15

H.—25

Treaty Provision re the Valorization of Debts enforced by the Allied Governments but not. by Germany. As regards tho valorization of debts, the obligation is reciprocal — e.g., a British trader who is indebted to a German national in tho sum of 1,000 marks is required to pay £50 to this Office in discharge of his indebtedness ; but whereas the Allied Governments have honoured their signature to the Treaty, and rigidly enforced this provision upon their debtor nationals, the German Government, by its internal legislation, has relieved its debtor nationals of this obligation and absolved them from tho duty imposed upon thorn by the Treaty. Fven this is not the limit of the indulgence granted by tho German Government to its nationals, for in tho case of those debtors whoso debts were contracted in Allied currency the German Government permits them to discharge their liability by the payment of a sum in marks representing an infinitesimal fraction only of their contractual obligation. Excuse offered by the German Government. 'the German Government seeks to excuse itself for this grave violation of the Treaty by alleging that to impose upon debtors the obligation to valorize their debts would amount to a variation of the contract under which the debt was created. Even if this were a valid excuse as regards mark debts, it could obviously have no application in tho case of sterling obligations, which represent the bulk of the German indebtedness ; but even as regards the former the principlo of valorization is essentially an equitable one, for the consideration which passed between creditor and debtor was represented by goods supplied, money lent, or services rendered, having a world value irrespective of the fluctuation in the currency which, for the sake of convenience, was adopted as the medium of exchange. Excessive Belief afforded German Debtors under German Legislation. The following instance will serve to illustrate my proposition : A British national before the war advanced 1,000,000 marks to a German manufacturer, which the latter employed in the erection and equipment of a factory. Tho value of this advance at the date it was made was £50,000. Under the German Clearing Office law the debtor is discharged from his liability to his British creditor by the payment of the present equivalent of something less than Jd. He, however, retains possession of the factory and its equipment, the world value of which has not, depreciated and to-day represents an investment of 1,000,000 gold marks. Unsuccessful Representations made to Germany by the Allied Powers interested, and, by the Conference of Ambassadors. Representations were made in October last by all the Powers interested drawing the attention of the Gorman Government to its failure to give effect to the provisions of the Treaty in the above respect and calling upon it, to comply with its obligation by amending its Clearing Office law. Similar representations were subsequently made by the Conference of Ambassadors, but these demands have not been complied with. Cause of the German Default. The default by the German Government in meeting its engagements to the Allied Clearing Offices, to which I have referred, arises solely from the above violation of its Treaty obligations, and. the resultant burden imposed upon its Budget by voluntarily assuming the cost of valorization, which should have been borne by the individual debtors. It also had the apparent result of bringing the Clearing Offices into competition with the Reparation Commission, in whose favour the assets and revenues of the German Government are charged as security for the costs of reparation. 1 say " apparent " because in reality the amounts hitherto disbursed by the German Government on account of the monthly balances due to this office have been more than covered by the value of British property in Germany sequestrated under German exceptional war measures, and which was not subject to the charge in favour of the Reparation Commission. Another reason given by the German Government for the above breach of its Treaty obligation is that to have required its debtor nationals to valorize their debts would have driven them into bankruptcy. Even if such a result might conceivably have ensued, it would not have justified the breach without the consent of the other Powers who were parties to the contract. Such fears, however, if entertained, were groundless, for it is a notorious fact that since the Armistice the Gorman industrial class, which comprises the majority of the principal debtors to British nationals, has made enormous profits from the inflation of its currency, and, indeed, it is admitted that many of those debtors had acquired in advance the necessary foreign currency to meet their liabilities, but having been relieved of their contractual or treaty obligations to their creditors by the German Clearing Office law they employed the money so acquired in their businesses. The German Government having voluntarily assumed the burden of valorization imposed by the Treaty upon tho individual debtors, and relieved its sterling debtors of their contractual liability, proceeded to default in its engagements to the Clearing Offices, and has made no payment on account of the .monthly balances since the instalment due in August, 1022, under the London Agreement, was met. Result of the Default by Germany. In the above summary I have avoided going into too much detail, but I venture to think that it shows conclusively as stated earlier in this report, that the sole cause of the default by the German Government in meeting its obligations to the Allied Clearing Offices is its voluntary and, I submit, unjustifiable departure from the express provisions of the Treaty. Had these been observed the German Government would have, sustained no loss for which it could not have recouped itself out of the credits received by it from the Allied Offices. The result of the default has been to throw upon the British Clearing Office funds an additional burden, estimated at £13,000,000, representing the balance of debt claims, and has diminished pro tanto the sum that would otherwise have been available for payment of compensation to British claimants. With this explanation I will describe the efforts that have been made by tho Clearing Office to safeguard the interests of British creditors. Clearing Office Conference at Berlin. Acting upon tho instructions of your predecessor in office, I proceeded to Berlin early in October last, and, in conjunction with my colleagues the Directors of the Belgian, French, Greek, Italian, and Siamese Clearing Offices, opened negotiations with representatives of the German Government with a view to concluding an arrangement to secure tho future payment of tho balances which would thereafter accrue on the monthly accounts. Before the conference with the German authorities commenced a meeting of the Allied Controllers was hold, and an agreement was arrived at as to the terms which they were prepared to accept in substitution for those contained in the London Agreement of tho 10th June,. 1921, which, as previously stated, had been denounced by the Supreme Council. The conference with tho German authorities commenced on the 13th October and continued until the 21st October, when a settlement was arrived at and a definite agreement was drawn up and executed by all the Allied Controllers and by a representative of the German Government, and was expressed to be subject to approval by tho Reparation Commission and to ratification by the respective Governments. Throughout tho discussions which resulted in tho above agreement tho Allied Controllers kept steadfastly before them three main objects which thoy sought to attain and upon which they insisted, namely : — (1.) The creation of an instrument which would work automatically, and with the operation of which it would be out of the power of Germany to interfere ; (2.) Security for tho discharge of tho obligations to be undertaken by Germany under the agreement; and (3.) A speeding-up of tho clearing procedure by the removal of the inducement on the part of Germany to withhold the admission of tho just claims of Allied creditors.