THE OTAGO DAILY TIMES THURSDAY, DECEMBER 15,1932. A DAY OF RECKONING.

Otago Daily Times, Issue 21828, 15 December 1932, Page 8

THE OTAGO DAILY TIMES THURSDAY, DECEMBER 15,1932. A DAY OF RECKONING.

This is the day upon which the war debt instalment payments are due to the United States. IE events take the predicted course gold to the value of £30,000,000 will be earmarked in the vaults of the Bank of England awaiting American instructions. While to that extent the pressure on the resources of the United States Budget will be ensured relief, it by no means follows that this may not be more than counterbalanced by the economic consequences of the course adopted. That aspect of the situation was emphasised by the British Government, but the argument was not accepted by the Washington Administration as convincing. Nor has it been moved by the reminder that insistence on these payments means a virtual nullification of the results achieved at the Lausanne Conference, which were hailed at the time as an all-important step towards the salvation of Europe. Under the Lausanne agreement reparations were wiped out as such, and provision was substituted for a contribution to European reconstruction by Germany well within her ability to meet. More important, perhaps, because more far-reaching in their effects, were the “ conditions subsequent ” to the Lausanne agreement in the form of separate but contingent agreements. The allied Powers decided upon an indefinite suspension of war debt payments among themselves pending the coming into force of the Lausanne agreement, and in the supplementary memorandum to that instrument, the so-called “ gentlemen’s agreement,” it was laid down that the main agreement would not be ratified before a satisfactory settlement was obtained between them and their creditors. The creditor nation particularly in mind was, of course, the United States. The “ gentlemen’s agreement ” very explicitly stated that if the Governments concerned could not obtain a satisfactory settlement of their debts the accord with Germany would not be ratified. In that case, it pointed out, a new situation would be created, and the interested Governments would have to agree upon what they should do. In the words of the memorandum: “ In this eventuality the legal position of all the interested Governments would become what it was before the Hoover moratorium.” As the object of the Hoover moratorium was to provide a breathing space in which the European nations should settle, promptly and finally, their own politicoeconomic disorders before an approach by individual debtors to the United States should prove necessary, there is some irony in a development in which the United States plays a part that has to a large extent the effect of reducing the Lausanne agreement to the level of a mere formula. That Britain and the European Powers hoped that a satisfactory settlement of their debts would include an extension of the moratorium in respect of the instalments due to-day may be taken for granted. Disappointed in this they are not hastening to retrace their steps or demand that among themselves there shall be a resumption of payments in respect of inter-governmental obligations, but Mr Neville Chamberlain indicated the possibilities very plainly when he said on Monday that if the Lausanne agreement is not ratified owing to the impossibility of making a settlement with the United States, the claims of Great Britain upon her debtors would be revived with full force. However much she may wish to do so, the United States cannot divest herself of a measure of responsibility in relation to the position in Europe. The sensational fall of the Herriot Government in France, recorded in the cablegrams this morning, is the penalty which it has paid for its expressed intention of discharging its debt obligation to the United States. By an overwhelming majority the French Deputies have rejected the idea of paying the instalment of 19,000,000 dollars due to-day, and the scenes recorded in Paris leave little doubt as to the voice of the French people on the question. Perhaps this development will have more effect than anything else in awakening in the minds of members of Congress in the United

States a sense of the realities of the debt situation. Britain, saddled with by far the heaviest indebtedness to the United States, and required to meet it on more difficult terms than those accorded any other nation, is apparently to be left to derive what satisfaction she can from her honourable isolation. But interesting reactions must attend the French default. The British Government has declared that the payment due to-day is not to be regarded as marking a resumption of the annual payments to the United States on the pre-mora-torium basis. The Administration in Washington has interpreted this declaration in the way most satisfactory to itself, and there the matter rests. But the outlook is the less satisfactory, owing to the American attitude, for reasons well summarised by the Economist: —“ So long as the influx of goods into America is not free, any attempt to pay the debts due to her must strain the world’s financial system to the breaking point. The events of the last two year's have demonstrated this beyond all argument. The damage done, however, has unfortunately not ended with the breakdown of the debt settlements, and the collapse of the world’s financial machinery has produced a shrinkage of trade and economic activity out of all proportion to the amount involved in debt payments. . . . If an attempt to reinstate the debts were to prevent—as it inevitably would —any effective steps being taken to patch up the currency situation, open the markets of the world, and restart the flow of trade, it would indeed be a penny-wise pound-foolish policy. To put the matter bluntly, the case which America has to consider is not an appeal to her generosity but whether she can afford to start another slump.”