FINANCE—PUBLIC AND PRIVATE.
THE INDEMNITY PROPOSALS.
(To THE EDITOR Or THE " SPECTATOE...] Sue,—Not the least striking circumstance arising out of the experiences of the Great War has been the enlighten- ment which it has brought to many economic problems, and especially perhaps to those which may be described as peculiarly international in character. The war itself taught us many things with regard to the extent to which foreign exchanges had been governed by the interchange between nations of goods and services ; and to-day it looks as though the attempt to settle up the costs of the war was also bringing with it a good deal of heart-searching with regard to the precise advantage reaped by a creditor nation whose exchange may stand in an abnormally favour- able position when compared with the countries immedi- ately indebted to it. Thus in the case of the United States there is evidently a growing uneasiness with regard to the appreciation of the dollar, simply because exporters are finding that trade is checked through the unwillingness, or inability, of foreign countries to continue their pur- chases of goods on the old scale. Similarly, in this country, our trade depression is connected in no small degree with the impecunious state of so many of the countries of Europe, coupled with the fact that their depreciated currencies and exchanges make it wellnigh impossible for them to continue their purchases from this country.
These considerations have recsived fresh stimulus during this week by the publication of the proposed terms of the Allies to Germany with regard to indemnity, or reparation, payments, and at the present moment the whole subject is being actively discussed in financial circles: I want therefore, if I can, to deal not with the question of the equity or otherwise of the demands made by the Allies upon Germany, but simply with the actual effect which is likely to be produced upon the general financial well-being of Europe by those demands, supposing for the moment that Germany were to comply with them.
The general terms of the indemnity have been recited in so many quarters that it is unnecessary I should repeat them in detail. Briefly, the proposal is for annuities extending over some forty-two years, beginning with £100,000,000 annually and culminating in payments of £.200.000,000 annually, making a total of over £11,000,000,000, added to which an ad valorem tax on German exports, estimated to yield something like £50,000,000 annually, is proposed.
Naturally enough, business men are inclined to be a little sceptical about the fulfilment of any undertaking extending over so prolonged a period, but here again I am not con- cerned with the probabilities of the fulfilment of the undertaking, but with the possible effects presuming the arrangement were carried through to its final conclusions ; and although the matter is complex, the City has, I think, already formed one or two definite conclusions of which I will give you the gist. In the mass of criticism which has already appeared concerning these indemnity proposals your readers must have already observed two quite distinct views. One line of argument is to the effect not merely that the proposals are inequitable, but that they are impossible of fulfilment, and that in particular the impo- sition of an ad valorem tax on Germany's exports, when it is clear that she can only make her payments through exporting goods and services, is in itself calculated to strangle German industry and make it impossible for her to fulfil the requirements of the Allies. Yet, curiously enough, the other line of criticism is in the direction not so much of demonstrating that Germany cannot pay as of asserting that the terms spell economic ruin to the recipients because of the enormous stimulus given to German exports. Germany, it is maintained (if she accepts the terms in the spirit and in the letter), must produce at such cheap rates and her wage-earners must be content with such simple standards of living as would make her a successful competitor in all markets, with the result that unemployment hero would be on an unprecedented scale and our export trade would suffer a diminution far exceed- ing any advantage we could possibly derive from our share in the German indemnity. Indeed, so far is this line of i argument pushed that one might almost imagine sometimes that the larger the indemnity the more Germany might (if she took a long view of the situation) consider herself in luck's way in everything which pertained to her indus- trial future ! The fact, however, that Germany is not disposed to take that view of the matter may perhaps in itself suggest that, although containing a certain amount of truth, the view is a somewhat exaggerated one.
There is, however, some truth in the argument, and the point is an interesting and suggestive one. More than ever we are coming to see that international indebted- ness can only be discharged through an export of goods and services; and that being the case, it would seem that one of the greatest difficulties of the moment is to see how the recent belligerent nations may be able to adjust their external indebtedness by an export of goods and services without creating a kind of economic and social revolution of a world-wide character. Nor in this connexion must it be forgotten that Germany is not the only country which has to meet a great external liability through exporting its goods and services. We owe the United States roughly £1,000,000,000, while the total amount of the indebtedness of our Allies to us is about £1,800,000,000, of which about 2500,000,000 represents the amount due to us from France, and £455,000,000 due to us from Italy. Moreover, France and Italy and some of the other devastated countries also owe very important sums to the United States ; and there- fore if it be true that Germany's indebtedness constitutes, as it were, a menace to her creditors as well as to herself, then in varying degree the same truth is applicable in many other directions. In fact, arising out of these chaotic conditions, a thought is already emerging to the effect that matters might be simplified if between some of the countries a kind of mutual forgiveness were to take place. This, however, is a suggestion which business men feel must necessarily come from America rather than ourselves, because Washington is not likely to overlook the fact that while the devastated countries of Europe may be unable to repay their external indebtedness for a considerable period, America has a good prospect of obtaining something from Great Britain at a much earlier date. All the same, it is in the presence of these heavy external debts of France and other belligerent countries in Europe that business men see daylight with regard to the working out of the payment of the German indemnity. Granted for the moment the difficulties which may attend any stimulation of German exports, there is a still graver difficulty of an immediate character—namely, the impover- ished condition of Europe, and the inability of many countries, including France itself, to restart their industries without considerable credits. Germany, it must be remembered, is not a devastated country, and at the moment when she is whining at the demands imposed upon her it is well to remember that while she has destroyed factories and large productive areas in France, her own factories and workshops are untouched. Therefore, if it be true (and it is) that one of the first essentials is to get the foreign exchanges into a more normal condition, it is necessary that France and other devastated countries should be able to set their production machineries in motion at the earliest possible moment. Consequently there is felt to be a good deal in the suggestion that Germany should immediately hand over the first year or two's instal- ments in the shape of German bonds, carrying a first charge over every kind of German asset, such bonds constituting valuable collateral for France and the other devastated countries to use when endeavouring to obtain credits in America or here for the import of greatly needed machinery and commodities. When these impecunious countries can be restarted in their industrial activities we shall have once more set in motion forces making for the creation of new wealth ; and if, as is probable, the conditions in these afflicted countries mean that the standard, of living will be simple and labour for a time will be cheap, until the financial losses of the war have been recovered, those conditions would seem to be in accordance with natural laws themselves, the operation of which we have been too much inclined in this country to ignore. In other words, while not overlooking the dangers which may lurk in aggresaive German competition, the City is , inclined to lay first stress upon the immediate neoessities of some of the European nations which can in some measure be relieved by German indemnities. As to whether; when more normal conditions have been restored, the full penalty extending over half a century should or could be exacted the City reserves- judgment. Business men, however, are• tired of interminable indemnity conferences and want to see some immediate payments that shall relieve the indus- trial and economic situation, which in some cases is becoming
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