BRITAIN'S VIEW.

Auckland Star, Volume LXIII, Issue 286, 2 December 1932, Page 7

BRITAIN'S VIEW.

REASONED STATEMENT Many Sacrifices By United Kingdom. VALUE OF LOANS DOUBLED. (British Official Wireless.) (Received 1.30 p.m.) - RUGBY, December 1. The British war debt Note to America says that the causes of the depression may be manifold but waxdebts and reparations have been one of the major causes. While in some respects it may be difficult for the Governments to remedy the world's troubles, certain steps are clearly within their powers and responsibility. The vast requirements for war purposes far exceeded any normal means, and payment could only be financed by loans from producing countries. These were taken not in money but in goods. The loans made to the Allies by the United Britain and Prance together readied the colossal total of over £4,000,000,000.

For a time the payment of reparations and war debts was rendered possible by the flow of investment capital from the United States to Continental Europe, but the prosperity years from 1922 to 1929 were "largely illusory. Towards the middle of 1931 something like a panic prevailed, and since then the world had been living under repeated shocks, which had completely undermined the confidence on which the system of private investment depended. Period of Instability. Currencies were threatened with in•tability, if not with collapse, and controls and restrictions intended to remedy the trouble merely aggravated it. Everywhere taxation had been ruthlessly increased, and expenditure curtailed, yet Budgets were in deficit or were balanced with ever-increasing difficulty.

The world cannot even begin to conaider how to restore the monetary mechanism, without which the modern world cannot effectively conduct its daily life, until the causes undermining confidence are removed. One of the most important of these is the system of inter-Governmental debts. These debts differ radically from commercial loans raised by foreign Governments for productive purposes, such productive loans being self-liquidating, but reparations and war debts represent expenditure on destruction, like shells on which they were largely spent.

These war loans were blown to pieces and produced nothing to repay them. In the long run international debts can only be paid in the form- of goods, or by the services of creditors. In so far as they adopted a commercial policy precluding payment in goods, they compelled their debtors to pay in gold. This had led to a drain on gold reserves in many countries and had forced down the price of commodities in terms of gold currencies, causing widespread ruin to the producers in debtor and creditor countries alike, also seriously increasing the burden of commercial debts.

It had rendered intolerable the peculiar burden of unproductive war debts. The withdrawal of credits from Germany and the consequent movements of capital had forced the United Kingdom to abandon the gold standard - Avith world-wide results. Thus the baneful effects of these unnatural transfers gravely accentuated the difficulties of the live Continents. Confidence and credit cannot revive until an end is put to the attempts to force the stream of capital uphill. Criticism Answered. Referring to possible criticism of any remission of war debts as merely a transfer of liability from the taxpayer of the borrowing country to the taxpayer. in the lending country, the Note points out that the British and American taxpayers are in much the same position.

Before the Hoover Moratorium, all reparation and war debts receipts of the United Kingdom went to cover the current payments due to the United States. The British taxpayer had each rear to find from his own resources over i 50,000,000 for interest on internal loans, out of which advances of £1,600,000,000 were made by Britain to the Allies.

The interests of the two countries, looked at from this standpoint, are the same, but even partial recovery of business activity in creditor countries would result in additional receipts from taxation which would compensate their Exchequers many times over for the loss of revenue involved in a revision of war debts.

Settlement Aid to World Recovery.

It would not profit a credit country to collect a, few million pounds or dollars if it thereby perpetuated world disorder. War debt settlement, however generous it may seem, would be repaid again and again by the contribution ,it would make to world revival.

It is in the power of the Governments of the world, and particularly those of the United States and the United Kingdom as the two greatest creditor nations, if they unite in co-operation, to make the first and essential step towards averting disaster, financial, economic and political.

The Note recalls that the British war expenditure amounted to £24,000,000,000, of which only about one-third was linanced by borrowing from the United States Government. Approximately £000,000,000 was obtained by the sale of gold and securities. In addition, the British Government raised commercial loans -on the American market, before the United States entered the war, to the amount of £304,000,000.

Of these market borrowings in the United States, £275,000,000 had been repaid, and in respect of the United States Government loans payments had been made both before and after the funding agreement, amounting to £354,000,000 or £629,000,000 in all. Meanwhile, advances made by Britain amounted to £1,600,000,000 and had increased subsequently by the addition of unpaid interest. . Britain and Cancellation. Shortly after the war, the British Government offered to join any equitable arrangement for an all-round reduction pr cancellation of inter-Allied debts. That proposal was not accepted, and the British Government was called upon to fund the debt to the United States. The announcement was made that Britain would limit the demands on her own debtors to the amount required to pay America. In actual fact, her receipts amounted to-less than half the payments to her creditor.

Tho relative position is that the United States made loans totalling £2,055,000,000, and the United Kingdom made similar loans totalling £1,600,000,000. The United States received £434,000,000 and the United Kingdom nothing, having passed on all her receipts to the United States, as well as £134,000,000. In addition, when interest was taken into account, some £200,000,000 had been found by the British taxpayer. While the British share of the total indebtedness to the United States was only 40 per cent of the total debt payments made to the States, 80 per cent had come from Britain. Consideration of Heavier Burdens. Coming as they did after the losses resulting from the war, these effects constitute, in the view of the British Government, a strong claim to consideration regarding the changes in circumstances which have increased the burden of Britain's obligations. It is pointed out: —

Firstly: The British debt is expressed in terms of gold, \vhile the burden on tho British people is measured in terms of sterling. Consequently, the payment duo on December 15 has increased from £19,750,000 to approximately £30,000,000. Secondly: The average wholesale price index in the United States during the period when the debt was incurred was 189, and is now under 94. The debt thus represents to-day, in terms of goods, not less than twice the amount borrowed. Thirdly: The American tariff has restricted the import of British manufactured goods. When the British war debt was funded in 1923, these amounted to £60,000,000. This year the figure was £16,000,000. The United States imports into the United Kingdom show an equally remarkable fall from £211,000,000 in 1923 to £59,000,000 for the first nine months of 1032.

The total trade between the two countries since the funding agreement had fallen from about £300,000,000 to £100,000,000. Boomerang on America. If war debt payments had to be resumed the heavy adverse balance of visible trade, amounting to £78,000,000 in 1931, would have to be reduced by adopting measures which would further restrict the British purchase of American farm products. To the extent, therefore, that payments are resumed to the United States Treasury a definite loss must follow to the United States

producer. Despite the adoption of tariffs Britain still imports goods worth hundreds of millions sterling in excess of her exports. Therefore it'is necessary to consider action to ensure that the sterling pi oceeds of these imports more largely benefit the British market.

Touching the Lausanne settlement, the Note says that if the payment of war debts due to the United States is to be resumed, the British Government will be obliged to reopen the question of pavments from its own debtors I" ranee, Italy, Portugal, Yugoslavia, Rumania, and Greece, and also the British Dominions—all of which have been suspended since the Lausanne Conference earlier this year.

The debtor countries in turn will have to demand payment by Germany of her obligations under the Young Plan, and the United Kingdom will have to do likewise. Without a readjustment of war debt obligations, the Lausanne agreement could not be ratified.

The proposal for suspension of the December payment, which would in no way affect any ultimate settlement, is necessary to create a condition favourable to the successful issue of subsequent debt conversations.

The reserves of the British Government in gold and foreign exchange, though adequate for mitigating exchange fluctuations, are not intended and would not suffice to-cover as well the payment of 95,500,000 dollars due on December 15. Fayment in Gold Suggested. The only remaining alternative would be payment in gold. This would involve the sacrifice of a considerable part of the gold reserves of the Bank of England, which are widely regarded as no more than sufficient for its responsibilities to London, a* its financial centre.

In conclusion, the British Government reiterates its profound conviction that the resumption of war debt payments as they existed before the Hoover oneyear moratorium of 1031, would inevitably deepen the depression in world trade and would lead to a further fall in commodity prices, with disastrous consequences, from which no nation would be exempt.