The Daily News MONDAY, NOVEMBER 14, 1927. GERMAN FINANCES.

Taranaki Daily News, 14 November 1927, Page 8

The Daily News MONDAY, NOVEMBER 14, 1927. GERMAN FINANCES.

A recent cabled message from Washington indicated that the State Treasury Department was in full accord with the warning given to Germany by Mr. Parker Gilbert concerning the extravagant expenditure and large borrowing by the latter country. It is understood that the United States’ policy of supervising loans floated there by foreign interests will be employed to the full in the event of later developments, which are expected to take place, and that the German Central Government, as well as her State Governments, is not prepared to effect the reforms which Mr. Gilbert considers are essential. It is significant that already a depression is being felt in the receding value of industrial shares, while the German Steel Trust has expressed the opinion that Germany must reorganise her financial policy if an economic industrial crash is to be avoided. Why special concern is being felt over Germany’s financial position, is the coming increase in the country's liabilities on Reparations account., the increase being from 874 millions sterling in the “Dawes year,” which began in September last, to 125 millions in the year 1928-29. The exceptional feature connected with German borrowings centres round Article 248 of the Treaty of Versailles, under which reparations costs form “a first charge upon all the assets and revenues of the German Empire and its constituent States.” If, therefore, those American bankers who have been lending their millions so freely to German States, municipalities and private industrial undertakings, have not yet formed any clear idea of the ultimate consequences of their action, they are likely to find themselves in an unenviable position. At the close of the inflation period German industries and public utility services found themselves wholly denuded of liquid capital. They were accordingly forced to resort to borrowing abroad, often at high rates of interest. A comparison of the reparations payments actually made during the first three “Dawes” years, together with the loans raised abroad during the same pernod, engenders some interesting reflections. The total of the reparations annuities paid was 273| millions sterling, while the aggregate sum of foreign loans raised by Germany, from January 1925 to April 30, 1927, amounted to 234-J millions sterling, so that it would seem the reparations payments have so far, except for thirty-nine millions, been virtually paid out of loans. Responsible opinion in Germany, as represented by the president of the Reiehsbank and many leading industrialists, has long been aware of the danger of the position. Under these circumstances it is not surprising that the American State Department recently hesitated about giving its final approval to the floating of a six million sterling loan to the Prussian State, while the general fiscal position has been complicated by the encouragement given to excessive imports. At the end of last year an attempt was made to check the inflow of funds from abroad by suspending for six months the exemption from the ten per cent, income tax deduction which had hitherto been accorded to the foreign lender, and by lowering the discount rate. Tlie immediate consequence of those acts, however, was an outflow of funds from Germany, which caused a considerable diminution in the bank’s reserves. The Government of the Reich availed itself of the period of cheap money by raising an internal loan at five per cent, in the nominal amount of 500 million marks, three-fifths of which were

issued to the public, hut the sum proved too much for the domestic capital market, and monetary stringency once more began to be in evidence, with the result that resort was had to foreign loans. These latter loans, which for the first quarter of the year only amounted to 85 million marks, reached in July the record monthly total of 434 million marks. Some attempt has been made by the German Foreign Loans Council to curb this tendency to extravagant borrowing, but for political reasons this has proved no easy matter. It is obvious that some effective re-organ-isation of expenditure must be carried out, for under the warning given by Mr. Gilbert, Germany will not be able to plead inability to pay the reparations annuities, so that a crisis may arise at any time unless the position is dealt with effectually.