Finance--Public and Private

Reparations

THERE are doubtless many matters connected with high finance which of necessity have to be left more or less to the attention of the expert. The very system of currency and banking under- which we work at the present time, although it is intimately concerned with the well-being of every individual in the nation, is nevertheless only comprehended by the few. Again, to take a very different example, although arrangements under the Treaty of Versailles, both financial and territorial, vitally affected the interests of many nations, the details were understood by few people. It would, indeed, have been better in many respects if they had been understood and discussed by a wider section of the community, when some of the mistakes to which attention was so forcibly drawn at the time by Mr. J. M. Keynes in his work on The Economic Consequences of the Peace might consequently have been avoided. And, to come more nearly to date, when what has become known as the Dawes Plan for German Reparations was adopted in 1924, there were probably few outside the experts - concerned who comprehended the precise effect likely to be produced by the Dawes Plan or even compre- hended exactly what was invohred in German Reparations.

" COMING EVENTS CAST," &C.

Lest; however', any readers of the Spectator should be -fearful that I am about to enter into complicated . explanations of all the details of the Dawes Reparation _ Plan, let me hasten to say that one must accept as a kind of necessity the inability of the public to follow in detail the- many complications connected with the more intricate aspects of such matters as currency problems or German Reparations. At the same time, there are certain main points in connexion with such problems not difficult at all to grasp, and it is to a few of these, as connected with the German Reparation problem, that I would like to direct attention. It is, moreover, a point which I think readers of this column will find has become a very general topic of discussion by the autumn of this year, and it is a matter which may easily have quite a considerable influence upon financial and economic developments generally, to say nothing, of course, of its political aspects.

AN INTERESTING REPORT.

There has been published during the past week a further Report of the Agent-General for Reparation Payments, Mr. Parker Gilbert. In this Report the Agent-General gives a great deal of interesting information with regard to reparation payments which have already been made, and, what is of perhaps still greater import- ance, he emphasizes the manner in which the world's markets may be affected in the near future by the fact that in September there will be a great increase in the annual amounts to be paid by Germany to the Allies.

A TWO-FOLD DIFFICULTY.

To comprehend the difficulty attending the making of very heavy reparation payments by one country to another, it is necessary to understand that this difficulty is two-fold in charaeter. There is first of all the difficulty of actually raising the wherewithal by taxation or other methods to produce the required amount ; but there is also the further difficulty of translating the amount raised into the terms of currency of the country or countries to whom the payments have to be made. In the case of Germany, this two-fold difficulty is about to be emphasized by the fact that, beginning with next September—the fifth year of reparation payments, the amount will rise to 2,500 million gold marks, or the equivalent of about £125,000,000. Looking at the problem for the moment in the terms of marks only, there may be some con- .siderable further strain upon German taxpayers and German industry. An equally, if not more important _point, however, is the problem of remitting the 2,599 million marks to the various countries to whom the payments are due. These remittances have to be made through what is known as the Foreign Exchanges, and Foreign Exchanges, just like any other commodities, are subject to the laws of supply and demand, that is to say, if Germany, because of her heavy payments, is requiring a vast amount in francs or pounds sterling, then the German mark exchange will tend to fall.

A COMPLICATION.

There is one way, of course, in which a situation such as that just pictured can be materially relieved. If the country which has to make the heavy payments happens to have a large trade balance in its favour, that is to say, if foreign countries owe to it large sums for goods purchased, then such sums go to offset the special reparation payments and reduce the total amount to be remitted abroad. Unfortunately, however, so far as can be gathered, no such relief is afforded to the German reparation problem, inasmuch as the trade balance is against • Germany and, therefore, constitutes something which, in itself, has to be added as it were to the effect of reparation payments upon the exchange.

OTHER STRAINS ON EXCHANGE.

Nor is that quite the whole of the story, for, during the past few years, and for the purpose of achieving financial recuperation, German municipalities and indus- trial concerns have borrowed large amounts of capital from abroad, and the annual interest now to be' paid on those loans constitutes yet a further sum which has to be added to the effect of reparation payments upon the exchange. With regard to the effect- which may be produced by the great increase in reparation payments commencing from next September, it must be understood that I am merely endeavouring to state the problem without expressing any opinion as to whether Germany is or is not equal to the greater demand which will- be imposed upon her in a fevf months' time, the point beina that it seems degirable t_ hat the public should be alive to a matter which is already giving concern to those who are familiar with the problem and with the issues involved.

A DELICATE POINT.

Incidentally, I must point out that under the Dawes Plan this difficulty of effecting heaVy remittances through the exchanges was to some extent foreseen and was provided for. Granted, for the moment, that the necessary amount in _gold marks had been accumulated and was all ready for remittance, those in control of that part of the scheme—the remitting abroad—were not only authorized, but were commissioned to see to it that the exchange was not allowed to collapse through an overweight of reparation payments, even if the Allies had to wait longer for what was due to them. Fortu- nately, however, that delay has not at present been incurred, for it will easily be seen that any really long delays, however justified by the exchange position, might easily occasion misunderstandings, followed con- ceivably by political friction.

No FINALITY.

Finally, there is running through not only the last report of Mr. Parker Gilbert, but of some previous reports, the suggestion that not only these difficulties, but the lack of finality in the matter of German reparation payments seem to call for some reconsideration of the Dawes Plan. Strange as it may appear, it would seem as though at present the annuities or annual reparation payments by Germany stretch out to the crack of doom. Such a position is almost unthinkable, though, inci- dentally, it may perhaps be recalled that our own annual payments to the United States Government, as a direct consequence of the War provoked by Germany, stretch out for something like sixty years I Still, there is a finality, and at present such finality is lacking from- the