What is the reparations problem? Why does it appear to be further from solution than ever?

The great public in all lands are perplexed and worried by its disturbing insolubility. It keeps them wondering what may happen next, and that is never good for a nerve-ridden subject like postwar Europe.

The real trouble is not in solving the problem itself, but in satisfying the public opinion which surrounds it. I do not mean to suggest that it is an easy matter to ascertain what payments Germany can make, or for Germany to pay and keep paying these sums once they have been ascertained. But if the difficulty were purely financial it could be overcome. The heart of the problem lies in the impossibility at present of convincing the expectant, indignant, hard-hit and heavily burdened people of France that the sums so fixed represent all that Germany is capable of paying.

The question of compelling a country to pay across its frontiers huge sums convertible into the currency of other countries is a new one. At first it was too readily taken for granted that a wealth which could bear a war debt of £8,000,000,000 could surely afford to bear an indemnity of £6,000,000,000 provided that this smaller sum were made a first charge on the national revenues; and it took time for the average mind to appreciate the fundamental difference between payment inside and transmission outside a country.

When I think of the estimates framed in 1919 by experts of high intelligence and trained experience as to Germany's capacity to pay cash over the border I am not disposed to complain of the impatience displayed by French taxpayers at the efforts made at successive conferences to hew down those sanguine estimates to feasible dimensions. I am content to point with pride to the fact that the common sense of the more heavily burdened British taxpayer has long ago taught him to cut his loss and keep his temper. When his example is followed all round, the reparations question is already solved.

When public opinion in all the Allied countries has subsided into sanity on German reparations, as it already has in Britain, financiers can soon find a way out, and trade and commerce will no longer be scared periodically from their desks by the seismic shocks given to credit every time a French minister ascends the tribune to make a statement on reparations.

Regarding the payment of reparations solely from the point of view of finance, the issues can be stated simply, and I think solved readily.

It is always assumed by those who have never read the Treaty of Versailles, and the letter that accompanied it, that this much-abused and little-perused document fixed a fabulous indemnity for payment by Germany. The treaty may have its defects; that is not one of them, for it fixed no sum for payment, either great or small.

It stipulated that a reparations commission should be set up in order, inter alia, to assess the damage inflicted by Germany on Allied property and the compensation for injury to life and limb in Allied countries.

In the second place—and this is also overlooked—it was to ascertain how much of that claim Germany was capable of paying. On both these questions Germany is entitled to be heard before adjudication.

It is in accordance with all jurisprudence that as Germany was the aggressor and the loser she should pay the costs. But it would be not only oppressive but foolish to urge payment beyond her capacity.

The amount of damage was to be ascertained and assessed by May, 1921. Capacity was to be then determined and revised from time to time, according to the varying conditions. Even so fair a controversialist as the eminent Italian statesman Signor Nitti has ignored the latter provision in the Versailles treaty. No wonder that he should, for there are multitudes who treat every alteration in the annuities fixed in May, 1921, as if it were a departure from the Treaty of Versailles to the detriment of the victors; whereas every modification made was effected under the provisions and by the machinery incorporated in the treaty for that express purpose.

But there has undoubtedly been a departure from the treaty—a fundamental departure. It has, however, been entirely to the detriment of the vanquished. In what respect? I propose to explain, for the whole trouble has arisen from this change in the treaty. The treaty provided that the body to be set up for deciding the amount to be paid in respect of reparations should consist of a representative each of the United States of America, the British Empire, France, Italy, and Belgium.

With the exception of the United States of America, all these powers are pecuniarily interested in the verdict. At best it was therefore on the face of it not a very impartial tribunal. Still, Britain, as a great trading community, was more interested in a settlement than in a few millions more or less of indemnity wrung out of Germany; and Italy also was a country which had large business dealings with Germany and would not therefore be tempted to take a violently anti-German view on the commission. The presence therefore of the United States of America, Britain and Italy together on the commission constituted a guarantee for moderation of view.

Now the only disinterested party has retired from the tribunal. The most interested party is in the chair, with a casting vote on certain questions. That is not the treaty signed by Germany.

If you sign an agreement to pay a sum to be awarded by A, B, C, D, and E, trusting for a fair hearing largely to the influence of A, who is not only very powerful but who is the only completely disinterested referee and A then retires from the board of arbitrators, you are entitled to claim that the character of the agreement is changed. The representatives of France and Belgium on the Reparations Commission are honourable men who are most anxious to do justice, but they are watched by a jealous, vigilant and exacting opinion constantly ready to find fault with concession and to overpower moderating judgment.

The balance of the treaty has therefore been entirely upset. What is really needed is to restore that balance so as to secure a fair verdict on the only question in issue—how much Germany can pay.

When you come to consider that issue you must view the claim for reparations as you would any ordinary debt. You must make up your mind whether you wish to ruin the debtor or to recover the cash. If there are no sufficient realisable assets, then, if you want your money, you must keep your debtor alive. If you want beef from your cow you must forgo the milk. If your object is to destroy your debtor, you press for payment of more than he can be reasonably expected to pay, and then seize his house, his lands, and his chattels, whether they can be disposed of or not.

On the other hand, if you want your money, you will find out what he can pay, and then proceed judiciously, patiently, and firmly to recover that amount. By that I do not mean what he can pay by condemning himself to a life of servitude and poverty. No brave nation will stand that long. That is not a method of recovering an old debt, but of creating a new one. I mean, what a nation can be expected to pay steadily without revolt for a whole generation.

If you scrape the butter from the bread of every German child for thirty years you may add to the sum of your indemnity a milliard or two of gold marks. That is not what was intended by the Treaty of Versailles. Hungry faces make angry hearts, and the anger spreads further than the hunger. I mean, what Germany can pay without condemning a generation of workers to Egyptian bondage, and their children to semi-starvation. Every oppression, if persisted in, ultimately ends in the ruin of the Red Sea for the oppressors. Europe has only just escaped with great loss from its waters. We do not want to be overwhelmed in another.

How are you to arrive at the exact figure of the annuities Germany can reasonably be expected to pay without creating these intolerable conditions for her people? That is the question. The answer was given in the treaty as signed: by setting up a commission to inquire and determine. That commission has been weakened, and its character almost destroyed by the defection of the United States of America.

Is it possible to find a substitute? I am afraid a reference of that question to a new committee of experts would not advance matters, for each country would demand a representative on that committee, and that would only mean the Reparations Commission over again under another name.

The only hope of a fair and final decision is to secure the presence of a representative of the United States of America on the adjudicating body, whatever it may be. Is that impossible?

I need hardly say that I am not venturing to express any opinion as to the American refusal to ratify the treaty as a whole. I am only stating quite frankly my view that, unless America takes a hand in reparations, real settlement will be postponed until the hour of irreparable mischief strikes. If for reasons of which I am not competent to judge America cannot occupy her vacant chair on the tribunal which may decide fateful issues for humanity, I despair of any real progress being made.

Allied ministers can accept from a body representing the leading powers who won the war decisions they dare not take on their own responsibility. That is the essence of the matter. It is no use blaming politicians. If they of their own initiative attempt to ride down public sentiment, which alone confers authority upon them, they will inevitably fail. In every country there are plenty of itching partisans ready to take advantage of tactical blunders committed by political opponents or personal rivals. But the judgment of an international tribunal is another matter, and statesmen can accept it and act upon it without being taxed with responsibility for its conclusions.

British opinion cannot and will not accept a settlement based on the assumption that abatements in the sum claimed for reparations, if and when made, must be discounted by the British taxpayer alone.

France undoubtedly suffered more severely from the ravages of war than any other belligerent. But that is recognised in the proportion allocated to her of the reparations payments. She is to be paid 52 per cent. of the total, i. e., more than all the other Allied countries put together.

Britain comes next in the damage sustained by her people, and she is given 22 per cent. In many respects she has suffered more heavily than any other Allied country, especially in taxation and in trade. She is willing to stand in with the Allies for loss as well as for profit, but she will resent bitterly the suggestion that the loss must necessarily be her share, whilst such profit as there is belongs to others.

The American people, who receive no part of the compensation awarded and collected, will a fortiori take the same view of their obligations in the matter. They certainly will not see the force of a settlement to be made at their expense, as if they had been condemned to pay an indemnity.

The question is not what remission or indulgence shall be granted to Germany, but what payment she is capable of making. If Germany can pay a large indemnity France gets 52 per cent. of that, and Britain only 22 per cent. If Germany can only make a disappointing payment, France still gets 52 per cent. and Britain 22 per cent. There is, therefore, no ground for debiting Britain and America with the cost of reduced expectations.

The offer to hand over the worthless "C" bonds to the British Empire in return for her claims is an insult to the intelligence of the British public. Let us get away from these shifts on to the straight road. Back to the treaty—that is the real remedy. There is no need to revise it—all that is required is to restore it.

If America reappears on the arbitrating tribunal she need not accept the rest of the treaty. Then a fair and enduring settlement would soon ensue, this irritating sore would rapidly heal, and the condition of the world would steadily improve.

Algeciras, January 1st, 1923.