never exchanged but we received a payment under it of $14,725,154.40 in January, 1925. The agreement was superseded by the so-called Paris agreement of January 14, 1925, which also covered awards of the Mixed Claims Commission. This latter agreement was concluded at a meeting of representatives of the creditor powers, including the United States, called for the purpose of making distribution of the annuities provided for under the terms of the Dawes plan, which had been adopted in 1924. the United States was to receive on account of its Army costs, beginning SepUnder the provisions of the Paris agreement tember 1, 1926, the sum of 55,000,000 gold marks, or about $13,100,000 per annum, which payments were to constitute a first charge on cash made available for transfer by the transfer committee out of the Dawes annuities after the provision of the sums necessary for the service of the 800,000,000 gold mark German external loan of 1924 and for the costs of the reparation and other commissions. Under the provisions of the Wadsworth agreement our Army costs should have been liquidated by the end of 1935. Under the Paris agreement the payments would extend over a period of about 18 years, beginning September 1, 1926. Up to the first of September, 1929, the United States had received on Army cost account $39,203,725.89 under the Paris agreement. As of September 1, 1929, there was still due on account of Army costs $193,936,765.20. MIXED CLAIMS By virtue of an agreement entered into on August 10, 1922, by the United States and Germany, there was set up a Mixed Claims Commission charged with the duty of passing upon the claims of American citizens arising since July 31, 1914, in respect of damage to or seizure of their property, rights, and interets, and upon any other claims for loss or damage to which the United States or its nationals have been subject with respect to injuries to persons or to property, rights and interests since July 31, 1914, as a consequence of the war, and including debts owing to American citizens by the German Government or by German nationals. The first meeting of the commission was held on October 9, 1922. Up to August 31, 1929, awards had been certified to the Treasury for payment which with interest to August 31, 1929, aggregated $172,703,083.71. It is estimated as of August 31, 1929, that the principal amount of awards yet to be entered and certified together with interest to that date, amount to $53,000,000, and in addition awards to the United States Government with interest to August 31, 1929, amount to $64,934,794.41. In other words, as of August 31, 1929, it is estimated that the total awards of the Mixed Claims Commission made and to be made aggregated with interest $290,637,878.12. No provision for the payment of awards of the Mixed Claims Commission was made until the Paris agreement of January 14, 1925. The Paris agreement provided that the United States should receive 24 per cent of all receipts from Germany on account of the Dawes annuities available for distribution as reparations, provided that the annuity resulting from this percentage should not in any year exceed the sum of 45,000,000 gold marks. Up to September 1, 1929, the United States had received from Germany under the Paris agreement for account of mixed claims, $31,831,472.03, which with earnings and profits on investments amounting to $2,149,692.70, made available for distribution $33,981,164.73, and left $256,656,713.39 still to be provided for. connection that the figures relating to the total amount finally awarded by the It must be understood in this Mixed Claims Commission is necessarily only an estimate, since all of the awards have not as yet been made. In the meanwhile, the Congress in March, 1928, enacted what is known as the settlement of war claims act of 1928. You gentlemen are too familiar with that act to make it necessary for me to describe it in detail. Suffice it to say that it made provision for the order of priority in which mixed claims should be paid, for the retention of part of the German property held by the Alien Property Custodian and part of the funds to be received on account of awards made by the arbiter to German nationals until a certain percentage of the American claims had been paid, and then for the ultimate return of the German property and funds to their owners. on claims until their final liquidation. Any estimate of the total amount due The act also covered the rate of interest to accrue from Germany on account of mixed claims must depend, therefore, not only on the awards of the Mixed Claims Commission but on the terms of the settlement of war claims act. It will be observed that the amounts received up to the present time, both on account of Army costs and mixed claims, have been paid, not by virtue of any agreement with Germany looking to the liquidation of its treaty obligations, but by virtue of an agreement with the creditor powers, under the terms of which they undertook to assign to the satisfaction of our claims a portion of the payments received through the agent general for reparation payments. This is an anomalous situation. In view of the fact that the other creditor powers have now reached an agreement with Germany for the final liquidation of their claims, the time has come for the United States to do likewise. Two courses were open to us. We could either join with the other creditors in a general settlement, or rely on a separate agreement with Germany for the satisfaction of our claims. The course of events which led to the necessity for such a decision on our part was as follows: THE YOUNG PLAN In 1928 the principal creditor powers agreed to set up a committee of independent financial experts to be entrusted with the task of drawing up proposals for the complete and final settlement of the reparation problem. The so-called Young plan is the report which this committee rendered under date of June 7. 1929. As a result of the Young committee's reappraisal of Germany's capacity to pay it recommended annuities smaller than the standard annuity of 2,500,000,000 gold marks ($595,000,000) in force under the Dawes plan. Beginning with 742,000,000 reichsmarks ($176,000,000) in the 7 months ending March 31, 1930, which are considered as the first Young plan year, the annuity is 1,707,900,000 reichsmarks ($406,000,000) in the year ending March 31, 1931, and increases gradually to the maximum of 2,428,800,000 reichsmarks ($578,000,000) in the year ending March 31, 1966, or an average of 1,988,800,000 reichsmarks ($473,000,000) for 37 years, and continues at about 1,600,000,000 reichsmarks ($381,000,000) to 1,700,000,000 reichsmarks ($405,000,000) for an additional 22 years. It is obvious that the reduction in the annuities to be paid by Germany necessitated a scaling down of the amounts allocated to each of the creditor powers under the Dawes plan and the Paris agreement. The Young plan undertakes not only to fix the annuities to be paid by Germany but to allocate those annuities among the several creditor powers. The United States was allocated annuities averaging 66,100,000 reichsmarks ($15,700,000) for the first 37 years and a fixed annuity of 40,800,000 reichsmarks ($9,700,000) for 15 years thereafter. The Young plan, with some modifications, which do not affect our position, was formally adopted by representatives of all the interested powers, with the exception of the United States, at The Hague in January, 1930, and the settlement there reached is now awaiting ratification by the governments and the enactment of certain necessary legislation by the German parliament. Two questions present themselves for decision: First, are the annuities provided for the United States acceptable to us, and, in the second place, should we become parties to the Young plan agreement and receive payments through the machinery provided therein, or should we rely on a direct agreement with Germany for the satisfaction of our claims? While it is true that under the so-called Dawes plan and the Paris agreement we were to receive on both accounts an annuity of 100,000,000 gold marks ($23,800,000) as contrasted with an average annuity of 66,100,000 reichsmark ($15,700,000) suggested under the Young plan, it should be pointed out that the so-called Dawes plan was a temporary measure and that no period was fixed during which the aforesaid annuities were to be paid. In other words, there was no assurance that we would continue to receive 100,000,000 gold marks a year until the claims on account of army costs and mixed claims had been completely discharged. Perhaps a better method of approach to the problem is to ascertain whether the proposed annuity involves any essential sacrifice in the satisfaction of our outstanding claims against Germany. In so far as mixed claims are concerned, if, as is provided in the bill now before you, 40,800,000 reichsmarks per annum are assigned to their payment, it is estimated that that amount will be adequate to discharge the mixed claims obligation in full over the period of years provided for, with interest at 5 per cent on unpaid amounts including the United States Government's claim. Whatever sacrifice is involved as compared with the Dawes annuity is in the time element. In other words, it is estimated that it will require 52 years to pay all claims, about 35 years to pay all of the private claims awarded to American citizens, including the return of the unallocated interest fund belonging to the German claimants, and about 17 years additional to liquidate the claims allowed the Government of the United States. On the basis of the 45,000,000 gold marks received under the Paris agreement, it was estimated that it would have required 30 years to pay off private claims and 14 years additional to pay off the Government claims. If an average annuity of 25,300,000 reichsmarks ($6,000,000) for 37 years be allocated to army costs, as the proposed agreement provides, it will liquidate that claim in 37 years, after reducing the amount originally due on this account by 10 per cent, a sacrifice similar to that being made by France and Great Britain under the Young plan. The 55,000,000 marks received under the Paris agreement would have discharged our army cost claim in about 15 years from September 1, 1929, whereas the annuities proposed under the Young plan will liquidate the balance due after deducting the 10 per cent in 37 years and allow interest on all deferred payments at a rate of about 3% per cent. It can fairly be said, therefore, that except for the time element, which is not of vital importance in view of the fact that interest is to be paid, no sacrifice is demanded of us other than a 10 per cent reduction in our original claim for army costs, that is as compared with the situation existing under the Paris agreement, which carried with it no assurance as to continuing payments. The Treasury Department is of the opinion that the annuities proposed are acceptable. In urging their acceptance, I think I should point out to you that as a practical matter our refusal to accept them would almost inevitably involve a readjustment of the shares to be received by all other creditors, since the report of the Young committee, which has now been formally accepted, definitely fixed the limits of the total amounts to be paid by Germany and any claim on our part to increase our share must occasion a readjustment of the shares to be received by others. This brings me to the second question of whether, as a matter of policy, we should have joined the other creditor powers by becoming parties to the Young plan and availing ourselves of its provisions and machinery for the satisfaction of our claims. The executive branch of the Government believed that it was wiser and more consistent with our established policy for us to refrain from such a course and to look to Germany directly for the payment of the amounts due us. The United States has not participated in the determination of the total reparations payable by Germany under the treaty of Versailles or in the collection or distribution of reparation payments heretofore received. There appears to be no justification at this late date for involving our country in the responsibilities for collecting, mobilizing, and distributing reparation payments which the adoption of the Young plan and participation in the organization and management of the agency created under that plan would necessitate. Very obviously we could not properly avail ourselves of the machinery provided for by the Young plan and at the same time refuse to accept any of the responsibilities. The course which we advocate is logical, consistent, and sound, even apart from the question of linking reparation and debt payments, which, as we have consistently maintained, have no relation in origin, principle, or in fact. Moreover, without even suggesting the probability of such an event taking place, suppose at some future date Germany finds itself unable to continue the conditional payments. If at that time we are officially represented on the board of the bank for international settlements, or upon the so-called advisory committee to be appointed by the governors of central banks of issue of the principal countries concerned, we, because of our comparatively small interest in the general settlement, might find ourselves in the position of an arbiter called upon to settle and decide a controversial and difficult European question. It may be urged that our failure to become parties to the Young plan involves an element of sacrifice on our part, since we thereby forego the claim for a share in the so-called unconditional annuities which we could very justly have advanced in view of the priority enjoyed by army cost payments under the terms of the Paris agreement. But aside from the fact that the Young plan did not allocate to the United States any share of the unconditional annuities and that, judging by events, they could not have been obtained without the most serious kind of controversy, it seems to me that the terms of the agreement which we have submitted to you for approval amply protect the interests of the United States and of its nationals. Under its terms Germany makes an unqualified and unconditional promise to pay. The only proviso which in any way limits that obligation is the one which is found in all of our debt settlement agreements and which permits the debtor to postpone payments for a limited period of time with interest on the postponed payments. The Treasury Department, therefore, recommends the passage of the bill under consideration granting to the Secretary of the Treasury, with the approval of the President, the authority to enter into the agreement the terms of which are set forth in Senate Document No. 95, Seventy-first Congress, second session. In brief, the agreement provides that Germany agrees to pay 40,800,000 reichsmarks per annum for the period September 1, 1929, to March 31, 1930, and the sum of 40,800,000 reichsmarks per annum from April 1, 1930, to March 31, 1981, in satisfaction of mixed claims, and beginning September 1, 1929, an average annuity of 25,300,000 reichsmarks for 37 years in full liquidation of our Army costs. As evidence of this indebtedness Germany is to issue to the United States, at par, bonds maturing semiannually. Germany, at its option, upon not less than 90 days' advance notice, may postpone any payment on account of principal falling due to any subsequent September 30 and March 31 not more than two and one-half years distant from its due date, but only on condition that if this option is exercised the two payments falling due in the next succeeding 12 months can not be postponed more than two years, and the two payments falling due in the second succeeding 12 months can not be postponed more than one year unless the payments previously postponed have actually been made. All postponed payments on account of mixed claims are to bear interest, at 5 per cent, the rate provided in the settlement of war claims act, and all payments postponed on account of Army costs are to bear interest at the rate of 3% per cent. While the annuities are stated in terms of reichsmarks, payments are to be made in dollars, either at the Treasury or at the Federal Reserve Bank of New York. The exchange value of the mark in relation to the dollar shall be calculated at the average of the middle rates prevailing on the Berlin bourse during the halfmonthly period preceding the date of payment. The German Government undertakes that the reichsmark shall have and shall retain its convertibility into gold or devisen as contemplated in the present Reichsbank law and that the reichsmark shall retain the mint parity defined in the German coinage law of August 30, 1924. This provision corresponds to the provision in the Young plan settlement accepted by all of the other creditor powers. It was not felt that the United States was justified in demanding preferential treatment in this respect. The Secretary of the Treasury will not, of course, execute any such agreement until the Young plan has formally come into effect, thus giving assurance that the whole reparations question is, in all human probability, finally liquidated. What the proposed agreement does in so far as the United States is concerned is to provide for a final liquidation of her claims against Germany. I feel confident that it will commend itself to your judgment. [Senate Document No. 95, Seventy-first Congress, second session] To the Congress of the United States: I am submitting herewith, for your consideration, a copy of the report of the Secretary of the Treasury regarding the proposed agreement and exchange of notes with Germany for the complete and final discharge of the obligations of that Government to the United States with respect to the awards made by the Mixed Claims Commission, United States and Germany, and for the costs of this Government's army of occupation. The plan of settlement has my approval, and I recommend that the Congress enact the necessary legislation authorizing it. THE WHITE HOUSE, March 4, 1930. HERBERT HOOVER. TREASURY DEPARTMENT, MY DEAR MR. PRESIDENT: I have the honor to submit the following report regarding the terms of the proposed agreement for the complete and final discharge of the obligations of Germany to the United States in respect of the costs of the United States army of occupation and the awards of the Mixed Claims Commission, United States and Germany. Under the terms of the armistice convention signed November 11, 1918, and of the treaty signed at Berlin August 25, 1921, Germany is obligated to pay to the United States the costs of the United States army of occupation and the awards made in favor of the United States Government and its nationals by the Mixed Claims Commission, United States and Germany, established in pursuance of the agreement of August 10, 1922. The United States has had no direct arrangement with Germany for the liquidation of these obligations. Under the terms of the treaty of Versailles Germany undertakes to make compensation for all damage done to the civilian population of the allied and associated powers and to their property during the war. The treaty provides for the establishment of a reparation commission as the agency of the allied and associated governments for determining the amount to be paid by Germany on this account, collecting the payment thereof, and distributing it among the creditor powers. The United States has not been represented upon nor participated in the reparation commission. In this connection reference is made to the reservation by the Senate in its resolution advising and consenting to the ratification of the treaty restoring friendly relations signed by the United States and Germany at Berlin August 25, 1921. The reparation commission fixed the liability of Germany at 132,000,000,000 gold marks. By 1924 it became apparent that Germany was unable to meet the required payments, and accordingly in that year the powers entitled to reparations, but not including the United States, on August 30, 1924, signed at London an agreement under the terms of which the so-called Dawes plan was finally adopted. This limited the treaty payments to be made to the allied and associated powers by Germany to certain fixed annuties increasing gradually to 2,500,000,000 gold marks for the year ended August 31, 1929, the first so-called standard year, which annuity was to be continued for an indeterminate period and was to be supplemented, under certain conditions, by additional payments based on a so-called index of prosperity. On January 14, 1925, representatives of the powers signatory to the London agreement together with representatives of the United States signed what is known as the Paris agreement, which allocated the Dawes annuities among the creditor governments concerned. This agreement allocated to the United States an annuity of 55,000,000 gold marks beginning September 1, 1926, on account of Army costs and an annuity equivalent to 2 per cent of all receipts from Germany available for reparation payments, not to exceed 45,000,000 gold marks in any one year, for account of the awards of the Mixed Claims Commission. Up to August 31, 1929, the United States received each year the amounts stipulated under this agreement. It was not within the competence of the Dawes committee to fix the number of annuities Germany should pay and thus permit a final and definite settlement of German reparations. The Dawes committee merely attempted, therefore, a settlement temporary in character designed to restore economic stability and confidence and which would, at the appropriate time, facilitate a final agreement. |