GERMANY’S DEBT DEFAULT

Timaru Herald, Volume CXXXVII, Issue 19835, 26 June 1934, Page 9

GERMANY’S DEBT DEFAULT

BRITAIN ISSUES WHITE PAPER

INABILITY TO PAY DOUBTED

United Press Association —By Electric Telegraph—Copyright (Received June 25, 7.10 p.m.) LONDON, June 25. “The Times” says: “Though the German delegation arrives on June 25 or 26 to discuss the settlement of the debts problems the Government intends to push on the emergency legislation countering the Reichsbanks action. It is hoped for a complete passage by June 28, after which the measure will be held in suspense till July 1, to enable an opportunity for settlement in the meantime.

BRITISH POLICY EXPLAINED-, OUTLINED IN WHITE PAPER. British Official Wireless RUGBY, June 23. A White Paper published to-day on the German debt transfer moratorium reply to the note in which the German Government set forth the general difficulties of transfer with which it declared itself to be faced. The British Government, while expressing sympathy with the desire of the German Government to stimulate employment in Germany, entirely dissents from the view that efforts to that end must entail the complete suspension of all transfers on Germany’s foreign debts, and states that such action, by destroying Germany’s credit, must, on the contrary, impair the possibilities of maintaining the import of the essential raw materials for renewing trade and restoring prosperity to the German nation. The creditors’ representatives were prepared to agree to temporary concessions of an emergency character to overcome the present transfer difficulties, but they said that these difficulties were being aggravated by the political and economic policy of Germany herself, and that the sacrifices offered by the creditors could only be justified if Germany did all in her power to preserve her foreign exchange resources. Weaker Banking Situation. They had ascertained that the diminution in the Reichsbank’s reserves was due not to the service of Germany’s commercial loans, which had already been substantially curtailed, but to the purchase of scrip and bonds and repayments of capital. They found reasons for supposing that the present sharp drop in the Reichsbank’s reserves was due, in part at least, to exceptional items which would be rectified later, and that there were certain receipts to be expected which had not been taken into account at all. Generally, too, they found the German estimates much more unfavourable than was justified. The creditor’s representatives were none the less prepared to consider, subject to there being no discrimination, the funding of all non-Reich debts provided the interest on the Dawes and Young Loans was met in full. The financial effect of this was that whereas Germany’s total foreign exchange obligations for the year ending April, 1935, in respect to long-term and middle-term loans and other debts would amount to the equivalent of 716,000,000 reichsmarks, only 90,000,000 reichsmarks would need to be transferred in cash. As against this Germany’s foreign exchange income from invisible items amounts, on the German estimates, which the creditors considered an understatement, to some 250,000,000 marks a year. So interest on the Dawes and Young Loans would require less than two-fifths of the receipts from these resources, exclusive of any call on Germany’s export receipts. Germany’s Trade Examined. The export receipts average 350,000,000 to 400,000,000 reichsmarks a month, so that interest on -the Dawes and Young loans represents only about 2 per cent, of the gross foreign exchange income of Germany from all sources. Thus the proposal would involve no substantial strain on the exchange resources available. The creditors were informed that an average period of five and a-half months lapsed between the date of shipment of an export and receipt by the Reichsbank of the “devisen” resulting from it. Thus, apart from other assets, the Reichsbank should now be receiving and should continue to receive during the next-few months, repayment by exporters of these advances, which would constitute a hidden reserve equal to many times the amount of the interest on the Dawes and Young Loans due during the next six months. Can Germany Pay? The British note says that these and other facts which are cited “inevitably give the impression that the policy of Germany is to claim that no foreign exchange resources are available to meet the service of her loans and then to apply to resources which should have been used in meeting that service to repurchase her loans at the low prices resulting from default.” The White Paper says that the statements in the German note regarding prohibitive measures in certain countries against German goods do not

apply in the United Kingdom, where the trade balance in Germany's favour during the last two years was sufficient to cover interest on all German loans issued in London by more than three times and interest on the London issues of the Dawes and Young Loans by more than 10 times. It is recalled that the Dawes Loan was raised when Germany was in a state of economic collapse and the lenders who subscribed it were given the most absolute security of payment in all conditions. The Young Loan was accepted as an unconditional obligation by the German Government, and if no special security was asked for it was because the Young Committee recommended that the basis of security was the “solemn undertaking of the German Government, to which no further guarantee can add anything whatsoever.” Discussion Welcomed. During the recent negotiations the British bondholders’ representatives, in order to arrive at a uniform solution equitable to Germany, were willing to recommend sacrifices which some other representatives regarded as excessive. As the German Government refused the suggestions and announced its intention to suspend all transfers, the British Government had no option but to ask Parliament for powers to protect British financial and commercial interests. The note concludes with an expression of willingness to discuss with th( German Government the possibility ol reaching an agreement regarding the treatment of British creditors which would avoid the necessity of exchange clearing altogether, or, alternatively, means by which such clearing could be administered with the minimum disturbance to trade in both countries. It suggests that German representatives should at once be sent to London for such discussion. ATTITUDE OF AUSTRALIA. BRITAIN’S PROPOSALS DISCUSSED United Press Association—B.v Electric Telegraph—Cr pyrlght (Received June 25, 9.40 p.m.) CANBERRA, June 25. The Cabinet is at present discussing the British clearing house scheme affecting Germany.. It is understood that the Commonwealth Government has received messages of a reassuring nature from the British Government on the subject.