The Global Zeitenwende
How to Avoid a New Cold War in a Multipolar Era
ALTHOUGH the United States Government is not represented at the international conference scheduled to meet at Lausanne to discuss reparations and other questions connected with the world-wide economic crisis, its financial interests may be greatly affected by the outcome of that meeting. As the United States is not a signatory of the Young Plan and is not legally concerned with reparations, it was not invited to participate in the Lausanne Conference, and when the meeting was first proposed, Mr. Ogden L. Mills, then Under Secretary of the Treasury, stated that an invitation to send a representative would be declined.
In spite of its legal detachment, however, the United States has a large stake in the matters scheduled to come before the conference. It does not receive reparations directly, but it is a creditor of most of the governments which do so, and over 50 percent of the payments made by Germany finally reach the Federal Treasury. Any modification of the German payments by the Lausanne Conference, therefore, will have a direct bearing on the ability of the debtor nations to continue their scheduled payments to the American Government. The conference is of additional interest because of the fact that it meets only two weeks before the expiration of the Hoover moratorium, and when the future of all international debt payments is uncertain.
During the past year sixteen nations have shared in the benefits of this postponement of debt payments, and the American Government has deferred the receipt from them of $252,566,803 in interest and in amortization of principal. The relief which they have thus obtained from the United States during the fiscal year 1931-32 and the amounts which they are scheduled to pay in 1932-33 are indicated in the following table (in dollars):
|Germany, army costs||6,000,000||6,000,000|
Under the terms of the moratorium agreement with the United States, the debtor nations[i] are to repay the postponed amounts in ten equal yearly instalments, with interest at 4 percent. The first payment will fall due in the fiscal year beginning July 1, 1933. Hence, if there is no extension of the moratorium at its expiration on July 1, 1932, the debtor nations will be under obligation to pay to the United States in the ensuing twelve months only the amounts called for in the schedules of their debt agreements. For most countries the scheduled payments for 1932-33 are slightly larger than the postponed annuities of 1931-32, and the advocates of debt revision have maintained that if the debtor nations were unable to pay $252,000,000 during 1931-32 they will be even less able to pay the $275,000,000 due in the ensuing year because of the continued economic deterioration after the moratorium became effective.
At the same time it is clear that an extension of the moratorium for another year would create a new problem when payments were eventually resumed. Even without an extension, the debtors under the existing arrangement would be required to pay not only the scheduled annuities after July 1, 1933, but an additional $25,000,000 for the next ten years (one-tenth of the postponed payments of 1931-32), plus interest on the instalments still to be paid. For the first year this interest would amount, in round numbers, to $10,000,000, and would gradually decline thereafter as the arrears of the postponed annuity were reduced. In case the moratorium should be extended for a year on the same terms, these extra payments after its expiration would be somewhat more than doubled.
The same principle applies to the payments by Germany to her creditors. The moratorium relieved Germany of payments in 1931-32 amounting in round numbers to $400,000,000. Under the Young Plan and the special agreements with Belgium and the United States, Germany is scheduled to pay $419,000,000 in 1932-33 and $438,000,000 in 1933-34.[ii] Her resumption of payments at the expiration of the Hoover moratorium would increase her annuities for ten years beginning July 1, 1933, by $40,000,000, plus interest at 3 percent on the deferred payments still outstanding.
The question of immediate concern facing the Lausanne Conference is whether full payment can be resumed by Germany on the expiration of the moratorium. In the event of no renewal or extension, the schedule calls upon Germany to resume her monthly payments on July 15. Payments by the debtor governments to the United States, however, are made only twice a year, and the next payment, in case of no further extension, will not fall due until December.
The ability of Germany to meet her reparation obligations has already been passed upon by one group of experts. Late in 1931 Germany applied to the Bank for International Settlements for the appointment of a special advisory committee under the provisions of the Young Plan to investigate her capacity to pay. The committee met at Basle on December 7, and on December 23 it submitted a report declaring that in its opinion Germany would not be able to resume the payment of the postponable portion of her annuities in July, 1932. But the committee did not stop with this. It also urged that the adjustment of reparations and other war debts "to the existing troubled situation of the world" should take place without delay "if new disasters are to be avoided," and it appealed to the governments concerned to permit "no delay in coming to a decision which will bring an amelioration of this grave crisis." Out of this appeal came the Lausanne Conference, called first for January 18, but postponed because of political considerations until within two weeks of the expiration of the moratorium.
Meantime the American Congress, in ratifying the year's postponement of payments on the debts of foreign governments, has formally recorded its opposition to any reduction or cancellation of these obligations. And in a note to M. Claudel, the French Ambassador, Secretary of State Stimson has gone further and declared that a demand for a new moratorium could not obtain the approval of Congress. This, of course, does not debar the debtor governments from utilizing, individually and on their own initiative, the postpone ment clauses in their debt agreements with the United States.[iii]
Such is the general situation confronting the Lausanne Conference as it assembles at the eleventh hour of the moratorium.
[i] Only eight of these countries are recipients of German reparations, but these contribute over 95 percent of the total payments to the United States. The American receipts which do not come indirectly from Germany are of slight importance.
[ii] In addition to reparations proper, Belgium is scheduled to receive special payments over thirty-seven years in settlement of a claim resulting from the circulation and withdrawal of marks by Germany during her war-time occupation of Belgium.
[iii] For most countries these postponements apply only to the principal of the debts. The German Government also has the right to postpone payment of conditional reparations. For all governments the postponement is limited to two years.