WORRIED LONDON

Evening Post, Volume CXIV, Issue 92, 15 October 1932, Page 13

WORRIED LONDON

THE GERMAN CREDITS

BANKERS FALL VICTIMS

WILL THE TEUTONS PAY?

Certain things- the City of London accepts for granted; for example, the return to the gold standard. It is convinced that the coming World Conference shall consecrato this return to goia as the common foundation for the currencies of all civilised countries. The inflationists, who not so loug ago were so noisy in London, have subsided in an amazing fashion and tho partisans of a speedy stabilisation have tho upper hand in a quiet but not uncertain fashion, says a London writer in the "New York Times." Perhaps the fact that the dollar has sa firmly asserted its allegiance to the metallic standard has been a factor in achieving this decisive victory. Ottawa, too, has convinced many people that' it is practically impossible to link up international currencies for the improvement of commerce if a fixed gold parity is not available. So the City, however much somo of its members may dislike tho idea, bows humbly to gold, and the standard envisaged is no longer the ephemeral "gold exchange standard" offically introduced in 1923 at the Genoa Conference, but the severely exclusive one of pre-war days, when the precious metal alone was accepted and no substitutes in the form of certified gold credits were admitted. Tho only question with regard to a return to the old system which remains' still open, is about the time of its happening. But this the City is content to leave in the competent hands of the central banks, with the recommendation, howover, that tho change-over should be as speedy as possible. But the City, if it takes certain things for granted, reserves its anxiety for other problems. 'First and foremost in this respect : comes the quostiou of tho private debts owed by Germany. The optimists, who believed that the result of Lausanne would bring immense satisfaction to the Germans, havo had a. big • Surprise, because tho reception accorded in Berlin to the Dews of the cancellation of reparations' was of so cold a nature. GERMANS' ATTITUDE. These people, hypnotised by the idea that German reparation payments were at the bottom of the economic crisis in the world, were astonished at the lack of enthusiasm in Germany at being let off further annual payments for a paltry final sum, which, in addition, it is not certain that the Germans will ever be called to- pay. But the Germans are practical pooplo. Having already put an end to reparation payments,, and being decided never to start them again whatever happens, they see no particular motive for rejoicing over the legalisation effected at Lausanne. Their real concern is for tho question how to get out of the payment of as large a part as possible of their private debts abroad. This is a real issue for them. The City of London, is doubly anxious about' German private debts. First, of course there is the large amount involved and the freozing up of which in Germany has placed some of the more entorprising British banks in a difficult position. In the second place, but equally important, is the issue of prestige.. _ Bankers in. the City, who for generations have prided themselves upoa their leading position in the financial world, •cannot- deny that they -are the victims of the tempting offers of high rates of interest offered by Berlin, If the bankers had resisted the temptation, not only would the situation iv the City to-day be much, more healthy, but it is certain that financiers in other countries would havo_ acted -with, greater prudence in furnishing credits to the Germans. A certain moral responsibility lies therefore, on tho leaclerg of the city to see the question of tho repayment of these credits settled in a satisfactory fashion. Anyhow, in the circles of the city to-day the private debt* of Germany are discussed and the development of tho situation is followed with considerable anxiety. For overy day _ the intention of Berlin of. obtaining a revision of its indebtedness is f becoming increasingly clear. People in the city believe that at the coming woild conference this shall be one of the principle issues. When the Dawes plan was signed and the Agent-General . for Reparations was relieved" of his duties ia Berlin, Germany's debt abroad was negligible. But her- credit at the time was high. Somo'day an- impartial German historian shall recognise the merits of tho plan, and especially that it gave stability- to tho situation.' in Germany. He also will acknowledge the services of Parker Gilbert, the American Agent-Genoral for the Allied Powers. ' Unfortunately Mr. Gilbert's advice was too often disregarded, both by the Germans and by the foreign financiers, who were ao keen on placing their money at high Tates of interest in German loans and industrial- undertakings. VAST SUMS It can be roughly estimated that the money poured into, Germany J» the period betweon the ratification of tho Dawes Plan and the panic whichpreceded the Hoover moratorium exceeded 30,000,000,000 of gold marks. New York and London woro responsible for the major part o of this immgnse investment, which was used by the Germans to rejuvenate and expand their industrial plan so that to-day it is the most powerful weapon for. economic competition in the possession of the manufacturers' of the world. They a"lso spent large sums on unproductive investments in the form of; parks, buildings of every sort, etc., and to reconstitute the reserve of- German capital abroad. • In spite of repayments, the so-called private debt, that is the debt of the Government and of individual Gorman banks-ana -undertakings owed to private' people abroad, stands now at a figure m excess of 20,000,000,000 >■ of gold marks. Of thia, nioro than half, probably, is owing to banks in the City ot London.

The Germans contend that the immense foreign debt was contracted to permit the payment of reparations. But this cannot be entirely correct, bocause > the sum total of payments on that account effected sine,© tho coming into force of the Dawes Plan docs not exceed 11,000,000,000 of marks or their equivalent in foreign currencies. Confronted with this iriofutablo argument, German economists then reply that in this case their country is in the position of a client of tho money-lender who has exacted a bill for a sum double that furnished in reality.' The Germans say that in this way they are now expected to pay interest and provido tho- sinking fund for twice as much money as they effectively received. So that, when they are asked to pay, say 6 per cent, they are paying in reality 12 per ! cent, for their debt. In addition, they point out that in London to-da" acceptances for the credits "frozen in Germany can be discounted by the British and other bankers at 1 per cent, and even lower. They claim that it is unfair to charge them even (i per cent for a credit which costs so much less in London to carry. The Gorman argiunient is clinched by_ the old menace that, if the wishes

of Berlin are not met in this respect, it shall be impossible for Germany to effect transfers at all and foreign c«jditorß -will not receive anything. Prom the German side it is said, therefore, that the- suprome task of the world economic conference will be to determine arid install the necessary conditions for enabling Germany to trainsfer an agreed amount every year to her creditors. Should the conference fail to do this, tho Germans contend that the world shall be faced with a situation in which tho crisis will become chronic. They hint that the internal political situation in Germany would get completely out of hand and, in consequonce, all hope of collecting even a part of the debt would havo to be abandoned.

Those arguments are producing an impression in the city. The banks see that Lausanne, although it has restored a certain amount of confidence in the world, has not contributed to a change in the Gorman mentality, which decidedly remains one which can bo characterised as "bankruptcy by stages." Only now it is clear that the decision rests no longer with the Governments, but with the private creditors of Germany themselves, who must come together to devise the best means of getting out of the scrape. One thing, whatever happens, is certain: not in this generation, and probably not in the next, ahull the Germans obtain again' such easy credits as were given to them at the time of the Dawes Plan and until the i great default of 1931.