FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
RECONSTRUCTING EUROPE. "
[To the Editor of the SPECTATOR.] - SIR,—While many reasons might be given for present restriction of dealings in securities, and for, the cautious tendency in the Money Market, the main explanation is to be found in a recognition of ,the great issues involved in the decisions to be reached by the political Confer.ence. Amidst much that is obscure, one point which emerges is ,that an agreement seems to have been reached with regard to the security to be offered to subscribers to a German Loan, if such should be • issued as a result of the formal adoption and working out of the Dawes Report. It will be remembered that not only was it decided by. the experts that Germany would be unable to make reparation paymen4s. during the first year, but that in connexion with the stabilizing of her currency and the formation of the new Central Bank, an external loan Of something like £4000,000 would be required. It -will readily be seen, however,. that the safeguards surrounding such a loan would have to be exceptional to give it the slightest . chance of being taken by American and European 'investors. • Aside altogether from any feelings arising out of the late War and the general distrust of Gernian Promisei, the first -question- likely to be asked by an intending purChaser would be, as to the extent of the security specially hypothecated tor the loan, and, in particular, whether it would take precedence even of reparation claims. It is this latter point Which has been a thorny question for some time past, and if, as is alleged, the Delegates' Conference have reached an agreement that the loan is- to have priority even over reparation claims, it is clear that a great step forward has been taken in, what • may be termed political agreeMent.'.*._ . . . - Under such circumstances, it is not difficult to imagine _that, on paper. at all e_vents, the security behind the German loan would be quite extraordinarily good, repre- senting, indeed, almost the entire resources of the country with many important industries, such as railways,' definitely mortgaged and controlled. Not only so, but inasmuch as . France-and the other Allies- would be in the .position of second creditors for an. infmitely, larger sum than that tepresented by the loan, bondholders would, , presumably, get almost every conceivable kind of protection. AS to- the. power of the Allies to continue the control in years to come when Germany had once again become powerful, that is a qnestion of high politics rather than one which can be determined from the 'City point of view, and it is conceivable that the proposed, German loan might be of a sufficiently short dated character to make the question of somewhat secondary irriportariee- to the investor. All- the same, and while - in no quarter more than in the City is there a desire td see the Dawes Report carried but, and the prolonged reparation deadlock removed; the feeling is held very generally that Further time must be allowed not merely to create a favourable atmosphere for any German loan, but to 'allow the investor to get a somewhat clearer idea with regard to the real situation in Germany, both politically and economically. . Moreover, it must be ,remembered that it is not only as regards Germany that the British investor has been invited in recent years to aid in the financial 'reconstruc- tion of Europe. Last year we had the huge Austrian lOan, and "While- that Midi has 'Undoubtedly achieved its purpose in bringing about greater prosperity in Austria, It is also clear that there. has been -difficulty in exercising :full control, and that the experiment has revealed many political. and financial difficulties. Still more recently we have subscribed. in this country , 'something like i8,000,000 out of a total loan of £12,000,000 for Hungary, and although in that casethe security for the bondholders appears to-be ample, a good deal rests upon the continu- ance of an effective control by the League of Nations, and fol.' the moment the bonds stand at a considerable discount.
It goes, of course, without saying that the City is fully alive to the importance which attaches both politically, financially and commercially to the financial reconstruc- tion of Europe, and it is felt that the investors' money is being employed in a good cause. Nevertheless, as the chief lenders and the near neighbours of these countries 'which we are called upon to finance, it seems increasingly necessary that zeal should be tempered with considerable caution and forethought in the case of some of these central European countries. It is clear that the interests of some of these countries and those .of their neighbours Would best be served by stimulating their own agricultural resources which in some cases are exceptionally great, for by so doing they would directly minister to their exports, and those exports would be of a kind which would aid the economic situation in Europe generally-and loWer the cost of Unfortunately; however, in many. directions there is an increasing tendency . to promote induatrial and manufacturing 'activities - even when an impartial expert would -have no hesitation in (Contsnued on page 183.) determining that the movement was unsound economi- cally, because of existing competitiOnin many directions. Incidentally, too, our own interests as a great manufac- turing country are not improved by these tendencies, and while, needless to say, every country must exercise its own judgment with regard to the direction of its agricultural or industrial activities, it would seem to be in accordance with prudence and common sense that when called upon to come to the assistance of bankrupt countries, we should have something to say with regard to the manner in which the loans are to be employed.
—I am, Sir, yours faithfully, ARTHUR. W. KIDDY. The City, July 23rd.
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