GERMANY'S DEFAULT

Marlborough Express, Volume LXVIII, Issue 148, 25 June 1934, Page 5

GERMANY'S DEFAULT

THE BRITISH VIEW CLEAR ING HOUSE SCHEME, UNDERL YIN G MOTIVES.

British Official Wireless.

LONDON, June 23. A White Paper respecting the German transfer moratorium contains the Briiish Government's reply, dated June 20, to the Note of June 15, in which the German Government set forth at scme length the general difficulties of the transfer with which it declared itself to be faced. The British Government, while expressing sympathy with the desire of the German Government to stimulate cmployment in Germany, entirely dissents from the view that efforts to that end must entail complete suspension of all transfers of Germany's foreign debts,'a;nd points out that such action, by destroying Germany's credit, must on the contrary impair the pcssibilities of maintaining; the import of essential raw materials, renewing trade and I'estorlng prosperity to the German Nation. The creditors' representatives, it is recalled, were prepared to agree to ^emporary ccncessions of an emergency character to overcome the present transfer difficulties. They pointed out that these difficulties were being aggravated by ' the political and economic policy of Germany herself and that the sacrifices offered by the creditors could only be justified if Germany did all in her power to preserve her foreign exchange resources. They ascertained that the diminution in the Reichsbank reserves was cme not to the iservlce of Germany's commercial loans, which had in, fact already been substantially curtailed, 'but to the purchase of scrip and bcnds a,nd repayments of capital. They found reasons for supposing that the present sharp drop in Reichsbank reserves wias due in part at least, to exceptional items which will be rectified later, and that there were certain receipts to be expected which had not been taken into account at all. Generally, too, they found that the German estimates were much more unfavourable than was justified. ATTITUDE OF CREDITORS. The creditors' representatives were none the less prepared to consider, subject to there being no discrimination, the funding of all non-Reich debts, provided the interest on the Dawes and Young Loans was not in full. The financial effect of this was that, whereas Germany's total foreign exchange obligations for the year ending April, 1935, in respect of long-tenn and middle-term loans and other debts lamounted to the equlvalent of 716 million Reichsmarks a year, only 90 million Reichsmarks would need to be transferred in cash. As against this Germany's foreign exchange income from invisible items amounts, on German estimates, which the creditors considered an understatement, to some 250 million marks a year so- that the interest on Dawes and Young Loans would require less than two-fifths of the receipt from these resources, exclusive of any 'call on Germany's export receipts. The export receipts average 350 million to 400 million Reichsmarks per month so that the interest oni the Dawes and Young Lcans represents only abcut 2 per cent. of the gross foreign exchange income of Germany from all sources. Thus the proposal involves 110 substantial strain on exchange resources available. GERMANY ABLE TO PAY. The creditors were informed that an average period of five and a haif months elapses betwecp the date of the shipment of an export and the receipt by the Reichsbank of "devisen" resulting from it. Thus, apart from other assets, the Reichsbank should now be reeeiving and should continue to ' receive during the next few months repayment by exporters of these ^dvances, which constitute a hidden reserve equal to many times the amount of interest on the Dawes and Young Loans during: the next six months, The British Note says that these and other facts which are cited "inevitably give the impression that the policy of Germany is to claim that no foreign exchange resources are available to meet the service of her loans, and then to apply the resources which should have been used in meeting that service to the repurchase of her loans at the low prioes resulting from: default." It is pointed out that the statements in the German Note regarding prohibitive measures in certain countries against German goeds do not apply to the United Kingdcm. where the trade balance in German favour during the last two years, was sufficient to cover the interest on all German loans issued in London more than three times, and the interest on the London issues of Dawes and Young Loans more than ten times. DAWES AND YOUNG LOANS. It is recalled that the Dawes Loan was raised when Germany was in ia state of economic . collapse, and lenders who subscribed to it were given miost absolute isecurity of payment in all conditions. The Young Loan was accepted as an unconditional obligation by the German Government, and, if no special security was asked for it, it was because the Young Committee recomniended that the basis of scurity was a "solemn undertaking of the German Goverinment to which 110 further guarantee can1 add anything whatsoever." During the recent negotiations the British bondholders' representatives. in order to arrive at a uniform salution equitable to Gemainy, were will, ing to recommend sacrifices which some of the other representa'tives regarded as excessive. As the German Government refused their suggestions and announced. it:s intention to suspend all transfers, the British Government had no option but to ask Parliament for powers to protect British financial and commercial interests. ,The Note concluded with an expression of willingness to discuss with the German Government the possibility of reaching ap, agreement regarding the treatment of British creditors which would avoid the necessity for exchange clearing albogether, or, alternatively, means by which such clearing could be administered with a minimum disturb-

i ance of the trade of both countries, and suggested that the German representatives should at once be sent to London for such a discussion. Germany accepts the British invitation to send a, delegation of bankers to England to discuss the transfer question. The Reichsbank announces that it will issue only such foreign icurrency as is received daily, giving special attention to allotments for those intending to pay for imports of raw materials. This adversely affects British dealings with Germany since all clearaince payments abroad must be approved by ihe Reichsbank,