Germany's Debts

Press, Volume LXX, Issue 21179, 1 June 1934, Page 10

Germany's Debts

The conference on Germany's foreign indebtedness has ended with the declaration of a six months' moratorium on transfer payments and a solemn affirmation, to which Germany subscribes, that the difficulty lies in releasing funds for payments abroad rather than in " Germany's incapacity to pay." The distinction is a nice one; but it is not very useful. Germany cannot at present make transfers because other countries are refusing to take her exports; and this in turn is due to Germany's deliberate effort to make herself economically self-sup-porting. That the position will be substantially different after six months seems most improbable. Indeed, it is difficult to escape the conclusion that the conference has merely postponed the problem and by doing so made its ultimate solution more difficult. There have already been many similar moratoriums and standstill agreements; and on each occasion the creditors have persuaded themselves that they are merely making allowances for temporary difficulties. It does not, seem to have occurred to them that there are psychological as well as financial factors in the situation, that the German nation is being encouraged to regard the debts as an unfairly heavy burden, and that each postponement makes the debts seem more unreal. If the creditors hope to save their capital they should remember the lesson of the war debts and make an effort to relate Germany's indebtedness to her economic structure land to borrowing conditions in other parts of the world. This J would involve a frank recognition that interest rates on German loans are too high and that, owing to the I post-war reparations settlement, Germany was virtually compelled to borrow unwisely. At present the nominal rate on German securities is about 10 per cent. in New York and 9 per cent, in London—and this at a time when the British and American Governments can borrow at 3 per cent. It has, of course, been argued that German Joans are a risky investment and must bear an abnormally high rate of interest. Whether or not this is so, the truth must be faced that the German people are in no mood to pay 10 per cent, on money, much of which was forced down their throats.