GERMANY’S DEFAULT

Taranaki Daily News, 18 October 1934, Page 6

GERMANY’S DEFAULT

FOREIGN INDEBTEDNESS THE CLASH WITH BRITAIN. EVENTS THAT LED UP TO IT. By a law dated June 9, 1933, all debts due by German subjects for interest, amortisation profits, rents, and similarly recurring payments, and payable in foreign currencies outside of Germany, are to be paid upon becoming due to the German conversion office for foreign , debt, a corporate entity established under the direction and control of the Reichsbank, says the Sydney Morning Herald. Such interest is paid in reichsmarks to the credit of the creditor, and is released for payment to the creditors at the determination only of the Reichsbank. Payment by a debtor in reichsmarks to the conversion office operates as a discharge of that debtor’s obligation to the creditor. New legislation by the British Government is in a measure the converse of the German legislation of a year ago, and is designed to overcome the obstacles to payment of interest to British subjects who have lent Germany money. According to the cables, in the case of any foreign country restricting payments or transfers to people in Britain, the Treasury is empowered to set' up clearing offices, and on the Issue of an order, all debts due or becoming due in respect of goods imported from the country which restricts. transfers are to be paid into the clearing office. The object is to devote the money so obtained to payments due to British subjects from the restricting country, and not duly made. The recent history of German foreign payments may be shortly summarised. In June of 1931 reparation payments were abolished under the Hoover moratorium. Then the foreign banking credits were frozen, and a large proportion of them remain so, and reductions in interest rates have also taken place. Under the Lausanne agreement of July, 1932, reparations were virtually abolished. The foreign debts whose interest Germany is now declaring she cannot transfer abroad are derived from commercial loans raised on the money markets of Great Britain, Europe, and the United States. THE SECOND TIME. ’ It was in June of 1933 that Germany again experienced difficulty in transferring amounts due ( by her in connection with foreign debts, and on June 8, the day before the legislation already outlined, came into force, it was announced that the Reichsbank would cease temporarily (“and,” the announcement proceeded, “it is hoped only for a short time”) allotment for foreign exchange for all payments except under the Standstill agreement. Subsequently it was announced that the full service of the Dawes loan and the interest on the Young loan were exempted from the moratorium, and as regards other loans the Reichsbank stated that it would pay half the interest in cash and the other half in . scrip. Subsequently the Gold-diskont-bank offered to acquire the scrip at half its face value, so that the creditor could in effect obtain in his own currency 75 per cent, of what was owing to him. At the same time Germany made use of the position in which she had placed her creditors to force exports on other countries. Arrangements were made with Switzerland and Holland whereby the nationals of those countries could obtain 100 per cent, of the scrip, in cash in return, for permitting additional German exports. On December 18 last it was announced that for the first six months of 1934 it would be necessary for the Reichsbank to reduce cash payments from 50 to 30 per cent., the remaining 70 per cent, to be paid in scrip, so that the British and United States bondholder, except in the Dawes and Young loans, would receive only 65 per cent, in his own currency, as against 75 per cent, previously. GERMANY GIVES WAY. Strong protests were made by the .bondholders, and by the British and United States Governments. The protests of the Governments were directed mainly against the discrimination im- 1 plied in the Swiss and Dutch agreements. Accordingly, the German Gov- j eminent promised, on January 31, that • new negotiations would be entered into i in April to settle the question of the i debt service on the basis of no dis- 1 crimination, and that if in the mean- ’ time the creditors would agree to the ' Swiss and Dutch agreements continu- ! ing in force for the six months ending ■ on June 30 the Golddiskontbank would ’ undertake to give a firm price of 67 per ' cent, for scrip. Thus the British and i United States creditors would receive ' about 77 pier cent, of their claims in 1 their own currency as against the 65 • per cent, originally proposed. ’ In April, and preceding the new negotiations, Dr. Schacht, president of the J Reichsbank, declared that, though Germany was willing to pay her debts it ' was impossible for her to transfer funds 1 on the then scale, and that under pre- 1 sent conditions a complete moratorium seems unavoidable.”

Germany, in March, had passed a law to control the import of raw materials with the object of allocating the available. exchange as the Government thought fit. Textile raw materials were first controlled, and then followed the control of metals, leather, and hides. From this developed a proposal that commercial treaties should be based in reciprocity; that is, that Germany’s purchases from a country should not exceed the sales to that ctountry, and the Foreign Minister declared that the currency and tariff

policies of many countries would compel Germany to undertake “a planned distribution of the necessary imports among such countries as are willing to take corresponding values from Germany.” BRITISH POSITION. Dr. Schacht on the day before the conference between the Reichsbank and the foreign long and medium term . creditors of Germany was opened, chose to make a speech which was interpreted as expressing an intention to the part of Germany to withhold the service of the Dawes and Young Plan loans. Whereupon the British Ambassador informed the German Government that the British Government would take “a grave view of any proposal to apply a transfer moratorium to the Young and Dawes loans,” and pointed out that these loans were raised under inter-Governmental auspices. Recently it was ascertained that the rapid fall ir the gold holdings of tne Reichsbank was due to the gold being used to purchase German securities on foreign markets at a considerable discount. Foreign exchange derived from exports had also beer used for the same purpose. These should have been Used for transferring interest. The clue to Germany’s real intentions is probably found in a statement of Dr. Schacht published recently. “The only solution of the transfer problem,” he said, “lies in the return of the former German colonies as a source of raw material and as consumers of German exports.” Another statement of Dr. Schacht’s makes it plain that Germany hopes to get her way with Britain by bringing pressure to bear on the Dominions. British imports from Germany are greater than British exports to Germany, but the exports of Dominions to Germany are greater than imports from Germany. In 1933 imports from Germany into Great/- Britain were of the value of £29,818,000, while exports to Germany from Great Britain were £14,712,000. So far as Great Britain is concerned, any termination of intercourse would be more harmful to Germany than to Great Britain.