FINANCIAL NOTES
CITY AND AUSTRIAN LOANS
THERE is no denying the strength of City feeling over the Austrian loan situation. It is now realised that, at any rate as a starting-point in any further discussions, the German Government is rdopting the pOlicy of default. The joint committee comprising representatives of the guarantor powers, with the notable and lamentable exception of Italy, has been frankly informed that Germany does not recognise Austria's debts, and presumably the intention is to bargain with the guarantors and, if the pressure is severe enough, to offer
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FINANCIAL NOTES.
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some sort of compromise. At a time when political relations are strained and financial morality is quoted at a heavy discount in many parts of the world, this attitude of default, naked and unashamed, is perhaps understandable, but it is none the less reprehensible. As it happens, the guarantors have an effective weapon at their disposal if they choose to use it, namely, the setting up of a clearing arrangement.
Under such a system the authorities here, with the co- operation of 1rading interests, would impound sufficient of the sterling proceeds of Germany's exports to this country to cover the debt service. The guarantor powers are well placed to implement a clearing system with success since every one of them, with the possible exception of Czecho- slovakia, has a substantial unfavourable trade balance with Germany and Austria. There is thus a balance of free sterling accumulating in German hands, which, if a clearing arrange- ment is instituted, could be tapped. Everyone will hope that Germany may yet be persuaded to toe the line and shoulder her liabilities, but, if she persists in default, the guarantor powers should not flinch from taking firm action.
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