Evening star., 1925-11-02
PLAN COMPROMISE
ON GERMAN LOANS
System of Credits in U. S.
May Help municipalities
Out of Troubles.
RY DAVID LAWRENCE.

The United States Government, act
ing with tho knowledge and To some
extent In accord with the wish of the
German government. has held up
nearly S125. .o00. 600 in loans which
American bankers have been ready to
make to German cities and states.
Naturally. the federal government
| in Germany looks askance Al any in
crease in the burdens of its cities and
states Just as in the United States the
President and his cabinet have from
time to time issued warnings against
tho increased borrowings of local com
munities.
But the indirect way in which the
Washington Government has inter
ested iteclf in the German sit uation
relates To another point which is en-
trely apart from the question of
local extravaganza. 1t concerns an
uncla ritied point in the Dawes plan
whereby the transfer committee is
obligated TO use its power and in
iuence To prevent any drop in for
eign exchange when reparation pay
mentS are due.
Might BE Embara Ssing.
The Dawes plan does not say how
, the power shall he exercised. If,
therefore. German cities and states
should morrow large sums in America
or elsewhere and then when the In
rerest pa yments come due the trans
fer committee should say that such
I interest payments cannot he made
hecauqe to do So would ship such an
amount Of gold out OF Germany as 10
disturb exchange. then an emha ass
ing situa ton would aris" FOR the in.
ve.tors who hold coupons on the
loans of German cities and states
The American Government cannot
undertake to approve or disAppr"Ne
For even enter objections To loans OF
this kind. hut under the cirCum-
stances warnings have heen sent in
writing and orally to New York
bankers rhat they cannot expect
diplomatic support II 4 few years
hence the interest payments are in
, terfered with by the transfer com
r1ittee.
Such a situation If uncured would
mean that German cities and states
would he without funds necessary to
their ordinary develnpment The
German government as a matter Of
form could not admit that the trans
fer committee has any right To pro
hihit interest payments on the loans
Of cities and states. on the other
hand. the finance ministry in Eerlln
has been comforting with tho repre-
sentatives of German states and mu-
inequalities regarding the nature Of
the loans To he made Upwards Of
% cities are in the market for loans
aCCregating about S2N5 .nor .nnh. since
such q large addition Ia Germany :
foreign indeht tedness would place q
heavy burden on exchange. the ad-
visory committee of the fna nee com
mittee has about come - the conClU-
sion that borrowings abroad should
he limited To extra ordinary Ca Ses. and
that foreign borrowings should be re
Stricted as far possible 10 private
corpora ions engaged IN reproductive
enterprises.
American bankers already have
placed loans for the cities Of Berlin.
Bremen. Cologne. Munich and ieidel-
berg and the states Of Sa Xony and
Ba varia. in addiIion to large loan
for the Central Bank OF Agriculture
netting about $40. 900 600. which when
added to the SllO.6nO 900 international !
loan under the Dawes plan. makes a
total Of 5000 900 900. This total does
not in the Judgment of officials on
both sides of the water. constitute
silm TOO large to he handled. So il may
he said confidently that the present
discussion does not affect thr value of
the loans to German cities and states
WnlCn ALREADY nave peeH Ii1dt'.
Compromise Worked Out.
The American Government has
finally worked ont plan which Is in
the nature of compromise about fu-
ture loans and may II accepted on all
sides solve the whole problem salts
factorily. The suggestion made by
the Washington Government is that
the Reichsbank in Germany shall
undertake to sCrutinize the applica
tionS for foreign loans to be made by
German cities and states. If the
ReichSba nix approves certain loans. il
will assure the investing public by its
action that interest payments will he
forthcoming out of gold credits es-
rablished in the United States and in
foreign countries. 1t will he noted
that DIR. II Hjalmar Schacht, president
of the Reichsba nix. is now in America.
the guest of Benja min Strong. gov
ernor of the Federal Reserve Bank Of
New York
DIR. Schacht was in Washington for
several days comforting with Secre
tarv Mellon and cabinet officials here.
There is every indication that the
problem now will he solved. both for
German municipalities and private in
dustrial enterprises. by the establish
ment of credits in foreign countries
which will not in any way come under
the scope OF the transfer committee
Of the Dawes plan, which commit
tee by the way. has declined To date
To issue any ruling on what its course
might he with respect to the ultimate
payment Of interest on loans out of
gold accumulated in Germany.
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