FINANCE-PUBLIC AND PRIVATE
EUROPEAN DEBTS
By ARTHUR W. KIDDY THE reassembling of Parliament is not usually regarded as a " bull " point on the Stock Exchange. Heated and often acrimonious discussions upon matters with which the nation is concerned often have a disturbing effect upon financial and business activities. In February, however, the City always looks to the assembling of Parliament with more than ordinary interest, because so much of Parliamentary activity is then centred upon questions of finance. The Budget itself does not usually come until after Easter, but long before then we get a pretty good inkling of the position through the Estimates of Expenditure. In fact, as I have so frequently pointed out in this column, it is upon these Estimates that public interest should really centre, because it is in them we get evidence of whether the Government is really endeavouring to economize or not. When once the Estimates have been passed it is not much gcod to protest against the failure to reduce taxation, because when Parliament has sanctioned certain outlays it follows that the wherewithal must be found, and a Budget equilibrium established at all costs. I suggest, therefore, that the first real test of Mr. Winston Churchill's courage in his position of Chancellor of the Exchequer will be found in the new Estimates, which will show what cuts he has been able to enforce in Civil Service outlays, where the margin for reduction is a great one.
INTER-ALLIED DEBTS.
It is not only with the National finances themselves, however, that the present Parliament will be concerned, for it seems likely that ere long the general subject of inter-Allied debts will come up for discussion. On the whole, Mr. Churchill's Note to France meets with the City's approval, though at the same time it is felt that the British Government has now gone to the extreme limits in the matter of generosity to its debtors. The problem of inter-Allied debts has always been viewed in financial circles in what may be termed a common- sense light. In one sense, of course, the obligations of the European belligerents—including ourselves—to the s United States, and those of our Allies to ourselves, are tmchallengeable. At the time when the debts were incurred there was the clear undertaking to make repay- ment in due course. Then came the termination of the War and with it a recognition not only of the magnitude of the inter-Allied debts, but of the wholly exceptional circumstances in which they were incurred. Therefore our sown Government--and the City was inclined to concur in the view—was disposed to acknowledge the exceptional circumstances of the ease and to accept a scheme for mutual cancellation all round.
A DELICATE SITUATION.
From the outset, however, it was perceived that any cancellation was only possible if the initiative came from the creditors—that is to say, from the United States and ourselves. It was impossible for the debtor to raise the point without at the same time challenging the sanctity of the contract and automatically impairing his own credit. When, therefore, it became clear that the United States took the Vie that "exceptional cir- cumstances" could not be taken into consideration, or, at all events, could not. be regarded as cancelling the debt, there was only one course to take. With America insisting upon the fulfilment of the bond, it became the duty of the debtor to concur in that view of the matter, and accordingly some two years ago we accepted the position and funded our debt to the States, that country, it is only fair to point out, imposing less onerous terms than could have been imposed under the strict letter of the original agreement. With a clear recognition of the difficulties of other European debtors, however, this country still endeavoured to give them help, and when some months ago pourparlers were understood to be taking place between the United States and France for the arrangement of the French debt to America, our Government went out of its way to signify to Washington that if America wished to show greater indulgence to France than had been granted to Britain in the details of the debt arrangement, this country would certainly offer no kind of opposition, our only stipulation being that whatever France was prepared to pay should be shared equally between the creditors.
NEED FOR A SETTLEMENT.
This action has now been followed by Mr. Churchill's Note making it clear that Great Britain does not desire to obtain from her debtors, including Germany's debt of Reparations, one penny more than the amount required to meet our obligations to America. Not only so, but the further intimation has been given that, to the extent to which German Reparations may each year meet the requirements of the case, the obligations of the Allies are to be correspondingly relieved. On the other hand, it is also rightly stipulated on our part that the amount to be received by us each year to cancel out our payments to America must not be dependent upon German Reparation payments. It now remains to be seen what reply will be made by France to the British Note, the friendly and even generous character of which, however, is beyond question. There are at least three considerations which make it desirable that this question of inter-Allied debts should be settled with the least possible delay. In the first place, a settlement at least of the general principles would probably more than anything else contribute to an improvement in the credit of the debtor countries themselves, and would form a prelude to the stabilizing of their currencies. In the second place, and from the standpoint of our own Budget, it is only right that the Chancellor of the Exchequer should know where he stands with regard to our own financial position. And, in the third place, I cannot help thinking that it will be difficult to come to a definite decision with regard to the question of a return to the Gold Standard until the question of inter-Allied debts has been settled.
LLOYDS BANK MEETING.
Not the least interesting and important of the series of annual bank meetings was the gathering of Lloyds Bank shareholders, when an exceptionally able address by the Chairman, Mr. Beaumont Pease, was, owing to Mr. Pease's -Unavoidable 'absence through indisposition, read by the Deputy-Chairman, Sir Austin Harris. A good deal has been said and written with regard to the preparedness of our banks to finance an increase in trade activity, and Mr. Beaumont Pease went straight to the point by showing that, so far as Lloyds Bank is concerned, large sales of investments were made last year in order to strengthen still further the volume of liquid resources available for financing the country's industries. Moreover, in stating that the improved conditions of trade last year led to a rise in the pro- portion of advances to deposits from 41.6 to 48.2 per cent., Mr. Pease pointed out that there was still a good margin for advance in, that direction, the proportion of loans to deposits previous to the War having at one time been well over 60 per cent. As indicating, the strength of the bank's position, the Chairman of Lloyds was able to state that, although there had been a 'great increase in -profits- for the year, all the profits resulting from the sales of investments at high prices had been regarded as of a special character and had been placed to reserves, thus still further increasing the strength- of the bank.
THE GOLD STANDARD.
The remarks of Mr. Beaumont Pease concerning the question of a return to the Gold Standard might be regarded as a model of discretion and common sense. In common with other bankers, he made it perfectly clear that he considered a return to the Gold Standard to be desirable from almost every point of view. At the same time, and doubtless with a desire in no way to embarrass those upon whom the decision will primarily depend, Mr. Pease expressed no definite opinion as to the moment at which the step •should be taken. It will be noted, however; that he was very 'careful to point out that for the recent rise in the American :exchange special and even, conceivably, temporary causes might be responsible, and by way of commentary upon his observations has come the moderate reaction in sterling during the past few days.
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