Finance
Germany's External Debts
THE threatened default by Germany on her external loans, and especially upon what are known as the " Dawes " and " Young ' Loans, is a matter of con- siderable concern not merely to those in the unfortunate position of holding the securities directly affected, but to a very much wider circle of investors. For unless redeem- ing facts are ultimately forthcoming, the whole question of sanctity of contracts is affected and certainly the conse- quences must be far-reaching as regards all foreign loans. And this is a matter which concerns not only the holders of foreign loans, but the holders of all investments, for it must not be forgotten that while the chief cause of the present rise in gilt-edged securities is to be found in the prolonged extreme cheapness of money, yet another cause the fact that for some few years now there has not been the usual outlet for British savings in foreign loans, which loans usually give a fairly high interest-yield.
During the post-War years, and especially during the last four years, British holders of foreign securities have suffered some severe loss of income through complete or partial defaults by various borrowers, and in the main the cause of these defaults has been connected with the great fall in the price of the commodities usually exported by the borrowing countries, and with the chaotic condition of the exchanges rendering the problem of obtaining exchange remittances an exceedingly difficult one.
THE DAWES AND YOUNG LOANS.
There are, however, circumstances connected with the threatened German default which possess special import- ance and significance. In particular, the Dawes and Young Loans to which I have referred were loans con- tracted with the full consent of Germany and, indeed, the Dawes Loan, in particular, was largely the means whereby Germany for some years was able to achieve a great deal in the way of financial recovery after the War. Moreover, these Loans were sponsored by the Governments of some of the leading countries and consequently even the timid investor felt that the security was sufficiently good. Yet it is on these Loans as well as upon a number of municipal and industrial loans that a temporary default is threatened. To be quite fair, however, it must be recorded that Germany does not publicly repudiate these obligations and, in fact, is prepared to place on one side the service of the Loans in German currency. She pleads, in fact, impossibility of obtaining exchange whereby to effect the necessary transfer into sterling and other curren- cies. Unfortunately, however, the value of this offer is greatly diminished by the fact that owing to internal regulations the value of the marks in the hands of the foreigner would be vastly below their nominal value even in Germany itself.
POST-WAR LOANS TO GERMANY.
On looking back, there can be little doubt that the financial position of Germany at the end of the War was a desperate one, for, with her credit temporarily destroyed, she was in urgent need of raw materials and even of foodstuffs owing to the shortage occasioned by the War and the extent to which she had been com- pletely blockaded during the last years of conflict. Nevertheless, those concerned in the Treaty of Ver- sailles seem to have been animated either by feelings of extreme vengeance or of extreme confidence in the power of Germany to establish a quick rehabilitation, for it will be remembered that a colossal indemnity in the shape of annual reparation payments was imposed. The amount, indeed, was so colossal as to produce feelings of despair in Germany and also, there is little doubt, a great exodus of such liquid capital as still remained in the country. Very soon it became apparent that Germany would have to be assisted in making these reparation payments, and the Dawes Loan was one of the early operations designed to aid the financial rehabilitation of Germany. In addition, how- ever, very large amounts were lent to her by this country and the United States. British bankers here, with a (Continued on page 982.) Finance
(Continued from page 981.) .
readiness which has probably since been regretted, advanced quite large sums to German financial institu- tions, while German bills were created on a large scale and discounted in the London market. A still more remarkable development, however, and one which for some time enabled Germany to meet her reparation payments, was the outpouring of money from the United States. Shortly after the War and before there had been a revival of speculation in Wall Street, investors in the United States who never previously had invested abroad were persuaded by leading financial institutions in America to invest largely in German municipal and industrial securities. Indeed, it is currently estimated that the equivalent of at least £200,000,000 was lent in this way by the United State;. In fact, at this particular moment America was seized almost with a mania fcr lending to Germany and to South American countries, even com- peting with British bankers in making these advances. Germany naturally was not averse from the operations and, as is usually the case when loans are being pressed upon a borrower, much of the money was spent in an ex- travagant manner. The almost inevitable result followed. While Germany's ability to make Reparation Payments was temporarily aided by these loans, her external debt was, of course, increasing all the time, and when there came a complete cessation of American loans it soon became apparent that reparation payments would no longer be possible. It must, however, always be placed to the credit of this country that we recognized the situation at an early date and did everything possible to bring about a reduction in reparation payments, while at the famous Conference of Lausanne it is believed that an agreement was reached calculated ultimately to free Germany from further reparation payments, though something depended upon the United States' attitude towards the War debts due to her. It has, indeed, been freely asserted that when agreement was reached by the European Powers at Lausanne with regard to German reparation payments, a powerful influence had been the intimation by the United States that the easing of reparation payments from Germany would facilitate a settlement of the War. debts. by the Allies to America. Unfortunately, however, as we know only too- well, America so far has completely failed to ease the situation in the matter of War debts, while in Germany political developments for the last few years have been of a charac- ter which during the last year, especially, has had a disastrous effect upon her export trade.
SOME ESSENTIAL POINTS.
That the credit of Germany must suffer severely and for a prolonged period if she fails to recognize the sanctity of these obligations on loans granted to aid her recovery from the War as distinct from her Reparation obligations, there can be no question, but nevertheless there are one or two- broad facts which emerge from the situation which I think .call for special recognition. One of these is the fact that it is impossible for countries to discharge their international indebtedness . - if - there is not. a -free exchange of goods and services. But when this fact has been recognized, it also remains to be said that the credit of a nation, like that of an individual, must depend upon the observance of the- sanctity of contracts, and when in years to come there is a resumption of foreign loans, a severe distinction will have to be made between those countries which only through dire necessity failed to fulfil their obligations and those which gave clear evidence of their desire to evade their obligations. -
ARTHUR W. KIDDY.
Previous page
