FINANCE-PUBLIC & PRIVATE.
[By OUR CITY EDITOR.]
THE GERMAN LOAN.
[To the Editor of the SPECTATOR.] SIR,—Not for the first time finance is proving to be the crucial point even in a political crisis. In the years 1914 to 1918 the problem was as to which of the belli- gerents would be able to finance the War to a finish.. Inasmuch, however, as patriotism was invoked in the respective countries, the power forimancing the conflict either through the spending of actual resources or the mortgaging. of future resources by credit expansion seemed to be almost inexhaustible. In many respects, however, the financing of peace has proved to be even more difficult. In the first place, we have had to contend with the after results of credit and currency inflation during the War, and, in the second place, the partial resumption of the operations of international finance and trade, suspended during the War, has involved additional strain. Moreover, when , it comes to the raising of anything like an international loan, such as that which is now proposed, to carry out the pro- visions of the Dawes Report, it will be seen that not only is the patriotic stimuli's lacking, but it is rather a case of international jealousies and mistrust impeding the operation. During the past fortnight, it may fairly be said that the proposals for raising a German loan for £40,000,000, to make possible the carrying out of the Dawes Report, have proved to be the acid test with regard to the settlement of the reparation crisis along the lines of acceptance of the recommendations contained in the Dawes Report. The problem has had, in fact, to be approached from the standpoint of possible subscribers to a German loan. Whether it was a question of the French evacuating the Ruhr, or whether under certain events they should have the right to re-enter the Ruhr, or whether it was a question of the priority of the proposed loan as a mortgage. over all German assets, to come in front even of reparation claims, the deter- mining factor was the attitude of prospective applicants for the loan. Within the last week it has been increas- ingly apparent that no German loan was possible that did not give the bondholders an- absolute first claim over all other creditors. Indeed, the active discussion of the proposals within the last day or two has also produced a general expression of opinion in the City that, even given the willing assent of Germany to the Dawes Report recommendations, and the surrender by the Allies of their first claim as reparation creditors on German assets, it might still be impossible to float a £40,000,000 German loan which ultimately depended for its security upon Germany's good faith.
Once again, therefore, it has been a case of these finan- cial considerations acting as a stimulus to the idea that nothing but an international guarantee of some portion of the interest and principal is likely to render possible a response on the par* of American, British and other investors to a German Loan. Nor is the City dis- posed to be over-critical of this suggestion, for it is per- ceived that the situation is one where there may easily be no alternative between such guarantee, and allowing the whole situation to slip back again into political and financial chaos. Inasmuch as the reconstruction of Germany is obviously in the interests of Germany's European creditors, it seems unlikely that the American Government would come into any question of guarantee, but, on the other band, given the guarantee of Great. Britain, France and the other Allies, and, of course, the guarantee of Germany herself, it is probable that America might subscribe a considerable amount to the Loan. Nor perhaps in relation to other risks which have to be run would the proportionate risk entailed by each nation in the matter of guaranteeing a German Loan be very great. It would certainly seem to be essential, however, that the propdltion of the guarantee given by each country should be in relation to its share in the reparation claims rather than in proportion to the amount of the loan actually taken. Otherwise, it will be seen that Britain, which is entitled to a comparatively small share in reparation payments, and, yet which may be called upon to take the greater proportion of the Loan,will be heavily penalized. It must not be supposed that financial opinion is univer- sally in favour of the suggested international guarantee, but the average ' City man looking at the problem in practical fashion is inclined to come to the conclusion that, by a logical sequence, the guarantee becomes almost inevitable if it is decided to reconstruct Germany in accordance with the recommendations of the Dawes Report. To make the working out of that Report feasible, a Loan is necessary. To make the Loan a possibility, either the respective Goveinments have to advance the money direct or the Loan has to be presented in a form to make it acceptable to the genuine investor. And to make it acceptable to the genuine investor there must be adequate security. Rightly or wrongly, it is felt that such security is only possible through some kind of international guarantee.—I am, Sir, Yours faithfully,
City, July 30th.
- ARTHUR W. KIDDY.
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