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No. 21.— Count Ilatzfeldt to Count Minister. (Berlin, 2nd August. 1884.) If penal settlements should be referred to in the course of the discussion on the South Sea affairs, the Chancellor requests you to state that we have no intention to establish such a settlement, but that we could no more bind ourselves in this matter than England would do so if called upon by us.

No. 22.—Dr. Stucbel to Prince Bismarck. (Apia, 17th June, 1884.) I learn from a telegram in the Australian papers that Lord Derby is prepared to take possession of New Guinea if the colonies are willing to bear part of the expense. I beg to state that a step of this kind would seriously endanger German interests in the South Sea. There, too, islands not yet taken possession of are being scrambled for. This process may be delayed for a time, but can never be made retrogressive. Delay is of use only to England and her colonies. The assurances of the London Cabinet may be honest enough, but events will override them. Out here everybody, from the highest official to the smallest tradesman, works at the anglicanization of the whole Pacific, without taking the least notice of these assurances. Germany must not trust to them, unless she is prepared to face one day accomplished facts. The Samoa Islands by themselves would not sufficiently justify an active colonial policy of Germany in the South Sea, although we defend from them our commercial position in Tonga and in the scattered islands to the north. But even Samoa would become a forlorn hope unless we succeed in maintaining our footing in New Britain. Politically, as well as geographically, the north coast of New Guinea forms p.v/o of New Britain. The arguments applied by England to the south coast, of New Guinea and to Torres Strait apply with equal force, from a German point of view, to the north-east coast and Dampier Strait. English interests in New Guinea are limited to the south coast. German interests in New Britain demand that England be excluded from the north coast. The extension of German commercial enterprise to that coast is merely a question of time. Had it not been for the loss of the " Mioko," the German Commercial and Plantation Company would before this have established itself there. It is desirable that other German capitalists should assist in the conquest of this coast. A territory like that of the archipelago of New Britain, including the north coast of New Guinea, would indeed be an object worthy of German colonial enterprise. Bounded by the Dutch Indies, this territory would not be exposed to suffocation from surrounding English colonies, and would afford us means to hold Samoa, commercially as well as politically. This is the very thing England desires to prevent by this movement in our flank, and the danger likely to arise, if England is allowed to occupy the north coast of New Guinea, is very serious indeed. England may take tha whole of the south coast, but if the north coast, from the East Cape to longitude 141° E., falls into the hands of a foreign Power, our interests would be seriously jeopardized.

No. 23.— Count Milnster to Prince Bismarck. (London, 9th August, 1884.) I have informed Lord Granville of our desirs to arrive at an early understanding with reference to the South Sea. Lord Granville listened to me with interest. He declared that England was not jealous of German colonial enterprise, and that he was aware that Germany possessed important interests in several of the South Sea Islands. The English Government was desirous to define the limits within which the influence of either country was preponderating. As regarded New Guinea, he said it was news to him that German interests existed there. Confidentially he added that the negotiations between the Home Government and the colonies, about the annexation of the south coast of that island, were about to terminate. There were islands where the German influence preponderated, others where England took the lead, and others, again, in which both were equally interested. This would have to be inquired into, and he (Lord Granville) had no doubt that an understanding could be arrived at. Lord Granville added that an understanding wotdd be facilitated if we could mutually agree that no penal settlements should be established. I told him that it was not intended by us to establish penal settlements, but that we were not prepared to bind ourselves in that respect. He replied that he had not in his mind any engagement to which he would not also bind himself, but that this question was of such importance to the colonies that its settlement would facilitate the arrangement of other questions. Lord Granville repeatedly expressed a regret that, as shown in the Press, there existed so much want of confidence in England. Until now we had got on so well in trans-oceanic countries, and he hoped this would also be the case in future. In a letter received this day, Lord Granville informs me that the Cabinet had determined that the extension of the British sovereignty in New Guinea should be limited to that part of the island in which the Australian Colonies were specially interested. This would be done, however, without prejudice to territorial questions beyond these limits. I desire to add that Mr. Gladstone likewise availed himself recently of an opportunity to speak with me respecting German colonial efforts. He repeatedly stated that he was glad of these colonial efforts of Germany, and hoped a friendly agreement respecting them might be arrived at.

No. 24. — Telegram to the German Consul-General, Sydney. (Berlin, 19th August, 1884.) Inform Imperial Commissioner yon Oerfczen in New Britain that it is intended to hoist the German flag in the archipelago of New Britain and all along that part of the north-east coast of New Guinea which lies outside the sphere of interests of Holland and England, where German settlements already exist or are in course of formation ; and that he is authorized to support purchases of laud, by Germans and to register the agreements made, without prejudice to third parties. 3—A. 9.