Debts & Darkness

Like worried engineers going out once more to shore up great crumbling bastions, eminent international bankers assembled in Basle last week to tackle again the interminable problem of German Reparations and Germany's capacity-to-pay.

Things started with a rush when Dr. Carl Joseph Melchior of Hamburg, partner of the German Warburgs, handed out a voluminous memorandum to show that no matter what happens after the Hoover Moratorium, Germany can never again pay Reparations under the stiff schedules laid down by the Young Plan. He had figures to show that the Albert Henry Wiggin Report of last August underestimated Germany's foreign debts by nearly a billion dollars. He admitted that Germany had at the present moment a favorable trade balance of about $83,000,000 a month, but it could not last. German exports are bound to fall because of competition from Great Britain and other countries off the gold standard, the raising of new tariff walls, the scarcity of fresh foreign credits. Most of Dr. Melchior's figures were substantiated by U. S. Delegate Walter W. Stewart, board chairman of Case, Pomeroy & Co., U. S. adviser to the Bank of England.

A general understanding that such a situation existed was what brought the delegates to the Bank for International Settlements. This time the problem of how much Germany can pay had a slightly different angle. The problem this time was not Reparations v. War Debts (to the U. S.) but Reparations v. Private Debts, specifically the enormous short-term loans which U. S., British and other bankers have made to Germany, loans which are at present frozen under the "stillstand" agreement made by the Wiggin committee last August (TIME, Aug. 31).

Even before the B. I. S. conference met last week, Premier Laval in Paris had bluntly stated the French position: France would never allow Germany's private debts to come ahead of Reparations. Revision of Reparations could only be accompanied by a corresponding reduction in War debts (TIME, Dec. 7). Faced with Dr. Melchior's gloomy figures in Basle, French Delegate Charles Rist did his best to defend the Laval position by stating that, even if the Melchior figures were correct, they merely proved that business in Germany was so uncertain that now was no time to decide on Germany's capacity-to-pay.

The Basle committee was in a dilemma. If they admitted the correctness of the Melchior statement they would give Germany an opening to prove that the country cannot even pay its private debts. If they admitted that the Melchior figures were exaggerated, France would almost certainly become uncompromising on Reparations payments.

In Berlin, Banker Albert Henry Wiggin led another group of eminent bankers in a conference to consider resumption of payment of short-term borrowings. Everyone looked extremely serious; nobody had anything to say for publication. Faced with a direct question on what the Berlin conference's position would be if Germany must default either on her Reparations or her private debts, their only answer was that Germany has not yet defaulted on anything, that the conference was not assuming that she would default.

Britain was the gloomiest, believing that if Germany should default on her private debts to, Britain, all the efforts of the National Government to save British industry would come to nothing. In Cape Town former Premier General Jan Christiaan Smuts blurted out:

"If Germany defaults on her War debt payments, Great Britain will follow sooner or later. . . . The time has come to end this dangerous farce. If we don't end it we may have social upheavals in which, more than Reparations and international debts may go by the board."

A Job for lamentation last week was famed British Economist Sir George Paish, Governor of the London School of Economics, member of the British financial mission to the U. S. in 1914. Like U. S. Economist Roger Ward Babson who foretold the 1929 Wall Street crash, Sir George is respectfully heeded in Wall Street because in November 1914 he said: "During the War the United States will have great prosperity. Your misfortunes will come later."

Last week he made bankers' flesh creep by announcing in a Manchester address:

"If my information is correct, and I think it is, nothing can prevent a complete world breakdown within the next two months. . . . Reparations should be abolished. . . . Interallied debts should be written off entirely. . . . The world's tariffs must come down. The gravest consequences are likely to arise from our own departure in the matter of tariffs. Great Britain is making world bankruptcy inevitable."

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