Poincare to Hanotaux, 8 Dec; record of meeting 11 Dec, MAE, SDN, vols. 1247, 1248; report of Financial Committee, 20 Dec, L N Arch., R 297; League of Nations, The Financial Reconstruction of Hungary. General Survey and Principal Documents, Geneva 1926. DBFP, Ser. I, Vol. 26, N o s . 7 , 1 2 , 1 7 , 2 3 , 2 5 , 2 8 , 4 0 , 4 3 , 4 6 , 4 9 , 53, 56, 57, 58, 5 9 , 6 1 , 6 4 , 6 8 , 77, 86, 88, 94, 101, 106, 127; Barthou to Poincare, 6 F e b . 1924, M A E , S D N , Vol. 1250. N o r m a n to N i e m e y e r , 10 Jan. 1924; Bank of England m e m o r a n d u m , 23 Jan., B E , O V 3 3 / 70; N o r m a n to Revelstoke, 24 J a n . ; BB, P F 237; minute b y L a m p s o n , 11 Jan.; F O m e m o r a n d u m , 29 Jan., C 3 7 9 , 1 6 3 3 / 3 7 / 2 1 , F O 371/9903, 9904; DBFP, Ser. I, Vol. 26, N o . 127.

Norman to Vissering, 12 Apr. 1924, BE, OV, 33/71; Ter Meulen to Farrer, 24 Apr., BB, PF 237; DBFP, Ser. I, Vol. 26, No. 131.

Thefinancialreconstruction of Hungary

273

that London houses would not produce the whole amount, and if Hungary would not help herself in every possible way the problem could not be overcome.24 Snowden appealed to Norman for help in getting more money in the City, and as a result the Bank of England undertook by an exceptional arrangement to take a substantial share itself in addition to the portions to be taken by London banks. Norman also wrote to urge his Swedish and Dutch friends to take substantial shares.25 Hungarian socialists had asked British Labour MPs to press for the introduction of democracy to be made a condition of the loan, but the government refused to interfere.26 The loan was successfully issued in July 1924: in all nearly £8 million out of a total of £14,200,000 was subscribed in London.27 The French did not take part in the Hungarian loan. The reason was not political - indeed the Ministry of Foreign Affairs would have liked French participation for political reasons - but lack of money and of interest among French banks. In October 1923 the Minister of Finance was worried at the prospect of opening the market to Hungarian borrowing at a time when the Treasury had great difficulty in getting funds. In April 1924 the Director of the Mouvement General des Fonds pointed out that French participation in the new Hungarian bank of issue could at best be small. It had been very difficult to interest French banks in the Austrian loan, and French involvement in Hungarian banking affairs was smaller still.28 In June, when the loan negotiations were under way, Clementel refused to authorise an issue in France, despite a plea by Herriot. Seydoux explained to Salter that the reason was quite simply that at present it was not possible to authorise the issue of a French reconstruction loan. Reconstruction work was suffering in consequence, and public opinion would not understand encouragement being given to foreign borrowing.29 All the same the 24

25

26

27

28

29

Smith t o L a m o n t , 16 M a y 1924; L a m o n t t o Smith, 22 M a y , C 8073, 9203/37/21, F O 3 7 1 / 9908; Lamont to Jay, 29 May, Lamont Papers, II, 113-2; DBFP, Ser. I, Vol. 26, Nos. 144, 145,149,151. Snowden to Norman, 29 May 1924; Norman to Schacht, 2 Jun.; Norman to Wallenberg, 5 Jun.; Norman to Vissering, 12 Jun., BE, OV 33/71; DBFP, Ser. I, Vol. 26, No. 155, end. 2. Hohler to FO, 16 Feb. 1924; FO to Hohler, 3 Mar., C 2915/37/21, FO 37\/9905;HCDeb., Vol. 169, cols. 1531,1746-7. T h e L o n d o n banks concerned were Rothschilds, Barings, and Schroders. $9.9 million was subscribed in the United States, floated by James Speyer. This included the Hungarian portion of the loan: RIIA, The Problem of International Investment, London 1937, p. 184; Costigliola, The Politics of Financial Stabilisation, p. 133, n. 139. For the whole case see Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 193-6; Marie-Luise Recker, England und der Donauraum 1919-1929, Stuttgart 1976, pp. 190-204; Ozer Carmi, La Grande-Bretagne et la Petite Entente, Geneva 1972, pp. 88-115. De Lasteyrie to Poincare, 8 Oct. 1923; Seydoux to de Moiiy, 26 Apr. 1924; note by de Mouy, 28 Apr., MF, F30 970 = B 31886. Herriot to Clementel, 17 Jun. 1924; Clementel to Herriot, 21 Jun., MF, F30 970 = B 31886; Seydoux to Salter, 28 Jun., LN Arch., R 416.

274

The spread of stability

Quai d'Orsay was in no doubt that France's economic and political influence in central Europe was adversely affected by the abstention, and that in her place Britain was establishing preponderance.30 Central and eastern Europe: credit and trade The financial reconstruction of Austria and Hungary became tasks for the international community partly because of the extremity of their inflationary straits and partly because their solvency was closely linked with the financial provisions of the peace treaties. The victor countries of east central Europe were not subject to the latter constraint, and were keen to stand on their own feet and defend their own sovereignty. Romania had suffered a good deal of damage in the war; but her resources of food and oil soon eased the problems of external trade. As far as finding capital for development was concerned, the state of the oil industry was a complicating factor. One possible asset to be offered as security for loans was the right to exploit the crown oil lands, only a small proportion of which were already worked, by some Romanian companies, while the greater part of the important oil production was in the hands of foreign or partly foreignowned firms.31 After the war a number of foreign interests tried to obtain concessions to work the crown lands, and in 1921 a syndicate was formed of British, French, Dutch, and American oil interests, backed by their respective governments. The syndicate negotiated with the Romanian government, which also received offers from individual companies and groups. But the Romanians were fundamentally opposed to the domination of the oil industry by foreign capital. During 1920 and 1921 the government was prepared to negotiate; but with the arrival in power in January 1922 of the government of Ionel Bratiano, the negotiations effectively ceased. The Romanian Liberals were committed to industrialisation and development, but were intensely nationalistic, holding that the importation of foreign capital on any large scale would jeopardise the country's independence. In 1923 a new constitution declared the country's 30

31

MAE to MF, 26 Jul. 1924, MF, F30 970 = B 31886; memorandum by Mouvement General des Fonds, 9 Jun. 1923, F30 1359 = B32265. In 1913 Romania was the world's fourth largest oil producer, with a production of 1.8 million tons (as compared with the United States 35.5 million tons, Russia 8.9 million tons, Mexico 3.6 million tons): Imperial Mineral Resources Bureau, The Mineral Industry of the British Empire and Foreign Countries, London 1921, p. 66. Of the thirty-six principal companies producing in Romania in 1920, eight were British and accounted for a production of 30,000 tons out of a total of 1 million tons: DBFP, Ser. I, Vol. 22, No. 31. 95 per cent of the capital invested in the oil industry was foreign. In terms of enterprises, German and Austrian capital financed 27 per cent of production, Dutch 31 per cent, American 18 per cent, French and Belgian 18 per cent, British 5 per cent: Maurice Pearton, Oil and the Romanian State, Oxford 1971, pp. 68-9.

Central and eastern Europe: credit and trade

275

natural resources, including minerals, to be state property; and in 1924 a new mining law restricted foreign capital and personnel. In effect from 1922 the crown oil lands were not available as security for foreign borrowing.32 Difficulties and delays over settling former debts and claims were also an obstacle to raising new loans on the London market. There was a long dispute over the amount of compensation to be paid by the British and French governments for the destruction their predecessors had required the Romanians to carry out in 1916 to deny oil resources to the Central Powers. The Romanians were slow in submitting their estimates and the detailed evidence; some of those who had suffered the actual losses were of British and French nationality. In the autumn of 1921 a joint British, French, and Romanian commission assessed the oil companies' losses at just under £10 million and suggested that as far as Britain was concerned payment should be made by cancelling Romanian debt and the Romanian government giving bonds or similar payment to the companies.33 Despite the fact that the Romanians had earlier accepted an arrangement on these lines they now demanded cash, and the affair dragged on through 1923. For the Romanians the crux of the matter now was whether all the inter-Allied debts were going to be cancelled.34 The compensation question was eventually settled in 1926. When an Anglo-Romanian war debt agreement was concluded in October 1925, £5 million was deducted from the war debt, and the Romanian government undertook to come to an agreement with the oil companies. It did so on 1 November 1926, agreeing to pay, over forty years, some two-thirds of the original estimate of the damage done.35 Private British enterprise was neither very successful nor given much encouragement in the circumstances of Romanian restrictions on exports and exchange. In the first few months of 1924 official support was given to Armstrong Siddeley and Vickers, who were tendering to build an aircraft 32

33 34

35

See Pearton, Oil and the Romanian State', chs. 5 and 6; Rothschild, East Central Europe between the Two World Wars, pp. 293-4; Kaser and Radice, Economic History of Eastern Europe, Vol. 1, pp. 43-4; Vol. 2, pp. 9-10; DBFP, Ser. I, Vol. 12, Nos. 351, 353, 356, 358, 360, 361; Vol. 22, No. 31; Vol. 24, Nos. 12, 43, 57, 62, 89, 145. DBFP, Ser. I, Vol. 22, Nos. 173, 302, 459; Vol. 24, No. 209. DBFP, Ser. I, Vol. 24, Nos. 297, 353, 375, 404, 454, 460, 475. The Romanian government had in 1922 arranged with a British bank for the consolidation of Romanian Treasury bills held in Britain: ibid., No. 43, n. 11; Kaser and Radice, Economic History of Eastern Europe, Vol. 2, p. 180. Minute by Bateman, 2 Oct. 1925; Waley to Nicolson, 8 Oct.; Titulesco to Churchill, 19 Oct., C 12523, 13397/4/62, FO 371/10683; agreement between oil companies and Titulesco, 1 Nov. 1926, C 11659/49/37, FO 371/11416. But the non-payment of interest on prewar debts caused the London Stock Exchange to exclude Romanian government bonds from its official list and thus held up agreement on a stabilisation scheme in 1928, see below, p. 309.

276

The spread of stability 36

factory in Romania. But there was no question of credits for Romania, and reports of a French loan to be spent on armaments aroused annoyance. At a time - the end of 1923 - when the French government was declaring that it could not begin to pay its war debt to Britain until it had received in reparation from Germany more than the 26 billion gold marks needed to reconstruct the devastated regions, French willingness to make large loans to east European countries was found incongruous. The Polish, Yugoslav, and Romanian governments were told, just before Christmas, that while Britain had been willing hitherto to renew their existing obligations, this might have to be reconsidered if they undertook new and conflicting ones.37 The French credit to Romania in fact fell through because the Romanians took offence at the French Senate's attempts to link it with settlement of some private claims.38 The French parliament did, however, approve in December 1923 credits to Yugoslavia and Poland, with both of which countries British experience was not altogether happy. In the Yugoslav case there was a brief postscript to the railway-building project of 1921-2, when the Trade Facilities Act Advisory Committee was asked to guarantee a credit, part of which was to be spent with Armstrong Whitworth. The Treasury opposed the idea. It wanted first to secure Yugoslav cooperation in Hungarian reconstruction, and suspected the Yugoslav budget figures.39 The Polish case, which was also complicated by nationalist susceptibilities and domestic politics, largely concerned the provision of financial advice. In the spring of 1923 the proposal of a British financial adviser was revived. Commander E. Hilton Young, who had been suggested in 1921 but had had to drop the idea on being appointed Financial Secretary to the Treasury, was now out of office. He agreed to go to Poland for two months. Young arrived in Warsaw in October with two Treasury officials taking leave of absence and one Bank of England official; but he soon ran into difficulties in getting his advice accepted.40 He then had to return to England to defend his parliamentary seat in the general election of December 1923 (he was defeated), and F.H. Nixon, whom he left in charge of the mission, came to the conclusion that without an improvement in the 36 37

38 39 40

DBFP, Ser. I, Vol. 24, N o . 575; Vol. 26, N o s . 39, 44. Treasury to FO, 12 Dec. 1923; Curzon to Romanian, Polish, and Yugoslav ministers; FO to Chilton, Washington, 21 Dec, C 21469/19686/62, FO 371/8624; DBFP, Ser. I, Vol. 24, No. 603; Vol. 26, No. 9. Correspondence in MAE, Europe, Roumanie, Vol. 14; DBFP, Ser. I, Vol. 26, No. 34. Treasury to Trade Facilities Act Advisory Committee, 13 Oct. 1923, T 160/161/F6255/5. Max Muller, Warsaw, to FO, 14 Oct. 1923, N 8298/8298/55, FO 371/9330; Savery, Warsaw, to Gregory, 28 Nov.; Leeper, Warsaw, to Gregory, 4 Dec, N 8829, 9731/5703/ 55, FO 371/9329; DBFP, Ser. I, Vol. 23, Nos. 772, 785, 801. The file about Hilton Young's appointment (N 3250/55 of 1923) appears to have been weeded.

Central and eastern Europe: credit and trade

277

Polishfinancialadministration there was no certainty that any increase in taxes would produce the necessary revenue. The Polish case, he thought, was quite different from the Austrian one. Austria had been threatened with the danger of foreign intervention if her finances collapsed and the authority of the state were severely shaken; but she had an intact effective administration. Poland was much more nationalistic, was not at present threatened with invasion, but did not have an administration capable of carrying out a reform scheme. Nixon was clear that the Poles would not accept foreign control, but he thought they would agree to having their officials trained by foreign instructors. The latter should all be British: League intervention would not do; and using British officials need not create a moral obligation on Britain to givefinancialhelp.41 The Treasury agreed to help find experts to be employed by the Polish government; but it was not optimistic about Poland's financial prospects and stressed that the mission must not be given any official character.42 But then the Polish Prime Minister and Minister of Finance, Grabski, changed his mind and refused to accept a team of advisers, asking instead for a few individuals; and Hilton Young, returning briefly to Warsaw at the end of January 1924, decided to abandon his mission. Opinions were divided as to the cause of the Polish change of mind. The British legation in Warsaw thought that Hilton Young had been tactless in his dealings with the Poles. Young thought it was due to French opposition.43 At the end of February Norman was still prepared to help find advisers for Poland, but the Treasury was very doubtful whether individual experts would achieve anything, and hesitated to encourage anyone to take on a hopeless task. Max Muller, however, was still anxious to impress on the Poles the folly of 41

42

43

Nixon to Young, 24 Dec. 1923, T160/174/F6755/1; DBFP, Ser. I, Vol. 23, No. 801. Nixon was well qualified to advise on the subject. He had replaced Salter as Director of the Financial and Economic Section of the League of Nations from 1920 to 1922, and had then served the Austrian government in floating the League loan. He was now back at the Treasury. He became controller-general of the Export Credits Guarantee Department in 1926. Niemeyer to Nixon, 31 Dec. 1923, T 160/174/F6755/1; Leeper to FO, 8 and 9 Jan. 1924; FO to Treasury, 14 Jan.; Treasury to FO, 17 Jan., N 259, 269, 487/84/55, FO 371/10444; T160/174/F6755/2. Young to Gregory, 27 Jan. 1924, T 160/174/F6755/2; file N 84/55, FO 3 71/10444,/wssim. Young's Report on Financial Conditions in Poland: Presented to the Prime Minister of Poland by the Right Honourable E. Hilton Young on February 10th, 1924, was published in London by the Polish authorities. He recommended the appointment of technical experts in revenue administration and reduction of government expenditure. See also Neil Pease, Poland, the United States and the Stabilization of Europe 1919-1933, New York 1986, p. 24. In addition to the new credit to Poland, the French government agreed, in the spring of 1924, to guarantee French firms bidding for contracts to build the port of Gdynia: Clementel to Herriot, 5 May 1924, and preceding correspondence, Mr, F30 1025 = B 31939.

278

The spread of stability

neglecting Britishfinancialadvice, in view of the importance of the London money market.44 Meanwhile that market had provided the means of setting up a new currency in Danzig. This was another long-running tale, the subject of many delays, largely at the hands of the Reparation Commission but some at those of the Danzig Senate. Once again the obstacle to the borrowing needed to give the Free City working capital was the existence of unsettled claims - a share of German reparations, German state property ceded, and Allied claims for occupation costs dating from 1920. The Treaty of Versailles had laid down only the main lines of the settlement making Danzig a Free City under the League of Nations, with Poland having rights to use of the port and communications. Until the details were worked out Danzig remained under Allied control. In November 1920 the Act constituting the Free City was signed in Paris, a Polish-Danzig treaty was signed, and the Allied troops were withdrawn.45 In January 1921 the League of Nations Council asked the Financial Committee to examine the financial situation of Danzig; but it later warned against any supposition that it intended to organisefinancialhelp.46 The Financial Committee recommended in May 1922 that the most important step was for Danzig to increase its resources and introduce a new currency to replace the German mark; but the High Commissioner, General Haking, believed that the Free City could not solve its financial problems without Allied help.47 The Danzig Senate objected strongly to the idea of foreign financial control, and the League Council contented itself, since the scale of the problem was not large, with asking the Financial Committee to keep an eye on the situation and asking the Reparation Commission to grant Danzig a moratorium. The Financial Committee reported again in February 1923 that Danzig must have a stable currency and should be allowed by the Allies to raise a loan of up to half a million gold marks. The Foreign Office and the Treasury were willing to agree to Danzig raising such a loan for ten years with priority over occupation costs, most of which were due to Britain. They agreed that Danzig ought to put its currency on a stable footing, but in the circumstances of April 1923, 44

45

46

47

Bank of England, Committee of Treasury, 27 Feb. 1924, BE, G 8/55; Treasury to FO, 1 Mar.; Max Muller to FO, 2 Apr.; Treasury to FO, 7 Apr., N 1861, 3056/84/55, FO 371/ 10444;T160/174/F6755/3. See DBFP, Ser. I, Vol. 11, Nos. 522, 523, 534, 584, 594, 614, 619, 632, 634, 647; RIIA, Survey, 1920-1923, pp. 261-4. Texts of Allied act and Polish-Danzig treaty in BFSP, Vol. 113, pp. 874-5, 963-74. Report by M. Adatci to League Council, 17 May 1922, N 5242/5242/55, FO 371/8143; LNOJ, 1921, pp. 677-8, 1159-60; 1922, pp. 642-56. Report by Adatci, 17 May 1922; Financial Committee resolution, 9 Sep.; Haking to Drummond, 21 Nov., N 5242, 8661,10769/5242/55, FO 371/8143; LNOJ, 1922, pp. 64256,815-17,986-8,1102.

Central and eastern Europe: credit and trade

279

with the mark in decline, that could not be done quickly.48 It was not until 28 August that the Ambassadors' Conference finally agreed to a moratorium for Danzig, stipulating that the loan issue was not to be put in the hands of German banks. The Reparation Commission was still held up over the distribution of claims; but at last in September the Danzig Senate decided to introduce a new currency, the mark having lost all value and the German government being about to introduce the Rentenmark. The senator for finance, Herr Volkmann, visited London and secured from the Bank of England the capital to set up the new bank of issue with currency based on sterling.49 This and the moratorium appear to have solved the worst of Danzig's financial problems. The League Council in March 1925 approved a municipal loan for development works, with a Leagueappointed trustee. It was not until 1927 that the Free City issued a loan with League approval but without special League help. Meanwhile the Austrian government was anxious to be rid of foreign financial control as soon as possible. In 1923 financial recovery was rapid and aroused hopes that the budget could be balanced in a shorter time than the two years stipulated in the League scheme. In that case, the League control could be withdrawn. But the commissioner-general, Dr Zimmermann, and the Financial Committee were not satisfied that the situation at the beginning of 1924 was sound. Revenue was undeniably abundant, but the prosperity producing it might not last; meanwhile reductions in expenditure were not being completed, and the whole budget was too large.50 The somewhat precarious nature of the Austrian situation was demonstrated by a stock-exchange crisis in May 1924; there was tension between Zimmermann and the government, and many observers were anxious about Austrian attitudes and the prospects of further improvement.51 A year later, however, the League Council agreed that if the budget figures for 1925 were satisfactory, and those for 1926 were no higher, control could end in 1926. This duly happened: in June 1926 the League 48

League of Nations documents, Jan.-Feb. 1923; Crewe to FO, 21 Mar.; FO to Treasury, 9 Apr.; Treasury to FO, 14 Apr.; FO to Crewe, 25 Apr., N 533, 534,1032,1367,1724,2687, 2770, 3351/533/55, FO 371/9322; LNOJ, 1922, pp. 1175-6, 1179-80, 1241-2; 1923, pp. 151,203-4,243,260-4. 49 Treasury to FO, 29 Jun. 1923; FO to Crewe, 1 Jul.; minute by Cecil, 9 Aug.; Phipps to FO, 20 Aug.; FO to Phipps, 22 Aug.; Fry, Danzig, to FO, 8 Oct., N 5842, 6916, 7068, 7258, 8494/533/55, FO 371/9322, 9323; memorandum by Department of Overseas Trade, 31 Dec, N 260/260/55, FO 371/10427; LNOJ, 1923, pp. 639-40, 885, 1008-9, 1319-20, 1482-7. 50 DBFP, Ser. I, Vol. 26, Nos. 10, 71, 97, 99; memoranda by Treasury and FO, 29 Feb. 1924, C 3577/596/3, FO 371/9651; LNOJ, 1924, pp. 521-2, 683-5. For the state of the economy in the first year of stabilisation see Marz, Austrian Banking, pp. 536-57. 51 DBFP, Ser. I, Vol. 26, Nos. 128, 132, 155, 156, 168, 178, 213, 217, 235; memorandum by Parmoor, 29 May 1924; Akers Douglas to FO, 21 Jun., 26 Sep., C 8809,10050,15256/596/ 3, FO 371/9652; LNOJ, 1924, pp. 1304-8, 1552-8.

280

The spread of stability

Council declared that Austria's financial stability was assured and the commissioner-general's office would cease to exist.52 But the League scheme and loan, whilst successful in rescuing Austria from disaster and making a new start possible, did not solve the country's underlying economic problems. The government was allowed to use the unspent balance of the League loan for electrifying the railways and productive investment; but it was not able to do much about trade, and there were political obstacles in the way of almost every proposal for improvement. At the September 1924 meetings of the League Council and Assembly a number of delegates called for greater international trade and economic freedom as the way to restore Europe. So far as central Europe was concerned, this meant a fresh discussion of possible customs unions, preferential tariffs, or other special arrangements between the Danubian states. But neither the Austrians nor any of their neighbours showed any sign of conversion to a Danubian confederation, and talk of union between Austria and Germany roused instant alarm and hostility in Czechoslovakia, France, and Italy. The Foreign Office began to worry about future developments and to ponder British policy - whether it would be possible to encourage the reduction of tariff barriers, or whether commercial treaties between Austria and her neighbours, and the development of new markets, were the most hopeful prospects.53 In the middle of April 1925 the Austrian government asked the League to have the country's economic situation examined by some non-political experts. The request was welcomed at Geneva, and officials in London decided to await the outcome before trying to decide a definite British policy.54 Some statements, however, soon became necessary. On the one hand the beginning of negotiations for a western security pact, which led to the Locarno treaties in the autumn, raised the question of the GermanAustrian frontier. The German government was not at all anxious that it should be mentioned; nor was the British. But the French and Italian governments would have liked the frontier to be guaranteed in some way; and the impression got about that the British were not opposed to an Anschluss. Some Foreign Office officials were indeed not opposed, but 52

53

54

LNO]y p p . 1355-9, 1498-1501; 1926, p p . 860-4, 916. O n leaving Vienna Z i m m e r m a n n wrote to express his thanks to Norman for the 'great and continuing' interest the latter had shown in the League action. 'It is certainly not too bold', Zimmermann wrote, 'to say that you stood at the cradle of reconstruction and your powerful help was essential in its success.' Zimmermann to Norman, 30 Jun., BE, OV 28/62. File C 298/3, FO 371/10660,passim; file C 1586/62, FO 371/1069$, passim; memorandum by Field, 16 Mar. 1925, C 4179/249/3, FO 371/10660; DBFP, Ser. I, Vol. 26, No. 235; Vol. 27, Nos. 17,27, 74, 86,98. For the spending of the League loan see LNOJ, 1926, pp. 132-5. Akers Douglas to FO, 16 Apr. 1925; Drummond to Chamberlain, 20 Apr., 24 Apr., C 5195, 5527, 5992/298/3, FO 371/10660.

Central and eastern Europe: credit and trade

281

Chamberlain, Foreign Secretary in Baldwin's government, regarded any talk of treaty revision as too unsettling for Europe and made sure that his view was known.55 At the same time reports continued to arrive that the Czechs, in particular, were thinking of preferential tariffs, and so British representatives in the Danubian countries were given a statement of the official view on Austria's present economic position. Anschluss with Germany was precluded by the peace treaties; a Danubian confederation was not wanted by any of the possible parties; Britain would not forgo most-favoured-nation treatment to allow preferential tariffs. In the circumstances the path along which Austria's economic development was to be looked for and encouraged was that of reduction of tariffs in central Europe and a closer economic relationship between Austria and her neighbours. Clerk was told that any suggestion of partitioning Austria or of an economic dictatorship was outside the bounds of practical politics.56 The experts appointed by the League Council, Walter Layton and Charles Rist, reported that Austria was now convalescent; although the economy had not yet returned to its prewar standard, stabilisation had given a solid foundation for development. The weakness of certain Austrian industries had been disclosed in the process, and they had had to adjust by cutting manpower. This was the cause of the recent increase in unemployment, but trade was now growing. There was no reason why Austria should not achieve a satisfactory economic position, but in order to do so her credit must be maintained, and the tariff policies of her trading partners must allow a growth in foreign trade.57 The League's Economic Committee, considering this last point, and conscious of the objections to preferential tariffs, confined itself to recommending an improvement in Austria's agricultural output to reduce the need for food imports, conclusion of the closest possible trade agreements with the successor states and search for other means of extending Austria's markets, and improvements in customs formalities. The League of Nations Council, having resolved on 9 December that control over Austria's finances should end after the 1926 financial year, adopted the Economic Committee's recommendations, and thus ended any Austrian hopes of concrete measures of economic assistance.58 British government departments never reached, before 1931, a 55

56

57

58

FO minutes, 21-2 May 1925; FO to D'Abernon, 2 Jun.; Chamberlain to Graham, 11 Jun., C 6680, 7873/249/3, FO 371/10660; Orde, Great Britain and International Security, pp. 104-5. Files C 298/3, FO 371/10660; C 1586/62, FO 371/10698; C 3066/62, FO 371/10699, passim; Marek, Prague, to Vienna, 25 Mar., 2 May, HHStA, NPA 62, Prag Berichte 19221925, 1925 fols. 69-72, 119-24; DBFP, Ser. I, Vol. 27, Nos. 112, 129. League of N a t i o n s , The Economic Situation of Austria. Report by W.T. Layton and C. Rist, Geneva 1925. ZJVO/, 1926, pp. 132-5, 235-8.

282

The spread of stability

clear view on possible alternatives for Austria. The Board of Trade was opposed to preferential tariffs on principle. The Foreign Office was largely indifferent to the prospect of an Anschluss. An Austrian-German customs union would damage British trade even if it conduced to an economically stronger Austria and a more stable central Europe. It would also be held to be legally incompatible with the Geneva protocol of 1922 by which Austria undertook not to compromise her economic independence; and so no doubt other powers would veto what they would regard as the first step to a political union between Austria and Germany.59 Trade agreements were the standard prescription of the 1920s for overcoming postwar uncertainties and arbitrary obstacles to 'normal' peacetime international economic relations. Whereas in 1920 and 1921 together some one dozen trade agreements were concluded, thefigurerose to sixteen in 1922, twenty-six in 1923, a peak of thirty-five in 1924, thirtyone in 1925, and twenty-seven each in 1926 and 1927. The great majority were between European countries. Some replaced prewar treaties to take account of changed circumstances; many were made with and among new states. For the Allies Germany was a special case. Under the Treaty of Versailles all previous trade treaties with the Allied countries were invalidated; Germany was obliged to allow the Allies unilateral mostfavoured-nation treatment for five years and not to impose on imports from them any restriction that did not apply equally to all states. In addition special arrangements were made for Alsace and Lorraine, to mitigate the economic dislocation consequent on the provinces' return to France. All these privileges would end on 10 January 1925 and new arrangements would have to be made. Meanwhile Germany had made trade agreements with former neutrals and with Soviet Russia. Her commercial policy had not been one of free trade: many imports had been subject to license, and until 1923 the inflation had favoured German exports. As a result a number of countries took special protectionist measures, and the German authorities made preparations to introduce a high tariff as soon as they became free to do so. For the French the problems were particularly thorny. The five-year period had not proved long enough to reintegrate Alsace and Lorraine into the French economy. The French Ministry of Commerce wanted to obtain a longer duty-free regime, by negotiation with Germany or from the League of Nations. The French iron and steel industry desperately needed agreement with German heavy industry. That problem had been part of 59

Minutes, 23-25 Nov. 1925, on C 14741/298/3, FO 371/10661; minute by Lampson, 30 Mar. 1926, C 4100/96/3, FO 371/11211; Treasury to FO, 29 Apr.; Board of Trade to FO, 3 Jun., C 5164, 6371/246/3, FO 371/11213; DBFP, Ser. IA, Vol. 1, No. 390; Vol. 2, No. 67; Orde, in Vierteljahrshefte fur Zeitgeschicbte, 28 (1980), pp. 232-3.

Central and eastern Europe: credit and trade

283

French policy on the Rhineland and the Ruhr since 1918, but entered a new phase with the Dawes settlement.60 The French hoped to negotiate new arrangements while they still had the Ruhr in their hands, but were defeated. Negotiations began in October 1924 and proved very long and complicated. The chief problems were special treatment for the products of Alsace and Lorraine, and metallurgy. The latter question was largely dealt with between the industries themselves, and was eventually settled, to Germany's advantage, by the agreement in September 1926 for an International Steel Cartel.61 Negotiations for a general trade agreement, conducted between the governments, required a number of temporary arrangements before a definitive treaty was signed in August 1927.62 Negotiating a new trade agreement between Britain and Germany presented fewer complications: there was only the general problem of German import restrictions, and a British desire to guard against a continuation of special privileges for France. A draft treaty, modelled on the one recently concluded with Austria, was given to the Germans in July 1924. The object was to secure real equality of treatment for British goods, with binding guarantees. The Board of Trade admitted that since there was little Britain could offer Germany in the way of special benefits there was no scope for a tariff bargain; but it hoped that the attitude Britain had taken on 'certain large questions of Policy' had created a suitable atmosphere.63 D'Abernon thought that Britain's present claim on German gratitude would not last for long in the face of American financial power and the renewal of trade rivalry. But while it lasted the financial weapon was used. The charge d'affaires in Berlin was instructed to point out to Stresemann that whilst the Dawes loan now being negotiated was of course quite independent of any considerations about trade, Nevertheless it would, in [sic] public opinion in this country throw a most unfavourable light on German government, if after our having played a prominent part in the issue of the loan in the face of great difficulties, Germany fails to respond in a manner well in her power. Moreover, it is well known that Germany is greatly 60

61

62

63

F o r the problems of commercial relations, Alsace Lorraine, and iron and steel see Bariety, Relations franco-allemandes, p p . 123-87. F o r the situation in 1924 see Schuker, End of

French Predominance, pp. 219-29. F o r the international steel cartel see R I I A , Survey, 1926, p p . 135-43; Clemens A . W u r m , Industrielle Interessenpolitik undStaat, Berlin and N e w Y o r k 1988, ch. 1. F o r the FrancoG e r m a n negotiations in general, heavy industry in particular, and the domestic G e r m a n political ramifications, see Karl Heinrich Pohl, Weimars Wirtscbaft und die Aussenpolitik derRepublik 1924-1926, Diisseldorf 1979, p p . 2 9 - 5 9 , 8 2 - 1 1 2 , 1 7 0 - 8 5 , 2 0 7 - 2 1 , 2 3 3 - 9 , 2 4 8 9. T h e Saar raised some especially tricky industrial and political issues. See R I I A , Survey, 1925, Vol. 2, p p . 198-205. Text of 1927 treaty in BFSP, Vol. 126, p p . 689-906. D'Abernon to FO, 2 May 1924; Board of Trade to FO, 6 Jun., C 7383, 9168/330/18, FO 371/9790.

284

The spread of stability

in need of private credits. The atmosphere in the business world in this country for the grant of such credits is by no means too favourable at present, but it would certainly become completely unfavourable if the negotiations for a commercial treaty failed owing to unwillingness on the part of the German government to meet perfectly reasonable British demands which are directed towards a genuine economic rapprochement between the two countries.64 This hint did not produce any immediate change in the German attitude; but after two further rounds of negotiation in October and November a treaty was signed on 2 December 1924. It abolished the German import prohibitions which had been the chief obstacle to British exports to Germany, ensured most-favoured-nation treatment, and promised the most liberal interpretation of that principle.65

The League of Nations: Greece and Bulgaria Although after the Hungarian scheme the League of Nations Financial Committee undertook no further comprehensive efforts of financial reconstruction, it sponsored, between 1924 and 1927, several loans for small countries in east and south-east Europe. In all of them British advice and British money played an important part. The Financial Committee refused to involve itself in development expenditure, but regarded it as part of its function to help in general schemes of budget or central bank reconstruction, which were difficult to finance privately and which a small state could hardly do without outside help. Borderline cases were refugee loans, to Greece and Bulgaria. The Greek one was taken on because the problem was so large as to affect the financial stability of the country. Altogether about one and a half million Greeks either fled from the victorious Turks in Asia Minor in 1922 or were later expelled or left under a convention for the exchange of populations. Initially the refugees were helped by relief, largely American; but their settlement would be a heavy burden on the Greek state, which had anyway to pay for the disastrous war.66 Early in 1923 the Greek legation in London asked for official British 64

65

66

D'Abernon to FO, 8,10,22 Sep. 1924; minute by Nicolson, 30 Sep.; Chapman to Crowe, 2 Oct.; FO to Addison, 3 Oct., C 14349,14404,15001,15412,15397/330/18, FO 371/9790. File C 330/18, FO 371/9790; DBFP, Ser. I, Vol. 26, Nos. 578,589,604. Text of the treaty in BFSP, Vol. 119, pp. 369-89; Cmd 2520 of 1925, Treaty of Commerce and Navigation between the United Kingdom and Germany, and Additional Protocol. Signed at London, December 2,1924. The value of British imports from Germany went up from £36 million in 1924 to £48 million in 1925 and £72 million in 1926, but exports to Germany rose only slightly from 1924 to 1925 and fell in 1926: Mitchell and Deane, Abstract of British Historical Statistics, p. 323. See John Campbell and Peter Sherrard, Modern Greece, London 1968, pp. 128-9,138-42; RIIA, Survey, 1925, Vol. 2, pp. 257-66; text of convention in BFSP, Vol, 118, pp. 1048-53.

The League of Nations: Greece and Bulgaria

285

views on the possibility of raising a general loan on the London market. The stock answer was given, that there was no government control on the flotation of loans and such questions were left entirely to the judgment of the financial houses. The government could neither encourage nor guarantee a Greek loan in any way. In fact, on top of the doubts about Greek credit-worthiness that might well be felt in the aftermath of the Anatolian disaster and consequent political revolution, there was a complication in the shape of a financial agreement of February 1918 by which, when the British, French, and United States governments had each opened a book credit of £10 million in favour of the Greek government, the latter deposited bonds and undertook not to pledge specific securities for any other foreign loan without consent until those bonds had been redeemed. By November 1921 Greece had used about £6.5 million from each of the British and American credits, and had not touched the French one. In a further agreement of December 1921 the outstanding British credit was cancelled and the British government agreed that Greece should assign securities for a loan of up to £15 million to be raised in Britain. This agreement was still in force; but in February 1923 the Treasury thought the chances of any market loan being raised in London for Greece were very poor. 67 In view of this discouragement the Greek government asked the League of Nations Council for help in raising a loan of £10 million for resettling the refugees, and experts were sent to Athens to examine the situation. The matter became urgent when at the end of March the United States government told the British, French, and Italian governments that it was going to wind up its relief work but would cooperate if a constructive plan were devised.68 Whilst it seemed unlikely that the British government would contribute any more money or that Greece would succeed in raising a loan, the League Financial Committee agreed to examine the possibility of a loan and hoped to involve an American expert.69 Niemeyer thought it essential that such an expert should be involved in making the scheme from the start: 'We shall want United States finance on many European occasions; there are signs of some slight tendency in the United States starting in that direction; it might be a big thing to encourage that by using United States sentimentality for the Refugees.' A hint was given in Washington, and a member of the staff of the United States embassy in 67

68

69

Treasury to FO, 13 Jan., 28 Feb. 1923, C 732, 3716/732/19, FO 371/8834; DBFP, Ser. I, Vol. 24, No. 291. For the agreement of 1921 see ibid., Vol. 17, No. 493. Geddes to FO, 3 Apr. 1923; note from US ambassador, 4 Apr.; FO to Geddes, 7 Apr., E 3467, 3520/4/44, FO 371/9093; FRUS, 1923, Vol. 2, pp. 318-32. Niemeyer to Lampson, 14 Apr. 1923; Oliphant to Niemeyer, 24 Apr.; Niemeyer to Oliphant, 14 May, E 3901, 5007/4/44, FO 371/9094,9095; FRUS, 1923, Vol. 2, pp. 333-9.

286

The spread of stability

London was sent to Geneva for the Financial Committee meeting in June.70 Before going to Geneva himself Niemeyer came to ask the Foreign Office about its attitude to a loan to Greece. He was told that the matter should not be approached from a purely financial angle, and Curzon would not wish British experts to raise unnecessary difficulties. But equally Curzon would be unlikely to recommend to the Cabinet a direct loan to Greece, and he would not wish Britain to be landed with the sole responsibility. Niemeyer undertook that the British attitude would be 'one of benevolence tempered by caution'.71 As a result, the Financial Committee produced a report on the conditions for a resettlement loan: lenders would need to be assured that any commitments entered into by the Greek government were constitutionally binding on its successors; and they would expect the budget to be balanced, the remaining Allied embargo on pledging of assets removed, and a settlement organisation set up. On 9 July a committee of the League Council approved the main lines of a resettlement scheme, to be financed by a loan.72 But continued political uncertainty in Greece made the immediate raising of a long-term international loan impossible. The monarchy had been overthrown after the disaster in Anatolia: elections were to be held later in 1923, and the future was very uncertain. On the other hand it was important to start settling the refugees before the winter. The Governor of the Bank of Greece came to London to seek help, and with a Treasury assurance of government approval Norman undertook to arrange for an advance to the Bank of Greece, to be repaid out of the proceeds of a loan which would be issued within a year, and in return for assurances that the Greek army would be demobilised, proper elections would be held, the government would not contract any other loans meanwhile, and the inflationary issue of currency would be stopped.73 The League Council, although much preoccupied with the Corfu crisis, approved in September a protocol on the general conditions of a loan, a Settlement Commission was set up, headed by Henry Morgenthau of the American Red Cross, and work began.74 The first instalment of the Bank of England advance was made available on 10 December, after some alarm had been caused by 70

71 72

73

74

Oliphant to Niemeyer, 17 May 1923; Niemeyer to Oliphant, 19 May; FO to Geddes, 24 May; Geddes to FO, 14 Jun., E 5007, 5178, 6193/4/44, FO 371/9095, 9096; FRUS, 1923, Vol. 2, pp. 340-2. Minute by Nicolson, 19 Jun. 1923, E 6400/4/44, FO 371/9096. Treasury to FO, 29 Jun. 1923, E 6782/4/44, FO 371/9096; League of Nations, Settlement of Greek Refugees. Scheme for an international loan. Protocol and documents, Geneva 1924; LNOJ, 1923, pp. 903, 1014; FRUS, 1923, Vol. 2, pp. 343-59. Norman to Diomedes, 1 Aug. 1923; Treasury to FO, 2 Aug.; Greek Legation, London, to Drummond, 21 Aug., C 13752, 14458/6644/19, FO 371/8839. LNOJ, 1923, pp. 1138-48,1506-10; FRUS, 1923, Vol. 2, pp. 371-6. For the Corfu crisis see James Barros, The Corfu Incident of 1923, Princeton 1965; DBF?, Ser. I, Vol. 24, ch. 4.

The League of Nations: Greece and Bulgaria

287

reports of an extensive new Greek naval programme. British authorities were anxious to get the contracts for British yards, but could not approve the granting of credits in present circumstances. Norman warned Morgenthau that he ought to satisfy himself that the Greeks were not arranging other borrowing; and the Foreign Office got assurances from the American and French governments that they would not approve financial help to Greece for naval construction.75 The elections held, after two postponements, on 16 December, gave a large majority to the Venizelists; but since the monarchists had abstained, political uncertainty continued, and Norman became involved in it through some incautious correspondence with Morgenthau.76 It still seemed impossible to issue the loan; but in May 1924, after a plebiscite had shown a majority in favour of a republic and when the previous advance was almost exhausted, the Bank of England made a second advance. Eventually in December arrangements were completed for the issue of a loan of a nominal value of £12,300,000, £7.5 million to be issued in London, £2.25 million in Athens, and the remainder in New York. The loan was well subscribed. By the end of June 1926 the Settlement Commission had spent nearly £8 million, the Greek government itself had spent over £3 million, and the majority of the refugees had been settled.77 This was not, however, the end of Greece's financial difficulties. Already by the end of 1926 it looked as though another loan might soon be needed, and early in 1927 there was talk of investigation by League experts and of possible controls. At the same time negotiations for a settlement of the Greek war debt to Britain were hanging fire, and the Treasury wanted to use the need for a new loan as a lever. 'Until an agreement is not only signed but ratified,' wrote Leith Ross in the Treasury, 'the Financial Committee of the League are not likely to father a further Refugee Loan and the City will not believe that the Greek Government really mean to behave.' And Niemeyer was sure that the Bank of England neither would nor should promise the Greek government a credit merely in return for a settlement of the war debt: a general scheme of budgetary and currency stabilisation would be essential.78 But Chamberlain, and Foreign Office officials, disapproved of a link being made between Anglo-Greek debt negotiations and a general loan, and sympathised with the resentment expressed in Greece at the idea of foreign financial control. At the end of February Chamberlain told Niemeyer that he must not link the two questions in the Financial Committee, and he himself on the Council would not hold up the 75

76 77 78

Bank of England to FO, 6 Dec. 1923, C 21168/6644/19, FO 371/8840; DBFP, Ser. I, Vol. 24, Nos. 571, 572, 578, 580, 582, 586, 605. DBFP, Ser. I, Vol. 24, No. 41. See RIIA, Survey, 1925, Vol. 2, pp. 272-9. Leith Ross to Tyrrell, 15 Jan. 1927, C 527/48/19, FO 371/12161; Niemeyer to Sargent, 18 Feb. 1927, C 1490/117/19, FO 371/12163.

288

The spread of stability

refugee loan even if the war debt was not settled.79 However, hints to the Greek minister in London that the Treasury would encourage the City to produce credits if the war debt were settled had their effect; and on signing the debt agreement in April Churchill, the Chancellor of the Exchequer, wrote to the Greek minister that the British government would support any well-considered plan of reconstruction.80 By this time the Financial Committee was investigating the Greek budgetary position, and in due course a scheme was proposed, for a loan of £9 million, to be used for refugee settlement, funding the state debt, and settling budget arrears. The revenues assigned for the service of the loan would be supervised by the International Financial Commission which had been in Greece since a loan of 1898, and an adviser would be attached to the reformed Bank of Greece.81 The scheme was held up until the end of 1927, because the French government would not approve the new role for the International Financial Commission until a settlement had been reached of the Greek war debt to France and other claims. Eventually the loan was issued at the end of January 1928.82 In the case of Bulgaria, too, several attacks on the problem were needed. First, reparations were revised. Unlike those of Germany, Austria, and Hungary, Bulgaria's reparation obligation had been specified in the peace treaty of Neuilly, at 2.25 billion gold francs, payable in half-yearly instalments, and the Bulgarian government was to assign by law specific revenues to cover the payments. The inter-Allied supervisory commission sitting in Sofia could recommend to the Reparation Commission not merely postponements and variations in the regular payments but a reduction in the total.83 In the autumn of 1921 the Bulgarian government asked for a three-year moratorium. The commission was prepared to agree, on condition that the budget was balanced and the law assigning revenues was passed. Negotiations continued, without result, for the whole of 1922. 79

80

81

82

83

Memorandum b y Sargent, 14 Feb. 1927, C 1490/117/19, F O 371/12163; Sargent to Loraine, 28 Jan., 4 Mar., C 735, 2015/48/19, F O 371/12161, 12162. Minute by Sargent, 1 Mar. 1927; minute b y H o w a r d Smith, 2 Mar., C 1981, 2016/48/19, F O 371/12162; C m d 2848 of 1927, Greek War Debt. Agreement for the Settlement of the War Debt of Greece to Great Britain. With an exchange of letters between the Chancellor of the Exchequer and the Greek Minister in London-, BFSP, Vol. 126, pp. 2 6 2 - 5 . See also below, pp. 297-8. Loraine to FO, 26 Apr. 1927, C 4130/117/19, FO 371/12163; LNOJ, 1927, pp. 510,796-7, 1134-5,1302-3,1306-28. File C 117/19, Sep.-Dec. 1927, FO 371/12164; MAE, SDN, Vols. 1259-60; LNOJ, 1928, pp. 167-8, 242; League of Nations, Greek Stabilization and Refugee Loan. Protocol and Annexes. Approved by the Council of the League of Nations and signed on behalf of the Hellenic Government on September 15th, 1927, Geneva 1927. Treaty of Neuilly, BFSP, Vol. 112, pp. 781-95; see Temperley, History of the Peace Conference, Vol. 5, pp. 39-50.

The League of Nations: Greece and Bulgaria

289

The Bulgarians were obstructive and the commission did not present a united front. Allied interests were not all the same: the Italians had a direct interest in maximum reparation receipts; the French, with an eye on Germany, wished to uphold the sanctity of reparations; the British, who expected little money, were more concerned with Bulgarian stability and trading prospects, and were ready to see reparations greatly reduced.84 At the end of 1922 the problem was further complicated by the peace negotiations with Turkey, in which the Bulgarian interest in an Aegean port was involved. Additional Allied concessions to Bulgaria were tentatively suggested, but not pursued.85 Eventually in February 1923 the Ambassadors' Conference told the Bulgarian government that it must come to an arrangement with the inter-Allied commission, and an agreement was reached. The total reparation obligation was in effect reduced to 550 million gold francs, with the first ten years' payments fixed at a low figure.86 This settlement, whilst putting the Bulgarian government in a position to attract foreign investment, did not itself contribute to the country's resources; and within two years the government was exploring the possibility of a development loan under League of Nations auspices. The Treasury did not approve of League involvement. There would be a tendency, it thought, for the borrowers to demand League support in all cases, with the result that the League would become in the eyes of the world the agents of foreign capitalist bondholders, and, in the eyes of the bankers of the world, the promoters of schemes for ordinary foreign loans which were not good enough for the markets on their own merits. Any such impression would destroy the prestige of the Financial Committee, on which their usefulness entirely depends. At this time the Bulgarian government had a bad reputation abroad, and it 84

85

86

See, for example, Blackett to Colvin, Sofia, 12 Jul. 1921, C 15307/13734/7, FO 371/5816; Colvin to Niemeyer, 27 Dec. 1922, T 160/43/Fl399/06/1. For the negotiations in general see DBFP, Ser. I, Vol. 24, Nos. 23,40,44,46, 52, 56,64,66, 82,90,100,114,121,125,139, 157, 181, 183, 200, 201, 221; Recker, England und der Donauraum, pp. 182-6. For Bulgaria at the Lausanne conference see Tufton to Lampson, 11 Oct. 1922 and minutes; minute by Crowe, 9 Nov.; Erskine to FO, 29 Nov. and minutes, C 14089,15182, 16627/156/7, FO 371/7368, 7369; minutes, 18-20 Jan. 1923, C 1001/5/7, FO 371/8555; DBFP, Ser. I, Vol. 18, Nos. 215, 222, 366; Vol. 24, Nos. 234, 237, 239, 259; Cmd 1814 of 1923, Lausanne Conference on Near Eastern Affairs 1922—1923. Records of Proceedings and Draft Terms of Peace, pp. 29-39, 62-80, 457-64; Nicolson, Curzon, The Last Phase, pp. 293-8; Recker, England und der Donauraum, pp. 185-6. A further cause of delay, until January 1923, was the inclusion of non-German reparations in the Bonar Law plan put forward at the Paris conference: DBFP, Ser. I, Vol. 24, Nos. 224, 227; Cmd 1812 of 1923, pp. 112-19: see above, p. 225. DBFP, Ser. I, Vol. 24, Nos. 234,237,239,259,274,290,298,304; Recker, England und der Donauraum, pp. 188—90.

290

The spread of stability

seemed clear that even with League countenance bankers would be unwilling to lend it money.87 In the spring of 1926 the situation changed. A new Bulgarian government showed signs of greater respectability, and League officials, the Treasury, and the Bank of England became convinced that a loan to help the settlement of refugees was urgently needed.88 The Bulgarians were encouraged to apply to the League and to ask for an advance from the Bank of England to enable refugee settlement to start without delay. After some hitches in the summer caused by Italian obstruction, an agreement for an advance was reached with the Bank of England and a scheme was approved at Geneva in September. A loan of £2.25 million for the settlement of refugees was successfully floated in December 1926.89 But within a few months the situation in Bulgaria was again causing alarm. Talk of a fresh approach to the League for a loan of £15 million was greeted by British officials with scepticism and disapproval. They doubted whether Bulgaria could service a loan of that size and whether the government would use it wisely, and the fear was expressed that 'the too ready sympathy of the Financial Committee at Geneva will become a direct incentive to lax and extravagant financial administration'.90 The Financial Committee agreed to investigate the situation, but did not promise to approve a loan and told the Bulgarian government that certain conditions would be necessary, including the by now standard transformation of the national bank into a shareholders' bank independent of the government.91 This demand became the sticking point in the negotiations. The Bulgarian government maintained that the largely peasant public opinion would not understand or 87

88

89

90

91

Treasury to F O , 30 M a y 1925; m i n u t e b y N i c o l s o n , 30 Sep.; Erskine to F O , 21 N o v . ; m e m o r a n d u m by N i e m e y e r , 6 D e c ; m e m o r a n d u m by Chamberlain, 15 D e c , C 7304, 12694,15351,16173,16177/1407/7, F O 371/10667. F o r Bulgarian politics in the 1920s see

Rothschild, East Central Europe between the Two World Wars, pp. 333-44. FO to Erskine, 25 Feb. 1926; Erskine to FO, 26 Feb.; Lampson to Howard Smith, 11 Mar., 16 Mar.; Treasury to FO, 20 Mar.; Howard Smith to Erskine, 7 Apr.; Niemeyer to Lampson, 12 Apr.; minute by Lampson, 26 Apr., C 2460, 2480, 2609, 3382, 3506, 3575, 3612, 3999, 4528/626/7, FO 371/11218. Sympathy for Bulgaria may have been increased by the League Council's experience in dealing with a potentially dangerous GreekBulgarian frontier incident in the autumn of 1925. Although Bulgarian forces started the hostilities, the government then obeyed League authority, while the Greek government behaved badly. See James Barros, The League of Nations and the Great Powers. The Greek-Bulgarian Incident, 1925, Oxford 1970. File C 626/7, May-Sep. 1926, FO 371/11219, 11220 (agreement between Bank of England and National Bank of Bulgaria, 25 Aug., C 9657/626/7); League of Nations, Scheme for the Settlement of Bulgarian Refugees. General Description and Principal Documents, Geneva 1926; LNOJ, 1926, pp. 1218-19, 1243-6, 1335-8, 1391-4, 1443, 1447-50. Erskine to FO, 25 Aug. 1927, with minutes; Erskine to Sargent, 7 Sep., C 7201, 7595/ 1402/7, FO 371/12087, 12088. Waley to Bateman, 14 Sep. 1927; Treasury to FO, 23 Sep., C 7661, 7834/1402/7, FO 371/12088.

The League of Nations: Greece and Bulgaria

291

accept private capitalist ownership of the bank; but there was some suspicion that the real objection was that the politicians did not want to give up their personal control. For some months Niemeyer was adamant that the bank must be independent, notwithstanding Foreign Office anxiety at the political consequences if the negotiations failed. An independent bank, he wrote, had been a condition of every previous reconstruction scheme. 'It is one to which money markets attach the greatest importance, and competent judges do not believe that in the large markets of the world money could be raised for a Bulgarian Stabilisation Loan unless this prerequisite were fulfilled.'92 The French found the whole business full of problems. On the one hand they regarded the efforts of Niemeyer, the Financial Committee, and the Bank of England as promoting 'la main-mise definitive de PAngleterre sur les finances de la Bulgarie', leading eventually to British political dominance. On the other hand they could not condone bad financial management by the Bulgarian government, and they wanted to secure the principle of reparation payments in any new scheme. The Bank of France was by now quite anxious to have a share in any loan.93 Finally in March 1928 a compromise was reached on the bank, and a scheme was drawn up for a loan of £4.5 million to be used to stabilise the currency, extinguish budget arrears, and improve communications. The sum was increased to £5 million after earthquakes in Bulgaria, and the loan was issued at the end of November 1928 in London, Paris, and New York, with eight countries participating.94 One further League-approved loan issued in 1927 differed from the Greek and Bulgarian cases in being a purely technical operation which it was desired to spread among several markets. The League had given advice to the Estonian government in 1925 and 1926 on the country's monetary and banking system, and in 1927 it approved the issue of a loan of £1.5 million. An adviser to the government was appointed: the fact that he was an Englishman, Sir Walter Williamson, was widely thought to be intended to help Estonia to raise money on the London market, although the Treasury deprecated the supposed connection. Reporting the issue of the 92

93 94

Erskine to FO, 28 Nov. 1927; FO to Treasury, 1 D e c ; Leith Ross to Sargent, 2 D e c , 5 D e c ; memorandum by Chamberlain, 8 D e c ; Niemeyer to Cadogan, 15 D e c , C 9664, 9785, 9915, 10059, 10311/1402/7, FO 371/12088. MAE, SDN, Vols. 1271-3; Moreau, Souvenirs, pp. 391-2, 410, 450, 516-18. File C 12/7, 1928, FO 371/12852; League of Nations, Bulgarian Stabilization Loan. Protocol and Annexes approved by the Council of the League of Nations and signed on behalf of the Bulgarian Government on March 10th, 1928, with the relevant public documents, Geneva 1928; LNOJ, 1927, pp. 1136-7; 1928, pp. 168, 241, 447-8, 459-62, 465-77, 962, 1648-9, 1737, 1739-40; Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 197-9.

292

The spread of stability

loan The Times commented: 'Reconstruction loans issued under the auspices of the League stand in a class by themselves, and the fact that the Estonian loan was issued under the League's auspices ensured for it a conspicuous success.'95 War debt settlements The settlement of German reparations in 1924 opened new prospects for the settlement of Allied war debts. Churchill, on taking up the office of Chancellor of the Exchequer in the Conservative government formed in November 1924, warned Austen Chamberlain, the Foreign Secretary, that he intended to claim payment from Britain's European debtors. Europe, he wrote, was recovering: I do not see why we should not get a substantial annual payment from both France and Italy if we use to the full the great advantage of our position. I beg you to take on this policy of debt reclamation as one of the leading objectives of British foreign policy, and only to abandon it if some even greater interest is in danger.96 In the House of Commons on 10 December Churchill reiterated the principle of the Balfour Note and laid down a corollary: Britain would only ask from her debtors what she had to pay to the United States; she asked no favours but had no reason to make greater concessions. The United States would make what terms it chose with its debtors, and Britain had no desire to intervene in any negotiations, but she would insist on being paid paripassu with the United States in proportion to the size of the respective debts.97 In the United States discussion of the war debts had been resumed in the summer of 1924, and there were indications that France was to be invited to start funding negotiations. The French for their part had been considering ever since the London conference how best to approach the matter. They sounded the Americans about the possibilities of a ten-year moratorium, cancellation of accumulated interest, and provision for reduced payments in case of a shortfall in the Dawes annuities.98 Mellon and Hughes made it 95

96

97

98

League of Nations, Report of the Financial Committee of the League of Nations on the Economic and Financial Situation of Esthonia, Geneva 1926; LNOJ, 1927, pp. 157-8,159, 176-80, 185-6, 383-4, 398, 514; Vaughan, Riga, to FO, 16 Dec. 1926, and minutes; Palairet to Vaughan, 10 Jan. 1927, N 5703/20/59, FO 371/11723; Vaughan to Palairet, 26 Jan., N 514/100/59, FO 371/12543; The Times, 21 Jun. The loan was issued in three tranches, in New York, London, and Amsterdam: it had been hoped to float some of it in Stockholm. Churchill to Chamberlain, 1 Dec. 1924, T 194/267; C 18178/11/62, F O 371/9863; Gilbert, Churchill, Vol. 5, pp. 7 0 - 1 . HCDeb., Vol. 179, cols. 262-5; F O to H o w a r d , 22 Dec. 1924, 4 and 13 Jan. 1925, C 18650, 19199, 19548/11/62, F O 371/9683, 9684. See Artaud, Question des dettes, pp. 699-715; Schrecker, Hired Money, pp. 186-90;

War debt settlements

293

clear that such suggestions would not be acceptable, but informal talks continued. As far as negotiation with Britain was concerned, the British note of 11 August 1923, which had offered to limit Britain's total claim to the present value of the debt to the United States, and to accept German reparation bonds from the Allies, seemed to offer the best starting-point. There was some feeling in Paris that it would be useful to settle with Britain first; but France could not make any proposals until it was clear what the Dawes annuities were going to produce." At the meeting in Paris of finance ministers in January 1925 to settle the division of the Dawes annuities Churchill rejected Clementel's suggestion of a general conference on debts and said that he expected French proposals for funding.100 Clementel then wrote to inquire whether Britain stood by the principles previously stated, notably in the note of 11 August 1923: Churchill replied that he would consult the Cabinet but could say meanwhile that the Balfour Note remained the guiding principle.101 Three weeks later Churchill informed Clementel that the government stood by the principle in the Balfour Note, but those parts of the note of 11 August 1923 which referred to the Bonar Law plan of January 1923 were no longer applicable as the reparation situation was now entirely different.102 French officials visited London in February, April, and July 1925. Their object was to find out, confidentially, whether any proposals that French opinion would endorse would be acceptable to Britain. One suggestion they made was that the Allies should pay annually the difference between the normal British payment to the United States and the British share of the standard Dawes annuity: the French share of this payment would be something in the region of £9 million. Niemeyer replied that Britain needed about £20 million annually from France.103 But the British did not wish to make any proposals themselves: instead they renewed the inviHerriot to Clementel, 15 Nov. 1924; Clementel to Herriot, 3 D e c ; Herriot to Clementel, 29 D e c ; Herrick to Herriot, 3 Jan. 1925, MF, F30 783A = B 31708; Hughes to Herriot, 1 Dec; Herrick to Hughes, 30 Dec, 3 Jan.; Mellon to Hughes, 8 Jan., NA, RG 59, 800.51 W 89 France/40, 46, 52, 57; FRUS, 1925, Vol. 1, pp. 133^, 140-3, 145-50. 99 Herriot to Clementel, 21 Oct. 1924; Rincquesen, London, to Bizot, 21 Nov.-20 D e c ; Clementel to Herriot, 2 D e c , MF, F30 1361 = B 32267; De Moiiy to Clementel, 14 Nov., F30 783A = B 31708; memorandum by Dayras, 1 D e c , F 30 1281 = B 32187. 100 Cabinet, 5 Jan. 1925, C 1(25), CAB 23/49; Herrick to Hughes, 9 Jan., NA, RG 59, 800.51/499. 101 Clementel to Churchill, 10 Jan. 1925; Churchill to Clementel, 13 Jan., C 603/4/62, FO 371/10680; F30 927 = B 31847; The Times, 16 Jan.; Cabinet, 15 Jan., C 2(25), CAB 23/49. 102 Bradbury to Churchill, 12 Jan. 1925; Churchill to Niemeyer, 20 Jan., T 194/267; CP 58A(25), CAB 24/171; Cabinet, 4 Feb., C 6(25), CAB 23/49; Churchill to Clementel, 6 Feb., C 1786/4/62, FO 371/10680; The Times, 9 Feb. 103 Instructions to Fleuriau, 28 Mar. 1925; report on negotiations, 1-7 Apr., MF, F30 927 = B 31847; memoranda by Niemeyer, 3 and 7 Apr., C 5155/4/62, FO 371/10680.

294

The spread of stability

tation to their debtors to do so, so that negotiations could start; and Churchill insisted to the French ambassador that broadly speaking the settlements France made with Britain and with the United States must give comparable advantages to each.104 Matters were further delayed by a change of government in France; but finally in the last week of August Caillaux, the new minister of finance, visited London and agreed that France should pay, over sixty-two years, either £12.5 million of her own money or £10 million plus a share of Dawes annuities, and that she would pay Britain pan passu with other creditors. Some important points were left for further consideration, notably the French claim that total debt payments should not exceed receipts from Germany under the Dawes plan, a claim which the British rejected, and British insistence that the payments would be France's sole responsibility, which the French wished to qualify to allow for any shortfall in German payments.105 This Anglo-French arrangement was not welcomed in the United States, being regarded as somehow anti-American. It was avowedly provisional, pending a French settlement with the United States; Churchill's reservation onparipassu payments meant that Britain could reopen the question if the Franco-American settlement were harder; but he was not asking for most-favoured-nation treatment.106 Caillaux then went to Washington in the last week of September, aware that the Americans would not reduce the capital of the debt and were expecting some small payments at once, but hoping that they would agree to a long moratorium on interest payments and some linkage with France's reparation receipts. Caillaux really wanted to reach a settlement; but the talks failed, basically because the Americans estimated France's capacity, after the first ten years, at a much higher level than the French themselves did; and because they refused transfer protection and a safeguarding clause regarding reparation receipts, while the French had no thought of paying out of France's own resources.107 The positions were thus still far apart, and if Caillaux had understood the width 104

105

106

107

Chamberlain to French, Italian, and Portuguese ambassadors, Greek, Romanian, and Yugoslav ministers, 26 Jun. 1925, C 8420/4/62, FO 371/10681; HCDeb., Vol. 179, col. 264; note of conversation between Churchill and Fleuriau, 9 Jul.; memorandum by Churchill, 21 Jul., T 172/1504; correspondence Seydoux-Fleuriau, Jun.-Jul., MF, F30 927 = B 31847; note by Seydoux, 5 Jun., MAE, Amerique, Etats-Unis, Vol. 236; F30 928 = B 31848; correspondence Seydoux-Fleuriau, 9-17 Jul., B 12676. See DBFP, Ser. IA, Vol. 1, No. 428; Cabinet, 29 Jul. 1925, 26 Aug., C 41(25), C 46(25), CAB 23/50; The Times, 27 Aug. Chamberlain to Churchill, 29 Aug. 1925, C 11292/4/62, FO 371/10682; Hankey to Baldwin, 26 Aug.; Churchill to Chamberlain, 1 Sep., T 172/1498; Strong to Winston, 29 Aug., Strong Papers, 100.3; Whitehouse to Kellogg, 28 Aug.; Houghton to Kellogg, 4 Sep., NA, RG 59, 800.51 W 89 France/160, 165; Jay to Strong, 20 Aug., Strong Papers, 320.15, Strong to Winston, 11 Sep., Strong Papers, 1000.6; Strong to Mellon, 21 Sep., NA, RG 39, Box 220; Schrecker, Hired Money, p. 209. Artaud, Question des dettes, pp. 729-73; Schrecker, Hired Money, pp. 145-219.

War debt settlements

295

of the gap he might not have gone to Washington at all. But some of the advice he received was over-optimistic, and he had before him the recent Belgian-American agreement which was favourable to the debtor.108 After this, problems of domestic finance and a slump in the franc occupied the attention of several short-lived French administrations in the autumn and winter of 1925-6. By the time the question of debts returned to the forefront of attention the Italian government had concluded settlements with both Britain and the United States. In the British case, in informal discussions in London in April 1923 about possible amendments to the Bonar Law reparations plan, Italian experts had suggested the cancellation of all but £25 million of the Italian war debt to Britain.109 Now in the summer of 1925 they made proposals which in Churchill's view amounted to complete cancellation and yielded substantially less than Italy was prepared to offer the United States. Rejecting these proposals, Churchill reiterated the principle of the Balfour Note and the demand for payments to Britain 'at least proportionate' to any made to the United States.110 Then in November 1925 the Italian government concluded an agreement with the United States for repayment of the debt of $2,042 million over sixty-two years at very low rates of interest. Having reached this agreement the Italians returned to London and in January 1926 concluded a settlement providing for annual payments rising from £2 million at once to £4.5 million in 1928-9, spread over sixty-two years, the total payments, £276.75 million, being less than the original debt of £369.8 million and only half the amount with interest accrued to January 1925. There was a clause providing for a proportionate reduction in Italy's payments if Britain's receipts from reparations and from other debtors ever exceeded the amount she had to pay the United States.111 The Anglo-Italian settlement might or might not be encouraging for the French. On the one hand it included a reduction of the total debt; but on the other hand a strict application of the principle of the Balfour Note could mean that lenient treatment of Italy would lay a heavier burden on France. But in any case negotiations would have to begin soon. The French government could no longer leave the debt situation unresolved indefinitely, and talks with the Americans were in fact resumed within a 108

See RIIA, Survey, 1926, p. 120; Moulton and Pasvolsky, World War Debt Settlement, p. 82. 109 See DBFPy Ser. I, Vol. 21, Nos. 202, 238. 110 Records of conversations, 29 Jun.-3 Jul. 1925; aide-memoire from Churchill to Pirelli, 3 JuL, T 172/1504; Cabinet, 3 Jul., C 33(25), CAB 23/50. 111 Cabinet, 19 Jan. 1926, C 1(26), CAB 23/52; CP 10(26), CAB 24/178; DBFP, Ser. IA, Vol. 1, Nos. 179, 209; Cmd 2580 of 1926, Agreement for the Settlement of the War Debt of Italy to Great Britain; BFSP, Vol. 123, pp. 526-8; Moulton and Pasvolsky, World War Debt Settlement, pp. 353-63.

296

The spread of stability

fortnight of Caillaux's departure from Washington.112 On 1 February 1926, with his next budget looming, Churchill sent a letter to his French opposite number Doumer, asking for afirstpayment, based on thefiguresdiscussed with Caillaux, to be made by the end of March. An annual £12.5 million having been offered in 1925, it was hard for the French now to offer less; but there were press demands for the sum to be brought nearer to that in the Anglo-Italian agreement. The government decided to renew the negotiations; but they had not actually begun again before Senator Henri Berenger signed in Washington, on 29 April, an agreement with the United States for the repayment of France's complete debt of $4,025 million over sixty-two years, with no interest payments for thefirstfiveyears and a rate rising thereafter from 1 per cent to 3.5 per cent. There was no safeguard clause, but there was one allowing some postponement during the first six years. This agreement marked the end of French hopes of debt cancellation and was a serious setback to the policy of linking debts and reparations. And however favourable the terms of payment, which Americans calculated reduced the debt by more than one half, France would end by paying more than twice as much as she had originally borrowed.113 In London Doumer's successor Peret found Churchill immovable on a safeguarding clause in the funding agreement itself, but prepared to consider an exchange of letters in which the French would set out their desire to reopen the agreement if reparation receipts fell, and the British would take note of the desire (without accepting it), provided that agreement was reached on all other points. Further twists of the French financial crisis brought Caillaux back as minister of finance, and it was he who on 12 July finally signed with Churchill an agreement by which France would pay, over sixty-two years, a total of £653 million by annuities rising from £4 million in 1926-7 to £10 million in 1929-30, £12.5 million in 1930-1, and £14 million from 1957-8. As in the Anglo-Italian agreement there were clauses allowing for postponement and for adjustment in case Britain received more from all sources than she needed to pay the United States. There was no safeguarding clause, but an exchange of letters which in effect recorded the opposing views of the two governments as to France's responsibility. Churchill in his letter pointed out that if Germany defaulted Britain, too, would suffer, and she could not be expected to bear a double loss. He added that if any modification were made in France's payments he would expect other creditors of France to 112 113

Artaud, Question des dettes, pp. 774-85; Schrecker, Hired Money, pp. 219-24. See DBFP, Ser. IA, Vol. 1, Nos. 270,406,428; memorandum by Pouyanne, 15 Feb. 1926, MF, F30 926 = B 31846; memorandum on the debt to Britain, [Mar.], F30 32188; Artaud, Question des dettes, pp. 787—96; Schrecker, Hired Money, pp. 224—34; Moulton and Pasvolsky, World War Debt Settlement, pp. 363-74.

War debt settlements

297

114

consider corresponding action. Churchill angered influential Americans such as Garrard Winston, Under-Secretary of the Treasury, and even Strong, by a speech at a Mansion House banquet on 14 July, claiming that Britain's policy on war debts was more generous than that of the United States, and by his statement in Parliament on 17 July, which included a refutation of a recent letter by Mellon claiming that much of Britain's debt to the United States was 'commercial' (i.e., not incurred for war purposes). Churchill had already caused annoyance in the United States by a speech on 24 March, in which he emphasised the difference of outlook between Britain and the United States on war debts, and pointed out that when all the debts were funded the 'wealthy and prosperous' United States would be receiving at least 60 per cent of German reparations, rather than the 'devastated and war-stricken' countries of Europe.115 Debt agreements with lesser Allies followed. One, with Romania, had already been concluded in October 1925. The debt which, with accumulated interest, stood at £26 million, was reduced to £18,500,000, little more than the original principal, and provision was made for payment over sixty-two years starting with an initial payment of only £50,000 in 1926.116 At the end of 1926 an agreement was concluded with Portugal, for the payment of its whole debt, including interest, over sixty-two years.117 Talks with Greece and Yugoslavia began in 1926 but took longer to reach a conclusion. Agreement with Yugoslavia was eventually reached in August 1927, for payment of a sum of £25 million, equivalent to the principal of the war debt and relief debt without arrears of interest, by annual instalments over sixty-two years.118 The Greek case, as has been seen, complicated the 114

Artaud, Question des dettes, pp. 798-801; Churchill to Peret, 18 Mar. 1925; Churchill to Caillaux, 1 Jul., T 172/1499A; DBFP, Ser. IA, Vol. 2, Nos. 48, 91; Cmd 2692 of 1926, Agreement for the Settlement of the War Debt of France to Great Britain, with an Exchange of Letters between the Chancellor of the Exchequer and the French Minister of Finance; BFSP, Vol. 126, pp. 246-9; Moulton and Pasvolsky, World War Debt Settlement^ pp. 432-5. The agreement was not ratified by the French parliament until 1929, but the first payments to Britain were made by annual agreement between the two Treasuries. 115 See DBFP, Ser. IA, Vol. 2, Nos. 483, 491; BFSP, Vol. 126, p. 249; The Times, 15 Jul. 1926; HCDeb., Vol. 198, cols. 971-86, esp. cols. 978, 983-4; Vol. 193, cols. 1244-58, esp. cols. 1245-6, 1257-8; Warren to Strong, 15 Jul., FRBNY, C261, Special French Situation 1926; Winston to Strong, 16 Jul., Strong Papers, 012.6; Houghton to Kellogg, 24 Jul., NA, RG 59, 800.51 W 89 Great Britain/118; Strong to Jay, 17 Aug., Strong Papers, 320.115. 116 Cmd 2990 of 1927, Roumanian War Debt. Agreement, dated the 19th of October, 1925, for the Settlement of the Roumanian War Debt to Great Britain; BFSP, Vol. 123, pp. 562-4; see Recker, England und der Donauraum, pp. 230-3. The agreement was not published until 1927, but the United States government was informed of it at the time. 117 Cmd 2791 of 1927, Portuguese War Debt. Agreement for the Settlement of the War Debt of Portugal to Great Britain; BFSP, Vol. 123, pp. 559-622. 118 File C 70/92, 1926, FO 371/11403, 11404; file C 76/92, 1927, FO 371/12209; Cmd 2973

298

The spread of stability

discussion of a League of Nations operation and raised issues of political relations. The Greeks demanded treatment as favourable as that given to Italy, although the total Greek debt (£21 million with accumulated interest) was not regarded as impossible. Since the negotiations had begun General Pangalos's dictatorship had given place to a constitutional government, the permanence of which was thought to depend on its success in dealing with the financial situation, and Chamberlain expressed the hope that Britain would be lenient and treat Greece as well as she had done Romania and Portugal.119 Niemeyer in reply enquired sarcastically what reduction of the Greek debt the Foreign Office would regard as suitable, and whether it would explain to the other Allies why Greece was being given especially favourable treatment.120 But Chamberlain, who as a member of the British government at the time may have felt some particular responsibility, explained to Niemeyer that he thought Greece deserved good treatment because she had been 'shabbily treated' by the Allies during the war and had been led by them into the disastrous Asia Minor venture. He would not hold up a refugee loan at the League Council on account of the war debt, and the Financial Committee must not link the two questions. Niemeyer said that the Treasury was prepared to help over stabilisation and would encourage the City to put up a loan as soon as the war debt was settled, but the Greeks had never made any definite proposals.121 The debt negotiations were resumed later in March and were concluded within a month. The Greeks were anxious to obtain some recognition of the balance of the 1918 book credits, which the Treasury regarded as dead. They were not mentioned in the debt agreement itself, which provided for the payment of £21,400,000 over sixty-two years by annuities rising from an initial £50,000 to an eventual £400,000; but in a letter to the. Greek Minister in London Churchill wrote that the government would support any well-considered scheme of reconstruction, and the more so in view of Greece's waiver of any claim to the balance of the 1918 credits.122 As a result of all these debt agreements, the British government could calculate on receiving in the next few years annuities of about £10,700,000 in debt payments as well as some £14,500,000 from Germany, as against of 1927, Serb-Croat-Slovene War Debt. Agreement for the Settlement of the War Debt of the Serb-Croat-Slovene Kingdom to Great Britain', BFSP, Vol. 126, pp. 294-7. See Recker, England und der Donauraum, pp. 233—4. 119 Tyrrell to Niemeyer, 11 Jan. 1927, C 48/48/19, F O 371/12161. 120 Leith Ross to Tyrrell, 13 Jan. 1927; F O to Treasury, 2 Feb.; N i e m e y e r to Sargent, 5 Feb.; Sargent to Niemeyer, 12 Feb., C 527, 991, 1102, 2015/48/19, F O 371/12161, 12162. 121 Sargent to Loraine, 4 Mar. 1927, C 2015/48/19, F O 371/12162. 122 File C 48/19, FO 371/12162; Cmd 2848 of 1927; BFSP, Vol. 126, pp. 262-5. See above, p. 288.

Monetary stabilisation

299

payments of about £33 million a year to the United States - to which £147,500,000 had been paid before any payments were received from Allied debtors. In the long run, if all the debt agreements were carried out and the Dawes plan remained in force for sixty-two years Britain, it was calculated, would receive as much as she had to pay to the United States, so that the principle of the Balfour Note would have been fulfilled.123 But calculations of this kind were the more speculative the farther into the future they were carried, and no one expected the Dawes plan to remain in force for sixty-two years: its revision was already being canvassed in 1926. In the event, by the time of the Hoover moratorium in 1931, Britain had paid to the United States £326 million for an original debt of some £760 million (£945 with accrued interest by the time of funding). She had received £121 million in reparations from Germany, and from her Allies £71 million for a total original claim of £136 million (£901 million excluding Russia, or £1,312 million excluding Russia but including accumulated interest to 1925). There was thus a deficit of nearly £124 million. In return for total advances of $9,710,500,000 the United States had received by 1931 $2,606,340,012. France received altogether from Germany some $1,634 million and paid Britain and the United States $418 million, giving a net surplus of $1,216 million.124 Monetary stabilisation Of greater immediate importance was the spread of monetary stabilisation in western and eastern Europe. The earliest possible return by all countries to a fixed gold parity was the chief monetary recommendation of the Brussels and Genoa conferences. In the absence of the central bankers' meeting and convention recommended at Genoa, a country-by-country approach was adopted, the value of the gold parity being left to individual national decision and little attention being paid to the ratios between different currencies. The standard procedure for those countries needing help was for the government concerned to negotiate a loan from private 123

HCDeb., Vol. 239, cols. 45-6; memoranda by Seydoux, 15 and 28 Jul. 1926, MF, F30 1282 = B 32188; Seydoux in VEurope nouvelle, lb Oct. 124 British figures from HCDeb., Vol. 180, col. 2185; Vol. 268, cols. 238-9; Vol. 276, col. 1574. American and French figures from Moulton and Pasvolsky, War Debts and World Prosperity, pp. 299, 426, 482-5; Artaud, Question des dettes, p. 927. The Economist, Reparations and War Debts Supplement, 23 Jan. 1932, calculated a British deficit of £133.7 million. According to calculations made in 1926 France, under the Dawes plan, the Mellon—Berenger agreement, and the Churchill—Caillaux agreement, could expect a net surplus of 25,277 million francs by 1931: Sauvy, Histoire economique, Vol. 3, p. 70. The annuities in the Young plan of 1929, and still more the agreement reached at the first Hague Conference in 1930, were expected to make good the British deficit eventually: Jon Jacobson, Locarno Diplomacy, Princeton 1972, pp. 284-6, 309-11, 341-3.

300

The spread of stability

bankers and for its central bank to receive a credit from other central banks. The purpose of the loan was seen primarily as consolidating the public debt and strengthening the reserves of the central bank; the purpose of the credit was to provide temporary assistance and psychological support for the currency. The credit and the loan were usually closely linked: the central bankers wished to be satisfied that there was a firm promise of private banking support; the private bankers wanted to be sure that responsible financial authorities approved the stabilisation programme.125 A factor of importance in some cases was whether a fourth party should be involved in the conditions for a loan. The stabilisation of the German mark was followed on 28 April 1925 by the long-projected return of sterling to gold at the prewar parity. Conditions in the spring of 1925 were favourable; Britain had been expected to take the lead; Austria, Hungary, and now Germany had been stabilised more or less compulsorily; some of the other European countries and the Dominions had stabilised or were on the verge of doing so. The Federal Reserve Bank of New York gave the Bank of England a credit of $200 million, and Morgans gave the government a credit of $100 million, both for two years. In the event neither was drawn on.126 None of the other major Allies followed Britain in 1925, nor did Belgium; but in 1926, with the conclusion of the various debt agreements with Britain and the United States, the prospects improved despite financial crises in France and Belgium. Belgium provided the first case of a combination of a central bank credit and a stabilisation loan. Discussion of stabilisation began in 1925 and Albert Janssen, the minister of finance, proposed a plan that included a large foreign loan and a balanced budget for 1926. Central bank credits were arranged, but they did not become effective because the rest of the plan fell through. In the summer of 1926, however, a new government of national unity was formed to deal with the financial crisis, and Emile Francqui, minister without portfolio, succeeded in pushing through monetary reforms, consolidating the floating debt, imposing new taxes, and restoring confidence so that the franc returned by September to a rate of 175 to the pound from a low of 205 in July.127 But when approached for fresh negotiations for a loan, the group of private bankers already involved 125

126

127

Richard Hemmig Meyer, Bankers' Diplomacy, Monetary Stabilization in the Twenties.,

New York 1970, pp. 5-6, 12-14. For a full account and discussion see D.E. Moggridge, British Monetary Policy 1924— 1931. The Norman Conquest of $4.86, Cambridge 1972; also Clarke, Central Bank Co-

operation, pp. 81-96; Chandler, Benjamin Strong, pp. 291-331. The question whether sterling was overvalued, or by how much, continues to cause debate but will not be discussed here. Meyer, Bankers3 Diplomacy, pp. 16—28; Economist, 17 Jul. 1926.

Monetary stabilisation

301

agreed that they would not grant a loan for stabilisation unless the central bankers also agreed to a credit. This was arranged, after initial American hesitation, and nine central banks took part in a credit for $25 million that came into effect on 25 October, the day the Belgian stabilisation decree was issued and two days after the contracts were signed with private bankers for a loan of $100 million for thirty years.128 The Belgian stabilisation was led by Norman and Strong, and it was Norman who invited other central bankers to participate. The Bank of France was only involved at the last minute. It is true that financial conditions in France had only recently been restored on Poincare's return to power, and the Bank of France was still in a weak position; but in view of the closeness of Franco-Belgian political and monetary relations Norman's behaviour was at best tactless, and it contributed to the resentment felt by Moreau, the newly appointed governor of the Bank of France, at the Bank of England's high-handed ways.129 No special conditions were set for Belgium, and no specific revenues were assigned as security for the loan. Once assured of Belgian reforms and of central bank approval, the private bankers, led by Morgans, had no difficulty in undertaking to raise the money. The Belgian franc was almost certainly undervalued at 175 to the pound. Equally the Italian lira was almost certainly overvalued at 90 to the pound when stabilisation took place on 22 December 1927. The rate was a matter of prestige for Mussolini, and although several of the central bankers were doubtful of its wisdom they did not feel able to insist on a lower one. Again Norman and Strong provided the leadership. By this time the Bank of France had become a major power in the international markets; but Franco-Italian political relations were not good in 1927 and Moreau appears to have been content to remain in the background.130 The Italians had tried to stabilise the lira in 1925, without success. They then waited for a period of de facto exchange stability, after the war debt agreements were concluded, before approaching Norman and Strong in November 1927. Both of them had earlier been doubtful about the lack of independence of the Bank of Italy; but in this case it was clearly not possible to make the sort of conditions about central bank independence that could be imposed on smaller countries or on Germany. The Italian operation was carried through speedily. The central bank credit was for $75 million: sixteen institutions took part. The private loan, made to the Bank of Italy, was for 128

129 130

Meyer, Bankers' Diplomacy', pp. 28-35; Chandler, Benjamin Strong, pp. 338-53; MG Papers, Box Hist. 6, file 36; Box Hist. 7, files 38-9. Half the loan was issued in the United States. £7.25 million in London, the remainder in Switzerland, the Netherlands, and Sweden. Moreau, Souvenirs, pp. 129-30, 135, 143-4. Moreau, Souvenirs, pp. 169-70, 176, 440-2, 454-7.

302

The spread of stability

$50 million, extended half by Morgans and half by a London group of Morgan Grenfell, Barings, Hambros, and Rothschilds.131 French stabilisation took a different course from that of Belgium or Italy. On 20 July 1926 the franc reached its lowest point since the war, 240 to the pound, compared to the prewar value of 25. Six months later, in a return of confidence based on a general belief that Poincare was the man to restore financial order, it had risen to 120; and it remained steady at about 125 until the date of legal stabilisation on 25 June 1928. The government's actual reform measures were not very far-reaching: what made the difference was the return of French capital which had fled from the franc, and an influx of foreign money, much of it speculating on a further rise towards the former parity. To dampen speculation the Bank of France bought large quantities of foreign currency and bills, and later used the reserves thus accumulated to buy gold, putting a strain on the Bank of England in the process. French public opinion, and Poincare himself, instinctively favoured returning to the prewar gold parity, and there was a lengthy debate on the rival merits of a return or stabilisation at the present figure. In view of the depreciation that had taken place since the war, a return to the old value was impossible and would have done great harm to the economy if it had been tried. The decision to stabilise might have been taken sooner, but, in view of the debate, Poincare preferred to wait until after the elections of 1928. Stabilisation took place with no outside assistance. Borrowing in the United States was precluded until the debt agreement had been ratified: plans for getting money from Germany by selling the Saar coal mines or commercialising the railway bonds which formed part of the security for the Dawes annuities did not bear fruit.132 It was over Poland and Romania that Moreau was able to assert most visibly the restored international power of the Bank of France. The two cases raised, furthermore, the issues of the future of the League of Nations Financial Committee, the limits of British financial influence, and the exercise of American predominance. The question of help to Poland arose 131

Meyer, Bankers* Diplomacy, pp. 42-57; Chandler, Benjamin Strong, pp. 381-9; Clay, Norman, pp. 257-8; MG Papers, Box Hist. 1, file 39. 132 For the whole story of financial reform and stabilisation see Sauvy, Histoire economique, Vol. 1, pp. 59-72; Moreau, Souvenirs, passim; Eleanor Dulles, The French Franc 19141928, New York 1929, pp. 405-42. For the trouble with sterling see Clay, Norman, pp. 227-33; Moreau, Souvenirs, pp. 317-18, 324-33, 339, 351; Chandler, Benjamin Strong, pp. 371-4; also Judith L. Kooker, Trench financial diplomacy: the interwar years', in Benjamin M. Rowland, ed., Balance of Power or Hegemony: The Interwar Monetary System, New York 1976. For the question of commercialising the German railway bonds and other possible financial contributions see Artaud, Question des dettes, pp. 811-51; Leffler, Elusive Quest, pp. 142-54; Costigliola, Politics of Financial Stabilisation, pp. 264—74; Anne Orde, 'Thoiry revisited', in Durham University Journal, 37 (1975), pp. 205—18. German documents in Germany, Auswartiges Amt, Akten zur deutschen auswdrtigen Politik 1918-1945, Series B, hereafter cited as ADAP, Vol. 1.2.

Monetary stabilisation

303

again in the latter part of 1925. A new currency had been introduced in 1925 and a measure of stability achieved; but the exchange continued to fluctuate and the official rate was too high for the good of exports. Negotiations for a trade agreement with Germany broke down in the summer of 1925, resulting in something like a trade war. Since, despite poor political relations, Germany was by far Poland's most important trading partner (taking in 1924 43.2 per cent of her exports and supplying 33.8 per cent of her imports) and an important source of short-term credit, the effect was serious; and combined with inflation and currency difficulties it produced a new financial crisis.133 The crisis aroused concern in western Europe and in the United States, where the Polish government had recently contracted a loan with Dillon Read and Co., and where the National Bank was able in August to secure an emergency credit from the Federal Reserve Bank of New York.134 The Polish position was not favourable. In connection with the negotiations for a western European security pact, negotiations that led in October 1925 to the Locarno treaties, there was a good deal of talk abroad about revision of the German-Polish frontier, which the Germans were refusing to acknowledge or see guaranteed in the same way as their western frontier. Since the conclusion of the London agreement on reparations and the Dawes loan, American money was beginning to flow into Germany, but not into Poland. In view of Germany's important economic stake in Poland and her new financial strength, her participation in any Polish operation was regarded as desirable. The Germans hoped that trade war would make Poland more compliant on political as well as economic issues, and that satisfaction of territorial claims could be made a condition of financial help.135 The Germans were not agreed among themselves about tactics, the chances of success, or the desirability of interim or partial solutions; but the attempt was thought worth making, and so for some months in 1926 they tried to convince others, especially British official and financial circles, that territorial revision was essential for European stability. Foreign Ministry officials talked to D'Abernon; the counsellor of the German Embassy in London, Albert Dufour Feronce, talked to the Treasury, the Foreign Office, and Norman; Schacht talked to everyone.136 Norman was 133

135

136

See Harald von Rieckhoff, German-Polish Relations 1918-1933, Baltimore 1971, pp. 161-9; Kaser and Radice, Economic History of Eastern Europe, Vol. 1, pp. 422-3, 513, 134 520. Pease, Poland, pp. 30-7, 53-5. Rieckhoff, German-Polish Relations, pp. 167-72, 256-63. For the security pact negotiations see Orde, Great Britain and International Security, ch. 4. For American lending to Germany in 1925 see William C. McNeil, American Money and the Weimar Republic, New York 1986, ch. 3. ADAP, Vol. 2.1, Nos. 10, 21, 26, 28, 97,116,148; Vol. 2.2, No. 3; Viscount D'Abernon, An Ambassador of Peace, Vol. 3, London 1930, p. 221; Rieckhoff, German-Polish Relations, pp. 256—61.

304

The spread of stability

not unsusceptible to these approaches. He told Dufour that the banks would not wish to be mixed up in such political questions; but he had a low opinion of Polish capacities and was willing to envisage political matters being included in the international scheme which he wished to see applied to Poland.137 In the summer of 1926 he took soundings, writing at the beginning of June to ask the Agent-General for Reparations, Parker Gilbert, for his views on Schacht's contention that the Germans would make frontier revision a condition for showing goodwill to a Polish stabilisation plan. Norman thought, wrongly, that the effect of the absence of a guarantee for Germany's eastern and southern frontiers at Locarno had been to leave German-Polish frontier questions for settlement between those two countries alone. At the beginning of August he suggested to Lampson that the suggestion currently under discussion, that Germany might buy Eupen and Malmedy back from Belgium, might be applied to the Polish Corridor. Lampson said that it was British policy to encourage an accommodation between Germany and Poland, and if Poland were to suggest a territorial adjustment of her own free will, Lampson thought no one would object; but it would be most unwise for anyone outside Poland, and least of all a German, to suggest it. On Chamberlain's instructions Norman was then discouraged from speculating further on the territorial question.138 Norman's chief interest was in getting a comprehensive scheme of rehabilitation for Poland and including what he regarded as proper controls. His motive was partly to secure British financial influence, exercised through the League, but he really believed that the task was so large as to need the support of several financial centres and a measure of outside control over a number of years. In the second half of 1926, the Poles made approaches in a confusingly large number of directions. The foreign minister, Count Skrzynski, visited the United States, mainly as a public relations exercise; the government was in negotiation with several American banks and commissioned a noted economic adviser, Professor Edwin Kemmerer, to visit Poland. The Poles also sounded the Germans about a credit, only to be told that territorial revision would be a necessary condition. They furthermore suggested that the Bank of England and the Federal Reserve Bank of New York should contribute capital to the Bank of Poland and talked again of appointing a financial adviser or team of 137 138

See, for example, Norman to Morrow, 24 Dec. 1926, BE, G 1/43. Norman to Gilbert, 3 Jun. 1926, BE, OV 34/73; memorandum by Lampson with minutes by Chamberlain, 12 Aug., C 9013/234/18, FO 371/11280; DBFP, Ser. 1A, Vol. 2, No. 143. For the Eupen-Malmedy question see DBFP, Ser. 1A, Vol. 2, No. 142; Manfred J. Enssle, Stresemann's Territorial Revisionism. Germany, Belgium and the Eupen-Malmedy Question 1919-1929, Wiesbaden 1980.

Monetary stabilisation

305

139

advisers. Kemmerer's advice, delivered after a crowded twelve-day visit at the turn of the years 1925-6, was essentially conservative - stabilisation of the currency with the help of a $15 million loan, balancing the budget, attracting foreign capital for development, and building an export surplus.140 At the same time Norman was trying, with some success, to prevent individual bankers from lending to Poland on their own, and exploring the possibility of Polish acceptance of League control. He consulted Salter, who replied that Poland had never applied to the League. It could not take the initiative, and if there were any suggestion that it was seeking control the chances of a Polish application would be reduced. Salter himself thought that a full Austrian-type control with a commissioner-general might not be necessary, and he was conveying this view indirectly to the Poles, but that was all he could do. All Norman's other soundings suggested that the Poles would be very unwilling to consider a League scheme, for reasons of national pride and fear of foreign intrigue.141 In the second place, the German government was opposed to a League scheme for quite the opposite reason, thinking that Germany's influence in one would be too limited and that it might block territorial revision.142 And thirdly, Strong turned against the idea. In London in May 1926 he told Norman that the recent fiasco over Germany's entry into the League had so disillusioned American opinion that he would not be able to promote a League loan. The solution that Strong favoured was to expand Kemmerer's mission into a full-dress international enquiry with as much governmental support as possible. The extent of outside control would have to be negotiated: any controller would probably have to be American. An alternative might be an almost wholly American operation; but Norman 139

Norman to Niemeyer, 10 Nov. 1926, T 176/23; Roberts, Warsaw, to FO, 11 Nov., N 6314/43/55, FO 371/10998; Anderson to Norman, 24 D e c ; Norman to Anderson, 26 Dec, BE, OV 32/1; Bank of England to Polish Minister, 29 Dec, N 7159/43/55, FO 371/10998; Dirksen to Dufour and Schacht, 30 Sep., AA, K 01975-99; Pease, Poland, pp. 43-61; Piotr S. Wandycz, The United States and Poland, Cambridge, Mass. 1980, pp. 190-4. 140 Pease, Poland, pp. 61-3. 141 Norman to Niemeyer and Salter, 1 Feb. 1926; Salter to Niemeyer and Norman, 5 Feb., T 176/23; Norman to Strong, 2 Feb., Strong Papers, 1116.6(2); Norman to Strong, 10 Feb., 24 Feb., BE, OV 32/3; Niemeyer to Lampson, 10 Feb.; Max Muller to FO, 22 Feb., N 639, 851/41/55, FO 371/11760; memorandum by Gardiner on visit to Warsaw, 22-6 Feb.; Norman to Niemeyer, 27 Mar., T 176/23; Max Muller to Niemeyer, 7 Apr., N 975, 1463, 1621/41/55, FO 371/11761. 142 Stresemann to Sthamer, London, 19 Apr. 1926, ADAP, Vol. 2.1, No. 150. Germany had undertaken as part of the Locarno settlement to join the League of Nations. She was expected to do so in April 1926, but there was an embarrassing hitch over the question whether she alone should have a new permanent Council seat: Poland, Spain, and Brazil claimed permanent seats as well. A committee was set up to consider the composition of the Council, and after it had reported Germany joined in September 1926. See RIIA, Survey, 1926, pp. 1-78.

306

The spread of stability

said that he would not be associated with that, because he did not think effective control could be devised.143 Strong suggested that the root of the difficulty was Norman's dislike of the pushing Dillon Read, who were the Poles' chief bankers in the United States, and of Kemmerer;144 but what was more fundamentally at stake was Strong's growing desire to assert American power directly as against Norman's conception of responsible reconstruction. In the summer of 1926 Kemmerer returned to Poland, finding the country in a much improved state thanks to a good harvest and a boost to exports from a prolonged coal strike in Britain. Nevertheless the prospects for a stabilisation loan remained very uncertain until the end of the year. Part of the trouble was the Poles' propensity for negotiating with several banks at once, and their inability to make up their minds whose advice to take, if anyone's.145 Eventually they were fortunate in engaging the interest of Monnet, who was now Paris agent of Blair and Co., one of the American banks in the field. Monnet managed to bring about a banking syndicate led by the Bankers Trust Co., so that that aspect became more orderly; and he enlisted the help of the Bank of France.146 While the American banking group negotiated with the Polish authorities, Strong tried to secure the cooperation of Norman and Schacht for a central bank credit. The Germans had resumed talks with Poland for a trade agreement, but progress was very slow and Schacht continued his efforts to deter American and British banks from lending to Poland.147 Norman, not himself active, received a warning from Strong about the bad effect that would be produced in the United States by a German effort to frustrate a sound settlement of Polish monetary affairs.148 In March 1927 the Deputy Governor of the Federal Reserve Bank of New York came to Europe to arrange the cooperation of the other central banks, hoping not to be seen as being responsible for the plan. There was of course no problem with the Bank of France: both Schacht and Norman, for their separate 143

44 45 46

47 48

Niemeyer to Salter, 7 May 1926, T 176/23; Strong to Harrison, 15 May, Strong Papers, 1000.7. Strong had earlier agreed with the Polish Minister in the United States that a League scheme was out of the question, but that the Bank of England should be included in any stabilisation plan and Poland would have to accept some kind of control by an 'unpolitical' American adviser. But Strong's faith in Poland was somewhat shaken by Pifsudski's coup on 12 May, and in London he compromised with Norman: Pease, Poland, pp. 67-9, 71—2; Clay, Norman, pp. 258—9; Meyer, Bankers' Diplomacy, pp. 67-71. Strong to Harrison, 3 Aug. 1926, Strong Papers, 1000.7. Pease, Poland, pp. 76-83. Pease, Poland, pp. 86-8; Moreau, Souvenirs, pp. 191, 213-14, 250; Meyer, Bankers' Diplomacy, pp. 75-7. Rieckhoff, German-Polish Relations, pp. 169-76, 262-3; Pease, Poland, pp. 89-96. Norman to Strong, 15 Feb. 1927; Strong to Norman, 15 and 25 Feb., Strong Papers, 1116.7(1) and (2).

Monetary stabilisation

307

reasons, expressed doubts and reservations, but each was willing to cooperate in a central bank credit if the other would do so, too.149 The credit, finally organised by Moreau, was for $20 million for one year: fourteen central banks took part.150 The stabilisation plan agreed, with some difficulty, by the Polish government, provided for a foreign loan of about $60 million, to be used to consolidate the floating debt, increase the capital of the Bank of Poland and Treasury reserves, and finance development. There was to be an American adviser to the Polish government, with authority over the disbursement of the loan, but only a very limited say in general Polish financial and monetary policy. Pitsudski, the effective ruler of Poland, was determined that the adviser should have no opportunity to interfere in government policy; and the man appointed, Charles S. Dewey, seems to have made no attempt to do so. The weakness of his position, as compared with controllers appointed by the Leagues or the Agent-General for Reparations, was that he had no other authority behind him and was responsible to the institutions whose working he was supposed to control. In October 1927 a loan of some $72 million was issued. More than half was subscribed in the United States, £2 million in London. German banks did not join in at all; the French share was smaller than either the Swiss or the Dutch. This time the Polish stabilisation was successful, although the loan was costly in profit to the bankers, and more costly, financially, to the Poles than a League loan probably would have been.151 Whereas in the Polish case the Federal Reserve Bank, despite final appearances, was the undoubted leader with the Bank of France its second, in the case of Romania it was the Bank of France which took the initiative and more or less pushed the Federal Reserve Bank into a position of coresponsibility which it did not want. Currency inflation virtually ceased in Romania in 1925, the leu was effectively stabilised in the spring of 1927, and the trade balance was favourable; but political conditions were perpetually unstable, and the financial practices of the government and the national bank were dubious. The country's credit was therefore not good; 149

Pease, Poland, pp. 91-3; Meyer, Bankers' Diplomacy, pp. 77-80; Norman to Schacht, 28 Mar. 1927; Schacht to Norman, 30 Mar., BE, G 1/43; Bank of England memorandum, 3 Apr., BE, G 14/259; Moreau, Souvenirs, pp. 266-7, 268-71, 272-3, 276, 279; Clay, Norman, pp. 259—60. 150 Strong-Norman-Schacht correspondence, 9 May-17 Jun. 1927, BE, G 1/43, OV 32/3; Pease, Poland, pp. 95, 97; Moreau, Souvenirs, pp. 298-9, 300-1, 304, 343; Meyer, Bankers' Diplomacy, pp. 86-7. 151 Meyer, Bankers' Diplomacy, pp. 83, 89-95; Pease, Poland, pp. 91, 94-104; Costigliola, Politics of Financial Stabilization, pp. 325—62, 371—8; Costigliola, 'American foreign policy in the "Nut Cracker": the United States and Poland in the 1920s', in Pacific Historical Review, 48 (1979), pp. 85—105; Kaser and Radice, Economic History of Eastern Europe, Vol. 2, p. 205-6; Chandler, Benjamin Strong, pp. 390-403. French bankers needed a good deal of persuading to subscribe: correspondence in MAE, Europe, Pologne, Vol. 237.

308

The spread of stability

but the politicians were very reluctant to approach the League. Instead they tried to get expressions of expert opinion which could be used as recommendations with the money markets. One such expert, approached in the autumn of 1926, was Salter. He was on his way to Bulgaria in connection with the refugee loan when the prime minister, General Avaresco, asked him to call in at Bucharest. The invitation alarmed Drummond, the Secretary-General of the League, who feared that Salter would get mixed up in domestic Romanian quarrels; and Salter declined to give any opinion, saying that if the general wanted advice from any League expert he would have to send someone to Geneva. Salter's impression of the Romanian banking system was poor: it seemed to be almost wholly in the hands of the Bratiano family; and he thought the risks to a stabilisation scheme were greater than appeared. Later the Romanians approached Niemeyer, but he, too, refused to give a personal opinion.152 At the end of 1927, without, it seems, at first discarding the possibility of going through the League, the Romanians approached the Bank of France and the French government. Both were encouraging: the Director of the Mouvement General des Fonds said that France would arrange a loan of 1,500 million francs, one-third from France and two-thirds from the United States, on condition that half the French share was spent in France, war debts and prewar claims were settled, and Romania did not go to the League.153 Moreau was not particularly keen to push stabilisation, thinking that a loan could usefully be spent on reconstituting the Romanian railways by a Franco-American group. But when he found that the Romanians wanted to stabilise the leu, he said that they must consult private banks and if the results were favourable he would take the lead in organising a central bank credit. He advised the Romanians not to ask for a loan for armaments, as that would make a bad impression; and he warned that they would have to submit to some control although he would try to make it as light as possible and the controller might be a Frenchman.154 But as with Poland, Norman thought the support of the League was necessary, in this case because of the disturbed political conditions in Romania and the existence of assorted outside claims. Strong for his part would not commit himself to Moreau without further study.155 But at this point a series of misunderstandings began. Having received a formal request from the Romanian National Bank, Moreau and his chef de cabinet Quesnay visited London 152

Salter to Drummond, 23 Oct. 1926; Drummond to Avenol, 25 Oct., MAE, PA Avenol, Vol. 35; memorandum by Salter, 5—8 Nov.; Drummond to Salter, 16 Nov.; Salter to Avaresco, 18 Nov., 13 D e c ; Avaresco to Salter, 27 Nov., 28 D e c ; Norman to Salter, 4 D e c , LN Arch., S 123; Meyer, Bankers3 Diplomacy, p. 106. 153 154 Moreau, Souvenirs, pp. 408, 432. Moreau, Souvenirs, pp. 432, 452, 461-2. 155 Meyer, Bankers' Diplomacy, pp. 105-8.

Monetary stabilisation

309

on 22 February 1928 to urge British cooperation in a central bank credit for Romania organised by the Bank of France and to demand equality of rights. For Moreau it was a critical encounter: cNous sommes engages dans une lutte tres serree avec la Banque d'Angleterre, d'une portee politique considerable, car il s'agit moins d'une rivalite d'influence entre la Banque d'Angleterre et la Banque de France que de savoir si l'influence anglaise remplacera dans les Etats de la Petite Entente l'influence franchise.' He suggested to Poincare that he should propose dividing Europe into two spheres of influence, French and British. Such an arrangement in effect came about, but it would have worked better had central bank cooperation been what Norman and Strong had dreamed. That dream, however, was breaking down, leaving a rather thin veneer behind which behaviour was less than wholly responsible. When Moreau visited London Norman was ill, and although Moreau thought he had got all the assurances he wanted from the Deputy Governor, Lubbock, Norman on his return appeared to go back on them.156 The Bank of England on its side apparently thought that its undertaking to cooperate was contingent on joint leadership by the Federal Reserve Bank of New York with the Bank of France; and it was worried that private bankers were trying to get central bank endorsement for what was basically a development loan.157 Strong had not yet made up his mind, did not wish to take even joint leadership, and wanted the European central banks to agree on the type of plan - League or private - they considered best. But then the Federal Reserve Bank in effect decided to take part without further enquiry, and the Bank of France's invitation specifically stated that it assumed the initiative and responsibility. The Bank of England was still doubtful about the whole basis of the transaction and the responsibility of central banks to satisfy themselves as to the soundness of a scheme.158 But eventually Norman bowed to the cause of central bank solidarity; and Strong (though not without twinges of anxiety) took the view that it was the Federal Reserve Bank's duty to take part in central bank credits to promote stabilisation, that to refuse would be a political act, and that it was not his concern whether the related private loan was sound.159 During the summer of 1928 a number of obstacles in the shape of external claims on Romania were cleared away and the central bank consortium was organised, by Moreau. Fourteen central banks took part in the credit, the Federal Reserve Bank of New York, the Bank of France, the Reichsbank 156 157 158 159

Moreau, Souvenirs, pp. 478-9, 480, 491-2, 496, 499, 501-14. Meyer, Bankers' Diplomacy, pp. 109-13. Meyer, Bankers' Diplomacy, pp. 113-18. Meyer, Bankers' Diplomacy, pp. 124-30; Chandler, Benjamin Strong, pp. 403-22; Clay, Norman, pp. 260-6.

310

The spread of stability

and the Bank of England taking equal shares. The loan was not finally issued until February 1929: at that time the market in the United States was weak, and banks were only willing to take $10 million. The stabilisation programme provided for at least half the loan to be spent on development, and the adviser appointed to the Romanian National Bank for three years had no powers of control whatever.160 The Romanian stabilisation was one of the last to take place in accordance with the gold exchange standard: the Yugoslav dinar was stabilised in May 1931, only a few days before the collapse of the Vienna Creditanstalt ushered in the disarray of the international financial system.161 With the Polish case, the Romanian one illustrated how far things had come since 1924, when Norman and Morgans battled with governments to ensure the security of the loan to be made to Germany and the tide of American capital had not yet begun to flow strongly into Europe. It also showed central banks doing what Foreign Office officials did not want the Financial Committee of the League to risk doing providing the investing world with an apparent endorsement of a commercial loan. By 1927 it was widely believed in Europe that Britain controlled the Financial Committee and used it to further its ownfinancialimperialism in Europe. Moreau, for example, wrote in his diary of the 'Comite financier de Geneve dont M. Norman est le maitre'; Avenol complained that everything at Geneva operated in such a way as to serve British imperialism; the French minister at Sofia wrote of the British methodically pursuing, through the Financial Committee, control of Bulgaria's finances; Strong referred to the 'current comment' in Europe 'for some years past' that Norman wished to establish 'some sort of dictatorship over the central banks of Europe'.162 How well founded were these related beliefs? Niemeyer was certainly one of the most forceful, and long serving, members of the Financial Committee: he was on it from 1922 to 1937. He worked closely with Salter and with Norman: in 1927 he moved from the Treasury to the Bank of England, and Strong was probably not the only person who found it hard to distinguish between Niemeyer the member of the Financial Committee and Niemeyer the Bank of England official.163 After the experience of Austria Niemeyer became keen on an active role for the Committee in promoting the stability of weaker countries and con160

161

162

163

Meyer, Bankers' Diplomacy•, pp. 132-5; Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 207-8; Moreau, Souvenirs, chs. 16, 17, passim. Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 209-10. The stabilisation was done solely under French auspices. Moreau, Souvenirs, pp. 273, 484, also pp. 488, 504; Cambon, Sofia, to MAE, 16 Apr., 10 Aug. 1927, MAE, SDN, Vol. 1273; Clay, Norman, p. 265. Meyer, Bankers' Diplomacy, p. 128. There is as yet no biography of Niemeyer; but see his obituary in The Times, 8 Feb. 1971.

Monetary stabilisation

311

tributed largely to it. But all the other members of the Committee were bankers or Treasury officials; the Dutch banker Ter Meulen and the Swede Wallenberg also carried great weight, as did Sir Henry Strakosch who represented South Africa continuously from 1920 to 1937. No French member had comparable standing: in the mid-twenties Parmentier's name was on the list, but his place was invariably taken by a Ministry of Finance official of lesser rank, Chalendar. Behind Niemeyer's personality stood the resources of the London money market, and the Bank of England, whether he personally invoked them or not. Norman had great influence over the City but not complete control. He was able, for example, to get Barings to hold up the second instalment of the Czechoslovak government loan in 1923; but he never altogether prevented foreign lending during the period of the tacit embargo, and in early 1927 Avenol thought that some London houses favoured a more liberal attitude to the use of their funds.164 Norman did influence other central banks, but for example was not able to persuade the Dutch to join in the Austrian loan in 1923. What, in any case, was meant by 'financial imperialism' or 'dictatorship'? Norman undoubtedly wished to see sterling's prewar position, and London's position as a financial centre, restored. He wanted to see European central banks linked to the Bank of England, and he employed the usual banker's requirement that its clients should not simultaneously have important accounts with other banks in the same country. The gold exchange standard which he promoted was in part intended to help sterling, since countries not designated as gold centres would keep part of their reserves in London. The resentment of the French who wished to see the Bank of France as the full equal of the Bank of England, even though the Paris money market was smaller and more restricted than London, was natural. But although Norman's policies over the Dawes loan and Poland were not as free of political motivation as he claimed, the financial dominance of the Bank of England did not lead to predominant British political influence in east central Europe, nor to very important investment and trade. Despite Foreign Office rhetoric in the aftermath of Locarno British political influence in east central Europe was so disinterested as to be of little practical effect, and neither Austen Chamberlain nor his successors wished to make it otherwise. Chamberlain did try to encourage Locarnotype settlements among Danubian and Balkan countries; but he had no such inducements to offer as he had in western Europe and his words were virtually ignored.165 British trade with the countries of central and south164 165

MAE memorandum, 15 Feb. 1927, MAE, Europe, Pologne, Vol. 237. See Orde, Great Britain and International Security, pp. 203-6; DBFP, Ser. I A, Vols. 1 and 2, passim.

312

The spread of stability

east Europe taken together remained throughout the 1920s a fraction of the value of trade with the United States, much less than that with Asia, comparable in value with that with India, Australia, or Germany.166 And British investment continued to go predominantly to the Empire and Commonwealth, with all European countries, west and east, accounting in 1930 for only 7.7 per cent of long-term overseas investment.167 The French on the other hand took it for granted that finance was used for political ends. They had been unable in the early 1920s to supply enough financial backing for political influence in Poland and elsewhere in eastern Europe, and as late as 1924 were unable, to their regret, to take part in the Hungarian loan. But now that the Bank of France had large reserves Moreau intended to use them to promote French political influence and economic advantage. In addition to Poland and Romania, Yugoslavia provides an example. When, early in 1928, there seemed to be a prospect of Yugoslav borrowing in London, Moreau commented: 'Si l'Angleterre nous enleve cette clientele a laquelle nous tenons pour des raisons politiques, j'acheterai de Tor a Londres pour les marquer mon mecontement'; and in conversation with an official of the Ministry of France; {]e dis a M. Moret qu'il ne s'agit pas d'argent mais d'influence politique.'168 If the Foreign Office considered that the Financial Committee of the League was a tool of British domination, the weapon was unwelcome. In 1927 Orme Sargent, who had succeeded Lampson as head of the Central Department, complained that the committee risked unpopularity, was over-generous, and took insufficient account of political considerations. Niemeyer thought him wrong-headed and set out his own conception of the Financial Committee's work in a long letter. The main line of League activities in finance [he wrote] has always been Budget and currency reconstruction .. . How much 'control' is involved in these activities obviously depends on the circumstances. There have been various degrees - the full control in Austria and Hungary; modifications in the later stages of Austria . . . control over specific expenditures only (Greece and Bulgaria); adviser at the Central Bank only (Esthonia). There may be in the future other variations. One thing you may rest quite assured of, and that is the Financial Committee themselves are at least as much alive to the responsibilities they take vis-a-vis the world, and to the difficulties and dangers of the job, as any of the Chancellories of Europe may be on their behalf. What puzzles me about your views is why the Foreign Office, of all people in the world, should wish to crab the work of the Financial Committee. 166 167 168

Mitchell and Deane, Abstract of British Historical Statistics, pp. 317, 320, 326. RIIA, The Problem of International Investment, p. 143. See also below, p. 328. Moreau, Souvenirs, pp. 483, 484. There were negotiations early in 1928 between the Yugoslav Minister of Finance and an Anglo-American group of banks. Some loan contracts were signed, but did not come into effect because they, cpnjained conditions which the Yugoslavs .were not able to fulfil: file C 93/92, FO 371/12980.

Monetary stabilisation

313

Whatever else may be said about the League, it is undeniable that the one outstanding success in the popular view of the League activities has been its reconstruction schemes . . . It seems to me not only ungrateful but positively foolish for any Foreign Office to try to stop the wheels of reconstruction; and why the British Foreign Office, of all people in the world, should wish to do so when they have derived a tremendous prestige from what has been done, really passes my comprehension. You need not be afraid that I am likely to understate the difficulties of such schemes. I have lived as closely with them as anybody for the last four years, and no one has a more lively recollection of the rubs; but I could not myself possibly subscribe to the notion that, because of these minor rubs, the beneficent process is to be brought to an end.169

Sargent was not converted and went on talking of the dangers that the League would make itself unpopular among its smaller members by 'appearing in the form of receivers in bankruptcy who impose some form of financial control offensive to national pride', or creating the impression among the investing world that the League somehow guaranteed the loans issued under its auspices, and so put itself in a false position in case of a default by one of the governments which it had helped. Sargent did not want the Financial Committee to be turned into a political body, but did want it, in dealing with matters like the Bulgarian loan negotiations, to give 'due weight' to the political situation.170 What emerges from these somewhat contradictory criticisms is that Sargent did not want the British government to be identified with the Financial Committee, or the League to be any longer actively involved in reconstruction schemes. Salter thought that the Foreign Office wanted to restrict the work of the Economic and Financial Section, and had a 'serious negative attitude' to the League as a whole. Salter was also at this time worried about the effect of American autonomous lending. Other countries were bound to try to follow the Polish example, and the increased availability of American capital meant that the chief reason that had brought countries in difficulties to the League had lost its earlier force. There was a danger of much wasteful and ill-directed borrowing. Salter thought the answer was to bring American banking in some way into the League ambit, by getting an American member on to the Financial Committee, and enlisting the cooperation of the Federal Reserve Bank of New York in influencing American banks.171 Salter consulted Niemeyer and Norman, and the latter, on a visit to the 169 170

171

Niemeyer to Sargent, 21 Mar. 1927, C 3215/48/19, FO 371/12162. Minutes by Sargent, 12 May 1927, on C 4130/117/19, FO 371/12163; 5 Sep., on G 7201/ 1402/7, FO 371/12087; Sargent to Niemeyer, 25 Oct.; Niemeyer to Sargent, 27 Oct.; Sargent to Niemeyer, 7 Nov.; C 8648, 8757/1402/7, FO 371/12088. Salter to Niemeyer, 14 Apr. 1927, Salter to Norman, draft, 29 Apr., LN Arch., S 123.

314

The spread of stability

United States in the summer of 1927, consulted Strong, J.P. Morgan, Leffingwell, and Morrow.172 As a result Jeremiah Smith, who had been controller-general in Hungary, was appointed to the Financial Committee. But it was made clear that the appointment was personal and carried with it no influence, much less control, over the placing of loans on the American market. Morrow wrote to Salter a long exposition of the American position. He thought there was a profound difference of opinion on the practicability of anything like 'control' being exercised by the Financial Committee, and Salter ought to come over to New York and get the views of bankers, especially Strong. Some officials, Hoover in particular, had advocated government control over public loans to foreign countries or foreign nationals, but Morgans had always felt that once government departments entered this field the consequences might be quite different from those intended. And when one entered the international field with an international body, what standards were to be applied? Demoralising as it might be to see bankers making loans to backward countries for improper purposes, cit is a most difficult thing to ascertain what is a proper purpose'. In time investors might withdraw support from bankers who gave them bad advice: this was admittedly a slow remedy, especially when a lot of capital was pressing for investment; but what other practical remedy was there? There were twelve Reserve Banks in the United States, and although cooperation between them was good, largely as a result of Strong's ability and initiative, he did not have anything like the moral control over the New York market as Norman was supposed to have in London. Morrow hoped the Financial Committee of the League would study the whole question of foreign loans and think about setting some standards; but it would not be an easy task. If the bankers were willing to put up their own or their clients' money, how would they regard an attempt by the League of Nations to stop them? American banks tended to act on their own, without cooperating with others in the same business; and Morrow clearly saw no need or possibility that they should change their ways.173 Salter accepted that Jeremiah Smith's influence would be what he could make it. In fact it seems to have been small. Smith did not unlock the doors of American finance and spent much of his time countering British efforts to further the gold-exchange standard. In May 1928 Salter tried to convey to Strong the idea that American lending was excessive and expensive to the receiving countries; but Strong rejected the idea that he could exercise any 172

173

Salter to Norman, 2 Jun. 1927; Salter to Morrow, 9 Jul., LN Arch., S 123; Norman to Strong, 17 Apr., Strong Papers, 1116.7(2). Morrow to Salter, 2 Sep. 1927, Morrow Papers, Salter 1919-27; LN Arch., S 123; Norman to Salter, 6 Sep., ibid.

Monetary stabilisation

315

174

control. At the same time he continued to oppose a bankers' meeting. Strong remained on terms of personal friendship with Norman until his death on 16 October 1928, but the former close collaboration was replaced by a conscious exercise of American predominance and the eclipse of both British and League of Nations influence. 174

Salter to Norman, 10 Sep. 1927, LN Arch., S 123; Costigliola, Politics of Financial Stabilisation, pp. 371-83.

Chapter 9

Reconstructed Europe

The Geneva conference of 1927

On 4 May 1927 an international Economic Conference opened in Geneva. There were present 194 delegates and over 200 experts from fifty states. All the European states were represented except for Spain and Lithuania; almost all the members of the League of Nations sent delegates, and among non-member countries which took part were the United States and the Soviet Union. Officially the conference was regarded as a sequel to the Financial Conference at Brussels in the autumn of 1920. That had been, or was described as, the League's first contribution to postwar reconstruction, the financial sphere being the most pressing one to tackle and agreement on the principles by which governments ought to restore their finances being comparatively easy. There followed the practical work of reconstructing Austria and Hungary: the combination there of doctrine and practice, including balanced budgets, independent central banks, and ending inflation, influenced other countries in gradually restoring their finances. Similar action on getting governments to agree on economic policy was more difficult: the obstacles were greater and involved controversies which, although old, were by no means dead. It would be necessary to wait until currency fluctuations had ceased to be a major factor in international trade, until inter-governmental debts and reparations were no longer at the centre of international attention, and the political situation was favourable. By the autumn of 1925 these conditions seemed to be reasonably well satisfied, and the League Assembly resolved to ask the Council to appoint a committee to prepare for a conference.1 In the minds of the Frenchmen who were the prime movers in getting the conference launched, the aim was not simply international cooperation for its own sake. At a meeting in February 1926 of an inter-ministerial 1

Salter, introduction to League of Nations, The Economic Consequences of the League. The World Economic Conference•, London n.d. [1927], pp. 1—2.

316

The Geneva conference of 1927

317

committee to prepare the French ideas and material for the preparatory committee Loucheur, the chairman, said that the conference must be the first step 'vers une ligue economique des Nations et que le but lointain qu'on ne doit pas perdre de vue est celui de la constitution d'Etats-Unis d'Europe, seule formule economique pouvant lutter effectivement contre les Etats-Unis d'Amerique'. From this point of view there were various long-term problems, notably the dependence of some European countries on food imports from the United States and the threat to France's position from Germany's industrial predominance. That danger, however, might be mitigated by British cooperation, and Loucheur himself was particularly interested in industrial cartels.2 This whole concept was thus a precursor of the proposal for a European Union announced by Briand in September 1929, a proposal that initially had a strong economic impetus.3 Just as, later, the British government opposed Briand's plan of European union, so it was hesitant about an economic conference because it feared an anti-American intent and/or attacks on British commercial policy.4 But a preparatory committee having been decided on, British representatives were sent to it. The first meeting, in April 1926, turned down a suggestion from Loucheur that it should simply draw up a list of topics and leave the full conference, meeting at once, to decide what documentation it wanted. Most representatives believed that success would depend on careful preparation: some contrasted the success (at least in reaching conclusions) of the Brussels conference, which had been well provided with documentation, with the relative failure of Genoa, which had been improvised.5 At its second session the preparatory committee agreed on a compressed but still substantial agenda and adopted a report making it clear that the conference was part of the continuing work of the League rather than the forerunner of some new organisation as had been suggested by some labour members. The same kind of composition was recommended as for the Brussels conference, i.e. delegates appointed by governments but chosen as individuals, so that governments would neither be responsible for opinions expressed nor bound by decisions taken.6 2

3

4

5

6

Meeting of interministerial committee, 26 Feb. 1926; memoranda for French members of the preparatory committee, 12 and 14 Apr., MAE, SDN, Vol. 1195. See RIIA, Survey, 1930, pp. 131-42; F.P. Walters, A History of the League of Nations, London 1952, Vol. 1, pp. 430-4; DBFP, Ser. II, Vol. 1, ch. IV. The plan put forward in 1930 had a more political character. Cabinet, 19 Jan., 3 Feb., 1926, C 1(26), C 3(26), CAB 23/52; FO memorandum, 2 Feb., W 866/521/98, FO 371/11900, and other correspondence in the same file. Board of Trade to FO, 18 May 1926, W 4350/521/98, FO 371/11900; memoranda for the French members of the preparatory committee, 12 and 14 Apr., MAE, SDN, Vol. 1195. Board of Trade to FO, 1 Dec. 1926, W 11204/521/98, FO 371/11901; League of Nations, Preparatory Committee for the International Economic Conference, Preliminary Reports and Memoranda prepared by and submitted to the Preparatory Committee for the International Economic Conference, Geneva 1926-7.

318

Reconstructed Europe

By the time the conference met in May 1927 a formidable quantity of documentation had been produced. There were over forty conference documents on such problems as dumping, limitations on trade, or differential taxation; on particular industries; and on matters concerning labour; and also a number of memoranda by individual experts.7 Basic information provided showed that world population had grown markedly since 1913 and that Europe (except for Russia) had slightly more than made good the losses of the war.8 Raw material production was everywhere higher in 1925 than in 1913, with the greatest increases in the Caribbean, South and North America, and the least in east and central Europe. 9 The volume of world trade was in 1926 about 9 per cent greater than in 1913; but Europe's trade was about 10 per cent less, and east and central Europe's about 25 per cent less. Europe's share in world trade had fallen from 58.5 per cent in 1913 to 47.9 per cent in 1926.10 Although delegates came from all continents, the majority were European, and the discussions reflected a predominantly European standpoint. In his opening speech Theunis, the president, devoted a good deal of attention to the dislocations arising from the economic changes brought about by the war. One of these, trade barriers such as import and export restrictions, occupied a substantial share of the general debate and the work of the commission on commerce as well, and there was general agreement that they were harmful. The final recommendations of the conference condemned such practices and called on governments to adopt, at a further conference in the autumn, a convention to abolish them.11 There was less agreement on tariffs. The draft resolution proposed by the French was so general as to allow the justification of almost any policy: it was criticised by many other delegates, especially the British. By the end most delegates had agreed that the tariffs of other countries were too high, but some saw their own countries' tariffs as the exception that proved the rule. The final report, without entering upon matters of principle, declared that the time had come 'to put an end to the increase in tariffs and to move in the 7

Ibid.; League of Nations, International Economic Conference, Geneva, May 1927, Documentation, Geneva 1926-7. 8 League of Nations, Memorandum on Production and Trade, Submitted to the Preparatory Committee for the International Economic Conference, Geneva 1926, Table 1, does not include population figures for Asia or Africa. A later edition, Memorandum on Production and Trade, 1913 and 1923-7, Geneva 1929, shows a rise for the world of 9 per cent by 1927, and for Europe including Russia of 6.5 per cent. 9 League of Nations, Memorandum on Production and Trade, 1926, Table 1. 10 League of Nations, Memorandum on International Trade and Balances of Payments 1912-1926, Geneva 1927. 11 League of Nations, International Economic Conference, Geneva May 1927. Report and Proceedings, Geneva 1927, Vol. 1, pp. 34-5, 62-3. For an account of the conference and the later one on import and export restrictions see RIIA, Survey, 1929, pp. 91-111.

The Geneva conference of 1927

319

opposite direction', by individual, bilateral, and collective action. The fixing of exaggerated tariffs as a weapon in trade war was condemned, and the conference called on governments to conclude trade agreements that were as comprehensive and permanent as possible, on the basis of unconditional most-favoured-nation treatment guaranteed for a sufficient length of time.12 The report on industry included a commendation of rationalisation, with care taken not to injure the legitimate interests of workers. The resolution on cartels was very guarded, reflecting a considerable difference of views. On the eve of the conference Loucheur had publicly called for trade and industrial amalgamations to come before tariff reductions, and the French draft favoured industrial agreements. Labour delegates feared increased unemployment and advocated international control by some permanent League of Nations organisation. Some industrialists also did not favour wholesale commendation. The final report said that cartels could not be expected to remove the causes of Europe's economic troubles and might be either good or bad depending on the spirit in which they were operated. International supervision was rejected, but the League was advised to observe the working of agreements and to publish information.13 The commission on agriculture spent a good deal of time on the question of low prices, but without coming to a concrete recommendation. The final report recommended the development of cooperatives, the lowest possible tariffs, and the abolition of export prohibitions and duties. A call from some east European countries for an international agricultural credit institution was rejected, but the League was asked to consider the work being done by the International Agricultural Institute.14 In his closing speech on 23 May Theunis stressed liberal internationalism. The conference, he said, had 'recognised the importance, and in some cases the decisive importance, of national considerations, some of which are political and social rather than economic in character', so that policies could not be determined solely by the criterion of 'what would give the maximum prosperity to the world as a whole'. But as its starting-point and angle of approach the conference had felt bound to assume that international trade is itself to be desired; that the exchange of products and services between persons either of the same country or of different countries is normally to the advantage of both parties; that the greater the range of 12

13

14

League of Nations, Report and Proceedings, Vol. 1, p. 41. The controversy over tariffs was hardly reflected in the published proceedings, but see reports in The Times of 11 and 12 May from its special correspondent. League of Nations, Report and Proceedings, Vol. 1, pp. 49-50. Loucheur's call for industrial agreements was made in a statement to the Vossische Zeitung, on 7 April. Cf. The Times, 8 Apr. League of Nations, Report and Proceedings, Vol. 1, pp. 53-4.

320

Reconstructed Europe

exchange of different products between those who by their resources and capacities are best fitted to produce them, the greater is the general economic advantage; and that international exchange of products best and most economically produced in different countries should therefore be regarded as the normal rule. There were practical limitations to the application of this principle, but that 'international trade is normally and properly not a matter of victory or defeat, or profit of one at the expense of the other, but of mutual benefit, had necessarily been the basis of this International Conference'. Experience had shown that, except on the actual scenes of fighting, the destruction caused by the war was much less serious than the dislocations. The main trouble now was neither shortage of natural resources nor inadequate capacity to exploit them, but a series of maladjustments. The main obstacles to revival had been 'hindrances opposed to the free flow of labour, capital and goods'. The removal of these obstacles required concerted international action and a sense of security. 'It is perhaps particularly true of Europe, but also true of the world in general, that without confidence in the continued peace of the world a prosperity corresponding to the real recovery of productive capacity which has taken place since the war cannot possibly be attained.'15 Enlarging on experience since the war, the final report defended the initial attempts to return to prewar conditions as not only natural but wise, since the first task had been to start economic life again. One of the most important difficulties had been disordered public finances and depreciated currencies. At the time of the Brussels conference only four European countries had balanced their budgets: now almost all had done so, and financial instability was no longer a major factor in depressing trade and production. The supply of capital had improved; many extreme forms of obstruction to trade had gone. But Europe was still handicapped in meeting long-term changes, including the development of the rest of the world, which could have been predicted well before the war. Economic efforts ought to be coordinated, but: 'It has to be recognised that the possibility of Europe being organised as an economic unit is more remote than before the war', because of the growth of nationalism and of frontiers. 'Europe urgently needs greater liberty of trade and commerce. In actual fact, this liberty is still less than before the war.'16 The correctness of this analysis of Europe's difficulties is not in question 15 16

League of Nations, Report and Proceedings, Vol. 1, pp. 11—17. League of Nations, Report and Proceedings, Vol. 1, pp. 31-3. In a speech on 6 May (pp. 106-8) Walter Lay ton, the editor of the Economist and one of the British delegates, referred to 11,000 km. of new tariff barriers in Europe. The British delegates reported to the Board of Trade that it was 'not unreasonable' to expect the conference would have some long-term influence: report, 24 May 1927, BT 11/35/CRT 2107/28.

Conclusion

321

here, and since hardly any of the recommendations of the conference were put into effect, their historical interest may seem to be no more than that of the last enunciation of principles whose remaining life span, unknown to or perhaps partly suspected by the participants, was to be very short. Even by the end of 1927 some observers saw European cooperation in decline;17 and although the signature in August 1928 of the Pact for the Renunciation of War18 seemed to belie such fears - marking indeed the high point of public faith in internationalism in the whole interwar period - the economic expansion of the last two or three years soon gave way to depression, heightened economic nationalism, and the abandonment of liberal economic principles. Conclusion The causes of the world depression, and the contribution to it of national policies, are not part of the subject of this study. Stopping, deliberately, before the downturn, it remains to consider to what extent Europe had been reconstructed by 1927 and what part Britain had played, and to make some comparisons with a later period. Defining reconstruction, let alone measuring it, is no easy task. If it meant making good the physical damage of the war and restoring orderly conditions, nationally and internationally, that had, as the conference report said, more or less been done even though some of the soil of northern France could never be ploughed again and replanted forests would take at least one human generation to produce timber once more, and although the national and international financial structures were soon to be revealed as fragile. But even if, in contrast to the years after the Second World War, there was a powerful tendency to wish to return to prewar conditions, there were countries, and groups within all countries, which aspired to something better. The statistics available give a good though not complete picture of European countries' economies in the 1920s, and a measure of changes in such aspects as production, wages, government expenditure, and public health; but they are not easy to 17

18

For example Monnet, who recommended that for the sake of American cooperation the League Council ought to express confidence: Harrison to Norman, 5 Dec. 1927, BE, OV 32/3. A former official of the League of Nations Economic and Financial Organisation wrote at the end of the Second World War that, of the whole interwar period, the years 1927-9 were those most favourable to tariff reduction and closer world economic integration. But even then governments, besides being unwilling to pay the price required to correct the economic isolation they feared, were too inclined to treat trade policy as something independent of general economic policy and underestimated both the magnitude of the task and the scope of the international organisation needed to carry it out. Martin Hill, The Economic and Financial Organisation of the League of Nations, Washington 1946, pp. 53-6. See RIIA, Survey, 1928, pp. 1-47, and below, p. 324.

322

Reconstructed Europe

interpret, and they cannot indicate satisfaction. If Reconstruction' is enlarged to cover the creation of an economy and society not merely a restoration of that existing before the war but better - metaphorically as well as literally replacing the destroyed house with one containing modern conveniences - it would be impossible to find a country in which all were agreed on what was desirable, in which aspiring groups were satisfied with the progress made and previously privileged groups did not feel threatened or deprived. Social discontent and distress were in most countries less than in the chaotic conditions at the end of the war; but few people looked forward with any confidence to their early disappearance. With these caveats in mind, it is worth expanding a little on the figures already quoted. In no European country did the national product not increase from the beginning to the end of the 1920s. Where comparison with 1913 is possible - as for the countries of eastern Europe it unfortunately, of course, is not - only Germany was in 1920 below the 1913 level, presumably because of her territorial losses. Statistics of domestic capital formation are only available for a limited number of countries, but where they exist they mostly show an improvement although a somewhat variable one.19 Production of foodstuffs and raw materials in the whole of Europe including Russia had returned to the 1913 figure by 1925: in east and central Europe excluding Russia it did not do so until 1927; in the rest of Europe it had done so by 1924. Excluding Russia, the production of foodstuffs was slightly above the growth in population. Europe's share of world production of foodstuffs and raw materials also improved in value: in 1927 it was still below that of 1913, but between 1925 and 1929 it improved from 38 per cent to 40.2 per cent.20 Figures for industrial production are less complete, but what there are show growth throughout the 1920s or at least in the second half of the decade.21 Europe's trade as a whole was in 1926 less in value than in 1913, but all European countries' trade increased between 1920 and 1925, and again between 1925 and 1929; and in the last year Belgium, Bulgaria, Denmark, France, Greece, Italy, Norway, Sweden, and Switzerland all had a larger foreign trade than in 1913.22 It can thus be said that Europe had substantially recovered economically 19

20

21 22

Mitchell, European Historical Statistics, Table K 1; Mitchell and Deane, Abstract of British Historical Statistics, p . 375. League of Nations, Memorandum on Production and Trade 1913 and 1923-27; League of Nations, Memorandum on Production and Trade 1925 to 1929-30, Geneva 1931. Mitchell, European Historical Statistics, Table E 1. League of N a t i o n s , Memorandum on Trade and Balances of Payments 1913-1927, Geneva 1928; League of N a t i o n s , Memorandum on International Trade and Balances of Payments 1927-1929, Geneva 1930. For the United Kingdom see pp. 326-7.

Conclusion

323

by 1927, and in some respects earlier; that its growth continued in the second half of the 1920s; and that in some respects it even recovered some of its earlier position in the world economy. In terms of social and political stability, the achievement is not only more difficult to quantify but also more patchy. The prospects for world revolution were probably never as strong in reality as they looked to hopeful revolutionaries and frightened establishments in 1918-19; but they were certainly much less by 1924. Yet whilst for orthodox commentators and some social groups the years of inflation were a time of instability, a measure of inflation was, as has been seen in the case of Germany, good for employment and social peace. The parliamentary systems set up in most of those countries which did not already have them, in imitation of the victorious Allied democracies and Wilsonian principles, had by 1927 in many countries given way to some form of authoritarian regime and were on the way out in others. But the various kinds of royal, military, or clericalist dictatorship were not all necessarily more oppressive of the mass of the population than the bourgeois politicians whom they replaced. Totalitarian regimes were as yet few in number. In terms of international political reconstruction, Europe was undoubtedly a much more secure place than immediately after the peace conference. Of the chief potential sources of danger Germany had returned to the comity of major powers; she had joined the League of Nations; Allied inspection of her fulfilment of the military clauses of the peace treaty was withdrawn in January 1927 and would obviously never be replaced. Reparations were about to be revised again. The aim of substantial territorial revision remained; but Stresemann had convinced his opposite numbers in Britain and France that it would only be pursued peacefully. The years 1927-8 were the heyday of the 'Locarnite' tea-parties at Geneva;23 the limits beyond which revision could not go without endangering the whole structure were not yet apparent. The smaller revisionist countries, Hungary and Bulgaria, were not reconciled but could only be a real danger if supported by a more powerful friend; and Mussolini, who contributed greatly to the breakdown in the 1930s, was as yet following a comparatively cautious policy, threatening Yugoslavia, keeping trouble brewing in the Balkans, contesting French influence, but not yet embarking on adventure.24 The Soviet Union was absorbed in domestic affairs, laying the foundations for the collectivisation of agri23

24

Jacobson, Locarno Diplomacyp, pp. 68-76, 97-8; but Jacobson sees the spirit of Locarno as already in decline in 1927. For a recent discussion of Stresemann's foreign policy see Kriiger, Die Aussenpolitik der Republik von Weimar, pp. 207-18. Alan Cassels, Mussolini's Early Diplomacy, Princeton 1970, pp. 315-97; Giampiero Carocci, La Politica estera dell"Italia fascista, 1925-1928, Bari 1969.

324

Reconstructed Europe

culture and the first Five-Year Plan.25 The long haul towards a disarmament conference began in 1926, and it was still possible to believe the endeavour would succeed. Not everyone shared Arnold Toynbee's views, but he was not flying altogether in the face of the obvious when in 1929 he wrote, of the Kellogg Pact and with the over-arching vision of his Study of History: On the principle that every organism has its specific diseases and every soul its besetting sins, a historian might judge that the institution of war was the deadly disease and the sin against the Holy Ghost of human societies in process of civilisation. By the year 1928 such experimental societies had been trying and failing to pass the level of Primitive Man, rising a little and then falling back again, coming into existence and passing away, for something like six thousand years; and it would appear from the records of the past that almost every defeat of these Sisyphean labours was traceable to the institution of War as its ultimate cause. Were the prospects of success any better in 1928? Toynbee thought it might be so; for unlike previous efforts the movement expressed in the Kellogg Pact neither waited for nor attempted to create a super-state or supra-national authority. Instead it addressed itself to the more difficult but more hopeful task of inducing a plurality of sovereign states to renounce, not their separate existences and not their sovereignty, but the single sovereign prerogative of employing war as an instrument of national policy in their relations with one another. The task was more hopeful because the whole world was now in the embrace of Western society; on the economic plane the unification of mankind was already substantially complete; and if once the fifty-eight sovereign states of the contemporary world made up their minds to honour their engagement and renounced war in their hearts in all sincerity, the subsequent task of rendering the 'Outlawry of War' universal and perpetual might be successfully achieved.26 Two years later, writing of Briand's proposal for a European union, Toynbee was aware that European minds still had to reckon with the possibility that the continent might relapse into a course leading to world war once again. The volume for 1931 opened with the headings: Tart I. The World Crisis, (i) Annus Terribilis 1931'.27 Historians now, whatever they think of war as the sin against the Holy Ghost of civilisation, would probably mostly not agree that the general 25

26

27

E . H . Carr, Foundations of a Planned Economy 1926-1929, 3 vols. in 6, L o n d o n 1969-78; more briefly, Alec Nove, An Economic History of the USSR, Harmondsworth 1969, chs. 6, 7, 8. R I I A , Survey, 1928, p p . 1-10. T h e first volume of T o y n b e e ' s Study of History was published in 1934. RIIA, Survey, 1930, pp. 131-6; 1931, p. 1.

Conclusion

325

breakdown came so abruptly in 1931; but it is of some importance that that was how it could look to a well-informed student of international affairs. If then it can be accepted that Europe was substantially, although not wholly and not securely, 'reconstructed' by about 1927, it remains to consider Britain's part. Despite the fact that this study has largely been concerned with public policy, it has to be stressed again that it was not only a matter of governments and central banks. The 1920s were a time of transition, in which the tendency towards increasing government involvement in the economy had not yet gone very far despite the stimulus given by the war. The level of government involvement varied from one country to another. In the Soviet Union it was very high, even under the New Economic Policy. In some of the states of eastern Europe it was fairly high, because of previous government activity in development, postwar difficulties, and economic nationalism, especially the policy of 'nostrification', bringing under local ownership or control industries, land, financial institutions, which had been (or now were) foreign.28 In western Europe, and the United States, it was fairly low, deliberately reduced at the end of the war and not increased except in the important field of social welfare provision. Indeed, part of the theme of all the discussions of reconstruction at the end of the war was, as the preceding chapters have shown, precisely that government ought not to be involved in financing it: private finance had not only the resources but greater expertise. Some of the consequences of this reliance on the wisdom and skill of private finance have been noted. Only in the Second World War did officials become convinced that private investors could not be relied upon to provide the capital that would be needed for reconstruction and so began to plan the institutions that, adequately or not, filled what had been a gap in post-First World War efforts. Europe largely reconstructed itself, with the help of mainly private capital, domestic and foreign, once the governmental relief programmes were wound up. France had one of the largest tasks, but also greater resources than the poorer countries of eastern Europe. The French government handed out the equivalent of 27,768 million gold francs on reconstruction (nearly 95 per cent of it disbursed by the end of 1927) and received from Germany the equivalent of altogether 9,580 gold marks. At the prewar rate of exchange this meant that the French paid out of their own resources twice as much as they received in reparations.29 All governments, even the least active, were called upon at least to provide the framework - social and financial stability and suitable conditions for trade. 28 29

Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 3-21. Sauvy, Histoire economique, Vol. 2, pp. 258-9; Vol. 3, p. 58.

326

Reconstructed Europe

They were responsible for their debts. A large part of this study has been concerned with inter-governmental indebtedness and with financial stability. Stabilisation was at the centre of British economic policy; and because Britain occupied a position at the centre of world trade and finance, British actions were often crucial for the reconstruction of other countries. But Britain was no longer alone at the centre: another recurrent theme has been the decline of British power, inability or unwillingness to move without the United States, inability to persuade the United States in the direction of cooperation. The very first duty of a government is to its own people; and since Britain was a source of finance and trade for other countries, the extent to which Britain reconstructed herself was important for Europe also. Except in 1921 and 1922, the national income and the income per head of the population were higher throughout the 1920s than in 1913, and growing. Domestic capital formation improved in the second half of the decade. The annual growth rate in the 1920s was about as good as that of the 1890s, and better than for the decade before 1914. But by international standards Britain's growth was below the average of several other advanced western countries. Industrial production grew by 25 per cent from a low figure in 1920 to 1929; but unemployment only fell below 1.2 million (10.6 per cent of insured workers) one year, 1927, to rise again by the end of the decade. Britain's overseas trade never fully returned to the 1913 level: by 1929 imports were higher than in 1913, but exports were consistently less. Much of the loss of exports was due to development in semi-industrial countries such as India; but especially in the 1920s there were signs of a loss of competitive ability in formerly strong markets and in expanding types of industry. And Britain's financial strength was never fully restored.30 In February 1925, in the debate over the return to gold, Niemeyer wrote to Churchill: As a result of war there has been a great decrease in wealth, and there is consequently less effective demand. The only permanent remedy is to recreate the losses of war- really, not merely by manufacturing paper - and what we have to do for this purpose is (1) to stabilise our currency in relation to the main trading currencies of the world, (2) to reconstruct the broken parts of Europe and (3) to encourage thrift and the accumulation of capital for industry. .. We are now trying to put the finishing touches to (1). We have done what we can for (2) - League loans, Dawes, etc. We do all we can for (3) especially by repaying debt and by encouraging a belief that currency will not lose its value.31 30

31

Mitchell and Deane, Abstract of British Historical Statistics, pp. 66-7, 329, 368, 375; Mitchell, European Historical Statistics, Table E 1; Aldcroft, The Interwar Economy, pp. 12-22, 245-50. Niemeyer to Churchill, Feb. 1925, T 172/1499B; Moggridge, British Monetary Policy, p. 77.

Conclusion

327

Niemeyer, then, thought that Britain (or the British government, for that is presumably what he meant by 'we' in this context) had done its bit for European reconstruction. This was perhaps a rather narrow view. Churchill had certainly never agreed that the British government ought to cancel the Allied debts; but on almost any calculation except that of public opinion it must seem that it would have been wise to do so. Any political benefit gained might well have been ephemeral; but if, as was so often said, it would have been in the United States' interest to cancel the debts due to her, the same is presumably true of Britain. Even when they were not being paid, the mass of international indebtedness (equivalent to 65 per cent of the value of world trade in 1913) was a burden on the system; the payments that were made after 1924 distorted the international movement of capital; anything that reduced the burden would have benefited Britain as well as the debtors. Whether a unilateral British cancellation would have made any difference to United States policy may be doubted; but even if Britain had had to settle with the United States on the same terms as she actually did, the larger gap between what she paid and what she received in reparations alone might have been made up in trade. The Bank of England under the autocratic governorship of Montagu Norman pursued above all a policy of monetary stabilisation and the restoration of Britain's financial position in the world. Norman was accused of thinking solely in financial terms at the expense of British industry and trade, all the way from overvaluing sterling in 1925 and so overpricing British exports, to sacrificing the prospects of a British engineering firm aiming for a contract to reconstitute the Romanian railways.32 The gold-exchange standard which he tried to promote was not favoured by many other central bankers. All the same, stabilisation was a desirable goal in the 1920s, and Norman did more than most other central bankers to bring it about with a degree of cooperation. Non-governmental Britain imported more (by value) from Europe in the 1920s than in 1913, thus helping European trade; but imports from Europe formed a slightly smaller proportion of Britain's total imports at the end of the decade. Exports to Europe remained fairly constant.33 The trend towards greater reliance on trade with the Empire, that is associated with the 1930s, began in the 1920s. British capital never went - had never gone since the mid-nineteenth century - as much to Europe as to Empire countries or America. In 1930 58 per cent of Britain's long-term invest32

33

Memorandum by Bateman, 6 Dec. 1928, C 9665/23/92, FO 371/12980. Considering that Norman disliked the Romanian stabilisation scheme, which gave advantages to French industry, this criticism was unfair. Mitchell and Deane, Abstract of British Historical Statistics, pp. 315-26; Ian M. Drummond, British Economic Policy and the Empire, London 1972, pp. 18-22.

328

Reconstructed Europe

ments were in the Empire, 20.8 per cent in South America, and 7.9 per cent in Europe: this compares with 47.3 per cent in the Empire in 1913,18.5 per cent in South America, and 5.8 per cent in Europe. The big difference between 1913 and 1930 was the reduction in investments in the United States, from 20 per cent of the total to 5.4 per cent. Of the £295 million invested in Europe in 1930, approximately half was in railways, public utilities, mining, and other non-governmental stocks.34 As for lending, in the 1920s new overseas issues in London averaged £115 million a year, compared with £200 million in the years immediately before the war. Of overseas government loans issued in London between 1918 and 1931, only in 1918, with a large French government issue, did foreign loans account for more than Empire ones. The virtual embargo on overseas lending was lifted earlier for Empire borrowers than for foreigners, and Empire stocks had a certain advantage in the London market in enjoying trustee status. Between 1928 and 1931 Empire loans of all kinds were consistently about three times as large as all foreign issues.35 For comparison, United States long-term investment in Europe amounted to $4,600.5 million in 1929: the quantity had increased greatly since 1924, but investments in other countries of the western hemisphere were still twice as large.36 But in one particular class of lending Britain surpassed the United States - the League loans. Of a total of £81.2 million subscribed, Britain provided 49.1 per cent, the United States 19.1 per cent.37 Estimates of total European foreign borrowing in the 1920s would be extremely difficult to arrive at and would be at best very approximate. Total international indebtedness has been estimated at £9,500 million in 1924 and £12,000 million in 1932. An estimate of foreign capital employed in different countries in 1930 gives Europe a figure of £1,921 million and other countries £5,712 million. The largest European borrower was certainly Germany, but estimates vary. An official German figure for all kinds of borrowing, long- and short-term, gave a total of between 28.5 and 30 billion Reichsmark at the end of 1930: The Economist arrived at a figure 34

35

36 37

RIIA, The Problem of International Investment, pp. 121, 142-3; Sir Robert Kindersley, 'British overseas investments in 193T, in Economic Journal, 43 (1933), pp. 187-204. Aldcroft, The Inter-War Economy, pp. 264-6; John Atkin, 'Official regulation of British overseas investment, 1914-1931', in Economic History Review, 23 (1970), pp. 324-53; Kindersley, in Economic Journal, 1933. In October 1925 an Overseas Loans subcommittee of the Cabinet, set up to consider Britain's capacity to meet demands for capital and credit at home and abroad, reported that the amount of savings available for investment abroad was less than before the war but the demand was greater than ever. Dominion and colonial governments enjoyed an advantage in the London markets, and no other discrimination between borrowers was either desirable or practicable: CR(H) 31, 16 Oct. 1925, CAB 58/9. Lewis, America's Stake in International Investments, p . 606. RIIA, The Problem of International Investment, p. 232.

Conclusion

329

of 25 billion. The largest source of all loans, long- and short-term, was the United States, with 55.2 per cent of the long-term loans and 26.2 per cent of the short-term ones extant in 1931. The Netherlands provided slightly more than Britain.38 Estimates of the effect of all the borrowing and lending are even more difficult to make. To an investor or a banker a sound investment was simply one that produced an adequate return. Much of the argument about whether the borrowing by German state and municipal authorities was 'productive' was essentially political, although neither Schacht nor Parker Gilbert would have said so. Much of it expressed different attitudes to work creation - housing and improvements in utilities, which helped businesses as well as providing employment.39 It was being suggested in 1927, and has been argued since, that the burden of servicing the loans they contracted was too heavy for the eastern European countries, so that there would have been problems with payments even without thefinancialcrisis and the depression. If that is so, an assertion that the London market ought to have provided more capital for Europe, and in particular for the less advanced countries, becomes hard to sustain. What British authorities did do showed a quite enlightened self-interest - that 'benevolence tempered with caution' adopted by Niemeyer towards Greece in 1923. The enlightenment is more perceptible in relation to central and eastern Europe than over war debts and reparations. Considering how much greater the British interest was in the latter problem, this may be surprising. Perhaps the explanation is that the former cases were not very expensive, whilst in the latter the costs, on paper even if not in the long run, seemed unacceptably high. It is tempting to conclude the Britain both should and could have done more for the reconstruction of Europe, but to do so is perhaps to fall into the trap of supposing that a major power can do anything if it has the will and that had Britain done more it would have been decisive. Neither proposition is necessarily true. British financial and commercial policy in the 1920s was possibly too internationalist for the good of the British economy: a greater effort in Europe might have led to an even earlier decline.40 The judgment should perhaps be less dramatic: Britain's failure was not so much lack of generosity as lack of understanding of her own situation and inability to adopt any clear policy. Consideration of the story of European reconstruction after the First World War inevitably invites comparison with efforts after the Second. It 38

39 40

Ibid., pp. 2 2 1 - 3 ; C.R.S. Harris, Germany's Foreign Indebtedness, L o n d o n 1935, pp. 7-9, 95; Economist, Reparations and War D e b t s Supplement, 23 Jan. 1932, p. 11. McNeil, American Money and the Weimar Republic, pp. 122-32, 180-91. For this problem see Boyce, British Capitalism at the Crossroads, passim.

330

Reconstructed Europe

seems plain that the latter were much more successful. Five years after the end of the Second World War western Europe was launched on one of the longest periods of sustained high economic growth in modern history. Twelve years or so after 1918 Europe and the world fell into one of the deepest and longest-lasting depressions in modern history. It is possible, without embarking on an examination of the causes of the boom of the 1950s, or the reasons why Europe failed in the late 1920s to sustain the recovery that had taken place, to point to certain differences between the circumstances and the policies followed in the two postwar periods. In the first place, after the First World War the bulk of relief was supplied on credit. Leaving aside Germany, which received nearly six times as much in gifts as in relief loans, the totals for other European countries were: cash $94 million, relief loans $947 million. These loans added to the burdens of the receiving countries, and those that were not repaid formed an obstacle to later borrowing for development. After the Second World War UNRRA distributed $3,968 million worth of resources, mostly as gifts. The United States contributed 74 per cent of the total, Britain nearly 16 per cent. The aid took the form of direct relief in food, clothing, and medical supplies, about 60 per cent, and then of rehabilitation resources such as tractors, fertilisers, and lorries. On top of this, immediately after the war a number of credits were granted; the total recorded at the beginning of 1947 was $377 million. More than half came from the United States and most of the money was governmental.41 Another significant difference between the two wars and postwar periods is the absence, the second time, of inter-Allied war debts. Intergovernmental borrowing for war purposes was replaced, as a matter of policy, by Lend-Lease and mutual aid. Lend-Lease did not altogether abolish the normal obligation to pay for goods and services, but suspended it for the duration of the war; and most importantly it was agreed that goods consumed or destroyed in fighting the war should not be counted. Thus in the final accounting between the United States and Britain, who was the chief recipient of Lend-Lease supplies, some $26-7 billion worth of United States aid was written off, leaving a liability of only $650 million to be paid off over fifty years. Although, once Lend-Lease ended in 1945, Britain in particular had to contract a large loan in the United States, the burden of debt incurred in the common cause did not hang over the international payments system and cause resentment a second time.42 41

42

For relief after the First World War see League of Nations, Relief Deliveries and Relief Loans, Geneva 1943, Table IV. For UNRRA see RIIA, Survey, 1939-1946. The Realignment of Europe, pp. 51-125; Alan S. Milward, The Reconstruction of Western Europe 1945-1951, London 1984, pp. 477-9; Kaser and Radice, Economic History of Eastern Europe, Vol. 2, pp. 521-7. For Lend-Lease see RIIA, Survey, 1939-1946. America, Britain and Russia, pp. 782-6; Alan S. Milward, War, Economy and Society 1939-1945, London 1977, pp. 71-3.

Conclusion

331

Western Europe's recovery after 1947 is often attributed to the Marshall Plan, to which there was no equivalent after the First World War. The European Recovery Programme was undoubtedly very important in providing dollars which could be recycled and so relieved participating countries of the necessity of trying to run a balance of payments surplus with the United States. It contributed to the revival of trade, the restoration of production, and the control of inflation. But the programme did not transform the task of reconstruction, nor, except in a few cases, did it represent a very large proportion of the receiving countries' national income. And it did not apply to eastern Europe at all.43 One of the substantial differences between the two periods relates to Germany. Not that Germany was initially better treated on the second occasion: on the contrary the Potsdam decision not to allow the Germans a higher standard of living than the average for the whole of Europe, and the Level of Industry Plan adopted by the occupying powers in 1946, were draconian. The decisions were politically necessary, but did not help European reconstruction. Once it was politically possible to reverse the decisions, it was easier for the western occupying powers to do so, and instead to encourage the western zones to recover, because the burdens on Germany were not written into an international treaty. The burdens laid on Germany after the First World War were contained in the Treaty of Versailles and were therefore more difficult to revise. Anglo-American policy on reparations in and after 1945 was inspired by unhappy memories of the problems after 1919. The reality turned out different again, so the two experiences cannot very usefully be compared.44 Some of the differences in policies adopted after the Second World War were the result of learning from previous experience, but much was due to a change in outlook, especially in the United States but also in Britain. Not only did Franklin D. Roosevelt resolve that this time the United States must accept and exercise the responsibility of her enormous power, the whole attitude to government action had changed. The extent of the change of outlook may sometimes be exaggerated. At Bretton Woods in 1944 it was agreed to set up the World Bank and an International Monetary Fund for the purposes of providing services and funds which had been lacking after the First World War, and of facilitating the restoration of an 43

44

See Milward, Reconstruction of Western Europe, pp. 43-5, 90-113; Hogan, The Marshall Plan, pp. 430-2. For the Potsdam decisions, the Level of Industry plan, and early experience of reparations see RIIA, Survey, 1939-1946. America, Britain and Russia, pp. 724-33; RIIA, Survey, 1939-1946. Four-Power Control in Germany and Austria 1945-1946, pp. 80-90, 126-43, 162-9. The French government did not agree with the Anglo-American change of policy and wished to continue something much more like French post-1918 policy, but its voice did not carry so much weight the second time: see F. Roy Willis, France, Germany and the New Europe, Stanford and Oxford 1965, ch. 1.

332

Reconstructed Europe

international payments and trading system. But these institutions were still to be largely based on private finance. The Americans attempted to impose on their allies ideas about a multilateral world trading system that were not wholly relevant to the actual situation.45 Nevertheless the contrast in willingness to act quickly, and for government in particular to take early initiatives, is striking. Private capital was no longer expected to be able to do the work; and in fact private American investment in Europe immediately after the war was no higher than in the 1930s. But in the two years from July 1945 to July 1947 the United States government disbursed in Europe in one way or another $12,158 million.46 It cannot be said that Europe after 1945 was a more peaceful place in which to carry out reconstruction than it was after 1918. But the tensions after 1945 were not so much among European countries as between the superpowers and what came to be the two blocs. Tensions within the latter were not absent, but as a result of disastrous experience belief in cooperation was stronger; and perceived necessity bred a higher level of cooperation in western Europe than after 1918. In eastern Europe each country dealt individually with its great patron, but none was able to quarrel too seriously with its fellows. The tools used in reconstruction after the Second World War were in many respects different from those used after the First. Not the least important change was in ideas. 45

46

For Bretton Woods see RIIA, Survey, 1939-1946. America, Britain and Russia, pp. 44852; Milward, Reconstruction of Western Europe, pp. 43-5. Milward, Reconstruction of Western Europe, p p . 4 5 - 8 ; R I I A , Survey, 1939-1946. America, Britain and Russia, p p . 448—52. M o s t of the m o n e y flowed back across the Atlantic in p a y m e n t for imports, but it was put in and put in early.

Bibliography

I. MANUSCRIPT SOURCES I.

PUBLIC ARCHIVES

Austria Haus-, Hof- und Staatsarchiv, Vienna Allgemeines Verwaltungsarchiv Neues Politisches Archiv France Archives Nationales, Paris Commission Interallied des Reparations Delegation franchise a la Commission des Reparations Ministere du Commerce Ministere des Affaires Etrangeres Serie Amerique 1918-40 Serie Europe 1918-40 Serie Guerre 1914-18 Serie Paix Serie Relations Commerciales 1919-40, Sous-serie internationales Serie SDN 1917-40 Serie Y Internationale 1918-40 Papiers d*Agents: Papiers Avenol, Herriot, Millerand Ministere des Finances

B.81

Deliberations

Germany Politisches Archiv des Auswartigen Amtes, microfilms in Public Record Office, London League of Nations League of Nations Archives: Series 1919-27 333

334

Bibliography

United Kingdom Public Record Office, London Board of Trade Cabinet Office Cabinet minutes Cabinet memoranda Cabinet committees Imperial conferences Allied conferences International conferences Hankey Papers Registered files Foreign Office General correspondence, political General correspondence, commercial Peace conference of 1919-20, correspondence Private collections Treasury Treasury Board Finance Department Chancellor of the Exchequer's Office, miscellaneous British Delegation, Reparation Commission Niemeyer Papers Board of Trade, correspondence United States National Archives, Washington Department of Commerce Department of State Department of the Treasury

2.

PRIVATE ARCHIVES

France Bibliotheque Nationale: Papiers Poincare United Kingdom Bank of England archives Baring Brothers and Co. archives University of Birmingham: Austen Chamberlain Papers Bodleian Library Asquith Papers R.H. Brand Papers Grigg Papers (microfilm) Worthington-Evans Papers

Bibliography

335

British Library Balfour Papers Cecil of Chelwood Papers Curzon Papers (India Office Library) British Library of Political and Economic Science: McFadyean Papers Cambridge University Library: Baldwin Papers Churchill Collage, Cambridge Hankey Papers Swinton Papers House of Lords Record Office Bonar Law Papers Davidson Papers Lloyd George Papars Morgan Grenfell and Co. archives United States Amherst College Library: Dwight W. Morrow Papers Library of Congress, Washington Norman H. Davis Papers Charles Evans Hughes Papers Russell C. Leffingwell Papers William Gibbs McAdoo Papers Federal Reserve Bank of New York: archives Benjamin Strong Papers Harvard Business School, Baker Library: Thomas W. Lamont Papers Princeton University Library: Fred I. Kent Papers Yale University Library: Russell Cornell Leffingwell Papers Paul M. Warburg Papers

II.

PRINTED SOURCES

Belgium Ministere des Affaires Etrangeres. Documents diplomaticues relatifs aux reparations, du 26 decembre 1922 an 27 aout 1923. Brussels 1923. France Calmette, Germain. Recueil de documents sur Vhistoire de la question des reparations (1919-5 mai 1921). Paris 1924. Ministere des Affaires Etrangeres. Documents diplomatiques. Conference economique internationale de Genes, 9 avril-19 mai 1922. Paris 1922. Documents diplomatiques. Documents relatifs aux notes allemandes des 2 mai et 5 juin 1923 sur les reparations (2 mai-3 aout 1923). Paris 1923. Documents diplomatiques. Reponse du gouvernement franqais a la lettre du gouvernement britannique sur les reparations, 20 aout 1923. Paris 1923.

336

Bibliography

Documents relatifs aux negotiations concernant les garanties de securite contre une agression de VAllemagne, 1 Janvier 1919—7 decembre 1923. Paris 1924. Documents relatifs aux reparations. Vol. 1. Paris 1922. Germany Auswartiges Amt. Akten zur deutschen auswdrtigen Politik 1918-45. Serie B (1925-33). Gottingen 1966ff. Reichskanzlei. Akten der Reich skanzlei, Weimarer Republik. Herausgegeben fur die Historische Kommission bei der Bayerischen Akademie der Wissenschaften von Karl Dietrich Erdmann, fur das Bundesarchiv von Wolfgang Mommsen und Walter Vogel. Boppard am Rhein 1968ff. Das Kabinett Fehrenbach. 25. Juni 1920 bis 4. Mai 1921. Die Kabinette Wirth I u. II. 10. Mai 1921 bis 22. November 1922. Das Kabinett Cuno. 22. November 1922 bis 12. August 1923. Die Kabinette Stresemann. 13. August bis 6. Oktober 1923, 6. Oktober bis 30. November 1923. Die Kabinette Marx I u. II. 30. November 1923 bis 3. Juni 1924,3. Juni 1924 bis 15.Januarl925. Die Kabinette Luther I u. II. 15. Januar 1925 bis 20. Januar 1926, 20. Januar bis 17. Mai 1926. Statistisches Reichsamt. Statistischesjahrbuch fur das Deutsche Reich. Volumes for 1920-7. Berlin 1920-7. League of Nations Brussels Financial Conference 1920. The Recommendations and their Application. Geneva 1922. Bulgarian Stabilization Loan. Protocol and Annexes approved by the Council of the League of Nations and signed on behalf of the Bulgarian Government on March 10th, 1928, with the relevant public documents. Geneva 1928. The Economic Consequences of the League: The World Economic Conference. With an introduction by Sir Arthur Salter. London n.d. [1927]. The Economic Situation of Austria. Report by W.T. Layton and C. Rist. Geneva 1925. Europe's Overseas Needs and how they were met. Geneva 1943. The Financial Reconstruction of Austria. General Survey and Principal Documents. Geneva 1926. The Financial Reconstruction of Hungary. General Survey and Principal Documents. Geneva 1926. Greek Stabilization and Refugee Loan. Protocol and Annexes. Approved by the Council of the League of Nations and signed on behalf of the Hellenic Government on September 15th, 1927. Geneva 1927. Industrialization and Foreign Trade. Geneva 1945. International Credits (the 'Ter Meulen* Scheme). London 1921. International Economic Conference, Geneva, May 1927. Documentation. AA parts. Geneva 1926-7.

Bibliography

337

International Economic Conference, Geneva, May 1927. Report and Proceedings of the World Economic Conference. 2 vols. Geneva 1927. International Financial Conference, Brussels. Report of the Advisory Committee. Geneva 1920. International Financial Conference, Brussels 1920. Documents. Brussels 1920. International Financial Conference, Brussels 1920. Proceedings. 3 vols. London 1920. International Financial Conference, Brussels 1920. Report. Brussels 1920. Memorandum on International Trade and Balances of Payments 1912—26. 2 vols. Geneva 1927. Memorandum on Production and Trade. Submitted to the Preparatory Committee for the International Economic Conference. Geneva 1926. Memorandum on Production and Trade 1913 and 1923-27. Geneva 1929. Memorandum on Production and Trade 1925 to 1929-30. Geneva 1931. Memorandum on Trade and Balances of Payments 1913-27. Geneva 1929. Official Journal Geneva 1920ff. Preliminary Reports and Memoranda prepared by and submitted to the Preparatory Committee for the International Economic Conference. Geneva 1926-7. Relief Deliveries and Relief Loans. Geneva 1943. Report of the Financial Committee of the League of Nations on the Economic and Financial Situation of Esthonia. Geneva 1925. Report and Papers relative to the Financial Reconstruction of Austria. Geneva 1921. The Restoration of Austria. Agreements arranged by the League of Nations and signed at Geneva on October 4th, 1922, with the relevant documents and public statements. Geneva 1922. Scheme for the Settlement of Bulgarian Refugees. General description and principal documents. Geneva 1926. Settlement of Greek Refugees. Scheme for an international loan. Protocol and documents. Geneva 1924. The Transition from War to Peace Economy. Geneva 1943. Paris Peace Conference Mantoux, Paul. Les Deliberations du Conseil des Quatre (24 mars-28 juin 1919). 2 vols. Paris 1955. Recueil des Actes de la Conference. 39 vols. Paris 1922-35. Reparation Commission Report of the First Committee of Experts. Paris 1924. United Kingdom British and Foreign State Papers. London 184Iff. Documents on British Foreign Policy 1919-39, ed. E.L. Woodward and Rohan Butler, and others. Series I, Series IA. London 1947ff. The Parliamentary Debates, Official Report. 5th series. House of Commons. The Parliamentary Debates. Official Report. 5th series. House of Lords.

338

Bibliography

Parliamentary Papers: 1916 Cd 8271. Recommendations of the Allied Economic Conference, Paris, 14-17 June, 1916. 1917 Cd 8566. Imperial War Conference, 1917. Extracts from Minutes of Proceedings and Papers laid before the Conference. 1918 Cd 9033. Committee on Commercial and Industrial Policy. Interim Report on the importation of goods from the present enemy countries after the war. Cd 9034. Committee on Commercial and Industrial Policy. Interim Report on the treatment of exports from the United Kingdom and the British Overseas Possessions and the conservation of the resources of the Empire during the transitional period after the war. Cd 9035. Committee on Commercial and Industrial Policy. Final Report of the Committee on Commercial and Industrial Policy after the War. 1920 Cmd 521. Economic Conditions in Central Europe (I). Despatch from Sir W. Goode. Cmd 641. Economic Conditions in Central Europe (II). Cmd 646. Declaration of the Supreme Council of the Peace Conference on the Economic Conditions of the World. 1921 Cmd 1325. Protocols and Correspondence between the Supreme Council and the Conference ofAmbassadors and the German Government and the German Peace Delegation between January 10, 1920 and July 17, 1920, respecting the execution of the Treaty of Versailles ofJune 28, 1919. Cmd 1547. Papers relating to the Agreement between the French and German Governments concerning the application of Part VIII of the Treaty of Versailles regarding deliveries in kind. 1922 Cmd 1614. Memorandum circulated by the Prime Minister on March 25th, 1919. Some Considerations for the Peace Conference before they finally draft their Terms (The Fontainebleau Memorandum). Cmd 1667. Papers relating to the International Economic Conference, Genoa, April-May 1922. Cmd 1737. Despatch to the Representatives of France, Italy, Serb-Croat-Slovene State, Roumania, Portugal and Greece at London respecting War Debts. Cmd 1742. Correspondence between His Majestyys Government and the French Government respecting the Genoa Conference. 1923 Cmd 1812. Inter-Allied Conferences on Reparations and Inter-Allied Debts. Held in London and Paris, December 1922 and January 1923. Reports and Secretariesy Notes of Conversations. Cmd 1814. Lausanne Conference on Near Eastern Affairs 1922-1923. Records of Proceedings and Draft Terms of Peace. Cmd 1912, American Debt. Arrangements for the Funding of the British Debt to the United States of America. Cmd 1943. Correspondence with the Allied Governments respecting reparation payments by Germany. 1924 Cmd 2105. Reparations. Reports of the Expert Committees appointed by the Reparation Commission.

Bibliography

339

Cmd 2270. Proceedings of the London Reparation Conference July and August 1924. 1925 Cmd 2570. Treaty of Commerce and Navigation between the United Kingdom and Germany, and Additional Protocol. Signed at London, December 2, 1924. 1926 Cmd 2580. Agreement for the Settlement of the War Debt of Italy to Great Britain. Cmd 2692. Agreement for the Settlement of the War Debt of France to Great Britain, with an exchange of letters between the Chancellor of the Exchequer and the French Minister of Finance. 1927 Cmd 2791. Portuguese War Debt. Agreement for the Settlement of the War Debt of Portugal to Great Britain. Cmd 2848. Greek War Debt. Agreement for the Settlement of the War Debt of Greece to Great Britain. With an exchange of letters between the Chancellor of the Exchequer and the Greek Minister in London. Cmd 2973. Serb-Croat-Slovene War Debt. Agreement for the Settlement of the War Debt of the Serb-Croat-Slovene Kingdom to Great Britain. Cmd 2990. Roumanian War Debt. Agreement, dated the 19th of October, 1925, for the Settlement of the Roumanian War Debt to Great Britain.

United States Congress. Congressional Record. Senate. Committee on the Judiciary. Loans to Foreign Governments. Resume of the laws under which loans were made to foreign governments during and since the war, and the main features of the loans as disclosed by correspondence between the President, the State Department, the Treasury Department and foreign governments, submitted to the Committee on the Judiciary. (67th Congress, 2nd session, Senate Documents, Vol. 1). Washington 1921. Senate. Hearings before the Committee on Finance on S.2135. Refunding of Foreign Obligations. Washington 1921. Department of State. Papers Relating to the Foreign Relations of the United States. Washington 1862ff. Treasury. Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year ended June 30, 1920. (66th Congress, House Documents, Vol. 2). Washington 1921. Wilson, T. Woodrow. The Papers of Woodrow Wilson, ed. Arthur S. Link and others/Princeton 1966ff. The Public Papers of Woodrow Wilson, ed. Ray Stannard Baker and William E. Dodd. New York 1927. War and Peace. Presidential Messages, Addresses and Public Papers (1917-24). New York 1927. World War Foreign Debt Commission. Combined Annual Reports. Washington 1927.

340

Bibliography

USSR Soviet Documents on Foreign Policy, ed. Jane Degras, Vol. 1, London 1951.

III. BOOKS AND ARTICLES CITED Abrahams, Paul P. 'American bankers and the economic tactics of peace: 1919', in Journal of American History, 56 (1969-70), pp. 572-83. Aldcroft, Derek H. The Inter-War Economy: Britain 1919-1939. London 1970. Amery, L.S. The Leo Amery Diaries. Vol. 1,1896-1929, ed. John Barnes and David Nicholson. London 1980. Artaud, Denise. 'Die Hintergrunde der Ruhrbesetzung 1923. Das Problem der interalliierten Schulden', in Vierteljahrshefte fur Zeitgeschichte, 27 (1979), pp. 241-59. La Question des dettes interalliees et la reconstruction de VEurope 1917-1929. Lille and Paris 1978. Atkin, John. 'Official regulation of British overseas investment, 1914-1931', in Economic History Review, 23 (1970), pp. 324-35. Baker, Ray Stannard. Woodrow Wilson, Life and Letters. 8 vols. Garden City, N.Y. 1927-39. Woodrow Wilson and World Settlement. 3 vols. Garden City, N.Y. 1922. Bane, Suda Lorena, and Lutz, Ralph Has well, eds. Organisation of American Relief in Europe. Stanford 1943. Bariety, Jacques. Les Relations franco-allemandes apres la premiere guerre mondiale. Paris 1977. Barros, James. The Corfu Incident of 1923. Mussolini and the League of Nations. Princeton 1965. The League of Nations and the Great Powers. The Greek-Bulgarian Incident, 1925. Oxford 1970. Beloff, Max. Imperial Sunset. Vol. 1, Britain's Liberal Empire 1897-1921. London 1969. Berghahn, Volker R., and Kitchen, Martin, eds. Germany in the Age of Total War. London 1981. Blake, Robert. The Unknown Prime Minister. London 1955. Bonwetsch, Bernd. Kriegsallianz und Wirtschaftsinteressen. Russland in den Wirtschaftspldnen Englands undFrankreichs 1914-1917. Diisseldorf 1973. Bournazel, Renate. Rapollo: Naissance d'un mythe. Paris 1974. Boyce, Robert W.D. British Capitalism at the Crossroads, 1919-1932. A study in politics, economics, and international relations. Cambridge 1987. Boyle, Andrew. Montagu Norman, a Biography. London 1967. Bunselmeyer, Robert E. The Cost of the War 1914-1919. British Economic War Aims and the Origins of Reparation. Hamden, Conn. 1975. Burk, Kathleen. Britain, America and the Sinews of War 1914-1918. London 1985. 'Diplomacy and the private banker; the case of the House of Morgan', in Gustav Schmidt, ed. Konstellationen internationaler Politik. Bochum 1983. Morgan Grenfell 1838-1988: The Biography of a Merchant Bank. Oxford 1989.

Bibliography

341

Burnett, Philip Mason. Reparation at the Paris Peace Conference. From the standpoint of the American Delegation. New York 1940. Calmette, Germain, see Section II, France. Campbell, John, and Sherrard, Philip. Modern Greece. London 1968. Carmi, Ozer. La Grande-Bretagne et la Petite Entente. Geneva 1972. Carocci, Giampiero. La Politica estera dell3Italia fascista 1925-1928. Bari 1969. Carosso, Vincent P. The Morgans, Private International Bankers 1854-1913. Cambridge, Mass. 1987. Carr, E.H. A History of Soviet Russia: The Bolshevik Revolution. 3 vols. London 1950-3. Foundations of a Planned Economy 1926-1929. 3 vols. in 6. London 1969-78. Carsten, F.L. The First Austrian Republic 1918-1938: A Study Based on British and Austrian Documents. Aldershot 1986. Cassels, Alan. Mussolini*s Early Diplomacy. Boston 1970. Chandler, Lester V. Benjamin Strong, Central Banker. Washington 1958. Churchill, Randolph S. Lord Derby, 'King of Lancashire'. London 1959. Clarke, Stephen V.O. Central Bank Cooperation 1924-1931. New York 1967. The Reconstruction of the International Monetary System. The Attempts of 1922 and 1933. Princeton 1973. Clay, Sir Henry. Montagu Norman. London 1957. Clementel, Etienne. La France et lapolitique economique interalliee. Paris 1931. Conte, Francis. 'Lloyd George et le traite de Rapallo', in Revue d'histoire moderne et contemporaine, 23 (1976), pp. 44-67. Costigliola, Frank. 'American foreign policy in the "Nut Cracker": The United States and Poland in the 1920s', in Pacific Historical Review, 48 (1979), pp. 85-105. 'Anglo-American financial rivalry in the 1920s', in Journal ofEconomic History, 37 (1977), pp. 911-34. Awkward Dominion. American Political, Economic and Cultural Relations with Europe, 1919-1933. Ithaca 1984. 'The Politics of Financial Stabilisation: American reconstruction policy in Europe 1924-30', Ph.D. dissertation, Cornell University 1973. Cottrell, P.L. 'Aspects of western equity investment in the banking systems of east central Europe', in Alice Teichova and P.L. Cottrell, eds. International Business and Central Europe 1918-1939. Leicester 1983. Cross, J.A., Lord Swinton. Oxford 1982. Czada, Peter. 'Grosse Inflation und Wirtschaftswachstum', in Hans Mommsen, Dietmar Petzina, and Bernd Weisbrod, eds. Industrielles System undpolitische Entwicklung in der Weimarer Republik. Diisseldorf 1974. D'Abernon, Edgar Vincent, Viscount. An Ambassador of Peace. Lord D'Abernon 's Diary. 3 vols. London 1929-30. Davidson, J.C.C. Memoirs of a Conservative, ed. Robert Rhodes James. London 1969. Davies, Norman. 'Lloyd George and Poland 1919-20', in Journal ofContemporary History, 6 (1971), pp. 132-54. Dockrill, Michael L., and Goold, J. Douglas. Peace without Promise. Britain and the Peace Conferences 1919-23. London 1981.

342

Bibliography

Drummond, I.M. British Economic Policy and the Empire. London 1972. Dulles, Eleanor Lansing. The French Franc 1914-1928. The Facts and their Interpretation. New York 1929. Duroselle, Jean-Baptiste. 'Strategic and economic relations during the First World War', in Neville Waites, ed., Troubled Neighbours. Franco-British Relations in the Twentieth Century. London 1971. The Economist. Reparations and War Debts. Supplement to The Economist, 26 January 1932. Egerton, George W. 'Britain and the "Great Betrayal": Anglo-American relations and the struggle for United States ratification of the Treaty of Versailles', in Historical Journal, 21 (1978), pp. 885-911. Great Britain and the Creation of the League of Nations. Strategy, Politics and International Organisation 1914-1919. London 1979. Enssle, Manfred J. Stresemann's Territorial Revisionism. Germany, Belgium and the Eupen-Malmedy Question 1914-1919. Wiesbaden 1980. Eyck, Erich. A History of the Weimar Republic. 2 vols. Cambridge, Mass. 1962-3. Fink, Carole. The Genoa Conference. European Diplomacy 1921—1922. Chapel Hill 1984. Fry, Michael G. Illusions of Security. North Atlantic Diplomacy 1918-22. Toronto 1972. Gescher, Dieter B. Die Vereinigten Staaten von Nordamerika und die Reparationen 1920-1924. Bonn 1956. Gilbert, Martin. Winston S. Churchill. Vol. 4 and companion volumes, Vol. 5. London 1975-7. Grigg, P.J. Prejudice and Judgment. London 1948. Hancock, W.K. Survey of British Commonwealth Affairs. Vol. 2, Problems of Economic Policy 1918-1939. Part I. London 1940. Hardach, Karl. 'Zur zeitgenossischen Debatte der National-okonomen iiber die Ursachen der deutschen Nachkriegsinflation', in Hans Mommsen, Dietmar Petzina, and Bernd Weisbrod, eds. Industrielles System und politische Entwicklung in der Weimarer Republik. Diisseldorf 1974. Harris, C.R.S. Germany's Foreign Indebtedness. London 1935. Hawley, Ellis W., ed. Herbert Hoover as Secretary of Commerce. Studies in New Era Thought and Practice^. Iowa City 1981. Hewins, W.A.S. The Apologia of an Imperialist. London 1929. Hill, Martin. The Economic and Financial Organisation of the League of Nations. Washington 1946. Hogan, Michael J. Informal Entente. The Private Structure of Cooperation in Anglo-American Economic Diplomacy 1918—1928. Columbia, Mo. 1977. The Marshall Plan. America, Britain and the Reconstruction of Western Europe, 1947-1952. Cambridge 1987. 'The United States and the problem of international economic control: American attitudes to European reconstruction, 1918-20', in Pacific Historical Review, 94 (1975), pp. 84-103. Holtfrerich, Carl-Ludwig. The German Inflation 1914-1923. Causes and Effects in International Perspective. Berlin 1986.

Bibliography

343

Hoover, Herbert. The Memoirs of Herbert Hoover. 3 vols. New York 1951-2. Horn, Norbert, and Kocka, Jiirgen, eds. Recht und Entwicklung der Grossunternehmen im 19. und fruhen 20. Jahrhundert. Gottingen 1979. Howson, Susan. T h e origins of dear money, 1919-20', in Economic History Review, 27 (1974), pp. 88-107. Imperial Mineral Resources Bureau. The Mineral Industry of the British Empire and Foreign Countries. London 1921. Jacobson, Jon. Locarno Diplomacy. Princeton 1972. 'Strategies of French foreign policy after World War F, in Journal of Modern History, 55 (1983), pp. 78-95. Johnson, Paul Barton. Land Fit for Heroes. The Planning of British Reconstruction 1916-1919. Chicago 1968. Jones, Thomas. 'Bonar Law', in Dictionary of National Biography 1922-30. Oxford 1937. Whitehall Diary. 3 vols. London 1969-71. Jordan, W.M. Great Britain, France and the German Problem 1918-1939. London 1943. Kaser, M.C., and Radice, E.A., eds. The Economic History of Eastern Europe 1919-1976. Vols. 1-2. Oxford 1985-7. Kennedy, Paul. The Rise of the Anglo-German Antagonism 1860-1914. London 1980. Kerekes, Lajos. Von St Germain bis Genf. Osterreich und seine Nachbarn 19181922. Vienna, Cologne, and Graz 1979. Kernek, Sterling J. Distractions of Peace during War. The Lloyd George Government's reactions to Woodrow Wilson, December 1916-November 1918. Philadelphia 1975. Keynes, John Maynard. The Collected Writings ofJ.M. Keynes. 29 vols. London 1971-83. Economic Consequences of the Peace. London 1920. Kindersley, Sir Robert. 'British overseas investments in 1931', in Economic Journal, 43 (1933), pp. 187-204. Kiraly, Bela, Pastor, Peter, and Sanders, Ivan, eds. War and Society in Central Europe. Vol. 6, Essays on World War I; Total War and Peacemaking. A Case Study on Trianon. New York 1982. Klotz, Louis. De la guerre a lapaix. Paris 1924. Kooker, Judith L. Trench financial diplomacy: the interwar years', in Benjamin M. Rowland, ed. Balance of Power or Hegemony: The Interwar Monetary System. New York 1976. Kriiger, Peter. Die Aussenpolitik der Republik von Weimar. Darmstadt 1985. Kuisel, Richard F. Capitalism and the State in Modern France. Renovation and Economic Management in the Twentieth Century. Cambridge 1981. Ladner, Gottlieb. Seipel als Uberwinder der Staatskrise vom Sommer 1922. Vienna and Graz 1964. Laubach, Ernst. Die Politik der Kabinette Wirth 1921-22. Lubeck 1968. Leffler, Melvyn P. 'American policy making and European stability 1921-1933', in Pacific Historical Review, 46 (1977), pp. 207-28.

344

Bibliography

The Elusive Quest. America3s Pursuit of European Stability and French Security, 1919-1923. Chapel Hill 1979. 'The origins of Republican war debt policy 1921-23', in Journal of American History, 59 (1972), pp. 585-601. Lewis, Cleona. America's Stake in International Investments. Washington 1938. Link, Werner. Die amerikanische Stabilisierungspolitik in Deutschland 1921—32. Diisseldorf 1970. Linke, Horst-Giinther. Deutsch-sowjetische Beziehungen bis Rapallo. Cologne 1970. Lloyd George, David. The Truth about the Peace Treaties. 2 vols. London 1938. War Memoirs. 6 vols. London 1933-6. Loucheur, Louis. Garnets secrets, ed. Jacques de Launay. Brussels and Paris 1962. Low, Alfred D. The Anschluss Movement 1918-1919 and the Paris Peace Conference. Philadelphia 1974. McCallum, R.B. Public Opinion and the Last Peace. London 1944. McDougall, Walter A. France's Rhineland Diplomacy 1914-1924. Princeton 1978. 'Political economy versus national sovereignty: French strategies for German economic integration after Versailles', in Journal of Modern History, 51 (1979), pp. 4-23. McNeil, William C. American Money and the Weimar Republic. Economics and Politics on the Eve of the Great Depression. New York 1986. Maier, Charles S. Recasting Bourgeois Europe. Stabilisation in France, Germany and Italy in the Decade after World War I. Princeton 1975. Manchester Guardian Commercial. 'Reconstruction in Europe*. 16 parts. Manchester 1922-3. Marks, Sally. 'Reparation reconsidered: a reminder', in Central European History, 2 (1969), pp. 356-65. Marquand, David. Ramsay MacDonald. London 1977. Martin, Laurence W. Peace without Victory. Woodrow Wilson and the British Liberals. New Haven 1958. Martin, Thomas S. 'The Urquhart concession and Anglo-Soviet relations 1921— 1922', in Jahrbucher fur Geschichte Osteuropas, 20 (1972), pp. 551-70. Marz, Eduard. Austrian Banking and Financial Policy. Creditanstalt at a turning point, 1913-1923, trans. Charles Kessler. London 1984. Mayer, Arno J. Politics and Diplomacy of Peacemaking. New York 1967. Meyer, Richard. Bankers' Diplomacy. Monetary Stabilisation in the Twenties. New York 1970. Middlemas, Keith, and Barnes, John. Baldwin, a Biography. London 1969. Miller, David Hunter. The Drafting of the Covenant. 2 vols. New York 1928. Milward, Alan S. The Reconstruction of Western Europe 1945-1951. London 1984. War, Economy and Society 1939-1945. London 1977. Miquel, Pierre. Poincare. Paris 1961. Mitchell, Brian R. European Historical Statistics 1750-1980. London 1975. International Historical Statistics. The Americas and Australasia. London 1983.

Bibliography

345

Mitchell, Brian R., and Deane, Phyllis. Abstract of British Historical Statistics. Cambridge 1962. Moggridge, D.E. British Monetary Policy 1924-1931. The Norman Conquest of $4.86. Cambridge 1972. Mommsen, Hans, Petzina, Dietmar, and Weisbrod, Bernd, eds. Industrielles System und politische Entwicklung in der Weimarer Republik. Diisseldorf 1974. Moreau, Emile. Souvenirs d'un gouverneur de la Banque de France. Histoire de la stabilisation du franc (1926-1928). Paris 1954. Morgan, E. Victor. Studies in British Financial Policy 1914—25. London 1952. Morgan, Kenneth O. Consensus and Disunity. The Lloyd George Coalition Government 1918-1922. Oxford 1979. Moulton, Harold G., and Pasvolsky, Leo. War Debts and World Prosperity. Washington 1932. World War Debt Settlements. New York 1926. Nelson, Harold I. Land and Power. British and Allied Policy on Germany's Frontiers 1916-19. London 1963. Nicolson, Harold. Curzon, the Last Phase 1919-1925. London 1934. Nish, Ian R. Alliance in Decline. A Study in Anglo—Japanese Relations 1908—23. London 1972. Nolde, Baron B.E. Russia in the Economic War. New Haven 1928. Nove, Alec. An Economic History of the U.S.S.R. Harmondsworth 1969. Orbell, John. Baring Brothers & Co., Limited. A History to 1939. London 1985. Orde, Anne. Trance and the Genoa Conference', in Mitteilungen des osterreichischen Staatsarchivs, 37 (1984), pp. 325-61. Trance and Hungary in 1920: revisionism and railways', in Journal of Contemporary History, 15 (1980), pp. 475-92, and in Bela K. Kiraly, Peter Pastor, and Ivan Sanders, eds. War and Society in East Central Europe, Vol. 6, Essays on World War I; Total War and Peacemaking. A Case Study on Trianon. New York 1982. Great Britain and International Security 1920-1926. London 1978. 'Grossbritannien und die Selbstandigkeit Osterreichs 1918-1938', in Vierteljahrshefte fur Zeitgeschichte, 28 (1980), pp. 224-47. 'Thoiry revisited', in Durham University Journal, 37 (1975), pp. 205-18. Pakenham, Frank. Peace by Ordeal. London 1935. Parrini, Carl P. Heir to Empire. United States Economic Diplomacy 1916-1923. Pittsburgh 1969. Pearton, Maurice. Oil and the Romanian State. Oxford 1971. Pease, Neil. Poland, the United States and the Stabilisation of Europe, 1919-1933. New York 1986. Pigou, A.C. Aspects of British Economic History 1918-1923. London 1947. Pogge von Strandmann, Hartmut. 'Grossindustrie und Rapallopolitik. Deutschsowjetische Handelsbeziehungen in der Weimarer Republik', in Historische Zeitschrift, 222 (1976), pp. 265-341. 'Rapallo - Strategy in preventive diplomacy: new sources and new interpreta-

346

Bibliography

tions', in Volker R. Berghahn, and Martin Kitchen, eds. Germany in the Age of Total War. London 1981. Pohl, Karl Heinrich. Weimars Wirtschaft und die Aussenpolitik der Republik 1924-1926. Diisseldorf 1979. Poincare, Raymond. Histoire politique. Chroniques de quinzaine. 4 vols. Paris 1920-2. Pollard, Sidney. The Development of the British Economy 1914-1967. 2nd edn 2nd edn. London 1969. Rathenau, Walther. Tagebucher 1907-22, ed. Hartmut Pogge von Strandmann. Diisseldorf 1967. Walther Rathenau, Industrialist, Banker, Intellectual and Politician: Notes and Diaries 1907-1922, ed. Hartmut Pogge von Strandmann. Oxford 1985. Recker, Marie-Luise. England und der Donauraum 1919-29. Stuttgart 1976. Rieckhoff, Harald von. German-Polish Relations 1918-1933. Baltimore 1971. Rosenfeld, Gunter. Sowjetrussland und Deutschland 1917-1922. Berlin 1960. Rothschild, Joseph. East Central Europe between the Two World Wars. Seattle 1974. Rothwell, V.H. British War Aims and Peace Diplomacy 1914-1918. Oxford 1971. Rowland, Benjamin M., ed. Balance of Power or Hegemony: The Interwar Monetary System. New York 1976. Royal Institute of International Affairs. The Problem of International Investment. London 1937. Survey of International Affairs, ed. Arnold Toynbee. London 1927ff. Rupieper, Hermann J. The Cuno Government and Reparations 1922-1923. Politics and Economics. The Hague 1979. Salter, J. Arthur. Allied Shipping Control. An Experiment in International Administration. Oxford 1921. Slave of the Lamp. A Public Servant's Notebook. London 1967. Sauvy, Alfred. Histoire economique de la France entre les deux guerres. 2nd edn. 3 vols. Paris 1984. Sayers, R.S. The Bank of England 1891-1944. 3 vols. Cambridge 1976. Schieder, Theodor. 'Die Entstehungsgeschichte des Rapallo-Vertrags', in Historische Zeitschrift, 204 (1967), pp. 545-609. Schmidt, Gustav, ed. Konstellationen internationaler Politik 1924—1932. Politische und wirtschaftliche Faktoren in den Beziehungen zwischen Westeuropa und den Vereinigten Staaten. Bochum 1983. Schrecker, Ellen. The Hired Money. The French Debt to the United States 19171929. New York 1978. Schuker, Stephen A. The End of French Predominance in Europe. The Financial Crisis of 1924 and the Adoption of the Dawes Plan. Chapel Hill 1976. Seton-Watson, Christopher. Italy from Liberalism to Fascism. London 1967. Seymour, Charles. The Intimate Papers of Colonel House. 4 vols. Boston and New York 1926-8. Silverman, Dan P. Reconstructing Europe after the Great War. Cambridge, Mass. 1982.

Bibliography

347

Soutou, Georges. 'Die deutschen Reparationen und das Seydoux-Projekt 192021', in Vierteljahrshefte fur Zeitgeschichte, 23 (1975), pp. 237-70. 'La Politique economique de la France en Pologne 1920-24', in Revue historique, 251 (1974), pp. 85-116. Stamm, Christoph. Lloyd George zwischen Innen- und Aussenpolitik. Die britiscbe Deutschlandpolitik 1921-22. Cologne 1977. Steiner, Zara S. The Foreign Office and Foreign Policy 1898-1914. Cambridge 1969. ed. The Times Survey of Foreign Ministries of the World. London 1982. Stevenson, Frances. Lloyd George. A Diary by Frances Stevenson, ed. A.J.P. Taylor. London 1971. Suarez, Georges. Briand. Sa vie, son ceuvre. Vols. 5 and 6. Paris 1941, 1952. Supple, Barry. The History of the British Coal Industry. Vol. 4, 1913-1946: The Political Economy of Decline. Oxford 1987. Sykes, Alan. Tariff Reform in British Politics 1903-1913. Oxford 1979. Taylor, A.J.P. English History 1914-1945. Oxford 1965. Teichova, Alice. An Economic Background to Munich. International Business and Czechoslovakia 1918-1938. Cambridge 1974. 'Versailles and the expansion of the Bank of England into Central Europe', in Norbert Horn and Jlirgen Kocka, eds. Recht und Entwicklung der Grossunternehmen im 19. und frWhen 20. Jahrhundert. Gottingen 1979. Teichova, Alice, and Cottrell, P.L., eds. International Business and Central Europe 1918-1939. Leicester 1983. Temperley, H.V.W. A History of the Peace Conference of Paris. 6 vols. London 1920-4. Tillman, Seth P. Anglo-American Relations at the Paris Peace Conference. Princeton 1961. Trachtenberg, Marc. 'Poincare eut-il en 1923 une politique rhenane?' in Revue d3histoire diplomatique, 95 (1981), pp. 223-35. Reparation in World Politics. France and European Economic Diplomacy 19161923. New York 1980. Turner, Henry Ashby. Stresemann and the Politics of the Weimar Republic. Princeton 1963. Ullman, Richard H. Anglo-Soviet Relations 1917-1921. Vol. 3, The Anglo-Soviet Accord. Princeton 1972. Vanderlip, Frank A. What Happened to Europe. New York 1919. Waites, Neville, ed. Troubled Neighbours. Franco-British Relations in the Twentieth Century. London 1971. Walre de Bordes, J. van. The Austrian Crown, Its Depreciation and Stabilisation. London 1924. Walters, F.P. A History of the League of Nations. London 1952. Walworth, Arthur. America's Moment: 1918. American Diplomacy at the End of World War I. New York 1977. Wandycz, Piotr S. France and her Eastern Allies 1919-1925. Minneapolis 1962. Soviet-Polish Relations 1917-1921. Cambridge, Mass. 1969. The United States and Poland. Cambridge, Mass. 1980.

348

Bibliography

Weill-Raynal, Etienne. Les Reparations allemandes et la France. 3 vols. Paris 1947. Weissman, Benjamin M. Herbert Hoover and Famine Relief to Soviet Russia. Stanford 1974. White, Stephen. Britain and the Bolshevik Revolution. London 1979. The Origins of Detente. Cambridge 1986. Willis, F. Roy. France, Germany and the New Europe. Stanford and Oxford 1965. Wilson, T. Woodrow. Woodrow Wilson's Case for the League of Nations, compiled by Hamilton Foley. Princeton 1923. Winkler, Henry R. The League of Nations Movement in Great Britain 1914— 1919. New Brunswick 1952. Witt, Peter-Christian. Tinanzpolitik und sozialer Wandel in Krieg und Inflation 1918-1924', in Hans Mommsen, Dieter Petzina, and Bernd Weisbrod, eds. Industrielles System und politische Entwicklung in der Weimarer Republik. Dusseldorf 1974. Wolfers, Arnold. Britain and France between Two Wars. Hamden, Conn. 1963. Wrench, Sir Evelyn. Geoffrey Dawson and our Times. London 1955. Wurm, Clemens A., Industrielle Interessenpolitik und staat. Internationale Kartelle in der britischen Aussen- und Wirtschaftspolitik wdhrend der Zwischenkriegszeit. Berlin and New York 1988. Young, E. Hilton. Report on Financial conditions in Poland. Presented to the Prime Minister of Poland by the Right Honourable E. Hilton Young on February 10th, 1924. London 1924. Young, G.M. Baldwin. London 1952. Zweig, Ferdynand. Poland between Two Wars. A Critical Study of Social and Economic Changes. London 1944.

Index

Addis, Sir Charles, 76 n. 38 Addison, Christopher, 6, 15, 19, 20, 66 Addison, Joseph, 283 Adenauer, Konrad, 246 Akers Douglas, Hon. Aretas, 135 Alliata, Enrico, 49-50 Allies, conferences, wartime, 7-9, 28-9; Lympne 1920, 93, 101; London 1920, 98-9; San Remo, 99; Spa, 99, 101, 148, 150; Boulogne 1920, 101; Paris 1921, 124, 151; London 1921, 125-6; London Aug. 1922, 133, 217-19; Cannes, 178, 180; London Dec. 1922, 224-5; Paris Jan. 1923, 226; London 1924, see London conference 1924 Ambassadors' Conference, 132, 279, 289 Amery, Leopold, 89, 231 Anglo-Austrian Bank, 131 n. 82, 138-9, 140 Anglo-Czechoslovak Bank, 139, 140 Armstrong-Siddeley Ltd., 275-6 Armstrong Whitworth & Co., 122, 276 Aron, Alexandre, 171 Asquith, Herbert Henry, 6, 9, 11, 13 n. 33, 76 n. 38 Auriol, Vincent, 264 Austria, economic condition, 76, 86, 112— 14, 123, 129, 279-81; assistance to (1919), 109, 113,(1920), 114, 124, (1921), 125-30, 139, (1922), 130-6, 206, 207, 213; peace treaty, 112; relations with neighbours, 112, 126, 130, 132, 134, 280; union with Germany, 113, 124 n. 48, 125 n. 52, 126-7, 134, 280-1, 282; British policy, 113, 280-2; domestic politics, 126, 141. See also League of Nations; reparations, Austria Avaresco, General Alexandru, 308 Avenol, Joseph, on French needs, 37, 43,

44-6, 70-1, 216; on British policy, 45-6, 191, 310; and French debts, 79, 80, 82, 100, 215; and Austria, 125, 126-7, 128 Baldwin, Stanley, 200, 221, 268; and US debt negotiations, 222, 227-33, 234, 235, 236 n. 25; and reparations, 239, 241, 242-3; 1923 election, 245 Balfour, Arthur James, mission to US (1917), 13; and League of Nations, 25; and Austria, 129, 133, 135, 136, 145; at Washington conference, 175; and war debts, 210, 211,212, 213, 214, 215 Balfour of Burleigh, Lord, 11, 12 Balfour Note, 212, 213, 214, 215-16, 218, 219, 220, 234, 241, 292,293,295, 299 Bank of England, and British lending, 112; and central Europe, 128, 138-9, 140-1; position of, 145, 259, 311, 327; and German currency, 246, 248; and Hungarian loan, 273; and Danzig, 279; and Greece, 286-7; and Bulgaria, 290, 291; and Poland, 304; and Romania, 308-9, 310. See also Norman, Montagu Bank of France, 291, 301, 302, 306, 307, 308-9,311 Bankers Trust Company, 74, 306 Baring Brothers & Co., Ltd., and Austria, 132 n. 92; and Czechoslovakia, 139, 141 n. 121, 269-70, 311; and Hungary, 273, n. 27; and Italy, 302 Bark, Pierre, 143 n. 130 Barlow, Sir Anderson Montague, 231 Barthou, Louis, 200, 251 Baruch, Bernard, 43-4, 51, 53, 58-9, 61 Belgium, 12, 98, 109, 187-8, 200, 300-1, 304. See also reparations, Germany Benes, Eduard, and Austria, 130; and Czechoslovak loan, 139, 140, 269; and

349

350

Index

Czechoslovak loan - (cont.) Genoa conference, 184, 203; and Hungary, 269, 270-1 Berenger, Henri, 296 Bergmann, Carl, 166, 212 Bethlen, Count Istvan, 267, 268, 269 Billy, Edouard de, 41, 42, 46, 49-50 Binder, B.H., 191 Blacken, Sir Basil, 141, 179; and credits from US, 47, 50; and debt to US, 79-82, 84-5, 90-1, 92-3, 94, 153; and postwar situation, 86-7; and Allied debts, 88-9, 208, 213-14, 223; and reparations, 98, 101 n. 110, 167, 208, 223; and Ter Meulen scheme, 119; and Austria, 125, 128, 135, 136 Board of Trade, 6, 10, 11-12, 29, 54, 67, 72, 112,282,283 Bonomi, Ivanoe, 182 Borah, Senator William E., 236 Boret, Victor, 29 Bourgeois, Leon, 52-3 Boyden, Roland W., 105, 107 n. 125, 212 n. 84 Bradbury, Sir John, and French finances, 44, 246; and Supreme Economic Council, 68; and reparation policy (1919-20), 97, 148, (1921), 152, 153, 165, 169, (1922), 216-17, 220, 223 n. 123, 225, (1923), 226, 238; and relief credits, 115-16; and Allied debts, 152, 242, 249, 252; and Dawes committee, 245, 251; and German currency, 248 Brand, Robert, at peace conference, 56, 59-61; and export credits, 61, 71-2; and foreign lending, 68, 110; and bankers' memorial, 74, 75-6; and war debts, 168 n. 69, 215; and Dawes plan, 249 Bratiano, Ionel, 274 Briand, Aristide, and reparations, 151, 171, 173, 180, 182; and relations with US, 158, 160-1; and war debts, 160-1, 171; and European reconstruction 1921-2, 173, 174-5, 176, 177-8; Anglo-French relations, 174-5, 179, 182; European union, 324 Britain, postwar position, 1, 4, 326; policy on reconstruction, 1-2, 3, 5, 33, 66, 326-9; foreign lending, 2, 68, 96, 98, 110, 112, 119, 125, 238-9, 246-7, 285, 328, 329; foreign investment, 2, 110, 312, 327-8; domestic reconstruction, 5 6, 12 n. 25, 29, 66-8, 326; protection, 5, 6, 8, 9, 245; war aims, 5, 12-13, 15, 20; trade policy, 5, 282, 283-4, 318 n. 16, 329; projected trade war, 6-7, 8, 14,

19-20; policy towards Germany, 6, 1112, 89-90, 331; projected cooperation with Allies, 7, 8-10, 11, 13-14, 15-17, 19, 20-4, 29-30; relations with US, 13, 95-6, 210-11, 227, 231, 235, 253; trade, 16, 19, 23, 29-30, 53-4, 60, 61, 65, 66, 83, 85-6, 111-12, 161, 171, 177, 178, 187, 188, 228, 282, 284 n. 65, 312, 326, 327; postwar credits to Europe, 19, 32, 36^8, 43, 44-9, 50-1, 64, 76, 77, 86; postwar borrowing, 37-9, 46, 49, 71, 72, 77y 82; economic situation, 65—6, 146, 151, 161, 326; financial policy, 66-7, 107, 161, 300, 326; relations with France, 174-5, 179, 182, 195, 218-19, 225, 226, 246-7; policy in east central Europe, 270, 303-4, 311-12. See also Austria; Greece; Hungary; League of Nations; reparations; war debts Brussels, financial conference 1920, 73-7, 98, 104-7, 146, 150, 184, 195, 206, 299, 316, 320 Bryce, Viscount, 76 n. 38 Bulgaria, 288-91, 312, 313 Burnham, Viscount, 232 Burton, Theodore E., 222 Bush, Irving, 222 Caillaux, Joseph, 294-5, 296 Cambon, Paul, 7, 44-5 Cambon, Roger, 310 Carson, Sir Edward, 14, 15 Casenave, Maurice, 79, 81, 156, 157, 160 Cecil, Lord Robert, 15, 76 n. 38; and Allied cooperation, 7, 14 n. 38, 20-1, 24; at peace conference, 51, 53, 59, 63, 110; and reparations, 241 Celier, Alexandre de, 36, 44, 50, 101-2 Chalendar, Comte Andre de, 311 Chalmers, Lord, 155-6 Chamberlain, Austen, wartime cooperation with Allies, 9, 17, 29-30; policy on war debts, 39 n. 29, 77-8, 80, 101, 157, 214; 292; assistance to France, 43, 45, 46, 47-9; and European reconstruction, 53-4, 76-7, 83-4, 86, 90, 97-8; on British economy, 66, 68, 85-6; and Supreme Economic Council, 69; debt negotiations with US, 80, 81, 82, 83, 84-5, 88, 91, 92, 93-4, 96, 103, 154, 155, 158 n. 40; and reparations, 97-8, 152; and Austria, 113, 114, 281; and Soviet Union, 194, 200; and Greece, 287-8, 298; and Poland, 304; policy in south-east Europe, 311-12 Chamberlain, Neville, 247

Index Chapman, Sir Sidney, 185, 187, 188, 191, 192 Chicherin, Georgi V., 163, 195, 207 Child, Richard W., 193, 202 n. 52 Churchill, Winston S., and assistance to France, 46; and European recovery, 89, 93, 172 n. 81, 326; and war debts, 90, 93, 96, 172 n. 81, 288, 292, 293, 294, 295, 296-7, 298, 327; and Anglo-French relations, 175; and Soviet Union, 176, 194 Clemenceau, Georges, 36, 49 n. 63 Clementel, Etienne, and cooperation with Allies, 8, 9, 10, 17, 29, 34; and reparations, 34; at London conference 1924, 261, 263, 265; and Hungarian loan, 273; and debt to Britain, 293 Clerk, Sir George, 130, 139, 140, 270, 281 Clynes, John Robert, 76 n. 38 Committee on Commercial and Industrial Policy, 11-12 Committee on the Trade Relations of the United Kingdom with the Empire, 15-16 consortium, international, 144, 176, 177, 178-80, 181-2, 186, 187, 188-91, 196, 198, 199, 201, 202 Coolidge, Calvin, 243 n. 52, 244 Cora, Giuliano, 136 Cravath, Paul, 27, 232 Crawford, Sir Richard, 21, 24, 25 Crespi, Silvio Benigno, 29 Crewe, Marquess of, 10, 271 Crosby, Oscar T., 27, 35, 38, 39, 40, 41 Crowe, Sir Eyre, 122, 157, 270 Cunliffe, Lord, 34 Cuno, Wilhelm, 242 Curzon of Kedleston, George, Marquess, 133, 210, 223, 231, 268 n. 7; and war aims, 12; and relations with Allies, 53, 98 n. 102, 218-19; and Poland, 122; and Austria, 124 n. 48, 136; and Soviet Union, 176, 186; and Genoa conference, 185; and reparations, 221, 239, 241, 244; and Greece, 286 Czechoslovakia, borrowing, 110, 112, 123, 130, 138-41, 267-71, 311; French interests, 117; relations with neighbours, 130, 131, 139-40, 267, 269, 271 D'Abernon, Edgar Vincent, Lord, 152, 283, 303 D'Amelio, Mariano, 212 Danube, shipping, 116-17 Danubian confederation, 126 n. 55, 143, 280, 281

351

Danzig, 278-9 Davidson, John Colin Campbell, 233 Davis, Norman H., and credits to Allies, 36, 44, 49; and reconstruction policy, 43-4, 57, 58-9, 61, 63, 70, 75, 105; and war debts, 52, 82, 91-2, 95 n. 94, 102, 156; and reparations, 102 Davison, Henry P., 70-1 Dawes, Charles, 249 Dawes Committee, 244-5 Dawes Plan, 227, 249-52, 256, 258, 264, 265, 293, 294, 299, 302. See also London conference 1924 Delacroix, Leon, 106, 212 Derby, 17th Earl of, 53, 100, 231, 233, 241 Deutsch, Felix, 176 Devonshire, 9th Duke of, 231 Dewey, Charles S., 307 Dillon, Clarence, 245 n. 62 Dillon Read & Co., 303, 306 Diomedes, Alexandros, 286 disarmament, 160-1, 185, 324 dollar reimbursements, 46, 48 Dominions, 7, 8, 12, 16, 212 Doumer, Paul, 170, 296 Drummond, Sir Eric, 308 Dufour von Feronce, Albert, 303-4 Economic Defence and Development Committee, 17, 19, 20-1, 28 Economic Offensive Committee, 15, 17 Estonia, 291-2, 312 Europe, east central, recovery, 76, 108, 111, 322; relief, 108-10; economy of, 280-2. See also names of countries European, western, recovery, 65, 111, 119, 322. See also names of countries export credit scheme, 53-4, 72, 112, 115, 122, 196, 198, 201, 207 Federal Reserve Bank of New York, 300, 303, 304, 307, 309, 313. See also Strong, Benjamin Ferguson, Sir John, 189 Fleuriau, Aime Joseph de, 294 Foreign Office, and Anglo-American relations, 13, 95-6, 157-8; and Austria, 113, 136, 280-1, 282; and Poland, 1212; and reparations, 148, 222-3; and war debts, 252; and Hungary, 268, 269, 271; and Danzig, 278; and Greece, 286, 287; and Bulgaria, 291; and League schemes, 310, 311-13 Foster, Sir George, 10 France, policy at peace conference, 2, 32, 34; reconstruction, 8, 29 n. 88, 65, 98, 147, 164-5, 216, 218, 273, 325; and

352

Index

France -(cont.) Allied cooperation, 8-10, 17-18; trade, 8, 53, 186, 282-3; borrowing, 44-5, 98 n. 102, 247, 254, 264; finances (191819), 32, 35-8, 42-3, 44-9, 62, 70-1, (1922), 213, (1924-7), 245, 246-7, 260, 264, 295, 296, 302; interests in east central Europe, 117-18, 121-2, 273-4, 277, 312; policy on Germany, 121, 149, 217, 243 n. 51, 331 n. 44; banking, 124, 128, 273; interests in Soviet Union, 187-8, 190; economic foreign policy, 312, 316-17. See also reparations; war debts Franckenstein, Baron George, 124 n. 48, 135, 143 Franc,ois-Marsal, Frederic, 105 Francqui, Emile, 300 Fraser, Sir Drummond Drummond, 119 Geddes, Sir Auckland, and British recovery, 67; and war debts, 89, 103, 154, 156, 158, 159, 174, 209-10, 213; and Anglo-American relations, 157, 216, 221; and debt negotiations in 1923, 228, 229, 231, 232, 233, 235 Genoa conference 1922, financial and economic discussions, 132, 204—6, 299; proposed, 175-6, 178-9, 180-1, 183-4; preparations, 185-6, 192-3, 317; negotiations with Soviet Union, 194202, 206-7; non-aggression pact, 195, 202-4 Germany, trade, 8, 33, 76,146,164,176,1778, 282-4; recovery, 89-90, 93, 96, 146, 258, 322; domestic situation, 147, 163-4, 217, 240, 242; finances, 163-4, 179, 212, 216, 217, 242, 246, 248, 250, 279, 323; borrowing, 164, 166, 167, 170, 211-12, 258, 260, 284, 328-9; and Soviet Union, 175-7, 190; Dawes loan 1924, 250, 251, 254, 255-6, 257-9, 260-5, 283, 303; foreign policy, 305, 323. See also reparations; Rhineland; Ruhr; Upper Silesia Gilbert, S. Parker, 235-6, 304, 329 Glass, Carter, 87, 88; and war debts, 40, 42, 49-50, 84; and French needs, 43, 46-7; and US policy, 63, 73, 75 Gliickstadt, Emil, 127 Goode, Sir William, 114, 124, 132, 267 Goodenough, Frederick Crauford, 76 n. 38 Gorvin, John Henry, 115 Grabski, Wiadyslaw, 277 Greece, war with Turkey, 147, 218, 284; League assistance, 284-8, 312; war debts, 285-6, 297-8

Gregory, Sidney, 186 Grenfell, Edward, 72, 76 n. 38, 107, 259, 263 n. 103 Grey, Sir Edward, 9, 78, 79, 82 n. 60 Griffith-Boscawen, Sir Arthur, 231 Grigg, Sir, Edward, 179, 185 n. 5, 192, 201, 213 Haking, General Sir Richard, 278 Hambros Bank Ltd., 302 Hankey, Sir Maurice, and wartime planning, 17; and League of Nations, 19 n. 54; at Washington conference, 172, 175 n. 93; and Genoa conference, 192-3, 203; and London conference, 256 Harding, Warren G., 157, 173, 243 n. 52; and war debts, 154, 158, 228, 236; and reparations, 193 Harris, Senator William J., 174 Harrison, George L., 306 Harvey, Col. George, 174, 213, 221, 228, 233, 234 Havenstein, Rudolf, 166, 169 Herriot, Edouard, 273; at London conference, 253, 255, 256, 260, 261, 262, 263 Hewins, William Albert Samuel, 8, 16 Hichens, William Lionel, 180 Hohler, Thomas, 269 Hoover, Herbert, 3 n. 3; and cooperation with Allies, 26-7, 28, 34, 44 n. 47; and relief, 28, 29, 109, 162; and reconstruction policy, 43-4, 58, 72, 73, 87, 193; and Austria, 129; and war debts, 160, 222 Hope & Co., 141 n. 121 Home, Sir Robert, 158 n. 40, 194; and Czechoslovakia, 123; and Austria, 136; and reparations, 168, 169-70, 171-2, 175; and European reconstruction, 171— 2, 173, 178-9, 185, 207; and debts, 175, 210, 211, 212, 213 n. 89, 214, 232 Houghton, Alanson B., 253 House, Col. Edward, 47; and relations with Allies, 14, 18, 20, 25, 26, 27; and war debts, 40, 78, 82 n. 60, 154; and League of Nations, 52 Houston, David, 88, 90, 95, 102-3, 154 n. 25, 157 Hughes, Charles Evans, and Austria, 127, 129, 142, 143; and reparations, 157, 158, 225, 243, 244; and war debts, 158, 209, 222, 228, 233, 236, 292-3; and Genoa conference, 202 n. 52; and London conference, 253, 265 n. I l l Hughes, William Morris, 10, 30,. 33, 34

Index Hungary, relations with neighbours, 117— 18, 266-7, 268, 269-71, 272-3; French interests, 117-18; peace treaty, 118, 266; British policy, 118, 271, 273; financial reconstruction, 267-74 Hurley, Edward N., 25, 28, 29 Imperial Conference 1923, 244 imperial economic cooperation, 7, 10, 15, 16, 19, 29-30 Imperial War Cabinet, 7, 12-13, 16 Inchcape, Lord, 76 n. 38 International Committee on Relief Credits, 114-16 international consortium, see consortium International Monetary Fund, 332 international steel cartel, 283 Inverforth, Lord, 116, 117, 180, 189 Ireland, 147, 166 Italy, wartime policy, 10, 22; recovery, 98; and Austria, 132-3, 134, 136, 137, 141; domestic politics, 147; stabilisation, 301—2; foreign policy, 323. See also reparations; war debts Janssen, Albert, 300 Jaspar, Henri, 240 n. 41 Jay, Dean, 236 Jay, Pierre, 129, 251 Jones, Thomas, 173, 195 n. 34 Jung, Guido, 201 Jusserand, Jules, 248 Kahn, Otto, 232 Karl, Emperor, 139-40 Kellogg, Frank B., 253, 262, 264, 265 Kellogg pact, 321,324 Kemal Atatiirk, Mustapha, 174 Kemmerer, Edwin, 304, 305, 306 Kent, Fred L, 74, 159, 236, 243 Kerr, Philip. 72, 174 Keynes, John Maynard, and reconstruction policy, 2, 54—6, 57, 59, 64, 74-5, 97; and French needs, 36, 39, 44-5, 46, 47 n. 57, 50; and war debts, 41, 54-5, 234-5; and British needs, 49, 71; and Genoa conference, 196, 206-7 Kidder Peabody & Co., 141 n. 121 Kindersley, Sir Robert, 76 n. 38, 167, 180, 212, 247, 249, 259 Klotz, Louis, and French needs, 36-7, 44, 47-8, 50; reparations and war debts, 39, 41, 46 n. 54, 50; and League of Nations, 52,53 Kramar, Karel, 110 Krasin, Leonid, 177, 179, 186-7, 195 Kuhn Loeb & Co., 74, 141 n. 121

353

Lamont, Thomas W., 254; and war debts, 51-2, 55, 158, 159, 209, 236; and reconstruction policy, 57, 58-9, 60-1; and credits for Europe, 70, 71; and Anglo-American cooperation, 71; and Austria, 142, 143; and Genoa conference, 193-4; and J. P. Morgan & Co., 254 n. 82; and Dawes loan, 255-65 Lampson, Miles, 135, 304, 312 Lansing, Robert, 13 Lasteyrie, Charles de, 273 Law, Andrew Bonar, and war debts, 3, 39, 228, 229-34; and reparations, 3, 223, 224, 225—6, 237; and Paris resolutions in 1916, 10, 12; and French needs, 36, 378, 45, 46; and British needs, 39, 67; and business in central Europe, 117; prime minister, 221, 222, 237 Lay ton, Walter, 281, 320 Lazard Brothers & Co., 51 n. 70, 167, 247 Leaf, Walter, 76 n. 38 League of Nations, loans, sponsored, 4, 136-7, 142-4, 285, 287-8, 289-92, 328; establishment of, 5, 12, 19, 24, 25, 52-3, 68-9; Financial and Economic Section, 52-3, 69, 141; Council (1920), 77, 118, (1922), 135, 138, 278, (1923), 142, 271, 272, 286, (1924), 280, (1925), 279, 290 n. 88. (1926), 279-80, 281; reconstruction schemes (Austria), 126, 127, 128, 131, 136-8, 144-5, 279-80, 312, (Hungary), 266, 267-8, 271-3, 284, 312; Financial Committee, 126, 127, 136, 145, 266, 272, 278, 284, 286, 287, 288, 290, 291, 302, 310-11, 312-14; Economic Committee, 136, 281; Assembly, 135, 138, 280, 316; and Poland, 147, 277, 302, 304-6; and Genoa conference, 184, 185; Covenant, 203; and Romania, 308. See also World Economic Conference Lee of Fareham, Viscount, 175 n. 93 Leffingwell, Russell C , and war debts, 51, 78, 87, 95 n. 94, 156; and US policy, 57, 59 n. 102, 85, 95, 314; and Dawes plan, 251, 258; and J.P. Morgan & Co., 254 n. 82 Leith Ross, Frederick, 159, 287 Lend-Lease, 330-1 Lenin, Vladimir I., 162, 163, 195 Lever, Sir Hardman, 37-8, 39, 41 Lindley, Sir Francis, 126 Lindsay, Ronald, 85, 87, 90, 156 Lloyd George, David, 5; and reparations, 3, 33-4, 49 n. 63, 93, 94, 99, 100, 101, 103, 151, 157, 166, 169, 171-2, 206, 219, 226; and war debts, 3, 93, 94, 101, 103,

354

Index

Lloyd George — (cont.) 157, 166, 171-2, 200, 211, 212, 213, 214; war aims, 13, 15; and peace terms, 1920, 26; and reconstruction in 1919, 46, 55, 63, 64; domestic policy, 66, 67, 161, 166; and Anglo-French relations, 97, 179, 182, 195, 219, 226; and business in central Europe, 117; and Poland, 122 n. 43; and Austria, 133, 136; and European reconstruction in 1921-2, 148, 171-2, 173, 174, 176, 178-9, 180-2, 189; and Soviet Union, 162, 163 n. 57, 176, 186, 194-5, 207; at Genoa conference, 184-5, 194-5, 198, 199, 200, 202-3, 206, 207; Fontainebleau Memorandum, 198 Lloyd-Greame, Sir Philip, 194, 196, 200-2, 204 Lockhart, Robert Bruce, 139, 140 Lodge, Senator Henry Cabot, 236 Logan, James A., 115, 212 n. 84, 253, 255, 256 London conference 1924, 253—64; conferences 1921, 1922, see Allies, conferences Long, Walter, 15 Loucheur, Louis, and reparations, 97, 152, 164-5, 170, 171-2, 175, 176, 177, 217 n. 102, 237-8; and Austria, 124-5, 144-5; and reconstruction, 1921-2, 171-2, 173, 178-9; and World Economic Conference, 317, 319 Loveday, Arthur, 206 Lubbock, Cecil, 309 McAdoo, William, 27-8, 30-1, 35, 38, 39-40 McCormick, Vance C , 43-4, 58-9, 61 MacDonald, Ramsay, and France, 247, 249, 253, 255; and Dawes plan, 252, 253, 255, 256, 257-8, 259-60, 262, 2634, 265; foreign policy, 256 McFadyean, Andrew, 116, 159 McKenna, Reginald, 76, 231, 233, 234, 259 Maclay, Sir Joseph, 21, 29, 32, 67-8 Maclean, Sir Donald, 76 n. 38 Maritime Transport Council, 18, 19, 28 Marshall Plan, 331 Martino, Giacomo de, 136 Marx, Wilhelm, 251-2 Mastny, Vojtech, 140, 270 Max Muller, William, 122, 277-8 Mayr, Michael, 125 Mellon, Andrew, and war debts, 158, 160, 222, 297; British negotiations, 228, 230, 233, 235, 236; and London conference,

1924, 253, 263; French negotiations, 292-3 Miller, David Hunter, 52, 53 Millerand, Alexandre, and reparations (1920), 93, 99, 100, 101, 103, (1922), 150, 217 n. 102, (1923), 241; and French policy, 249 Milner, Viscount, 12 Mond, Sir Alfred, 19, 67 Monnet, Jean, 19, 60-1, 128, 167, 306, 321 n. 17 Montagu, Edwin, 52, 176 Montille, Lazare de, 166 Moreau, Emile, 301, 302, 307, 308, 309, 310,312 Morgan, J.P., jr, and bankers' memorial, 75; and reparations, 212, 243; and war debts, 232; and German loan, 251, 255, 256, 260, 261, 263; and US lending, 314 Morgan, J.P. & Co., 72 n. 22; credits for Europe, 70; and Austria, 128, 130, 132 n. 92, 142, 143, 144, 254; and France, 247, 254, 258, 261, 264; and German loan, 251, 253-4, 255, 256, 257, 258-9, 261, 263, 264, 265 n. I l l , 310; and Hungary, 272; and monetary stabilisation, 300, 301, 302; and foreign lending, 314 Morgan Grenfell & Co. Ltd., 72 n. 22, 132 n. 92, 142, 302 Morgan Harjes, 251 Morgenthau, Henry, 286-7 Morrow, Dwight, 107, 119, 263 n. 103, 314

Moiiy, Pierre de, 273 Mussolini, Benito, 301, 323 National City Bank, 141 n. 121 Netherlands, 55, 73, 127-8, 143, 311 Niemeyer, Otto, and Austria, 125 n. 52, 141; and war debts, 238, 293; and reparations, 238; and Hungary, 267, 268, 269, 272; and Greece, 285-6, 2878, 298, 329; and Bulgaria, 291; and Romania, 308; on League of Nations Financial Committee, 310-11, 312-13; and British policy, 326-7 Nitti, Francesco, 98, 99 n. 104 Nixon, Frank Horsfall, 141, 191, 204-5, 276-7 Norman, Montagu, and Vanderlip plan, 70; and war debts, 77, 174, 195 n. 34, 209; and Austria, 127-9, 131, 141, 142, 143, 144, 280 n. 52; policy, 138, 205, 248, 254, 259, 306, 310, 311, 314, 327; and League of Nations, 141, 145, 305-6,

Index 308-9, 313-14; and reparations, 167, 168-9, 172-3, 174, 195 n. 34, 243, 245 n. 99; and Germany, 167, 172-3, 248, 254; US debt negotiations, 222, 228, 229, 232; and France, 239, 246, 247, 254; London conference 1924, 253-65, 310; relations with Schacht, 254; relations with Strong, 254 n. 83, 315; and Hungary, 269-70, 272-3; and Poland, 277, 303-4, 305-7; and Greece, 286, 287; monetary stabilisation, 301, 308-9, 310 Novar, Viscount, 231 Ofenheim, Baron, 138 Oppenheimer, Sir Francis, 113 Owen, Senator Robert, 73 Paderewski, Jan, 110 Paish, Sir George, 84 n. 63 Paleologue, Maurice, 118 Pangalos, General Theodoros, 298 Paris, conferences 1921 and 1923, see Allies, conferences Paris Peace Conference, see Peace Conference Paris Resolutions in 1916, 10-11, 12, 1314 Parmentier, Jean, 171 n. 77, 211 n. 83, 311 Peace Conference in 1919, reconstruction at, 2, 34-5, 43-4, 59-60, 62-3; Supreme Economic Council, 35, 53, 68-9, 72, 109, 113; Financial Commission, 46 n. 52, 49-50; territorial questions, 49 n. 63. See also reparations, Germany Peacock, Edward, 192 n. 25 Percy, Lord Eustace, 21-4, 26 n. 76, 29 Peret, Raoul, 296 Peretti de la Rocca, Emmanuel de, 249 Phillpotts, Owen Surtees, 135 n. 106 Pitsudski, Jozef, 306 n. 143, 307 Poincare, Raymond, and Austria, 134; and Genoa conference, 183-4, 185, 188, 189, 200 n. 47, 203, 206; and reparations, 199, 206, 212, 216, 217-19, 223-5; and war debts, 200 n. 47, 224, 240 n. 41, 247-8; Anglo-French relations, 226, 249; 309; Ruhr occupation, 237-8, 2423, 245-6, 247, 248-9, 255; French finances, 247, 301, 302 Poland, recovery, 109, 114, 119-20; borrowing, 110, 276; French interests in, 120-1, 277 n. 43; relations with Soviet Union, 120, 147, 203; financial reform, 120, 276-8, 302-7; relations with Germany, 302-4, 305, 306 Porto Rose, conference, 126, 184, 195

355

Pospisil, Vilem, 140, 269, 270 Quesnay, Pierre, 308 Radek, Karl, 190 Rapallo, Treaty of, 197-8, 204 Rathbone, Albert, and reconstruction, 30, 83; and credits to Allies, 38-9, 46, 47, 48, 50; and war debts, 40-1, 52, 102-3, 153, 158; negotiations with Britain, 81-2, 84, 86, 9CM, 102-3, 153, 158; and Brussels conference, 105 Rathenau, Walther, and reparations, 164-5, 169, 172-3, 180; and European reconstruction 1921-2, 173, 176, 177, 178-9, 190; and Soviet Union, 190, 197, 198; murder, 217 Reading, Earl of, 20, 29, 50 Rechberg, Arnold, 243 n. 51 Redfield, William, 25 Reichsbank, 250, 309-10 Reisch, Richard, 142 relief, 26-7, 28-9, 55, 108-10, 114-16, 162, 284, 285, 330 Renner, Karl, 113 Reparation Commission, and Germany, 96, 153, 165-6, 180, 181, 212, 218, 222; Austrian Section, 113, 114, 123, 124, 126; and experts' committees, 244—5; powers of, under Dawes plan, 253, 255, 256, 257, 261; and Hungary, 268-9, 271; and Bulgaria, 288 Reparation Recovery Act, 151, 165 reparations, Austria, 112-13, 116-17, 125 reparations, Bulgaria, 288—9 reparations, Germany, peace conference discussions, 2, 56-7, 96;- British policy (1919-21), 2, 30, 33-4, 64, 78-9, 89, 97-8, 99-101, 148, 152-3, (1921-3), 165, 166-70, 174, 175, 177-8, 185, 195 n. 34, 208, 211, 213-14, 215, 216-17, 222-3, 224-6, (1923-4), 3-4, 237-9, 240-3, 244; French policy (1919-21), 2, 32, 97, 99, 102, 149-51, (1921-3), 164-5, 170-2, 217-18, 223-5, (1923-4), 237-8, 241, 242, 244-5; US and, 2, 3-4, 33, 56-7, 78-9, 81-2, 93, 94, 102, 148, 153, 158, 212 n. 84, 225, 243, 244; German policy, 97, 148, 151, 165, 216, 224, 239, 243; Seydoux plan, 150-1; deliveries in kind, 164-5, 171, 178, 257; and Soviet Union, 197 n. 41; Belgian policy, 218, 219, 226, 241, 244; Bonar Law plan, 225-6, 238, 242, 289 n. 85, 293, 295; Italian policy, 226, 240 n. 41, 244. See also Allies, conferences; Dawes plan; London conference 1924

356

Index

reparations, Hungary, 115, 118, 267-9 Revelstoke, Lord, 123 Rhineland, French policy, 217, 245, 246; separatism, 245; occupation, 255, 256, 259, 261-2, 264, 265 Riddell, Lord, 175 n. 93 Rist, Charles, 281 Robinson, Henry M., 43-4 Romania, 12; and Austria, 132; and Hungary, 269, 271-2; debts, 275, 297; borrowing, 271, 276, 309-10; oil, 274—5; foreign enterprise, 274—6; stabilisation, 307-10 Roosevelt, Franklin D., 331 Rothschild, N.M. & Sons Ltd., 132 n. 92, 141 n. 121,272,273 n. 27, 302 Rowe Dutton, Ernest, 7 Ruhr, 142, 166, 169, 203, 224, 225, 227, 232, 234, 237-45, 250, 252, 255, 256, 259,260,261,264,265 Runciman, Walter, 8 Russia, wartime economic policy, 10; war debt, 54, 179, 186, 197, 198-9, 200, 215, 225. See also Soviet Union; Genoa conference Saint-Aulaire, Comte Auguste de, 216, 221, 223, 239, 249 Salter, Sir Arthur, 19, 137-8, 273, 305, 308, 313-14 Sargent, Orme, 312-13 Schacht, Hjalmar, 248, 254, 260, 265, 303, 306-7, 329 Schanzer, Carlo, 133, 134 Schiff, Mortimer, 254 n. 82 Schneider, Eugene, 189 Schneider et Cie, 117, 118 Schnyder von Wartensee, Charles, 142 n. 126 Schroders Bank, 132 n. 92, 141 n. 121, 273 n. 27 Seipel, Mgr. Ignaz, 134, 135 Serbia, see Yugoslavia Sergent, Charles, 188 n. 14, 189-90, 212 Seydoux, Jacques, and reparations, 100, 150, 170-1; and Austria, 133; and policy on Germany, 150, 248-9; and Soviet reconstruction, 188, 189-90, 191, 192; and Hungary, 273 Skrzynski, Count Aleksander, 304 Smith, Sir Allan, 80 Smith, Jeremiah, 272, 314 Snowden, Philip, 249, 255, 257, 258, 260, 262, 263 n. 102, 264, 265, 273 Soviet Union, New Economic Policy, 161, 325; trade, 161; famine, 162; credits for,

162-3, 179, 188, 208; reconstruction, 171, 172 n. 81, 175-7, 179, 186-7, 18990, 322, 323-4; recognition, 176, 186, 192, 193, 194, 195. See also Genoa conference Spencer Smith, Michael, 138, 139, 140 Spender, John Alfred, 216 n. 95 Sperling, Rowland Arthur Charles, 156, 235 Speyer, James, 273 n. 27 Spring-Rice, Sir Cecil, 13 Stanley, Albert, 14, 15 Steel-Maitland, Sir Arthur, 21, 28 Stettinius, Edward, 71 Stevenson, Frances, 177 n. 97 Stinnes, Hugo, 129, 176-7 Strakosch, Sir Henry, 311 Strauss, Albert, 44, 57-8, 59 n. 102 Stresemann, Gustav, 242, 243, 283, 323 Strong, Benjamin, and European reconstruction, 70, 72-3, 119; and war debts, 77-9, 82 n. 60, 168, 174, 208, 216, 222; and reparations, 96,166,168,169,174; and Austria, 127, 128, 131, 141, 143; and US policy, 168, 173, 174, 193, 31415; and banking cooperation, 205, 309, 314-15; and Dawes plan, 251; relations with Norman, 254 n. 83, 310, 315; monetary stabilisation, 301, 305-6, 3089; and Niemeyer, 310 Sumner, Viscount, 34 Sweden, 127, 143 Taft, William Howard, 213 Tardieu, Andre, 21 n. 62, 35, 38 Ter Meulen, Carel Eliza, credit scheme, 107; and Austria, 128, 143; on League Financial Committee, 311 Ter Meulen scheme, 107, 118-19, 122, 124, 126 Theunis, Col. Georges, 261-2, 318, 319-20 Thomas, Albert, 195 n. 34 Thomas, James Henry, 76 n. 38 Toynbee, Arnold, 324 Trade Facilities Act, 115 n. 29, 122, 196, 198, 199, 201, 202, 207, 276 Treasury, and reconstruction finance, 29, 45, 99 n. 104; and war debts, 41, 82, 95, 159,208,210, 216,221, 240, 241, 246-7, 252, 287, 288, 298; export guarantees, 72; and foreign lending, 112, 123, 270; and Austria, 113, 116, 124, 135, 136, 138; and reparations, 148, 159, 166-7, 171, 221, 223, 240, 241; and Genoa conference, 186; and credits for Soviet Union, 196; and Hungary, 269, and

Index Poland, 277; and Danzig, 278; and Greece, 285, 286, 288, 298; and League schemes, 289, 291; and Bulgaria, 290. See also Blackett; Bradbury; Chamberlain; Churchill, Home; Law; Niemeyer Treasury, US, see United States Turkey, 147, 223, 284, 289 United States, outlook on reconstruction, 2-3, 24-6, 30-1, 43-4, 51-2, 56-64, 66, 72-3, 83, 326, 330-2; foreign lending, 4, 119, 129, 210, 227, 251, 258-9, 265, 303, 313-14, 328; wartime relations with Allies, 13-14, 20, 24-8; postwar credit policy, 32-3, 35-6, 38-9, 43-4, 46-9, 58-9, 6CM, 62-3, 69-70, 71-3; Victory Loan Act, 32, 38, 51, 52; War Finance Corporation, 38, 57, 58, 62, 63; Treasury, 40, 41-2, 46, 48-9, 50, 56, 71, 73,74,75,77,81,83,84,85; Congress, 40, 74, 160; Edge Act, 71, 73; and Austria, 109, 125, 127, 129, 130, 131, 142-4; relief credits and claims, 109-10, 114-16, 127, 129, 131; Liberty Loan Acts, 154; World War Foreign Debt Commission, 160, 193, 208, 209, 212 n. 84, 213, 228, 229, 230, 231, 233, 234, 236 n. 25; tariff, 221-2, 228; Ship Subsidy Bill, 221. See also relief; reparations; war debts UNRRA, 330 Upper Silesia, 121, 147, 165, 167, 174 Urquhart, Leslie, 176, 189 Vanderlip, Frank A., 69-70, 72 Vassar Smith, Sir Richard, 75, 76 n. 38, 110, 168 n. 69 Versailles, Treaty of, 56 n. 92, 68-9, 74, 78,96, 184, 197,278,331 Vickers Ltd., 275-6 Vissering, Gerard, 128, 143, 212, 248, 272 Viviani, Rene, 158 Volkmann, Ernst, 279 Wadsworth, Eliot, 159 Wallenberg, Marcus, 311 war, 1914-18, effects, 1; Allied economic cooperation, 2, 7-11, 13, 14-18, 20-4; supplies, 17-18; shipping, 17, 18-19, 21 Warburg, M.M. & Co., 248 Warburg, Paul M., 74 war debts, British policy (1918-20), 3, 23,

357

39, 4(^2, 54-5, 66, 77-8, 79-82, 83-7, 88-91, 92-6, 103-4, (1921-2), 152-6, 158-9, 166, 167-8, 170-5, 200 n. 47, 208-11, 212-16, 219-21, 222, 224-6, (1923-4), 227-37, 240, 241-2, 253 n. 81, 256, 263-4, (1925-7), 216, 292, 293-4, 296-9, 327; US policy (1918-20), 39, 42, 49-50, 51-2, 55, 59, 63, 73, 77-88, 1023, 104, (1921-2), 153-4, 157, 159-60, 168, 174, 208-9, 210, 212 n. 84, 222, (1923-4), 228-30, 232, 235-7, 263-4, 327; French policy (1918-20), 42, 49-50, 80, 93, 100-2, (1921-2), 156-7, 158, 195 n. 34, 200 n. 47, 218, 220, 223-4, (19234), 237-8, 241, 247-8, 249, 263-4, 276, (1925-7), 292-4, 295-6; settlements, terms, 236-7, 294-9 Washington conference 1921-2, 160-1, 166, 172, 174, 175, 193 Waterlow, Sidney, 157 Williamson, Sir Walter, 291 Wilson, Thomas Woodrow, relations with Allies, 14; 28; and peace terms, 20, 25, 26; and reparations, 33, 49 n. 63, 104; and reconstruction, 34, 43, 56, 57, 61-2, 63, 64, 73; and war debts, 40, 102, 104; and League of Nations, 52; collapse, 66, 79 Winston, Garrard, 297 Wirth, Joseph, 153 Wise, Edward Frank, 68, 69 n. 8, 179, 198, 201 Wiseman, Sir William, 20, 103 World Bank, 332 World Economic Conference, 1927, 31621 Worthington-Evans, Sir Laming, 178, 179, 194, 201 Young, Sir Alban, 123 Young, Sir Edward Hilton, 276, 277 Young, George Malcolm, 131 n. 82, 140, 270 Young, Owen, 249, 251, 253, 256, 257, 263 Yugoslavia, 12; war and relief debts, 123, 276, 297; credits to, 122-3, borrowing, 122-3, 271; and Austria, 132; and Hungary, 269, 271-2; stabilisation, 310 Zimmermann, Alfred, 141, 142, 279, 280 n. 52