462.00R296/2787a: Telegram
The Secretary of State to the Chargé in France (Armour)
112. Please bring the following strictly confidential message to the attention of Mr. Owen Young:
“With reference to your cable of April 11th,38 the memorandum sent you on April 8th, through the American Embassy, was, of course, not intended as an official communication to your committee of experts or as an instruction to you and your associates. It was not prepared by Mr. Mellon for submission to you; but after consultation with him and the President, I sent it to you in order that you might be apprised frankly as to how the Allied proposals set out in your cables Nos. 200 and 201, March 28th,39 had impressed Mr. Mellon with his peculiarly intimate and responsible knowledge of the development of United States policy in these matters, and also to permit you to correct any unwarranted conclusion or misunderstanding on our part as to the course the negotiations have taken. We fully appreciate the difficulty of the task which you have so unselfishly undertaken and the pressure under which you are working, and we regret to have to add to your anxieties; but the Allied proposals seem to us to lead so directly to future serious dangers and injustice to the United States that we have felt compelled to take this course.
Your cables Reparations 205 and 207 of April 11th and 12th, respectively,40 have been carefully considered. While they make clear the attitude of the American experts, they do not relieve the apprehension excited by the central feature of the Allied proposals nor do they change our opinion that this plan, if carried out, will nullify the wise policy under which for nearly ten years the United States has insisted upon the complete separation of Allied debts owed to the United States from reparation payments sought from Germany. This policy was definitely and clearly established by President Wilson in a letter to Mr. Lloyd George of November 3, 1920, in which he said:
‘The United States Government entirely agrees with the British Government that the fixing of Germany’s reparations obligations is a cardinal necessity for the renewal of the economic life of Europe and would prove to be most helpful in the interest of peace throughout the world; however, it fails to perceive the logic in a suggestion in effect either that the United States shall pay part of Germany’s [Page 1060] reparation obligation or that it shall make a gratuity to the Allied Governments to induce them to fix such obligations at an amount within Germany’s capacity to pay. This Government has endeavored heretofore in a most friendly spirit to make it clear that it cannot consent to connect the reparation question with that of intergovernmental indebtedness.’
The American Government has held this position ever since. This policy was in large part based upon its attitude taken towards Germany at the close of the War. It neither sought nor received material benefits from the War. It asked for no compensation in the form of territory, economic privileges, or indemnities. From the first it announced its willingness to bear the complete burden of its own war costs. Subsequently, through Secretary Hughes, it formally renounced its right to general reparations. In spite of the general prevailing policy of confiscation of private German property, we are returning all of such property sequestered during the war, 80 per cent of which is now being delivered, and this Government has confined itself to a demand for a very modest sum necessary to meet its just claims for actual injury to persons and property and debts, these claims to be duly established by a tribunal constituted in accordance with the provisions of a formal treaty.
On the other hand, in making debt settlements with its former allies the United States deliberately reduced its claims to amounts carefully calculated upon the capacity of the debtor to pay, irrespective of the reparations which such debtor expected to receive from Germany. By this means in the case of all the debtor nations with one exception these debts based on present values at 5 per cent were reduced to amounts either less or approximately the same as the post-war advances, with interest, to the debtor in question and was equivalent in result to an assumption by American tax payers of all of that portion of these debts which represented the war costs of such debtor. In some cases the present value of the payments to be received from the debtor is less than one-third of the amount legally due under the original contractual obligations.
In view of this the principal vice of the proposals now made by the Allies, as pointed out in Mr. Mellon’s memorandum, is that they would confuse and obscure this distinct and sharply characteristic American position towards Germany and the Allies, and would confront the United States with the alternative of either pressing against Germany claims of a character which she, herself, has hitherto refused to make or of, herself, assuming to an even greater extent than she already has part of the Allied war costs. It is idle to point out that the proposed arrangement leaves the debt settlement legally unaffected when the public position of the holder has been thus cmopletely [Page 1061] transformed. The division of the German reparations into two categories, one of which corresponds dollar for dollar with the payments to be made to the United States by the creditor governments, together with the further provision that German reparations shall be reduced if the United States agrees to a similar reduction of debt payments, makes such a transformation absolutely inevitable. The United States instead of standing before the world as she does today as the holder of voluntary contractual debts from her associates in the War, the amount of which she has already generously reduced, would be placed in the invidious position of the chief beneficiary of claims for German reparations which she has hitherto declined to make. Upon her will inevitably be placed the burden of pressing and enforcing these claims, or else of assuming still further the war losses of the Allies. And against her in all of these matters will necessarily be aligned in a solid front the interests of all the European nations, including Germany. This seems to us to forecast very serious results for the world in the years to come, results which would go far towards nullifying the great advantages which might otherwise be derived from a settlement of the question of reparations and the evil consequences of which would fall mainly upon the United States.
Insofar as the International Bank is concerned, we feel that if we should permit a representative of the Federal Reserve System to become a director, we should directly participate in the repudiation of our above-described historic policy and actively concur in the enforcement of reparations from Germany. This we will not do.
So far as the cancellation of American Army of Occupation costs and proposed alteration in the payments upon which the Mixed Claims awards are based is concerned, we believe that Messrs. Kellogg and Wilson have correctly stated to you the position which will be taken by our Government and Congress. As compared with the treatment which has been accorded to France and Great Britain, the cancellation now of American Army costs would be highly unfair. Unlike her allies, the United States did not receive any payments until 1925 and to date she has received less than 30 per cent; whereas Great Britain and France have each received approximately 90 per cent of such costs.
In respect to the Mixed Claims, our proportion of the Dawes annuities were pledged under an Act of Congress for the payment of American claims; and on the faith of that pledge, 80 per cent of the sequestrated German property is now being delivered to its owners. A modification of these payments could, therefore, not be made without the consent of Congress, which in our opinion should not be asked for and could not be obtained.
[Page 1062]I have pointed out these considerations respecting the probable future attitude of this Government in order that you might be fully advised before the committee of experts might become formally committed to proposals which we regard as containing elements of serious danger to this country, and in time to avoid the embarrassment which the subsequent disclosure of this Government’s attitude might occasion. These matters have been fully discussed with the President and the Secretary of the Treasury. We fully recognize that you are, in the language of your cable, free agents accepting full responsibility for what you do and not serving in any respect in a representative capacity. Yet in view of the fact that the consent of this Government was asked in respect to the appointment of American experts by the Allied and German Governments, it is quite evident that your appointment was sought not only on account of your eminent personal standing, but because it was anticipated that you would bring to bear upon these negotiations the viewpoint of Americans. Under these circumstances, it would seem highly important that, however, unofficially, you should yet make perfectly clear to your colleagues on the committee of experts what you know to be the attitude of the American Government and people.”