GERMANY'S TASK

Evening Post, Volume CXII, Issue 12, 14 July 1931, Page 7

GERMANY'S TASK

CAN . SHE MEET' CALLS ?

SURVEY OF POSITION

The first thing to bear in mind about war debts and reparations is that although they stand, as a liability from the debtor countries to their creditors, they are not represented by any permanent increase of capital wealth in. the debtor countries, for which repayment fails to be made, writes David Lloyd George in tho '' Sau Francisco Chronicle. " , ,

If in ponce time a loan is raised in 0110 country by another—if, e.g., Great Britain or the U.S.A. lends, money to Brazil or the Argentine for the construction of a railway or a dock or some other piece of useful development, the borrowing country will have to pay interest on the debt until it redeems it, but in the meantime' it will have been enriched by the creation of a valuable capital asset within its own borders that will earn the money to serve the debt. But the war debts were incurred for munitions and other supplies .that were forthwith destroyed, while reparations owe their origin not to wealth acquired but to damage done to productive assets. ■ The payment of war debts and reparations is therefore a drain upon countries that have no special assets to meet it, but on the contrary are already impoverished by the exhaustion of war. These large war debts mean that very large sums have to pass yearly from the debtor countries to their creditors. In this connection, sums mean goods and services in exportable surplus— exports from the debtor, countries that, their creditors do not pay for by any corresponding goods or services. Such payments mean abnormal poverty in the debtor countries: ABNORMAL SITUATION. So strongly did Great' Britain realise the abnormal character of war debts and reparations and the injury their payment would inflict on debtors and creditors alike, that on Ist August, 1922,

a Note was addressed by the British Government to the diplomatic representatives of the Allied nations in which it was pointed out that while Great Britain was a creditor of other countries for about four times as large a sum as that which she in turn owed to the U.S.A., she would be willing to surrender her share of German reparations and write off, through one great transaction, the whole body of inter-Allied indebtedness, if such renunciation formed a part of an agreed all-round cancellation of war debts.

The U.S.A. took a different view from ourselves as to the desirability of cancolling the war debts, and chose, as she was perfectly entitled to do, to insist on payment to the utmost limit of her debtors' capacity. At present, therefore, America is wholly a creditor country in respect of war debts and reparations. The. former Allied European countries are both creditors, and debtors. Tho former central Powers and their succession States are purely debtors.

11l all these financial arrangements. the two problems of greatest difficulty are those of U.S.A., which has in the course of the coming years, to accept from its debtors repayment of principal and interest amounting to over 22,000,000,000 clollars, aud of Germany, which under the Young Plan is due to pay in the noxt 57 years a sum totalling an approximately similar amount. . NEAR CRASHING. It was an impossible proposition, and sooner or later was bound to end in a crash. Germany is perilously near crashing. If she falls she will drag half-way down what is left of. world stability and prosperity. Senator Borah pleads for a lightening of Germany's burden of reparations. I agree eo'rdially with that view. But I know too well that it is idle to put forward that plea, unless America and Britain abate their claims for war loa,ns. These war debts and reparations can ultimately be paid only by the debtoT countries exporting Up to the value of their debt an excess of goods and services over their imports; and by the creditor countries accepting imports to a like amount in excess of what they export. During the last few years this inexorable fact has been temporarily concealed through the operation of international- loans. Germany, unable to maintain an exportable surplus, has borrowed from other countries the money with which to pay its external war debts! The U.S.A., unwilling to see its home market flooded by imported goods that would throw its own industries out of action, has raised fresh tariff walls'to keep them out, and lent money abroad so as to let the yearly sums due to it stand over as fresh debts.

Obviously this proceeding could only be a temporary expedient. Tho stage has already been reached "when Germany can no longer, borrow externally, International rates of interest have, risen against her until to-day she finds it difficult or impossible to raise money outside her frontier at less than 12 per cent. From now on, German reparations, which form the main asset whereby allied nations pay their debts to the U.S.A., must reach their destination as an exported surplus of goods, or remain unpaid.

Prior to 1929 the German balance of trade showed a deficit. All the immense sums she contributed to reparation under the Dawes scheme were met by borrowed money. In 1929 Germany's balance of imports and exports showed a small credit of about 8,000,000 dollars. Last year her credit balance was about 400,000,000 dollars; and she is maintaining her credit balance in 1931.

In the first four months of this year the, total excess of exports over imports including reparation deliveries in kind has been 304.5 million rcichsmarks, If this average were kept "'up for the rest of the year, the total surplus would be 913.5 million reichsinarks. Bjit under the Young Plan, Germany is expected to pay in the twelve, months starting Ist March, ,1931, no less than 1,658,000,----000 reichsmarks. Her - exportable- sur-. plus would total a little more than half of this sum, leaving 771.5 million reichsmarks as a deficit on her reparations payment. • CONCEALED ADDITION. It should be added that the world fall in prices has increased the real value of the sums she is due to pay under the Young Plan, and thus made a concealed addition to the amount of the debt that was thereby laid upon her as the maximum amount she could hope to liquidate. The German price index, if 1928 be taken as 100, had fallen by April. 1931, to 34.3. This means that the present year's payment of 1,658,000,000 reiehs-' marks is equivalent to 1998.4 million reichsmarks at 1928 .value, an increase of 313.4 million reichsmarks, or as much as the exportable surplus she had accumulated in the first four months of this year.

Meantime, the reduction of German imports, including imports of raw material for manufacture and ultimate consumption at home, indicates that the German, people are being economically starved. Just as the limit of borrowing to meet reparation charges has already been passed, so must the limit before long be reached of internal starvation, social and economic, for the maintenance of an. export surplus by reduction of homo consumption.

The efforts of the- German Government to meet the situation thus outlined are exemplified by the emergency decree published on. 4th June, which is estimated to produce about 1,800,----000,000 marks by the expedient of a special graduated tax on wages' and salaries; a cut in,,tho salaries of Gpv-. eminent officials; an increase iv certain commodity taxes; reduction of unemployment benefit and of the pensions to war invalids.

The effects of this decree will clearly involve acute suffering and hardship to large numbers of the poorest in Germany,, and it is obvious that ■it will strengthen the support of the people for any move of a desperate character if. the. war debts problems should prove insoluble. The danger would appear to be* of a violent nationalist movemen fc, accompanied by a swing of the workers and- the; younger intellectuals toward Communism and a close association for mutual defence with Russia.

The loss to Europe and European civilisation of a nation with the culture and efficiency of Germany would be so serious that it is clearly tho duty of ■■-.all . countries to review with tho utmost consideration and goodwill the problem of reparations and war debts that is being raised afresh by the economic situation herein outlined.