4.—REGULATING INTER-ALLIED DEBTS, GERMANY'S INDEMNITY AND THAT OF THE DEFEATED COUNTRIES
These two problems are closely connected.
The victorious countries demand an indemnity from the conquered countries which, except Germany, who has a great productive force even in her hour of difficulties, are in extreme depression and misery.
Great Britain is in debt to the United States, and France, Italy and minor nations are in their turn heavy debtors to the Americans and to Great Britain.
The experience of the last three years has shown that, even with the best will, none of the countries owing money to the Entente has been able to pay its debts or even the interest. With an effort Great Britain could pay; France and Italy will never be able to, and have, moreover, exchanges which constitute a real menace for the future of each.
The fact that France and Italy, although they came out of the war victoriously, have not been able to pay their debts or even the interest on them is the proof that Germany, whose best resources have been taken away from her, can only pay an indemnity very different from the fantastic figures put forward at the time of the Conference of Paris, when even important political men spoke of monstrous and ridiculous indemnities.
The problem of the inter-allied debts, as well as that of the indemnity, will be solved by a certain sacrifice on the part of all who participated in the War.
The credits of the United States amount to almost 48 milliards of lire or francs at par, and the credits of Great Britain to 44 milliards. Great Britain owes about 21 milliards to the United States and is in turn creditor for some 44 milliards. She has a bad debt owing from Russia for more than 14 milliards, but 13 milliards are owing from France, about 12 milliards from Italy, and almost 2-1/2 milliards from Belgium. That is to say, that Great Britain could well pay her debt to the United States, ceding the greater part of her credits towards France and Italy.
But the truth is that, while on the subject of the German indemnities, stolid illusions continue to be propagated (perhaps now with greater discretion), neither France nor Italy is in a position to pay its debts.
The most honest solution, which, intelligently enough, J.M. Keynes has seen from the first, is that each of the inter-allied countries should renounce its state credits towards countries that were allies or associates during the War. The United States of America are creditors only; Great Britain has lent the double of what she has borrowed. France has received on loan the triple of what she has lent to others.
The credits of France are for almost two-thirds undemandable credits of Great Britain; more than 14 milliards being with Russia, they are for considerably more than one-third bad debts.
France and Italy would be benefited chiefly by this provision. Great
Britain would scarcely either benefit or lose, or, rather, the benefit
accruing to her would be less in so much as her chief credits are to
Russia.
The United States would doubtless have to bear the largest burden. But when one thinks of the small sacrifice which the United States has made in comparison with the efforts of France and Italy (and Italy was not obliged to enter the War), the new sacrifice demanded does not seem excessive.
During the War the United States of America, who for three years furnished food, provisions and arms to the countries of the Entente, have absorbed the greater part of their available resources. Not only are the States of Europe debtors, but so are especially the private citizens who have contracted debts during or after the War. Great Britain during the War had to sell at least 25 milliards of her foreign values. The United States of America, on the contrary, have immensely increased their reserves.
But this very increase is harmful to them, inasmuch as the capacity for exchange of the States of Europe has been much reduced. The United States now risk seeing still further reduced, if not destroyed, this purchasing capacity of their best clients; and this finally constitutes for the U.S.A. infinitely greater damage than the renouncing of all their credits.
To reconstruct Germany, to intensify exchange of goods with the old countries of Austria-Hungary and Russia, to settle the situation of the exchange of goods with Italy and the Balkan countries is much more important for the United States and the prosperity of its people than to demand payment or not demand payment of those debts made for the common cause.
I will speak of the absurd situation which has come about. Czeko-Slovakia and Poland unwillingly indeed fought against the Entente, which has raised them to free and autonomous States; and not only have they no debts to pay, being now in the position of conquerors, or at least allies of the conquerors, but they have, in fact, scarcely any foreign debts.
The existence of enormous War debts is, then, everywhere a menace to financial stability. No one is anxious to repudiate his debts in order not to suffer in loss of dignity, but almost all know that they cannot pay. The end of the War, as Keynes has justly written, has brought about that all owe immense sums of money to one another. The holders of loan stock in every country are creditors for vast sums towards the State, and the State, in its turn, is creditor for enormous sums towards the taxpayers. The whole situation is highly artificial and irritating. We shall be unable to move unless we succeed in freeing ourselves from this chain of paper.
The work of reconstruction can begin by annulling the inter-allied debts.
If it is not thought desirable to proceed at once to annulment, there remains only the solution of including them in the indemnity which Germany must pay in the measure of 20 per cent., allocating a certain proportion to each country which has made loans to allied and associated governments on account of the War. In round figures the inter-allied loans come to 100 milliards. They can be reduced to 20, and then each creditor can renounce his respective credit towards allies or associates and participate proportionately in the new credit towards Germany. Such a credit, bearing no interest, could only be demanded after the payment of all the other indemnities, and would be considered in the complete total of the indemnities.
All the illusions concerning the indemnities are now fated to disappear. They have already vanished for the other countries; they are about to vanish in the case of Germany.
Nevertheless it is right that Germany should pay an indemnity. Yet, if the conquerors cannot meet their foreign debts, how can the vanquished clear the vast indemnity asked? Each passing day demonstrates more clearly the misunderstanding of the indemnity. The non-experts have not learned financial technics, but common sense tells them that the golden nimbus which has been trailed before their eyes is only a thick cloud of smoke that is slowly dissipating.
I have already said that the real damages to repair do not exceed 40 milliards of gold marks and that all the other figures are pure exaggerations.
If it be agreed that Germany accept 20 per cent. of the inter-allied debt, the indemnity may be raised to 60 milliards of francs at par, to be paid in gold marks.
But we must calculate for Germany's benefit all that she has already given in immediate marketable wealth. Apart from her colonies, Germany has given up all her mercantile marine fleet, her submarine cables, much railway material and war material, government property in ceded territory without any diminution of the amount of public debts, etc. Without taking account, then, of the colonies and her magnificent commercial organization abroad, Germany has parted with at least 20 milliards. If we were to calculate what Germany has ceded with the same criteria with which the conquering countries have calculated their losses, we should arrive at figures much surpassing these. We may agree in taxing Germany with an indemnity equivalent in gold marks to 60 milliards of francs at par—an indemnity to be paid in the following manner:
(a) Twenty milliards of francs to be considered as already paid in consideration of all that Germany has ceded in consequence of the treaties.
(b) Twenty milliards from the indemnity which Germany must pay to her conquerors, especially in coal and other materials, according to the proportions already established.
(c) Twenty milliards—after the payment of the debts in the second category to be taken over by Germany—as part of the reimbursement for countries which have made credits to the belligerents of the Entente: that is, the United States, Great Britain and France, in proportion to the sums lent.
In what material can Germany pay 20 milliards in a few years? Especially in coal and in material for repairing the devastated territories of France. Germany must pledge herself for ten years to consign to France a quantity of coal at least equal in bulk to the difference between the annual production before the War in the mines of the north and in the Pas de Calais and the production of the mines in the same area during the next ten years. She must also furnish Italy—who, after the heavy losses sustained, has not the possibility of effecting exchanges—a quantity of coal that will represent three-quarters of the figures settled upon in the Treaty of Versailles. We can compel Germany to give to the Allies for ten years, in extinction of their credits, at least 500 millions a year in gold, with privileges on the customs receipts.
This systematization, which can only be imposed by the free agreement of the United States and Great Britain, would have the effect of creating excellent relations. The United States, cancelling their, in great part, impossible debt, would derive the advantage of developing their trade and industry, and thus be able to guarantee credits for private individuals in Europe. It would also be of advantage to Great Britain, who would lose nothing. Great Britain has about an equal number of debits and credits, with this difference, that the debits are secured, while the credits are, in part, unsecured. France's credits are proportionately the worst and her debits largest, almost 27 milliards. France, liberated from her debt, and in a position to calculate on a coal situation comparable with that of before the War and with her new territories, would be in a position to re-establish herself. The cancellation of 27 milliards of debt, a proportionate share in 20 milliards, together with all that she has had, represent on the whole a sum that perhaps exceeds 50 milliards. Italy would have the advantage of possessing for ten years the minimum of coal necessary to her existence, and would be liberated from her foreign debt, which amounts to much more than she can possibly hope for from the indemnity.
Such an arrangement, or one like it, is the only way calculated to allow Europe to set out again on the path of civilization and to re-establish slowly that economic equilibrium which the War has destroyed with enormous damage for the conquerors and the certain ruin of the vanquished.
But, before speaking of any indemnity, the Reparations Commission must be abolished and its functions handed over to the League of Nations, while all the useless controls and other hateful vexations must be put an end to.
While the Allied troops' occupation of the Rhine costs Germany 25 milliards of paper marks a year, it is foolish to speak of reconstruction or indemnity. Either all occupation must cease or the expenses ought not to exceed, according to the foregoing agreements, a maximum of 80 millions at par, or even less.
We shall, however, never arrive at such an arrangement until the
Continental countries become convinced of two things: first, that the
United States will grant no credits under any formula; secondly, that
Germany, under the present system, will be unable to pay anything and
will collapse, dragging down to ruin her conquerors.
Among many uncertainties these two convictions become ever clearer.
If in all countries the spirit of insubordination among the working classes is increasing, the state of mind of the German operatives is quite remarkable. The workmen almost everywhere, in face of the enormous fortunes which the War has created and by reason of the spirit of violence working in them, have worked with bad spirit after the War because they have thought that a portion of their labour has gone to form the profits of the industrials. It is useless to say that we are dealing here with an absurd and dangerous conception, because the profit of the capitalist is a necessary element of production, and because production along communist lines, wherever it has been attempted, has brought ruin and misery. But it is useless to deny that such a situation exists, together with the state of mind which it implies. We can well imagine, then, the conditions in which Germany and the vanquished countries find themselves. The workmen, who in France, England and Italy exhibit in various degree and measure a state of intractability, in Germany have to face a situation still graver. When they work they know that a portion of their labour is destined to go to the victors, another part to the capitalist, and finally there will remain something for them. Add to this that in all the beaten countries hunger is widespread, with a consequent diminution of energy and work.
No reasonable person can explain how humanity can continue to believe in the perpetuation of a similar state of things for another forty years.
In speaking of the indemnity which Germany can pay, it is necessary to consider this special state of mind of the operatives and other categories of producers.
But the mere announcement of the settling of the indemnity, of the immediate admission of the vanquished nations into the League of Nations, of the settling the question of the occupation of the Rhine, and of the firm intention to modify the constitution of the League of Nations, according it the powers now held by the Reparations Commission, will improve at once the market and signalize a definite and assured revival.
The United States made a great financial effort to assist their associates, and in their own interests, as well as for those of Europe, they would have done badly to have continued with such assistance. When the means provided by America come to be employed to keep going the anarchy of central Europe, Rumania's disorder, Greece's adventures and Poland's violences, together with Denikin's and Wrangel's restoration attempts, it is better that all help should cease. In fact, Europe has begun to reason a little better than her governments since the financial difficulties have increased.
The fall of the mark and Germany's profound economic depression have already destroyed a great part of the illusions on the subject of the indemnity, and the figures with which for three years the public has been humbugged no longer convince anyone.