"The three important questions still in dispute, as mentioned above, are the following:
"(1) The German Government's responsibility for American lives lost in the torpedoing of British Ships.
"(2) The responsibility for the payment of compensation for the American lives so lost.
"(3) The American demand that all merchant ships should be warned by our submarines before being attacked.
"This demand was at first so worded as to imply that submarines, like other warships, had only the right of search.
"The Government, realizing that we could not make concessions on the above three points, had to be content with our admission that the case of the Arabic should be regarded as exceptional. This very fast rendered it impossible to reach a similar settlement in the case of the Lusitania, in which no error on the part of the submarine commander concerned could be adduced. However, the Government seemed to be only too satisfied to have come so well out of their difficulties, and have no wish to raise any further obstacles because of the Lusitania incident. This matter, as I have already had the honor to report, may now well be left to drag on indefinitely, and can be referred in the end to the Hague Tribunal after the war. Our Press should, therefore, be warned that further discussion of the controversy between Germany and America over the submarine campaign is undesirable."
(3) Cipher
"Cedarhurst, October 20th, 1915.
"Your Excellency's last wireless requested me to render a report on the settlement of the Arabic question. I have already complied with these instructions, and the documents are now on their way to you, and should have reached you. However, it may be advisable to explain briefly the more important points of the matter.
"From the date of the sinking of the Lusitania, America has always been on the verge of breaking off diplomatic relations with us. The German people, I am convinced, have no idea of the full danger of the situation, at least, if one may judge from our Press. On two occasions we were compelled to sacrifice individuals in order to avoid a breach, Dernburg and Dumba being our scapegoats. Their mistakes would under normal circumstances have been overlooked, but their removal was at the time necessary in order to give the American Government the opportunity of showing its strength without breaking off diplomatic relations with us.