THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, DECEMBER 3, 1921. THE REPARATION QUESTION.

New Zealand Herald, Volume LVIII, Issue 17955, 3 December 1921, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, DECEMBER 3, 1921. THE REPARATION QUESTION.

•» The whole question of reparation policy has been opened up for discussion by the Anglo-German conversations and by doubt whether Germany can meet the payments due in January and February, amounting to £40,000,000. The capacity of Germany to discharge her reparation debts as they fall due is a subject on which it is impossible to dogmatise. Experts do not attempt to do so, being widely divided in their opinions, and laymen who try to be more positive are liable to fall into many errors. It is, however, important to understand the factors which condition the question. Germany can pay, but only for a time, if she is permitted to continue her present financial policy—that is to cany on with constantly recurring deficits, and to seek in the issue' of fresh paper money an easy way of escape from each successive financial embarrassment. Then would come a crash, involving the bankruptcy of Germany and reacting *on every other civilised country. That clearly is undesirable, but that is the goal at which Germany is consciously or unconsciously aiming. As the principal British representative on the Reparation Commission said recently, Germany cannot remain economically sound if new marks an constantly issued and internal shortterm borrowing continues. The present financial crisis is of her own making. She has deliberately chosen to defy economic law. Her budgets have shown enormous deficits, the railways and post office have been carried on at heavy loss, and no attempt has been made to check inflation. She has preferred to prolong tie artificial prosperity which every country enjoyed for a period after the armistice and she is now facing the reckoning. The question is whether Germany can continue to pay reparation if she reverts to sound financial and economic practice. The answer depends on many circumstances which can scarcely be estimated. Whenever she checks inflation Germany will face a depression which will probably be as severe as her fictitious prosperity has been prolonged. Many observers fear the political reaction. It is notorious that the German Government has been influenced by the same fears. Its heavy departmental lossss are partly attributable to the employment of excessive staffs on the railways and in the post office in an effort to reduce unemployment to a minimum. The adoption of a more courageous policy might have grave political consequences, but assuming .Germany escaped Bolshevism and emerged from the depression with the machinery of her industrial life substantially intact, what then? Under a stable administration could she meet her indebtedness and restore her lost fortunes. The weight of expert opinion is that she would. The Reparation Commission recently expiessed itself in this sense. To quote another opinion, valuable because detached, Colonel E. M. House, who was confidential adviser to the last American President, writes:—" To one who was in Berlin on the eve of the war and twice during the war before the United States became a participant, it seems that under given conditions Germany can and will pay. ... I find that the present Government of Berlin does not believe, the task before Germany • insuperable. If Upper Silesia is retained, if no further occupation of territory is made, and if the Entente will lessen somewhat the export tax it is thought that a way out may be found." It may be assumed that the British Government is concerned with something more than Germany's capacity to pay. It is equally anxious about the effect of payments in the prescribed form. Economists have long recognised that Germany can only pay large sums to the Allies by flood ing the world's markets with goods and so establishing an export trade which will injure the Allies at more than one point. Already, in spite of the timidity of her financial policy, Germany is vigorously engaged in industrial reconstruction. The amazing' success of her manufactures before the war was to a large extent due to the utilisation of applied science. Now she is engag-

ing in scientific research as never before; Economies are being effected in producing costs, by \wholesale amalgamations, and where Germany has a monopoly in any manufacture there is a combination with other related industries. It may be an exaggeration to say, as some British manufacturers have said, that the reparations will within a few decades .make Germany the greatest exporter in the world, but it is certain they will force her into a dangerous competition which Britain will be the first to feel. To avert this the president of the Federation of British Industries has suggested that Germany's reparation should take another form, that the classes of goods acceptable from her should be defined, and she should be compelled to build railways, docks, and other public works in the undeveloped oountries under Allied control. When the British Government discloses its hand it will probably be found that the discussions presume Germany's capacity to pay, but have ; been devoted to finding the best i i method of payment. <