THE GERMAN INDEMNITY.
THE ultimate explanation of the Indemnity arrange- ment which the Allies have drawn up in Paris is that two extremely clever men, Mr. Lloyd George and M. Briand, have ingeniously contrived a form of words to make disagreement look like agreement. Every one knows that there are rather deep-seated differences between French and British statesmen as to how Germany should be treated. Both sides, of course, want to make Germany pay the utmost of which she is reasonably capable, and it is only just that she should do so. If Germany were to pay a hundred times as much as even the hardest creditor ever imagined might be exacted from her, she would still fall tar short of what she owes the world. In material terms she can never pay the penalty of her appalling crime. In dealing with the indemnity, therefore, we must guard ourselves from the outset against even the appearance of suggesting that the German crime has somehow become less terrible by the lapse of time. Nevertheless, though there is no difference between the French and the British points of view as regards the justice of making Germany pay, there are real differences of another sort. Frenchmen are so tormented by the thought of the bully rising again, like Antaeus after touching earth, with renewed strength to bully again, that they are quite naturally inclined to seek safety by keeping the strength of Germany—and that means financial etzaugth—within strict bounds. Englishmen as a whole have ceased to believe seriously in the possibility of a logical :murky, and they seek safety rather in the general contentment of Europe and in seeing to it that no nation is unnecessarily put in possession of a grievance. These trains of thought when applied to the question of the German indemnity explain why France wants to make sure that Germany shall pay a rigid quota year by year for a large number of years, and why Englishmen are mostly more concerned that Germany should be re-established as quickly as possible on a sound commercial and financial basis. Feeling, as we do, that the British attitude is defensible on the mere grounds of the physical safety of both the French and the British nations, we are free to use the argument that we shall get more money out of a prospering Germany than out of an impoverished Germany.
The first thing to notice about the indemnity demanded from Germany is that it is not so large as it seems. The present value of a sum of money which need not be paid until many years hence is of course considerably less than the amount that will finally be paid. Suppose that an actuary were to estimate the present money value of what Germany has to pay. He would discount the total by the amount of interest it would bear in the intervening years. On this actuarial basis he would discover that when Germany is asked to pay, say, £11,300,000,000, which sum:is to be distributed over .42 years, she is really being 'asked to pay only a sum equivalent to £4,179,000,000. This, at all events, 'is the actuarial calculation made by a correspondent of the Westminster Gazette, Major E. R. Rivers. The actuarial value of the British share in the indemnity, as Major Rivers says, 'would be a little over £919,000,000. He adds that the £300,000,000 payable by Germany in the forty-second year represents the present value of only £38,652,000 if reckoned at five per cent. The whole indemnity is not the huge sum which some newspapers have been talking about. We all remember that after the 'General Election quite moderate people were talking about an indemnity from Germany not of £4,000,000,0100 but of £10;000,000,000. Our objection to the whole plan is not that Germany is demonstrably required to pay too much, 'but that the Allies are setting about it in the wrong way. Mr. Keynes, who took the most lenient possible view in his book of the German capacity to pay, said that Germany might pay £2,000,000,000. The present value of what we are demand- ing from Germany is little more 'than double Mr. Keynes's low estimate. But were it not that differences of view as to the proper treatment of Germany had to be adjusted we could 'not possibly explain the strange method adopted of distributing the German payments over such a large number of years.
Probably both Mr. Lloyd George and M. Briand feel that they have fortified themselves with good argumenta- tive facts to lay before their respective Parliaments. When some protest that Germany is being crippled the two Prime Ministers can emphasize the large nominal amount of the indemnity ; when others protest that Germany is -being let off too easily they can emphasize the present actuarial value of the indemnity. But more important yet.for these two statesmen, who have a ticklish Parliamentary course to steer, is the fact that everybodyls thoughts, and indeed the whole aspect of Europe, will change enormously during the long time—more than a generation—over] which the German payments are to be spread. Who supposes that if forty years hence Germany refused to pay exactly the same situation as that of to-day would exist ? It is hopeless even to try to think out things so far in advance. Everything will have changed. All our present statesmen will have disappeared. We fear that Mr. Lloyd George has, as is not unusual with him, sacrificed a good deal of common sense in order to provide himself with a certain number of convenient arguments to carry on with. We must say frankly that this is not the kind of solution of the very difficult indemnity question which we hoped for. Only a few days ago Mr. Lloyd George was pointing out truly enough that the only way in which Germany could pay was through her exports, and that if she exported too much she would impede the recovery of the Allies' markets. If he really meant that, he seems to have committed himself to a paradox ; he now wants to encourage Germany to export goods freely—that is, to pay the indemnity re ularly- but he fears the arrival of the goods, and accorly he agrees to the French proposal that a 12I per cen . tax should be placed upon the exports ; in other words, that impediments should be plated in the way of the indemnity.
What is really required is to give Germany an incentive to pay off the indemnity as quickly as possible. It is true that Germany is to be allowed a discount of 5 per cent. on annuities, after the first two years, which she may pay in advance. This is an important concession, for, as we have said, the forty-second annuity of £300,000,000 could be paid off now for £38,652,000. But we cannot help thinking that a much more liberal application of the discount principle would profit the Allies and encourage Germany to pay the bill quickly. As it is, the Germans will probably be much more preoccupied with defeat- ing the Allies' plan, as such, than with putting their hearts into their work in order to bring a thoroughly distasteful situation to an end as soon as possible. The instincts of the ordinary German in conducting his private affairs are just like those of other people. We can see what is happening' in our own co under conditions' of financial duress. Heavily people find that the results of pinching and sparing and saving in the management of their money gives them more satisfactory results than a bold policy of applying their energies in new directions. Thus, if a man saves £500 he has got that £500 intact, but if he earns £500 more than he did the year before by prodigies of energy he has to pay half of it away—perhaps less, but perhaps even more—to the State. This is precisely the frame of mind which we ought not to encourage in Germany. The Germans, instead of faking a pride in revived pros- perity and trying to " put up a world's record " in the matter of paying off debt—trying to beat, in the different circumstances, the record of France after the Franco- German War—will be inclined rather to insist upon their poverty. All Germany will pretend to be poor ; and people who are making an unceasing and elaborate pretence of poverty, though they may not be nearly so poor as they seem, are certainly not in the way to become rich. We think of the characteristic figure of the Indian ryot who covers his field with stones when the tax-collector is expected ; or, again, of the French peasant before the French Revolution. Readers of Arthur Young may recall his description of how the peasants dressed badly, and put away possessions which might be regarded as proofs of wealth, when the Government official was due to assess the faille. The assessor 'had to judge the resources of his man entirely by appearances, and that gave the peasant every excuse for stage-managing his case. Very much the same thing will be true of Germany. However rigid our demands may be when disputes arise, we shall have to assess the German resources largely by appearances. It is already being said by some correspondents that the 'German tax-collectors are neglecting the revenue in order that a semblance of extreme national poverty may be kept up. On the whole we would advise our readers severely to disregard the radiant estimates which have been formed by some newspapers of the effect of the German indemnity upon our own taxation—the estimate, for example, that the British share of the indemnity alone will knock 7d. off the Income Tax this year or next year, and ls. 10d. in 1932. Tq sum up, we want to make sure that Germany will pay what she can. In order to do this we must first set her on her commercial legs again, and secondly give her a very real incentive to pay quickly. An indemnity can really be paid only by the excess of German exports over German imports. The matter is by no means yet settled, as there is to be a Conference in London at the end of this month which German delegates will attend. It cannot have escaped notice that in form the proposed plan clashes with the Treaty of Versailles, as the Treaty provided that the German indemnity should be collected within 30 years. It may be that this is only an apparent clash, as the Treaty also provided that arrears should be paid off after the period of 30 years. Strictly and verbally to comply with the Treaty it would seem to be necessary to arrange with Germany that the last 12 years of tln proposed 42 annual payments should 'be regard. l as in thi nature of arrears. But really we hope that some new principle will be introduced. We have little to hope from this scheme of tapping Germany into the dim and distant future while depriving her of real encouragement to behave reasonably and energetically. We do not doubt, however, that a better plan will be found. The one fatal policy for Germany in any case would be to trade upon the diffi- culties of the Allies and to try to divide France and Britain. Our differences are confined to methods.
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