FINANCIAL AID FOR GERMANY
The German Crisis.—The vital relationship between world economics and world politics was clearly brought out by the financial crisis which came with unexpected suddenness in Germany in the first two weeks of July, threatening to plunge Germany and all central Europe into social and political as well as financial chaos. The crisis took the form of heavy runs on all German banks and a flow of capital out of the country at a rate of $20,000,000 or more a day, the latter due both to withdrawal of foreign credits and efforts of Germans to get their money into foreign securities. The $100,000,000 short-term international credit to Germany, granted in June and falling due on July 16, was quickly exhausted. As emergency measures all German stock exchanges were closed, and German banks were shut up on July 14-15, opening subsequently in July only for necessary transactions such as handling of pay rolls, tax obligations, and unemployment dole. All holders of foreign money and securities were ordered to declare them and, on demand, to sell them to the Reichsbank at current rates. A thousand German banks and industries gathered together a deficiency guaranty of 500,000,000 marks ($119,000,000) which was placed at the disposal of a newly organized German rediscount bank and used as a guarantee for foreign loans and credits. Herman Schmitz, prominent German financial expert, was appointed Federal Commissioner of Foreign Exchanges, with the special task of handling the emergency measures to check the flow of capital out of the country.
It was felt at first that Germany’s troubles could be solved only by a big foreign loan, the amount of which ranged in discussions from $200,000,000 to $500,000,000. On July 13, President Hans Luther of the Reichsbank made a hurried 23-hour airplane journey to Amsterdam and London, and thence to Paris, seeking financial aid from abroad. It was evident that, in any question of a large loan to Germany, France with her immense capital reserves would have the final say. But in Paris Herr Luther quickly found that France, while ready to consider a loan on the largest scale, was hedging this offer with a set of political demands which would have almost compromised German independence. These were: (1) abandonment of the Austro-German customs union; (2) cutting the second “pocket battleship” from her naval program; (3) effective measures against German nationalistic military organizations; (4) much stricter measures within Germany to prevent the flight of capital from the country. These conditions were condemned as sharply in England as in Germany, and it was significant that neither the large long-term loan nor the French political demands appeared in subsequent negotiations. It became evident, however, that the efforts of politicians as well as bankers must be called upon to meet the German emergency.
Conference in Paris.—Preliminary to the London Conference set for July 20 a “get-together” meeting of French and German political leaders was arranged at Paris on July 18-19. Both Chancellor Bruening and Foreign Minister Curtius made the trip to Paris, and their conferences with the French government leaders were attended also by Secretary of State Stimson and Secretary of the Treasury Mellon of the United States, and Foreign Secretary Arthur Henderson of Great Britain. While no definite decisions were made at this four-power conference, it was felt that a beginning had been made toward a better understanding between Germany and France, and, in the words of the official communique after the meeting, conditions created “favorable to effective collaboration in both the political and economic fields.” The communique read in its essential parts as follows:
The German chancellor set forth the different aspects of the crisis from which his country is suffering. Representatives of the French government, recognizing the gravity of this crisis, declared that, under the reserve of certain financial guarantees and measures of political appeasement, it would be ready later to discuss the terms of financial cooperation within an international framework.
Right now the representatives of the two governments have desired to underline their desire to create between them, in every possible measure, conditions favorable to effective collaboration in both the political and economic fields; and they have agreed to begin associating their efforts so that credit and confidence may be restored in an atmosphere of calm and security.
Limited Aid for Germany.—Called by the British government for the specific purpose of giving governmental sanction to the modifications of the Young Plan brought about by the Hoover moratorium, the seven-power London conference of July 20-22 took on a larger importance from the German financial crisis which had developed in the ten days preceding. In addition to the American, British, French, and German ministers present, the meeting was attended also by representatives of Italy, Japan, and Belgium. Strongly emphasized in foreign press comment was the significance of the conference as marking the re-entry of the United States into active participation in international politics, signalized by the presence of both Secretaries Stimson and Mellon not as unofficial observers but as leading participants, and by the adoption of measures for renewal of international credits to Germany which were practically in accord with the “Hoover Plan” embodied in the instructions to the American delegates. The proposals drawn up by a committee of finance ministers and approved by the conference were in summary as follows:
1. That the governments of the United States, Belgium, France, Great Britain, Italy, and Japan extend an invitation to the Federal Reserve Banks of the United States, the Bank of France, the Bank of England, and the Bank for International Settlements to extend for another three months, or until November 15, the credit of $100,000,000 which they granted to Germany on July 15 for one month.
2. That these governments should urge their own banking institutions which have extended credits to Germany not to withdraw them.
3. That the Bank for International Settlements should select a committee to obtain cooperation for making an inquiry into the immediate further credit needs of Germany and, while providing for the renewal of the present outstanding German short-term credits, should prepare plans for the conversion of some of these expiring credits into long-term credits.
While affording temporary relief for Germany and giving promise of future measures of assistance, the work of the London conference was regarded very generally in the European press as a postponement and alleviation of Germany’s troubles, rather than an effective cure, which could be found only in a revision of the Young Plan. A German view of the conference was quoted in the New York Times of July 20 as follows:
The London conference gains greatly in importance through the presence there of the American delegates, but with the Young Plan excluded from discussion in line with the French demand, the results are bound to be abortive. A rediscount credit or other loans to Germany, the paper holds, will be in the nature of a morphine injection, willingly taken in case of desperate distress but of no lasting good, and in the long run Germany will have to look after herself. Germany must reorganize economically and politically, the paper affirms. But so must the whole world, since the capitalist system is fighting for its existence.
Committee on German Finances.— At the close of July the board of governors of the Bank of International Settlements took steps to carry out the recommendation of the London conference that a committee be composed of “representatives appointed by the governors of the central banks interested” to make a further study of German finances and of methods of turning outstanding short-term credits into long-term credits. Germany named Herman Schmitz, her Federal Commissioner of Finance, and Karl Melchior, a delegate to the 1929 Young Plan conference, to act with this committee. The American delegate, appointed by the governor of the Federal Reserve Bank of New York, will be Albert H. Wiggin, chairman of the board of directors of the Chase National Bank. Some of the work of this committee had already been laid out by a “freezing commission” with foreign representatives, organized in Germany in July, which drafted plans for handling of foreign credits.
DEBT MORATORIUM IN EFFECT
Final Agreement with France.— Definite agreement with France on the American proposal for a one-year postponement of all inter-governmental debts was finally announced on July 6. The principal points of the agreement are as follows:
First, that the payment of all international debts shall be suspended from July 1, 1931, until June 30, 1932.
Second, Germany shall pay the amount of the unconditional annuities of the Young Plan, but France agrees that the payments made by the Reich shall be placed by the Bank for International Settlements in bonds guaranteed by the German railroads.
Third, all the suspended payments shall bear interest on the conditions suggested by the American government and shall be amortizable in ten annuities from July 1, 1933.
Fourth, the same conditions will be applicable to the bonds issued by the German railways.
The arrangement for repayment in ten installments beginning two years hence was a compromise between the French demand for payment in three to five years and the American idea of a much longer period. Despite the agreement of July 6, there appeared still some uncertainty as to whether the moratorium should go into effect before its approval by the conference of July 20 in London. Great Britain, however, announced definitely that she would consider the agreement as effective from July 1, and would require no payments after that date. A committee of experts to consider details of putting the moratorium into effect met in London on July 17 under the chairmanship of Ambassador Hugh Gibson, but at once adjourned until after the London conference.
EUROPEAN POLITICS
Syndicalist Disorders in Spain.— Against strikes and syndicalist demonstrations in Seville and other cities of Spain during July the Republican government took vigorous action, arresting Dr. Vilana, chief syndicalist agitator in the southern region, and destroying a communist headquarters tavern near Seville with machine guns and artillery. After arresting more than 1,000 persons, the government declared that the “revolutionary strike” was under control. From the radical side in the Cortes there was much criticism of these sharp measures, and it was felt that this and the steady decline of the peseta to a point below eleven to the dollar might threaten the fall of the Republican cabinet. It was given a vote of confidence in the Cortes, however, at the close of July. Political sentiment in Spain is described as strongly leftward, but not as yet beyond the safe limits of Marxian socialism.
Papal Encyclical Stirs Fascisti.— Hopes of an early settlement of the revived quarrel between Pope and State in Italy were quashed at least for the present summer by the 15,000-word papal encyclical of July 4 “Concerning Catholic Action,” which vigorously denied the Fascist accusations against the society and declared that under cover of these false charges the Italian government was seeking to wrest from the Church all influence over the youth of Italy. Certain doctrines of Fascism were declared subversive to religion, and good Catholics taking Fascist oaths were advised to do so with mental reservations.
The encyclical not only brought negotiations to a halt but stirred the directorate of the Fascist party to a counterblast which hotly denied the statement that members of the party took the Fascist oath for self-seeking purposes—“for bread, or career, or life”; branded as false the charge that Free Masons were admitted to the Fascist ranks; and protested against attacks, alleged to have been inspired by the Vatican, on the Balilla organization as harmful to Italian youth. The directorate took measures to extend Balilla to include all young Italians, appropriating $50,000 for a special bureau of Balilla propaganda. In comment on this Fascist manifesto the Pope remarked mildly that it was “less grave than it might have been” and was after all a party rather than a governmental pronouncement.
Norway Disputes Greenland Area. —An old dispute between Denmark and Norway was revived in July when a privately organized Norwegian expedition raised the national flag on a strip of east Greenland coast, anticipating in this way a Danish official expedition sent to explore the same region. On July 10 the Norwegian government gave official notice that it had occupied the coast between lat. 71° 30' and lat. 75° 40'. Though the ancient Norwegian colonies in Greenland, Iceland, and the Faroes were surrendered to Denmark in the separation treaty of 1814, Norwegian hunters and fishermen have plied their trade on the Greenland east coast and established bases there throughout the nineteenth century, so that there may be some basis for the Norwegian claim of at least joint rights with Denmark. Foreign Minister Braadland of Norway explained his government’s action as purely technical, with a view to future discussion of the question before the World Court.
ACTIVITIES UNDER THE LEAGUE
French Arms Report.—The French memorandum to the League of Nations Secretariat furnishing armament information for the approaching limitation of armaments conference was published on July 20. Unlike the American memorandum which preceded it, and which was simply a schedule of existing armaments, the French note omitted detailed data and presented instead a long argument on the familiar French thesis that French armaments cannot be reduced without further guarantees of security—in other words, that reduction of military forces can be accomplished only by political agreements. Specifically France declared that her army had been reduced by half, that one-third of her military forces must be considered unprepared because in process of training, and that her armaments in general were at a minimum under existing political conditions.
Narcotics Treaty.—On July 13 twenty- eight out of fifty-seven nations engaged in negotiations at Geneva for control of narcotics manufacture, signed a convention which was described as a great advance on all former efforts in the same field. The convention presents an elaborate list of drugs to which it applies, includes codine for the first time, and, in general, provides for a complete accounting of narcotics manufacture in order to assist governments in combating illicit traffic. The convention will go into effect when ratified by twenty-four nations, including at least four of the chief manufacturing countries—the United States, Great Britain, Germany, the Netherlands, France, Turkey, Switzerland, and Japan.
In a special section of recommendations the convention suggests central narcotics authorities for states not already possessing such bodies, and also state monopolies over narcotics manufacture and traffic.
UNITED STATES AND LATIN AMERICA
Revolution in Chile.—On July 26 President Carlos Ibanez of Chile was forced to resign from office after delivering over the government to Pedro Opazo, President of the Senate and his constitutional successor. The overthrow of the Ibanez government followed a period of increasing financial difficulties and popular discontent in Chile, marked towards the end by student uprisings which were supported by the professional classes and a majority of the civil population. Since his election in 1927 President Ibanez had ruled with an iron hand, banishing political opponents, eradicating the old bureaucratic system, abolishing sinecures in the interests of economy, and embarking on an ambitious program of irrigation, highway construction, and similar projects. The debts contracted abroad, chiefly in the United States, and amounting to about $560,000,000, were a factor in his downfall. In February last the President secured from Congress full power to take all measures of administrative or economic character which he considered necessary, for a period of four months. Shortly before his resignation he declared a moratorium on Chile’s foreign debt, to extend at least until August.
After the resignation of Ibanez and his exit to Argentina, his successor Opazo was also quickly forced out of office and the presidency was taken temporarily by Estiban Cabero, formerly head of the Chilean cabinet.