F1NANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
REPARATIONS AND THE CITY.
[To the Editor of the SPECTATOR.] SIR,—As regards many points of detail the Report of the Experts Committees, appointed by the Reparations Commission, may, perhaps, be regarded as complex, but its main findings and recommendations and also the principles enunciated are very clear, and it is upon these that the imagination of the City has seized.
In the first place, excepting in a negative sense—a very important sense, however—there is .not a word of politics in the Report, both Committees having colleen-. trated attention entirely upon the financial and economic aspects of the reparation problem. The Report says nothing about whether France should or should not have gone into the Ruhr, or whether she should stay there, but it does. say this : that their proposals both in detail, and as a whole, are based from first to last upon the idea that the unity of the Reich will be preserved ; in other words, that GerMany will regain economic control in the Ruhr as elsewhere. It follows, therefore, that ultiMate acceptance of the Report by the Allies' would mean that France acquiesces in that preliminary stipu--
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The next •essential for the carrying out of the Committees' proposals is that a new GermanBank should s be established backed by foreign as well as local capital, -and that; in addition, an external loan of about 240,000,000 should be raised out of which, indeed, - Germany is to make reparation payments during the first year, starting from the setting in motion of the Committees' proposals. It is not surprising, therefore, that the • City should immediately fasten upon this point in the Rkpoit and, indeed, it, is not at all a.had basis on which to found an eXamination..of the Committees' proposals ,as a WhOle. For it comes to this : if the Committees cannot show good cause, both in the matter of security and the good faith of Germany, why the foreign investor should lend money to a country which at the moment does- not enjoy good credit, either politically or financially, it follows that there may be, reason for doubting either the feasibility or advisability of the recommendations as a whole. • If the loan proposals are to be regarded as practical and sound, one would expect to find from the Committees' Report and recommendations : (a) that there were ample assets to pledge for such a loan ; (b) that the necessary machinery could be put up to ensure the hypothecation of revenues on behalf of the loan holders ; (c) that there (Continued on next page.) was a reasonable chance of the re-establishment of a Budget equilibrium in Germany, and also stability in currency and exchange ; (d) that an examination into the economic position in Germany during the past three months had caused the Committee of Experts to feel tolerably sanguine not only as to the ultimate solvency of Germany, but as to the ability of the country to meet reparation payments ; and (e) that good faith and loyal co-operation on the part of Gerinany can be reckoned upon to make the Committees' proposals practicable and workable.
In nearly all respects the_ City is of opinion that the Committees have made out a very fair case for the proposed loan. I bring in again this matter of the loan because it is, perhaps, the best way of expressing the fact that under certain conditions the City would. probably be prepared to back its approval of the Committees' Report and proposals in practical fashion. As regards the assets to be pledged for the loan, it is not apparently intended that there should be any specific hypothecation of any 'particular security, but the matter of security is really covered by the main arrangement whereby assets such as railways and customs, &c., are to be pledged as -collateral security for Budget contributions and treaty payments generally. These revenues are colossal and it is clearly the intention that the claim of the loan holder shall come even before the reparation payments themselves. As I have just said, the proposal is not for a direct hypothecation of special assets for the loans, but the machinery to be set up for controlling the . revenues from the sources I have mentioned is very complete and should work both for the safety of the loan holder and for the re-establishment of financial stability in Germany. A. vital part of this machinery -is the new Central Bank, and there again a large measure of foreign control accompanies the foreign capital to be put up. As regards the third and fourth points I have referred to, it is impossible not to obtain from the Reports an impression of extreme hopefulness both as regards the ' prospects of a Budget -equilibrium and of -currency stability in Germany if the Committees' proposals are carried out in their entirety. As regards the Budgets the Committees, which display extreme caution through- out, estimate that within five years' time Germany should not only be able to maintain a Budget equilibrium, but should do so aftar paying each year to the Allies £125,000,000 in reparations. It should - be noted, however, that from first to last these payMents, although I have expressed them in sterling, are really to be paid in gold marks in Germany, and the task of remitting to the Allies is to be entrusted to a representative corn- ! mission appointed by them. _ It is, however, by that 'very proviso that financial and currency stability are expected to be secured. For it must be 'remembered-- that- from the very first the problem of. Germany's huge reparation payments has always been complicated:not merery by their magnitude i but by the fact of their- having to be translated into foreign currencies. In .other words, it has been feared ; that the process of remitting would break down the exchange and cause AlreSh depreciation of the mark, not merely to the destruction of German solvenCy, but to the infinite disturbance-T:Of trade in countries of the Allies owing to an excessive stimulus being given to' ' German exports. This . is a_ .peint . which clearly has had special thought., and the. City, which knows some- . thing about what may be skilfully accomplished by Central Banks and expert ba-nkeitin the way of exchange. I remittances when there is no undue pressure in the matter, believes that under such qrangenients as those laid down by the.Committees, it may be quite possible for these annual payments to be effeeted by Germany • with infinitely less disturbance to the world's exchanges than would be the case if, acting under an autocratic - demand,. Germany were compelled, whatever the state of the exchange, to remit a specified amount abroad within a given period. I The vital question of whether, given 'the approval of the Allies of the COmmittees' recommendations, the loyal co-operation of Germany can be reckoned upon has yet to be determined. and it can at once frankly be acknowledged that the brief but excellent Report of the McKenna Committee, with its disclosure of the gains made by Germany from the foreigner by its delib- erate policy of inflation, does not .stand German credit in good stead at the present critical moment. Never- theless, it is felt in the City that Germany's interests are all in the direction of her co-operating with the Allies in carrying out the recommendations in the Committees' Report. That importance is attached by the Reparations Commission to: the .attitude„„stsVermany in the matter is already, shown by the fact that having itself approved of the_ Experts Committees' recommendations, the Com- mission -is has tel-pug to invite Germany to send repre- sentatives -Co- express their views -upon them. In fact, at the-Moine:fit of .writing it looks as though there might be a COnSiderable speeding 'of decisions upon the Corninittees! .Reports and. that." is scarcely surprising having regard to the iMpending elections both in France and in Germany. Those, in fact,. who have studied the situation most closely are .most keenly appreciative of the serious consequences w_hick must follow any summary turning down of these Reports. Without, perhaps, entirely endorsing the -view expressed in some quarters that these recommendations offer the final chance for ending political and financial chaos,-the City .believes that we have come, to a crucial stage in the great reparation crisis, the outcome of which is awaited with anxiety but—largely as a result of the Experts Committees' Reports—a certain amount of hopefulness.—I am, Sir, yours faithfully,
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