THE VITAL PROBLEM

Otago Daily Times, Issue 18754, 6 January 1923, Page 12

THE VITAL PROBLEM

REPARATIONS. GERMANY’S POWER OF RECOVERY. DANGER OF DELAY. INTERNATIONAL FINANCIAL POSITION. (Fhom Oce OwiJ Correspondent. 1 LONDON, November 24. As tli© city editor of tho Daily Telegraph comments: After far too much empty talk as to the amount of compensation that oan be obtained from Germany for the death and destruction wrought by the criminal ambition of her rulers, it is at last being realised that something must be done without delay to rehabilitate the country’s finances if a general economic breakdown in Europe is to be avoided. Both during the war and since Germany has pursued financial methods which were bound to end in -disaster. Whether they could have been prevented by the Allies it is fruitless to inquire, but there is no doubt the Government derived! considerable support from the unfortunate expression of opinion of certain English economists that nparations were the chief reason for the fall in the. mark. The subject was dealt with in an interesting address to tho Norwich Chamber of Commerce by Mr F. G. Goodenough, chairman of Barclay’s Bank who said bluntly that it was quite char that Germany, having existed since the war by large creations of internal credit and by printing paper money, steps must bo taken to put an end to these operations. This is, of course, tho simple tiuth, and perhaps it is the first time that duo weight has been attached to it by a leading banker. Possibly tlie matter was considered too obvious to require mention by those authorities who have dealt with German finances, and who found a completeanswer to everything in reparation payments. Mr Goodenough admits that if Germany is deprived of the use of the printing press she must be provided with other means of carrying on and balancing the Budget. She may require credits or loans to take tho place of tho inflation until such time as «h* can again mak? real profits from trade* but it will bo impossible for Germany to borrow from abroad un'e&s ehe hae shown an honest intention to return to sound principles and to take the steps necessary to plaos her credit on an ascending scale. ‘That, eaitt Hi- Goodenough. “more than any other thing, would be the turning-point in Germany’s financ!al recovery, and a'cne would create tne confidence which would entitle her to for3J.gn help." STABILISATION OF THE MARK. Ho continued: “I think it can be stated with confidence that an essential preliminary to reparation payments is the stabilisation of the mark. Tho stabilisation of the mark will involve devaluation. What is actually meant by the term ’devaluation of currency’ is that, by common consent, a currency which has depreciated in its relation to gold is permanently fixed at some lower value than that which was its former gold parity, so that a mark whicn was formerly interchangeable with gold •.n tho ratio of 87 marks to one ounce of fine gold, would in future have the ratio o . say, 750 times the number of marks to 1 100 ounce That is to say, the mark would te regarded as being of a permanently lower value than before. Germany would, 1 eel sure, accept the supervision of a committee, nominated by the Allies, over all that sue would be doing to restore her financial position. and to discharge the reparations. It would be for Germany to satisfy the committee of supervision, and for that committee to report what she is doing, and it seems to me that on those lines may lie the solution also of that other important point of difference between Sir John Bradbury and the British experts on the one hand, and M. Barthou on the other, upon the condition* under which Germany should have the moratorium. That must surely depend upon what stops she herself is taking to justify postponement. DANGER TO FACE. “Loans should be floated or German bonds issued from time to time, with such specific security behind them as the Committee of Supervision might be able to arrange and recommend. The proceeds of these loans would for the greater part be devoted towards the discharge of German obligations to her creditors, but out of these proceeds there would be assigned to France the larger share. In my position as chairman of one of the largest banks in this country. I wish to emphasise what we all realise—namely, the paralysing effect of the present Continental situation upon trade and the general conditions of this country. On the other hand, let me point out how dangerous will become tho position of France herself should she fail to do all that is in her power to bring about a speedy solution to the reparation question. I feel, too, that Germanv must realise that by the means suggested an opportunity is given to her to recover financial stability, and that she should not hesitate to seize it, for should she not dc so, ehe will shortly fall into tho same pligat. economically, as her neighbours—Austria ind Russia. HEADS OF A SETTLEMENT. “ Tho settlement of tho question of reparations is the one great problem of the moment, and the immediate settlement of ,hn problem is of vital necessity to Europe, and, indeed, to the whole world. I wish to emphasise the following points which seem of outstanding importance: 1. The immediate agreement of Germany to a scheme having for its object the balancing of her Budget and tho stabilisation of her currency. 2. The immediate appointment, with German consent, of n Committee of Supervision for the purpose of satisfying the Allies that every effort is being made by Germany to secure the successful carrying out of such scheme. 3. The acceptance, for the moment, of tho amount payable by Germany at the figure already laid down by the Reparations Commission. Any adjustment to be deferred until the Committee of Supervision are ready to make new recommendations. 4. The granting of a temporary moratorium, not specifically limited to a definite time, but with power to the Allies to determine at any moment such moratorium should tho Committee of Supervision report that they were not fully satisfied with Germany’s action, 5. The subsequent flotation of Gernym bonds as and when the Committee of Supervision are satisfied that the finances of (lemony warrant such a step, and subscribers can be found willing to take such bonds. While Mr Goodenough appears to consider that Germany would agree to fhe appointment of a committee nominated by the Allies to supervise the measures taken to restore' the financial position and to discharge ;he reparations, Mr E. Crammond, in an address to the London Chamber of Commerce, advocated a more drastic scheme, which includes in addition to the fixation of further reparations at ft moderate figure, the provision of an international loan cf £200,000,000 te tide the country over her immediate difficulties, the cancellation of most of the inter-Allicd debts, and, finally, the withdrawal of the Allied forces from fhe occupied Rhine provinces. Statesmen and financiers in all the countries concerned (savs The Financial Times) would probably have a good many criticisms to offer of cither programme, but it is always of advantage to have a problem reduced to such a stage that the principle can bo accepted even if (he details have to be reserved for furl her debate. Mr Crammond considered the whole method of dealing with reparations had been unsound The capital amount of reparations should be fixed at £1,100,000,000. It might bo impossible for Germany to make any payments on account of reparations during the next throe years. Ho, therefore, suggested that a further amount, £200,000,01)0, be provided by means of an external lorn which should be applied, under proper safeguards, for tho purpose of stabilising tho exchange and paying interest, on the £1,100,000,000 allocated to the Allies in case there should bo a deficit during that periol Provision should be made ter Germany’s redemption of part of tho French portion Inpayments in kind. Britain should cancel the French debt owing to her. The United .States should be asked to cancel tho French debt and the Italian debt, France unclcrt ik ing to cancel the debts due to her by her former Allies. Britain ehould cancel tho Italian debt owing to her; and provision should be made for Germany’s redemption or part of the Italian portion by payments in kind. Britain should cancel all the other war debts owing to her. The carrying out of this scheme would enable the armies of occupation (which had already »sost £300,000,01)0) to be withdrawn. The Financial Times points out that !ho position in Germany before the war was (hat notes could only be issued against a specific holding of gold, which except under penalty could not be less than 33 1-3 per cent. As the end of October the total of Reichsbank notes outstanding was about 470,000 million marks, in addition to 14,000 million marxa in Darlahnskasscn notes. Against vhis swollen currency tho Reichsbank holds gold amounting to 1000 million gold marks, which would admit of • secured circulation cf 2000 million gold marks. Notwithstanding this superabundance of paper, there is evidence of a scarcity of currency m Genua i.v which indicates that not only are the mark currencies largely held abrovl. but also that the mark itself has to a considerable extent lost its purchasing power internally. It may be noted finally that the devaluation of the mark would mean a great relief to the country’s Budget, since interest and sinking fund on the existing internal debt would naturally be met by payment in the old currency. One objection to * lenient treatment of the country as a

whole—that it would lead to the German war profiteers safely securing their plunder —would thus bo met to eome extent at all events. The main point which economists and bankers agree upon is, says the Chronicle, thet Germany can and ought to pay reparations, but that ah© can only do so if her finances are sternly taken in hand under strong control. This is an effort which Germany must make. But if she does make it, if the Allied nominees are satisfied that she is making it, then the terras of a short moratorium and of reasonable methods of payment should bo discoverable no less for ths French than the British. The interests of these two are only at the moment divergent; in the long run they depend on the same factor—a financially sound Germany kept up to the mark by firm supervision.