CANDID REPLY.

Auckland Star, Volume LXV, Issue 147, 23 June 1934, Page 9

CANDID REPLY.

FRANK CRITICISM.

BRITAIN TO GERMANY.

Political and Economic Policy Aggravates Trouble.

FINANCIAL OBLIGATIONS,

(British Official Wireless.)

(Received 12 noon.)

RUGBY, Juno 22.

A White Paper published to-day respecting the German transfer moratorium contains the British Government's reply to the Note in which the German Government set forth the general difficulties of transfer with •which it declared itself to. be faced.

The British Government, while expressing sympathy with the desire of the German Government to stimulate employment in Germany, entirely dissents from the view that efforts to that end must entail complete suspension of all transfers on Germany's foreign debts, and points out that such action, by destroying Germany's credit, must on the contrary impair the possibilities of maintaining the import of essential raw materials.

The creditors' representatives were prepared to agree to temporary concessions of an emergency character to overcome the present transfer difficulties. It was pointed out that these difficulties were being aggravated by the political and economic policy of Germany herself, and that the sacrifices offered by creditors could only be justified if Germany did all in her power to preserve her foreign exchange resources.

It had been ascertained that the diminution in the Reiclisbank's reserves was due not to the service of Germany's commercial loans, which already had been substantially curtailed, but to the purchase of scrip and bonds and repayments in capital.

Reasons had been found for supposing that the present sharp drop in the Reichsbank's reserves was due in part at least to exceptional items, which ■would be rectified later, and that tliere were certain receipts to be expected which had not been taken into account at all. Generally, too, it had been found that the German Estimates were much more unfavourable than was justified.

The creditors' representatives were none the less prepared to consider the question, subject to there being no discrimination in the funding of all nonlleich debts and provided the interest on tho Dawes and Young loans were met in full. No Extra Strain. The financial effect of this was that, whereas Germany's total foreign exchange obligations for the year ending April, 1935, in respect to long and middle-term loans and other debts amount to the equivalent of 710,000,000 reichsmarks a year, only 90,000,000 reiehsmarks would need be transferred in cash. As against this, Germany's foreign exchange income from invisible items amounts on the German Estimates, which the creditors considered to be an imder-statement, to some 250,000,000 marks a year—so that interest on the Dawes and Young loans would require less than two-fifths of the receipts from these resources, exclusive of any call on Germany's export receipts. Export receipts average 350,000,000 or 400,000,000 reichsmarks a month, so that interest on the Dawes and Young loans represents only about 2 per cent of the gross foreign exchange income of Germany from all sources. Thus the proposal, added the British White Paper, involved no substantial strain on the exchange resources. Available creditors wero informed that an average period of five and a half months elapsed between the date of shipment of export and receipt by the Reichsbank of the "devisen" resulting from it. Thus, apart from other assets, the Reichsbank should now be receiving, and should continue to receive during the next few months, a repayment by exporters of these advances which constitute a hidden reserve equal to many times the amount of the interest on the Dawes and Young loans due during tho next six months.

Trade Balance Favours Germany. The British Note further says that these and other facts cited "inevitably give an impression that the policy of Germany is a claim that 110 foreign exchange resources are available to meet the service on her loans, and then to apply resources which should have been ■eed in meeting that service to repurchase her loans at low prices resulting from default." It is also pointed out that statements in the German Note regarding prohibitive measures in certain countries against German goods do not apply to the United Kingdom, where the trade balance, in Germany's favour during the last two years, was sufficient to cover interest on all German loans issued in London more than three times and interest on London issues of the Dawes and Young l'oans more than 10 times. It is recalled that the Dawes loan was raised when Germany was in a state of economic collapse, and lenders ■who subscribed to it were given the most absolute security of payment in all conditions. The Young loan was accepted as an unconditional obligation by the German Government, and if no special security was asked for, it was because the Young Loan Committee recommended that'the basis of security be "a solemn undertaking by the German Government to which no further guarantee can add anything whatsoever." London Talks Suggested.

During the recent negotiations the bondholders' representatives, in order to arrive at a uniform solution equitable to Germany, were willing to recommend sacrifices which some of the other representatives had regarded as excessive. As the German Government had refused these suggestions and announced that its intention was the suspend all transfers, the British Government had 3iad no option but to ask Parliament for powers to protect British financial and commercial interests.

The Note concludes with an expression of willingness to discuss with Germany the possibility of reaching an agreement which would avoid the necessity of an exchange clearing-house altogether, or, alternatively, a means by which such a clearing-house could be administered with the least disturbance to trade in both countries. The Note also suggests that German representatives should at once be sent to London iVn such a discussion. ~JCL- ■ •