Beggar No Chooser

There were wines in Paris and headlines in New York, but was the Hoover Holiday in effect last week? Four nations thought so: Germany, Great Britain, Italy and the U. S. Great Britain was most definite. She sent a letter to the Bank for International Settlements to say that Great Britain considered the Plan already in effect as of July 1, would make no further payments, and would claim none of the monies due her July 15.

In Rome Foreign Minister Dino Grandi announced:

''So far as the Italian Government is concerned, the Hoover Plan is already in force."

Old Paul von Hindenburg cabled humbly from his summer home at Neudeck, East Prussia, to President Hoover:

"Since the Paris negotiations have now arrived at a conclusion, and the one-year moratorium proposed by you has begun, I desire to express the thanks of the German people to you and to the American people. . . ."

President Hoover was not so certain. He kept repeating the gist of his formal announcement, that the Holiday had been accepted "in principle by all the important creditor governments."

But France, the country called upon to make the greatest individual sacrifice, was quite certain that the Plan was not in effect last week. Reporters besieging the Quai d'Orsay could find no French statesman willing to be quoted directly, but came away with a fairly definite statement of the official French position:

France it was true had agreed to the moratorium in principle. Great Britain had called an international conference of financial experts for July 17 to settle the final technical details of the Plan. France would send five delegates to that conference. In the meantime she expected to be paid the Young Plan annuities due her from Germany on July 15 ($17,860,000). Last week she punctiliously placed to Great Britain's credit in the Bank for International Settlements the amount ($3.808,000) she would owe Great Britain at the same time (which the British Treasury hastily announced it would not dream of touching).

Hysteria. As the week progressed it became blazingly apparent that whether the Holiday was in effect or not, a moratorium alone would not save Germany from bankruptcy. She needed cash, lots of it, at once. Germany was growing hysterical. Foreign investors were withdrawing money from Germany to the tune of nearly $20,000.000 a day. German citizens remembering all too vividly the black days of inflation in 1923, were putting all their savings in foreign money, francs, pounds, dollars, and they wanted gold. Bank tellers reported that even paper dollars were spurned by the timorous. Wealthy German families were heading for Switzerland. The $100,000,000 emergency credit extended to Germany last month by the Bank of England, the Bank of France, the Federal Reserve Bank and the Bank for International Settlements, was coming due in less than a week.

Luther's Pilgrimage. German private industry did its best to prop the tottering Reichsbank. One thousand firms headed by the great D banks,* the North German Lloyd and Hamburg-American Line, the Siemens & Halske Electric Company and the German Dye Trust underwrote a "Deficit Guaranty" pledging a private credit of $119,000,000 to the Reichsbank. It was not nearly enough. Hans Luther, president of the Reichsbank, his round face deep-lined with anxiety, boarded a private airplane and disappeared into the blue to go from door to door, begging money to save his country.

At Amsterdam the plane swooped down for two hours. Beggar Luther rushed from bank to bank, but no Dutch money was forthcoming. Into the cockpit he popped again and was off to London.

Waiting for him were Foreign Secretary Henderson and Governor Montagu Collet Norman of the Bank of England, who, with his black fedora hat, his romantic pointed beard, looks more like an Italian impresario than an international banker. They were sympathetic. They perfectly realized how important the success of this pilgrimage was not only for Germany but indirectly for Great Britain, but there was nothing they could do! Great Britain's finances were none too stable. In the Hoover Holiday the Government had accepted an immediate net loss of $15,828,000 without counting the remission of debts to indigent Australia and other dependencies. That very morning wizened Chancellor of the Exchequer Snowden had been forced to announce in the House of Commons:

"His Majesty's Government has no intention of agreeing to any measures in connection with giving effect to President Hoover's proposal which would involve any additional loss to the British Exchequer."

The best Mr. Norman could do was promise that the Bank of England might undertake part of another loan if it were undertaken simultaneously by another government bank, in other words the Bank of France. Last week the general public suddenly realized a fact of which international bankers have been increasingly aware for two years. The world's financial whip hand is not in London. It is no longer in New York. It is in Paris. With all the earnestness of which he was capable Gov ernor Norman insisted that France was Germany's only salvation. Wall Street bankers had secretly let it be known that they had nearly reached the bottom of the sock so far as further loans to Germany were concerned. The time had come, Mr. Norman thought, to mollify French public opinion with drastic political concessions: abandonment of the Austro-German Customs Union, suspension of the German naval building program.

Sadly Beggar Luther climbed aboard the boat train to Paris, and Montagu Norman went with him.

Nach Paris. To be forced to beg from France is to demand the ultimate abasement of a German in public life, but round Banker Luther stoically made the gesture last week. Waiting for him were two Frenchmen with the pleased expression of a couple of sleek cats before a fat defenseless mouse: huge broad-shouldered Pierre Etienne Flandin, Minister of Finance, and chunky Clement Moret, Governor of the Bank of France. During the Hoover Holiday negotiations France had not only world opinion but the interests of Britain and the U. S. to consider. Here was a matter that lay solely between herself and Germany; she could talk turkey. Cats Flandin and Moret delivered them selves of an ultimatum, which went in effect as follows:

France realized the necessity for an immediate German loan, and as it happened France had the money to spare. The Government had already committed itself to a policy of reducing France's enormous gold reserves by well-secured foreign loans. On the very day that Dr. Luther arrived in Paris Minister of the Budget Francois Pietri was able to report in the Chamber of Deputies a treasury surplus for the month of June. BUT French public opinion would never consent to a loan of $300,000,000 such as Dr. Luther asked unless Germany ''oriented itself definitely toward a policy of democracy and pacifism," and agreed to the following conditions: 1) Abandonment of the Customs Union between Germany and Austria. 2) Abandonment of the second "pocket battleship" in Germany's naval program. 3) Adoption of sharper credit restrictions within Germany and official measures to halt the flight of capital abroad. 4) Immediate dissolution of such disturbing nationalist organizations as the Stahlhelm league of War veterans, whose mass meeting in Breslau month ago caused shiverings in the French Press.

Dr. Luther is president of the Reichsbank and nothing more. Even had he wanted to he could not have accepted this political ultimatum. All afternoon, all evening he rushed from conference to conference missing one train after another back to Berlin. Louis Franck, President of the National Bank of Belgium, rushed down from Brussels to put in his oar. Finally at ten the next morning Beggar Luther boarded a plane at Le Bourget and flew back to Germany.

Rumors. All over the world editors stayed close to their telegraph desks. Not since those days of July 1914 when the World War was brewing have potent rumors been so thick.

While tickers spluttered with stories that the Bruening Government and Old Paul von Hindenburg himself were on the verge of resigning rather than accede to "French Blackmail," the German Cabinet had an all-night meeting and decided to refuse the French offer. The second pocket battleship had been ordered to pacify jingoes in the Army and Navy, keep them from deserting to Adolf Hitler's brown shirts. They dared not give it up. President von Hindenburg was an honorary member of the Stahlhelm. To order its dissolution would be an insult to the na tion's hero, might be the spark to set off a Fascist revolution.

French Gesture. French statesmen, learning that their offer had been refused, played a shrewd game. One and all calmly deserted Paris for the three-day Bastille Day holiday. Minister of Finance Flandin ran down to join his family at a Brittany beach. Brer Briand filled a can with worms at his Cocherel farm and went fishing. Premier Laval packed his bag and went down to the country. The Press, loyal sounding-board of French politicians, bluntly announced that France had made a generous offer, it had been refused. Let Germany take care of herself.

Sunday afternoon German Ambassador Dr. Leopold von Hoesch telephoned wildly for an interview with Premier Laval. Premier Laval, having made his gesture, came back to town; so did sleepy-eyed Brer Briand. Hysterically Ambassador von Hoesch begged the Premier to reconsider. Did he really intend to bring about a revolution in Germany--on France's doorstep? Had he considered the possible consequences? Premier Laval was polite. He had considered. . . . Mais non. Without political guarantees from Germany, there was nothing more he could do. Ambassador von Hoesch left and Premier Laval had another, slightly sinister interview with two other gentlemen: Marshals Petain and Lyautey, commanders of the French Army.

Sleepless Sackett. Back in Berlin the Cabinet sat conferring all night long. U. S. Ambassador Frederic M. Sackett cabled to Washington. Germany was making a last-minute appeal to the Federal Reserve Board for funds. Unless an immediate credit of $300,000.000 was forthcoming collapse was unavoidable. Germany had a potent threat to hold over the heads of Reserve Board Members. The Cabinet was seriously discussing the advisability of declaring a moratorium on all private debts. U. S. investments in Germany since the War total $3.000,000,000. Am- bassador Sackett stayed up all Sunday night waiting to be helpful.

Sunday in Wall Street. Through silent, Sunday-deserted Wall Street went the motors of potent men to the Italian castle of the Federal Reserve Bank of New York. George L. Harrison, Governor of the Bank, had called an emergency meeting, Acting Secretary of the Treasury-Mills had come over from Washington. They called in Owen D. Young, expert, then Morgan Partner S. Parker Gilbert, expert. Governor Eugene Meyer of the Federal Reserve Board was handy at his home in Mount Kisco if needed. No statement was given out during the Wall Street meeting, but reporters hazarded that the questions being put to Messrs. Young & Gilbert were: Would $300,000,000 really be enough to avert calamity? Would the Reserve Board be throwing this money into a ship already doomed?

Washington was none too sure. Acting Secretary of State Castle came in from the Rapidan Sunday evening and announced that Germany's salvation was up to the world's banks to settle privately. The Government was exerting no pressure whatsoever. In New York, Mr. Mills said the same, reminding the world that the Hoover Holiday already had thrown $400,000,000 to Germany. By nightfall the best that the Federal Reserve Bank of New York could do was make an offer like London's: to share in another loan originating in some other central bank of issue. In other words it was still up to France.

Danat. Next morning the storm broke. Danat, the Darmstaedter and National bank, smallest of the three D Banks, failed to open its doors. Hysterical investors started runs on the others. To ward off complete calamity Old Paul von Hindenburg authorized the Government to close all German stock exchanges and banks for two days. Beggar Luther, still dizzy from traveling, climbed into his airplane again and rushed off to Basle to beg again from the Bank for International Settlements.

Paris for the first time began to feel that they might have overstepped the mark, suddenly saw the red shadow of Russia athwart the German map. Was there the wildest possibility that Germany might borrow from Russia? If German Communists seized the Reich would they ally themselves with Moscow? Might the Red Army soon be on the Rhine? Le Figaro recalled the German-Russian Treaty of Rapallo, and added: "A new consecration, and no doubt a strengthened one has occurred between Russia and Germany at the moment when with tears in its voice the Reich is imploring us to be generous. . . ."

Breathing Spell, Immediately upon landing at Basle, Dr. Luther was ushered into the rich halls where the chiefs of central banks and U. S. executives waited. His step was firm, but his face deeply lined. Just what Beggar Luther said, remained behind the closed doors of the conference room. But at the end of twelve anxious hours, the word was issued:

The B. I. S. would stand for a three months renewal of its quarter share of the $100,000.000 credit which would have fallen due last week. Clear was the implication that France, Great Britain and the U. S. would join in the extension. Beyond that, the B. I. S. offered sanguine, if somewhat vague, promises to "collaborate fully" with the various governments in the rehabilitation of Germany's markets.

Dr. Luther let it be known that he had received "favorable answers" from Washington, Paris, London and Rome to his appeals for aid. For its part, Germany was taking three measures toward self-preservation: 1) restriction of credit within the Reich; 2) closing the Boerses and thereby checking foreign withdrawals of capital--a sort of moratorium which might be maintained for weeks if necessary, until the "collaboration of governments" is effected; and 3) the guarantee of foreign depositors in German banks.

In London expert opinion was that only a loan of whopping proportions would do Germany any real good. In Washington, the $100,000,000 extension was viewed only as a starting point.

State Capitalism. While the world was waiting for the U. S. reply an even more startling rumor came over the wires. In an effort to avert revolution, the Cabinet was seriously considering abandoning the principle of private capitalism, and substituting for it a system of state capitalism in which the Government would take control of all private industries, banks, shipping, trade, to straighten out the nation's finances. This would be arriving at practical Communism by the shortest cut possible. Moscow jubilated, hailed the beginning of the world revolution.

Gloomy Schacht, U. S. readers learned last week that fears for the capitalist system were not merely scareheads but shared by some of Europe's ablest financiers. Hjalmar Schacht, stubborn president of the Reichsbank through the Young Plan negotiations, had published in the U. S. last week a book on the Reparations problem.* Excerpts:

"The War released veritable orgies of naked lust for material conquest. . . . To squeeze more and more billions out of an impoverished people which has already been robbed of the economic basis of its existence is not only idiotically destructive of economic life but it conjures up more serious social dangers. . . .

"World trade has been receding ever since the Young conference. Some 15,000,000 of unemployed are being supported by their fellowmen, feeding on the financial and economic reserves of the industrial countries. . . . Never was the incapacity of the economic leaders of the capitalist world so glaringly demonstrated as today. ... A capitalism which cannot feed the workers of the world has no right to exist. The guilt of the capitalist system lies in its alliance with the violent policies of imperialism and militarism. . . . The ruling classes of the world today have as completely failed in political leadership as in economic."

When suave, bearded Montagu Norman arrived in Paris last week, newshawks discovered that only a few months ago he had written in a private letter to Governor Moret of the Bank of France:

"Unless drastic measures are taken to save it, the capitalist system throughout the civilized world will be wrecked within a year. I should like this prediction to be filed for future reference."

*Deutsche Bank und Disconto-Gesellschaft, Darmstadter und Nationalbank, Dresdncr Bank.

*THE END OF REPARATIONS--Hjalmar Schacht --Cape & Smith ($3).

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