The Revision of the Treaty and the Settlement of Europe

The deeper and the fouler the bogs into which Mr. Lloyd George leads us, the more credit is his for getting us out. He leads us in to satisfy our desires; he leads us out to save our souls. He hands us down the primrose path and puts out the bonfire just in time. Who, ever before, enjoyed the best of heaven and hell as we do?

In England, opinion has nearly completed its swing, and the Prime Minister is making ready to win a General Election on Forbidding Germany to Pay, Employment for Every one, and a Happier Europe for All. Why not, indeed? But this Faustus of ours shakes too quickly his kaleidoscope of halos and hell–fire, for me to depict the hues as they melt into one another. I shall do better to construct an independent solution, which is possible in the sense that nothing but a change in the popular will is necessary to achieve it, hoping to influence this will a little, but leaving it to those, whose business it is, to gage the moment at which it will be safe to embroider such patterns on a political banner.

If I look back two years and read again what I wrote then, I see that perils which were ahead are now passed safely. The patience of the common people of Europe and the stability of its institutions have survived the worst shocks they will receive. Two years ago the Treaty, which outraged Justice, Mercy, and Wisdom, represented the momentary will of the victorious countries. Would the victims be patient? Or would they be driven by despair and privation to shake Society's foundations? We have the answer now. They have been patient. Nothing very much has happened, except pain and injury to individuals. The communities of Europe are settling down to a new equilibrium. We are almost ready to turn our minds from the avoidance of calamity to the renewal of health.

There have been other influences besides that patience of the common people which often before has helped Europe through worse evils. The actions of those in power have been wiser than their words. It is only a slight exaggeration to say that no parts of the Peace Treaties have been carried out, except those relating to frontiers and to disarmament. Many of the misfortunes which I predicted as attendant on the execution of the Reparation Chapter have not occurred, because no serious attempt has been made to execute it. And, whilst no one can predict with what particular sauce the makers of the Treaty will eat their words, there can no longer be any question of the actual enforcement of this Chapter. And there has been a third factor, not quite in accordance with expectations, paradoxical at first sight, but natural, nevertheless, and concordant with past experience,—the fact that it is in times of growing profits and not in times of growing distress that the working classes stir themselves and threaten their masters. When times are bad and poverty presses on them they sink back again into a weary acquiescence. Great Britain and all Europe have learned this in 1921. Was not the French Revolution rather due perhaps to the growing wealth of eighteenth–century France—for at that time France was the richest country in the world—than to the pressure of taxation or the exactions of the old rÉgime? It is the profiteer, not privation, that makes man shake his chains.

In spite, therefore, of trade depression and disordered exchanges, Europe, under the surface, is much stabler and much healthier than two years ago. The disturbance of minds is less. The organization, destroyed by war, has been partly restored; transport, except in Eastern Europe, is largely repaired; there has been a good harvest, everywhere but in Russia, and raw materials are abundant. Great Britain and the United States and their markets overseas have suffered a cyclical fluctuation of trade prosperity of a greater amplitude than ever before; but there are indications that the worst point is passed.

Two obstacles remain. The Treaty, though unexecuted, is not revised. And that part of organization, which consists in currency regulation, public finance, and the foreign exchanges, remains nearly as bad as it ever was. In most European countries there is still no proper balance between the expenditure of the State and its income, so that inflation continues and the international values of their currencies are fluctuating and uncertain. The suggestions which follow are mainly directed towards these problems.

Some contemporary plans for the reconstruction of Europe err in being too paternal or too complicated; also, sometimes, in being too pessimistic. The patients need neither drugs nor surgery, but healthy and natural surroundings in which they can exert their own recuperative powers. Therefore a good plan must be in the main negative; it must consist in getting rid of shackles, in simplifying the situation, in canceling futile but injurious entanglements. At present every one is faced by obligations which they cannot meet. Until the problem set to the Finance Ministers of Europe is a possible one, there can be little incentive to energy or to the exercise of skill. But if the situation was made such that an insolvent country could have only itself to blame, then the highest integrity and the most accomplished financial technique would, in each separate country, have its chance. I seek by the proposals of this chapter, not to prescribe a solution, but to create a situation in which a solution is possible.

In their main substance, therefore, my suggestions are not novel. The now familiar project of the cancelation, in part or in their entirety, of the Reparation and Inter–allied Debts, is a large and unavoidable feature of them. But those who are not prepared for these measures must not pretend to a serious interest in the Reconstruction of Europe.

In so far as such cancelation or abatement involves concessions by Great Britain, an Englishman can write without embarrassment and with some knowledge of the tendency of popular opinion in his own country. But where concessions by the United States are concerned he is in more difficulty. The attitude of a section of the American press furnishes an almost irresistible temptation to deal out the sort of humbug (or discrete half–truths) which are believed to promote cordiality between nations; it is easy and terribly respectable; and what is much worse, it may even do good where frankness would do harm. I pursue the opposite course, with a doubting and uneasy conscience, yet supported (not only in this chapter but throughout my book) by the hope, possibly superstitious, that openness does good in the long run, even when it makes trouble at first.

So far, Reparation on a large scale has not been collected from Germany. So far, the Allies have not paid interest to the United States on what they owe. Our present troubles, when they are not attributable to the after–effects of war and the cyclical depression of trade, are due, therefore, not to the enforcement of these claims, but to the uncertainties of their possible enforcement. It follows, therefore, that merely to put off the problem will do us no good. That is what we have been doing for two years already. Even to reduce our Reparation demands to Germany's maximum actual capacity and really force her to pay them, might make matters worse than they are. To write down inter–ally debts by half and then try to collect them, would be an aggravation, not a cure, of the existing difficulties. The solution, therefore, must not be one which tries to extract the last theoretical penny from everybody; its main object must be to set the Finance Ministers of every country a problem not incapable of wise solution over the next five years.

I. The Revision of the Treaty

The Reparation Commission have assessed the Treaty claims at 138 milliard gold marks, of which 132 milliards are for pensions and damage and 6 milliards for Belgian debt. They have not stated in what proportions the 132 milliards are divided between pensions and damages. My own assessment of the Treaty claims (p. 131 above) is 110 milliards, of which 74 milliards are for pensions and allowances, 30 milliards for damage and 6 milliards for Belgian debt.

The arguments of Chapter VI make it incumbent on those who are convinced by them to abandon as dishonorable the claims to pensions and allowances. This reduces the claims to 36 milliards, a sum which it may not be in our interest to exact in full, but which is probably within Germany's theoretical capacity to pay.

Apart from clearing out of the way various clauses which are no longer operative or useful, and from terminating the occupation on conditions set forth below, I should limit my Revision of the Treaty to this simple stroke of the pen. Let the present assessment of 138 milliard gold marks be replaced by 36 milliard gold marks.

We are strictly entitled under the Armistice Terms to these 36 milliards; and if prudence recommends an abatement below that figure, such abatement can properly be made, on terms, by those and those only who are entitled to the claims. I estimate with some confidence that this sum of 36 milliards is divisible between the Allies about in the proportions shown in the table below.

The payment by Germany of 5 per cent interest and 1 per cent sinking fund on this total sum is not, in my judgment, theoretically impossible. But it could only be done by stimulating her export industries in a manner injurious and irritating to Great Britain, and by imposing on her Treasury a financial problem of such difficulty that it would tend to unsound finance and to weak, unstable Governments. Even though this payment is theoretically possible, I do not think that it is practically obtainable over a period of thirty years.

I recommend, therefore, that, as a separate arrangement from the Revision of the Treaty as above, the British Empire should waive the whole of their claims, with the exception of 1 milliard gold marks reserved for a special purpose explained below, and should undertake to square the claims of Italy and the minor claimants by cancelation of debt owing from them; thus leaving Germany to pay 18 milliards to France and 3 milliards to Belgium (on the assumption that the United States also would forego the trifle due to her). This sum should be discharged by an annual payment of 6 per cent of the sum due (being 5 per cent interest and 1 per cent sinking fund) over a period of thirty years. With the assistance of minor measures to ease the opening period, it is reasonable to suppose that this amount could be paid without serious injury to any one.

In so far as it proves convenient to discharge this liability in goods, and not in cash, so much the better. But I see no advantage in laying stress on this. It would be wiser to leave Germany to find the money as best she can, any payment in goods being by mutual agreement, as in the Wiesbaden plan.

It may lead, however, to great anomalies to fix the annual payments in terms of gold over so long a period as thirty years. If gold prices fall, the burden may become intolerable. If gold prices rise, the claimants may be cheated of their expectations. The annual payment should be adjusted, therefore, by some impartial authority, with reference to an index number of the commodity–value of gold.

The other Treaty change relates to the Occupation. It would promote peaceable relations in Europe if, as a part of the new settlement, the Allied troops were withdrawn altogether from German territory, and all rights of invasion for whatever purpose waived, except by leave of a majority vote of the League of Nations. But in return, the British Empire and the United States should guarantee to France and Belgium all reasonable assistance, short of warfare, in securing satisfaction for their reduced claims; whilst Germany should guarantee the complete de–militarization of her territory west of the Rhine.

II. The Satisfaction of the Allies

France.—Is it in the interest of France to accept this settlement? If it is combined with further concessions from Great Britain and the United States by the cancelation of her debts to them, it is overwhelmingly in her interest.

What is her present balance–sheet of claims and liabilities? She is entitled to 52 per cent of what Germany pays. On p. 75 I have calculated what this will be under the London Settlement, (a) on the basis of German exports at the rate of 6 milliards, namely 3.56 milliard gold marks; and (b) on the basis of exports at the rate of 10 milliards, namely 4.60 milliard gold marks. France's share, therefore, is 1.85 milliards per annum on assumption (a), and 2.39 milliards on assumption (b). On the other hand, she owes the United States $3634 million and the United Kingdom £557 million. If these sums be converted into gold marks at par, and the annual charge on them is calculated at 5 per cent for interest and 1 per cent for sinking fund, her liability is 1.48 milliards per annum. That is to say, if Germany pays in full and if the more favorable assumption (b) is adopted as to the growth of her exports, the most for which France can hope under existing arrangements is a net sum of .91 milliard gold marks (£45,500,000 gold) per annum. Whereas under the revised scheme she will not only be entitled to a greater sum, namely 1.08 milliard gold marks (£54,000,000 gold) per annum; but, inasmuch as she will be accorded a priority on Germany's available resources, and as the total charge is within Germany's capacity, she may reasonably expect to be paid.

My proposal provides for the complete restoration of the devastated provinces at a fair valuation of the actual damage done, and it abandons other rival claims which stand in the way of the priority of this paramount claim. But apart from this, about which opinions will differ, and apart from the increased likelihood which it affords of really getting payment, France will actually receive a larger sum than if the letter of the existing agreements is adhered to all round.

Belgium is entitled at present to 8 per cent of the receipts, which under the London Settlement would amount to 280 million gold marks per annum on assumption (a) and 368 million on assumption (b). Under the new proposal she will receive 180 million gold marks per annum and will gain in certainty what she loses in possible receipts. The satisfaction of her existing priority should be adjusted by mutual agreement between herself and France.

Italy would gain immensely. She is entitled to 10 per cent of the receipts under the London Settlement (together with some claims on problematical receipts from Austria and Bulgaria); that is to say, 326 million gold marks per annum on assumption (a) and 460 million on assumption (b). But these sums are far below the annual charge of her obligations towards the United Kingdom and the United States, which, converted into gold marks on the same basis as that employed above in the case of France, amounts to 1000 million gold marks per annum.

III. The Assistance of New States

I have reserved above, out of the claims of Great Britain, a sum of one milliard gold marks, with the object, not that she should retain this sum for herself, but that she should use it to ease the financial problems of two states for which she has a certain responsibility, namely Austria and Poland.

Austria's problems are well known and attract a general sympathy. The Viennese were not made for tragedy; the world feels that, and there is none so bitter as to wish ill to the city of Mozart. Vienna has been the capital of degenerate greatness, but, released from imperial temptations, she is now free to fulfil her true rÔle of providing for a quarter–part of Europe the capital of commerce and the arts. Somehow she has laughed and cried her way through the last two years; and now, I think, though on the surface her plight is more desperate than before, a very little help will be enough. She has no army, and by virtue of the depreciation of her money a trifling internal debt. Too much help may make of her a lifelong beggar; but a little will raise her from despondency and render her financial problem no longer beyond solution.

My proposal, then, is to cancel the debts she owes to foreign governments, including empty claims to Reparation, and to give her a comparatively small sum out of the milliard gold marks reserved from British claims on Germany. Credits placed at her disposal in Berlin, equivalent in value to 300 million gold marks, to be available, as required, over a period of five years, might be enough.

For the other new States, the cancelation of debt owing, and, in the case of Hungary, of Reparation claims, should be enough, except for Poland.

Poland, too, must be given a possible problem, but it is not easy to be practical with so impracticable a subject. Her main problem can be solved only by time, and the recovery of her neighbors. I deal here only with the urgent question of making just possible for her a reorganization of currency, and of facilitating a peaceable intercourse between herself and Germany. For this purpose I would assign to her the balance of the reserved milliard, namely, 700 million gold marks, of which the annual interest should be available to her unconditionally, but of which the capital should be employed only for a currency reorganization, under conditions to be approved by the United States and Great Britain.

In its essentials this scheme is very simple. I think that it satisfies my criterion of leaving every Finance Minister in Europe with a possible problem. The rest must come gradually, and I will not burden the argument of this book by considering along what lines the detailed solutions should be sought.

Who are the losers? Even on paper—far more in reality—every continental country gains an advantage. But on paper the United States and the United Kingdom are losers. What is each of them giving up?

Under the London Settlement Great Britain is entitled to 22 per cent of the receipts, which is from 780 to 1010 million gold marks per annum (£39,000,000 to £50,500,000 gold) according to which assumption is adopted as to the volume of German exports. She is owed by various European governments (including Russia, see Appendix No. IX.) £1,800,000,000, which at 6 per cent for interest and sinking fund is £108,000,000 per annum. On paper she would forego these sums, say £150,000,000 per annum, altogether. In actual fact, her prospects of securing more than a fraction of this amount are remote. Great Britain lives by commerce, and most Englishmen now need but little persuading that she will gain more in honor, prestige, and wealth by employing a prudent generosity to preserve the equilibrium of commerce and the well–being of Europe, than by attempting to exact a hateful and crushing tribute, whether from her victorious Allies or her defeated enemy.

The United States would forego on paper a capital sum of about 6500 million dollars, which, at 6 per cent, represents an annual charge of $390,000,000 (£78,000,000 gold). But in my opinion the chance of her being actually paid any considerable amount of this, if she tries to exact it, is decidedly remote.[111] Is there any likelihood of the United States joining in such a scheme soon enough (for I feel confident she will cancel these debts in the end) to be useful?

Most Americans, with whom I have discussed this question, express themselves as personally favorable to the cancelation of the European debts, but add that so great a majority of their countrymen think otherwise that such a proposal is at present outside practical politics. They think, therefore, that it is premature to discuss it; for the present, America must pretend she is going to demand the money and Europe must pretend she is going to pay it. Indeed, the position is much the same as that of German Reparation in England in the middle of 1921. Doubtless my informants are right about this public opinion, the mysterious entity which is the same thing perhaps as Rousseau's General Will. Yet, all the same, I do not attach, to what they tell me, too much importance. Public opinion held that Hans Andersen's Emperor wore a fine suit; and in the United States especially, public opinion changes sometimes, as it were, en bloc.

If, indeed, public opinion were an unalterable thing, it would be a waste of time to discuss public affairs. And though it may be the chief business of newsmen and politicians to ascertain its momentary features, a writer ought to be concerned, rather, with what public opinion should be. I record these platitudes because many Americans give their advice, as though it were actually immoral to make suggestions which public opinion does not now approve. In America, I gather, an act of this kind is considered so reckless, that some improper motive is at once suspected, and criticism takes the form of an inquiry into the culprit's personal character and antecedents.

Let us inquire, however, a little more deeply into the sentiments and emotions which underlie the American attitude to the European debts. They want to be generous to Europe, both out of good feeling and because many of them now suspect that any other course would upset their own economic equilibrium. But they don't want to be “done.” They do not want it to be said that once again the old cynics in Europe have been one too many for them. Times, too, have been bad and taxation oppressive; and many parts of America do not feel rich enough at the moment to favor a light abandonment of a possible asset. Moreover, these arrangements, between nations warring together, they liken much more closely than we do to ordinary business transactions between individuals. It is, they say, as though a bank having made an unsecured advance to a client, in whom they believe, at a difficult time when he would have gone under without it, this client were then to cry off paying. To permit such a thing would be to do an injury to the elementary principles of business honor.

The average American, I fancy, would like to see the European nations approaching him with a pathetic light in their eyes and the cash in their hands, saying, “America, we owe to you our liberty and our life; here we bring what we can in grateful thanks, money not wrung by grievous taxation from the widow and orphan, but saved, the best fruits of victory, out of the abolition of armaments, militarism, Empire, and internal strife, made possible by the help you freely gave us.” And then the average American would reply: “I honor you for your integrity. It is what I expected. But I did not enter the war for profit or to invest my money well. I have had my reward in the words you have just uttered. The loans are forgiven. Return to your homes and use the resources I release to uplift the poor and the unfortunate.” And it would be an essential part of the little scene that his reply should come as a complete and overwhelming surprise.

Alas for the wickedness of the world! It is not in international affairs that we can secure the sentimental satisfactions which we all love. For only individuals are good, and all nations are dishonorable, cruel, and designing. In deciding whether Italy (for example) must pay what she owes, America must consider the consequences of trying to make her pay,—so far as self–interest is concerned, in terms of economic equilibrium between America and Italy, and, so far as generosity is concerned, in terms of Italian peasants and their lives. And whilst the various Prime Ministers will telegraph something suitable, drafted by their private secretaries, to the effect that America's action makes the moment of writing the most important in the history of the world and proves that Americans are the noblest creatures living, America must not expect adequate or appropriate thanks.

Nevertheless, since time presses, we cannot rely on American assistance, and we must do without it if necessary. If America does not feel ready to participate in a Conference of Revision and Reconstruction, Great Britain should be prepared to do her part in the cancelation of paper claims, irrespective of similar action by the United States.

The simplicity of my plan may be emphasized by summarizing it. (1) Great Britain, and if possible America too, to cancel all the debts owing them from the Governments of Europe and to waive their claims to any share of German Reparation; (2) Germany to pay 1260 million gold marks (£63,000,000 gold) per annum for 30 years, and to hold available a lump sum of 1000 million gold marks for assistance to Poland and Austria; (3) this annual payment to be assigned in the shares 1080 million gold marks to France and 180 million to Belgium.

This would be a just, sensible, and permanent settlement. If France were to refuse it, she would indeed be sacrificing the substance to the shadow. In spite of superficial appearances to the contrary, it is also in the self–interest of Great Britain. Perhaps British public opinion, profoundly altered though it now is, may not yet be reconciled to obtaining nothing. But this is a case where a wise nation will do best by acting in a large way. I have not neglected to consider with care the various possible devices by which Great Britain might get, or appear to get, something for herself from the settlement. She might take, for instance, in satisfaction of her claims some of the C Bonds under the London Settlement, which, having a third priority after provision for the A and B Bonds, can be given a nominal value but are really worth nothing. She might, in lieu of receiving a share of the proceeds of the German customs, stipulate that her goods should be admitted into Germany free of duty. She might seek a partial control over German industries, or obtain the services of German organization for the future exploitation of Russia. Plans of this sort attract an ingenious mind and are not to be discarded too hastily. Yet I prefer the simple plan, and I believe that all these devices are contrary to true wisdom.

There is a disposition in some quarters to insist that any concessions to France by Great Britain and the United States, affecting Reparation and Inter–Ally Debt, should be conditional on France's acceptance of a more pacific policy towards the rest of the world than that to which she herself appears to be inclined. I hope that France will abandon her opposition to proposals for reduced military and naval establishments. What a handicap her youth will suffer if she maintains conscription whilst her neighbors, voluntarily or involuntarily, have abandoned it! Does she realize the impossibility of friendship between Great Britain and any neighboring Power which embarks on a large program of submarines? I hope, too, that France will forget her dangerous ambitions in Central Europe and will limit strictly those in the Near East; for both are based on rubbishy foundations and will bring her no good. That she has anything to fear from Germany in the future which we can foresee, except what she may herself provoke, is a delusion. When Germany has recovered her strength and pride, as in due time she will, many years must pass before she again casts her eyes Westward. Germany's future now lies to the East, and in that direction her hopes and ambitions, when they revive, will certainly turn.

France has an opportunity now of consolidating her national position into one of the stablest, safest, richest on the face of the earth; self–contained; well– but not over–populated; the heir of a peculiar and splendid civilization. Neither whining about devastated districts, which are easily repaired, nor boasting of military hegemonies, which can quickly ruin her, let her lift up her head as the leader and mistress of Europe in the peaceful practices of the mind.

Nevertheless, these objects are not to be gained by bargaining and cannot be imposed from without. Therefore they must not be dragged into the Reparation Settlement. This Settlement must be offered France on one condition only,—that she accepts it. But if, like Shylock, she claims her pound of flesh, then let the Law prevail. Let her have her bond, and let us have our bonds too. Let her get what she can from Germany and pay what she owes to the United States and England.

The chief question for dispute is, perhaps, whether an annual payment by Germany of £63,000,000 (gold) is enough. I admit that the payment of a somewhat larger sum may prove to be within her capacity. But I recommend this figure because on the one hand it is sufficient to restore the destruction done in France, yet on the other is not so crushing that, to make Germany pay it, we need be in a position to invade her every spring and autumn. We must fix the payment at an amount which Germany herself will recognize as not unjust, and which is sufficiently within her maximum capacity to leave her some incentive to work and pay it off.

Suppose that we knew the theoretical maximum of Germany's capacity to produce and sell abroad a surplus of goods, or could hit on some sliding scale which would automatically absorb year by year whatever surplus there was; should we be wise to demand it? The project of extracting at the point of the bayonet—for that is what it would mean—a payment so heavy that it would never be paid voluntarily, and to go on doing this until all the makers of the Peace Treaty of Versailles have been long dead and buried in their local Valhallas, is neither good nor sensible.

My own proposals, moderate though they may seem in comparison with others, throw on Germany a very great burden. They procure for France an enormous benefit. Frenchmen, having fed to satiety on imaginary figures, are nearly ready, I think, to find a surprising flavor and piquancy in real ones. Let them consider what a tremendous financial strength my scheme would give them. Freed from external debt, they would receive in real values each year for thirty years a payment equivalent in gold to nearly half the gold reserve now held by the Bank of France; and at the end of the set period Germany would have paid back ten times what she took after 1870.

Is it for Englishmen to complain? Are they really losers? One cannot cast up a balance–sheet between incommensurables. But peace and amity might be won for Europe. And England is only asked (as I fancy she knows pretty well, by now, in her bones) to give up something which she will never get anyhow. The alternative is that we and the United States will be jockeyed out of our claims amidst a general international disgust.