Pollyanna Scrapped

The big oval table in the Bank for International Settlements at Basle, Switzerland has been strewn every day for nearly three weeks with shiny leather portfolios, smudgy glass ashtrays, trim boxes of bank pins, glass wells full of purple and red ink, blotters with round bottoms like a child's tumble-toy, glass-stoppered carafes full of plain water and, in neat piles, hundreds of sheets of foolscap (see cut). Thus equipped the 14 men around the table (twelve august finance experts, two alert interpreters) have been toiling and quarreling as the Young Plan Advisory Committee on Germany's capacity-to-pay (TIME, Dec. 21). Last week they destroyed their first report, which had left them frostily at odds around their oval table. Then, spurred by the approach of Christmas, they swiftly drafted a second report, signed it unanimously and were through. Meeting at The Hague in mid-January, statesmen of the Great Powers will act on the report, will once more "finally decide'' what Germany must pay on her: 1) non-postponable Reparations; 2) postponable Reparations; 3) short-term debts.

Cynically last week the Committee's first report (secret and later suppressed) was called in Basle the "Pollyanna Report." With hard-boiled optimism it upheld the French thesis that Germany cannot remain forever unable to pay her debts, that when prosperity returns she should pay what she owes under the Young Plan which must be kept intact. The paradoxically hard-boiled "Pollyanna Report" was drafted by Britain's young delegate, Sir Walter Thomas Layton, 47, no glad-man (extreme right in cut).

Battling against this first report, plump German Delegate Dr. Carl Melchior was backed by "The Three Little Neutrals": Switzerland's Dr. Brindschedla, Holland's Mynheer Colijin, Sweden's Herr Rydbeck. They deadlocked the Committee which found itself obliged to draft and lay before the world a second and quite different report with these conclusions:

1) Germany "would be justified in declaring . . . that . . . she will not be able" to make her postponable Young Plan payment of $268.000,000 due next July--the alternative being to postpone the said payment for two years by invoking the safeguard clause of the Young Plan.

2) The Committee implied that Germany will also be unable to make the whole of her non-postponable Young Plan payment of $157,000,000 next July, although there is no mechanism in the Young Plan to permit postponement of what is explicitly non-postponable. Damning the Plan at this point the Committee said: "The Young Plan, with its rising series of annuities, contemplated a steady expansion in world trade, not merely in volume but in value, in which the annuities payable by Germany would become a factor of diminishing importance. In fact, the opposite has been the case. Since the Young Plan came into effect, not only has the trade of the world shrunk in volume but the very exceptional fall in gold prices that has occurred in the last two years has itself added greatly to the real burden, not only of German annuities but of all payments fixed in gold."

3) The Committee, although not empowered to report on Allied War Debts which form no part of the Young Plan, concluded: "The adjustment of all intergovernmental debts to the existing troubled situation of the world--and the adjustment should take place without delay if new disasters are to be avoided--is the only lasting step capable of re-establishing confidence, which is the very condition of economic stability and real peace."

To absolve the Hoover Administration of complicity in the Committee's flat linkage of Reparations with War Debts, close-mouthed U. S. Delegate Walter W. Stewart, board chairman of Case, Pomeroy & Co. of Manhattan, announced: "I have not had one word from Washington since this Committee began its work and I have not sent one word to Washington since I came here." Thus President Hoover has been officially in complete ignorance of what the U. S. delegate was doing and even of what other delegates were doing, since all sessions of the Conference were officially secret.

Significance. German papers hailed the Basle Report as "killing" the Young Plan. Germany's tired Chancellor Heinrich Briining called the Report "satisfactory" with a pale smile, then placed the tips of his fingers together and observed: "I think the next step will be a new agreement regarding the private credits 'frozen' in Germany under the stillhaltung agreement [TIME, Aug. 24 & 31]. ... The restrictions imposed upon the Basle Committee do not apply to the bankers' committee here in Berlin which can deal with the entire situation as a single problem."

Unfortunately, just two days earlier the terms proposed by U. S. Banker Albert Henry Wiggin for extending the short-term credits into long-term credits (at a reputedly "much higher" rate of interest) were flatly refused by the German bankers to whom the terms were offered. This deadlocked the bankers' committee which adjourned over the holidays.

In Washington, sonorous Senator Borah called again for "complete cancellation"; but in Paris the logical French press pointed out that the U. S. Congress had recently gone on record as unalterably opposed to cancellation (TIME, Dec. 28). With Premier Laval insisting that he would "hold tight" and that Germany's Young Plan obligations must be preserved intact (see p. 12) a complete deadlock from all fiscal and political angles faced The Hague Conference, which is to meet Jan. 18 and try to act on the Basle Report.

Obviously one of the deadlocked parties must and probably wall yield. The German bankers can accept Mr. Wiggin's "hard" terms for extension of their credits; or the U. S. bankers can take a loss; or short-term credits can be pooled with the Young Plan obligations. Likewise Germany can repudiate certain of her obligations ; the Allies can make similar moves respecting their debts to the U. S.; or Congress can yield, sanctioning a further moratorium; or The Hague Conference can take steps to decide the capacity-to-pay of the debtors involved and ask the creditors (the ultimate creditor being the U. S.) to settle on that basis.

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