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the lien and is proposing to all creditor nations the following funding plan, which I am likewise authorized to submit to Your Excellency.

This plan in its original construction provides for a refund of the relief credits (capital and interest) within forty years (beginning 1928) on a rising scale (with lowest equal yearly instalments in the first five years and highest equal yearly instalments in the last 25 Years).

But certain technical difficulties necessitated a change in this original plan. An opinion rendered by experts considers payments on relief credits prior to 1943 as contrary to the wording and spirit of the agreement entered upon by the Austrian Government in connection with the League of Nations Loan.

To overcome this technical obstacle, the Federal Government of Austria propose, that a debt funding would be agreed upon along the aforementioned line, that actual payments, however, would not be made before 1943, and that from this time on the whole debt (capital and interest) should be paid in 25 equal yearly instalments, and that these instalments should also include an amount corresponding to the loss on interest which the creditors suffered by non-payment of agreed upon instalments due prior to 1943.

Your Excellency would greatly oblige me by notifying me at your earliest possible convenience whether in principle the Government of the United States would accept to enter negotiations for a settlement of relief credits along aforementioned lines. Accept [etc.]


863.51 Relief Credits/6

The Secretary of State to the Secretary of the Treasury (Mellon)

WASHINGTON, December 8, 1927. SIR: With reference to this Department's letter of November 18,25 transmitting a copy of the formal request of the Austrian Govern. ment to the Government of the United States 28 to grant the suspension of the lien and the postponement up to December 31, 1957, of the payments due for the relief credit accorded to Austria, I have the honor to transmit for your information a copy of telegram No. 66, dated December 2, 11 a. m., from the American Minister at Vienna,27 reporting that the Austrian Government abandons its request for extension until 1957 of the time of payment of principal and interest, leaving only its request that the lien of the relief bond be subordinated to the contemplated new Austrian loan.

25 Not printed. See note from the Austrian Chancellor to the American Minister in Austria,

P. 448.

» Ante, p. 458.

There is also enclosed a copy of telegram No. 447, dated December 3,6 p. m., from the American Embassy at Paris,28 reporting that the three Austrian questions mentioned in the Embassy's telegram No. 442 of November 22, 1927,29 were not discussed in the meeting of the Reparation Commission December 3, but were adjourned to the next meeting, which will be held on January 14, 1928. A copy of the Embassy's telegram No. 442 was transmitted to you by letter November 25.28 I have [etc.]

For the Secretary of State:


Assistant Secretary

863.51 M 82/1

Mr. R. C. Leffingwell of J. P. Morgan & Co. to the Under Secretary

of State

NEW YORK, December 14, 1927.

[Received December 15.] DEAR MR. SECRETARY: Referring to my letter of October 18th to Secretary Kellogg and to Assistant Secretary Castle's reply of October 22nd,28 and to my talk with you the other day, all about Austria, this is just a line to remind you that discussions are going on in London between the Austrian Government and the European Relief Creditor States, and I understand the suggestion has been made by the Austrian Government that the Department of State might wish to be represented. Very truly yours,



The Minister in Austria (Washburn) to the Secretary of State No. 1656

VIENNA, December 14, 1927.

[Received December 29.] Sir: Supplementing my despatch No. 1629 of the 30th ultimo, I have the honor to report as of today the following developments in relation to the flotation of the projected new federal loan. I have been privileged to see some of the confidential files of the Foreign Office in preparing this report.

* Not printed.

Telegram not printed. The three questions were: (1) Austrian restitution agreements and proposed priority over relief bonds; (2) issue of renewal bonds to replace Austrian relief bonds of 1920; (3) proposed new Austrian loan. (File No. 462.00 R 29/4204.)

It became apparent upon the occasion of the meeting of the Relief Credit Committee in London on the 2nd instant, that Austrian official circles had been unduly optimistic and had underestimated some of the obstacles standing in their path. It there developed that the Dutch representative stated flatly that his government desired that some plan for the amortization of and payment of interest on the old relief credits be made as a condition precedent to any action on its part. This was just what Schüller wanted to avoid, as stated on page 3 of my despatch under reference.

As an offset to this request, the bankers (Montagu Norman and Morgan were specifically mentioned) raised the contention that the Austrian Government could not be required to arrange for any relief credit settlement prior to 1943 when the long term reconstruction loan matures. It was asserted that an earlier settlement would contravene the announcement made in the bankers' prospectus at the time the loan just mentioned was floated in 1923, and that the prospectus was based upon the bond contract. I have examined the American prospectus, a copy of which I have in my files, and it does not seem to me to substantiate this contention. The Foreign Office tells me that this was also the opinion of the Austrian Government and Schüller so stated to the bankers, whereupon they replied that if an earlier settlement was not strictly against the letter of the reconstruction bond, it was against its spirit. Inasmuch as the bankers' views quite naturally carry very great weight as intimated in the concluding paragraph of my before-mentioned despatch No. 1629, the predicament which arose was embarrassing. Furthermore, one of the less influential opposition papers, "Der Montag”, printed a sensational story on the 5th instant, which attracted some attention, to the effect that the loan had gone on the rocks, mainly because of the opposition of Czechoslovakia. In point of fact, Czechoslovakia is not interested in the relief credits, because it extended none. The Czech Minister here denies that his government is unfriendly. It is nevertheless true that the Austrians believe that the Czechs have been throwing cold water on the loan proposal. Two reasons are given: first, it is said that the electrification of the railways is against Czech interests as it would make Austria less dependent upon Czech coal and, secondly, some proceeds of the new loan were to be devoted, it was announced, to the improvement of Austrian dairies, the Austrian market for milk from Southern Moravia thereby being lessened.

Italy's attitude also created some uneasiness. (See in this connection my despatch No. 1655 of the 12th instant).so The Italian relief credit delegate suddenly left London for Rome for further instructions after the meeting on the 2nd.

Not printed.

Dr. Schüller advised his government from London of the situation and the Relief Credit Committee took an adjournment until Monday, the 12th. The result of all this was that after a Cabinet council Schüller was instructed by telegram on Thursday, the 8th, to make a relief credit settlement proposal. The entire relief credits expressed in Austrian currency amount to 848,000,000 schillings. (This is approximately the equivalent of the £25,000,000 mentioned on page 2 of my despatch No. 1629.) The accrued interest on this amount from now in 1927 up to 1943, the before-mentioned date of maturity of the reconstruction loan, is figured at 152,000,000 schillings, making the total amount due in 1943 approximately 1,000 million schillings. Schüller was authorized to propose that beginning in 1943 the Austrian Government would undertake to pay the amount just mentioned in twenty-five annual instalments of 40,000,000 schillings each. The Austrian Government desires to reserve the right to pay, beginning in 1929 and up to 1943, something on account. It is provisionally proposed, if this right be utilized, to pay at first 10,000,000 schillings annually and subsequently 15,000,000 if the federal finances justify it. In the event payments are thus anticipated, interest at the rate of 8 per cent is to be deducted from the before-mentioned 1,000 million schillings due as of 1943. It is figured out that the estimated interest of 152,000,000 schillings would be greatly reduced and of course the annual instalment beginning from 1943 would be substantially cut down. As I have heretofore reported, the Austrian Government hopes ultimately to avoid paying interest on its relief credits, taking into account their intrinsic character. I think there is some question however whether any advance payments will ever be made. It is hoped nevertheless, by a proposal of this kind, to meet the bankers' views. The Chancellor said to me significantly on Monday that the position of the bankers was helpful to his government.

The fact that the Schüller telegram had been sent was communicated to me on the evening of the 8th by the Finance Minister, Kienböck. I promised however that I would not cable any statement of the situation, which was given me in the strictest confidence, and indeed there was no reason for doing so as it was anticipated that something definite would transpire at the adjourned Relief Credit Committee meeting on Monday, the 12th. This anticipation was realized. The Committee took cognizance of the relief credit settlement proposal as made by Schüller, and stated that it would be transmitted to the various governments represented on the Committee for action. I expect to be able later to transmit the exact formula of this proposal; something, as I understand, that was left to Schüller's discretion. The Committee further passed a resolution authorizing

the subordination to the projected new federal loan for a period of thirty years of the Austrian assets or securities pledged for the repayment of the relief credits. This last action was taken by the Committee although the Dutch and Swiss delegates were without authority to vote affirmatively for the resolution. The Committee apparently had reason to believe that the written assent of the Dutch and Swiss governments would be presently forthcoming. . . . Apparently the fear expressed to me by Dr. Kienböck that parliamentary assent of other countries than the United States might be found to be necessary, proved to be groundless.

The next step will be the proceedings before the Reparation Commission. There has been some reason to apprehend that Rumania would seek to make action here contingent upon the settlement of some controversy which it has with Austria, but I am told that pressure has been brought to bear to keep the former country quiet. I have [etc.]


863.51 Relief Credits/7a

The Secretary of State to the Secretary of the Treasury (Mellon)

WASHINGTON, December 23, 1927. SIR: With reference to this Department's letter of December 8 and to previous correspondence regarding the Austrian relief indebtedness to the United States and the proposed flotation of a new Austrian loan, I have the honor to transmit herewith a copy of a note of December 6, 1927, addressed to the Department by the Austrian Minister at Washington. I also transmit a copy of despatch No. 1629, dated November 30, 1927, from the American Minister at Vienna on the same subject.

The note of the Austrian Minister makes the specific proposal that an agreement be made at this time for the funding of the relief debt; that actual payments should not begin until 1943; and that from 1943 “the whole debt (capital and interest) should be paid in 25 equal yearly instalments, and that these instalments should also include an amount corresponding to the loss on interest which the creditors suffered by non-payment of agreed upon instalments due prior to 1943”. The Austrian Minister stated in conversation on December 5 that the proposed funding of the relief debts was on the supposition that the relief debt creditors will raise no objection to the new loan, and will give it precedence until it is paid off in 1958. The note, however, does not raise this question but inquires only “whether in principle the Government of the United States would accept to enter negotiations for a settlement of relief debt credits along aforementioned lines".

258346-42-vol. 1-35

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