States and Europe THE world's financial cauldron will soon boil over. France, in the statement of her views before the Young Plan Committee at Basle, has made it clear that she can consider no remission of Reparations that is not balanced by a proportionate remission Of the debts due ultimately to the United States. The President of the United States has reaffirmed his objections to any permanent cancellation of debts, and unofficial voices in Washington, expressing the views of the Capitol rather than the White House, have insisted once again that if Europe wants temporary debt relief, Europe must show herself capable of wasting less on armaments. The Secretary to the Treasury in the United States has pointed out that Great Britain, having to pay her debt to the United States in gold, will, on the basis of the exchange-rate prevailing when he was speaking (it has moved a little in favour of this country since), be increasing her annual instalment in sterling by forty-seven per cent.—will have to pay, that is to say, some £48,000,000 yearly instead of just under £33,000,000. And the Special Correspondent of The Times at Basle, reviewing the Young Plan Committee's current labours, observes significantly that "as the discussions within the committee proceed it is becoming more and more evident that German payments for foreign debt, not merely for Reparations, can only be made in goods, and that tariff barriers which prevent the delivery of payment in this form amount to a refusal to accept payment." Finally, as if in calculated comment on the statement just cited, Switzerland has just decided, in self-protection, to adopt special measures to keep out the goods Germany is exporting in order to obtain Swiss currency with which to pay her debts.
Out of what looks like a labyrinth built by lunatics is there any issue ? The answer to that is plain and stark. There is and must be. The road down which the nations have been limping since the last attempted settlement in 1930 can be trodden no longer. Payments under the Young Plan have stopped and they cannot be resumed till Germany has fought her way back to a totally different position from to-day's. And she may only do that after a collapse so complete that by that very fact the Reparation problem will be wiped out for ever. But there may still be time to avert a disaster menacing not to Germany alone, but to the peace as well as the economic fabric of all Europe. In any event, there will be no Reparation payments next year, nor in all likelihood in 1933 or 1934. Meanwhile the debt agree- ments remain. They not only remain, but in the special ease of Great Britain have become far more onerous through the depreciation of sterling, for while we pay America in gold or its equivalent (because our debt was contracted in dollars and the dollar is still on a gold basis), our Allies are under contract to pay their debts to us not in their gold francs or lire, but in our own depreciated sterling. Small wonder there is talk of revising the terms of the Balfour Note. In a sense it is idle talk, for the proposition set forth in that historic document—that Great Britain would ask no more in debt-payments and Reparation-payments- combined than she was required to pay herself in liquidation of her debt to the United States—is embodied to-day in a binding international agreement from which we can gain release only by the free consent Of the countries con- cerned in it. The debt settlement of 1923 with America is open to heavy criticism, but nothing is gained by raking that up to-day. Mr. Balfour wrote in 1922, "His Majesty's Government recognize their obligations and are prepared to fulfil them." Mr. Baldwin settled with America in 1923 on that basis, with some small mitigations. And in 1931-2, still recognizing our obliga- tion and prepared to fulfil it, so long as we are being paid ourselves, we shall be paying in terms of sterling over forty per cent, more than the figure in the bond.
To President Hoover and Mr. Mellon the unstinted appreciation of this country is due for their recognition of Europe's difficulties, and their endeavours to get the debt agreements reconsidered. Mr. Mellon has set out the hard case of Great Britain, America's best customer, with convincing force. Mr. Hoover has appealed to Congress for the reconstitution of the War Debt Funding Commission with a view to revision of the agreements. But in such matters the Executive in America proposes and it is for Congress to dispose. In this case Congress, Democratic, while the President is Republican, shows • every sign of disposing otherwise. And from the other wing of the Capitol Mr. Borah proclaims once more the gospel of Disarmament First.
To all appearance there is very little to hope for from Congress. It has refused even to ratify by the appointed day the debts and reparations moratorium agreement concluded by President Hoover last • July. As a conse- quence this country and America's other European debtors have been technically in default since last Tuesday in respect of the debt payments due on that day, which Congress has not yet agreed to -remit. That is of no im- portance. Ratification of the moratorium is not in doubt. It may have taken place before these lines appear. But the refusal of the American legislature to comply with the President's appeal to it to take the necessary action quickly is a warning of the effect domestic controversy in the United States may be expected to have on a struggling Europe. But events may be too much for Congress. If it is merely that Great Britain, the chief of America's debtors, has to make annual instahnents inflated by some forty-five per cent, she will no doubt make them. But if Germany is to cease altogether for the present to pay reparations, as she inevitably will, then it is plainly inadmissible that Britain or France or Italy or anyone else should go on paying America on the present basis. It would be next to impossible, even if America were willing to take payment in the only medium available —goods. As it is, the debt question must come to a head with the Reparation question. France has put that in one way, by ruling out Reparation remission unless there is debt remission. The Balfour Note put it in a rather different way by saying that in so far as America abated her demand for payment Britain would abate hers in regard both to her Allied debtors and to Gericiany. The obverse of that doctrine is that if Reparation payments fail, debt payments must fail simultaneously and pro rata. That means frankly that the European debtors will put themselves in default in regard to America. They will create, under the stress of circumstances, the situation as between themselves and the United States which Mr. Hoover and Mr. Mellon and all that is far-sighted and open-minded in American opinion desire the United States to create on its own initiative—a situation in which debt:payments to America on their present scale are no longer Made. If it is idle to talk of revising the Balfour Note in the sense of re-writing unilaterally a contract that Can only be vaned by joint assent, there is every advantage in emphasizing again the truth so iricontro- vertibly stated there that debts and reparations are both part of one great international transaction and must stand or fall together. Germany is no longer making Reparation payments, because she cannot make them. The titular recipients of reparations, though in Jess desperate ease, will have to cease or diminish their debt payments for the same reason. There is not a financier or politician of the first rank in the United States who does not admit that. Mr. Hoover has said in as many words that some at least of America's debtors will be unable to meet their obliga- tions. Nothing could be more unfortunate than that Europe should be compelled to force debt-revision in spite of Congress, but it is wise on every ground to recognize that Europe must do that in the last resort.