WAR DEBTS AND REPARATION.

HC Deb 03 August 1922 vol 157 cc1731-815

The CHANCELLOR of the EXCHEQUER (Sir Robert Horne)

Before the discussion takes place on the question of reparation, which it is intended to raise, it has been thought appropriate that I should give seine account of the position at the present time in relation to this subject. It is an intricate and complex question, and I am afraid that those whose duty it is to keep in touch with the various complexities are not always quite familiar with the position. Accordingly, I hope the House will forgive me if I venture to think that the present is not an inconvenient time to give a resumé, of the history of this matter. It is a question of infinite complexity, and I do not propose to go into detail, but I think it would be well that I should inform the House of some of the salient features of the history of the matter. It has often been erroneously stated that the Treaty of Versailles finally fixed the amount of reparation that has to be paid by Germany. That is an error. No final fixation was made by the Treaty. On the other hand, the Reparation Commission was set up, whose duty it was to fix first, the total liability of Germany, and thereafter, from time to time, as circumstances changed, the amount which it was then obvious that Germany could pay.

In the year 1921, the Reparation Commission fixed as the total liability the amount at 132 milliards of gold marks, which, converted into pounds sterling, represented £6,600,000,000. That sum was exclusive of the cost to be attributed to Armies of Occupation. It was to be expressed in three series of Bonds, and in payment of interest and sinking fund on these bonds, Germany is pledged in each year to pay a sum of £100,000,000 sterling, together with an amount which was assessed at 26 per cent. of the value of the exports of Germany. This figure of 26 per cent., it was agreed, might be exacted by any of the individual powers by putting an import duty on goods coming from Germany, and by that means collecting the amount for itself which was due under this head of reparation. Of course, that sum had to be credited to Germany in respect of the payment so exacted from her.

4.0 P.M.

Perhaps the House would like to know that, under the import duties imposed by the German Reparation (Recovery) Act, Great Britain has, since the inception of the Act, collected a sum just on £6,000,000 sterling, so that the Act has been entirely justified. I ought to say that the provision that £100,000,000 sterling should be paid every year included the condition that it should be paid by quarterly instalments, but there was a provisional arrangement that two instalments should be paid together for the year 1921. Germany discharged her obligation last year; in respect of her two instalments, she paid £50,000,000 sterling. She also paid the amount which was represented by the figure of 26 per cent. upon the exports from Germany. But towards the end of the year conditions in Germany became very embarrassed. The mark dropped, I think, from the figure of 250 to the pound sterling at the beginning of the year to a figure of over 800 to the pound sterling at the end of the year. It was obvious that Germany was going to have great difficulties in meeting her obligations in the succeeding year, and, accordingly, a meeting was held in London between M. Briand, the then Prime Minister of France, and my right hon. Friend the Prime Minister, by which arrangements were arrived at for a recommendation to the various Allies as to a modification of the amount of reparation which Germany was to pay in the year 1922. These recommendations were put before a Conference of the Allies which took place at Cannes at the beginning of this year. In the course of that Conference, we were on the eve of arriving at a settled conclusion when, as the House will remember the Government then in power in France came to an end, and M. Briand ceased to hold office.

A modus vivendi was arranged by the Reparation Commission which had been assembled at Cannes, and on 21st March of the present year, after a meeting between the Allied Finance Ministers in Paris, the Reparation Commission imposed upon Germany a modified obligation in respect of reparation during this year. That modified arrangement was that Germany should pay, instead of the £100,000,000 plus 26 per cent. of the value of exports, which had been the original stipulation, £36,000,000 sterling in cash, and the equivalent of £72,500,000 sterling in kind. That was regarded by Germany as a measure of relief, although perhaps not all the relief which they desired. Nevertheless, it was thought that it was within their competence. The Reparation Commission, however, attached conditions to this modified obligation. They took account of the fact that Germany was not raising enough by taxation to meet her expenditure, and they informed Germany that it would be her duty to impose new taxes, and also that she should increase the burden of the existing taxation. They also took account of the fact that Germany's expenditure should be revised. There was obviously much need for that course being followed for this reason. While Germany, as a State, was unable to meet her obligations, she was, in fact, granting large subsidies to her own population, which had the obvious effect of making her industrialists wealthy while it depleted the resources of the State.

Lieut.-Commander KENWORTHY

No.

Sir R. HORNE

The hon. and gallant Gentleman can take exception to this statement in his speech if he thinks it wise, but I thought the fact was known to everybody who has studied the condition of Germany. That, of course, created great disquietude among those who were endeavouring to maintain a moderate position for Germany as against those who wished to exact more from her than she was in a position to pay.

Sir DONALD MACLEAN

Could the right hon. Gentleman say what were the subsidies?

Sir R. HORNE

She was subsidising bread, and, as my right hon. Friend will realise, the effect of that subsidy was to enable industrialists to obtain labour at a cheaper rate. They were also operating their railways at a very considerable deficiency. The result of that was that goods could be carried lower than at a proper freight. They were also receiving from their Post Office much less revenue than it cost to operate. The attention of the German Government was directed to these facts, and they were asked to get rid of that form of subsidy and to make the Departments which the State thus operated revenue-producing services, or at least to conduct them that they would not produce a loss. Then the German Government were asked to suggest a scheme for preventing the flight of capital from Germany. That is also a subject which I am sure is well known to Members of this House, because, undoubtedly, it was a fact, as one would have expected, that capital which felt itself insecure in Germany was taking flight to other countries. It was easier to ask for a scheme in a matter of that kind than it was to provide one. Then the Reparation Commission suggested that the Reichs Bank should be free of the control of the Government. That also was important, because, of course, if you have a bank that is absolutely subservient to the Government, it is obvious that the manipulation of paper currency becomes easier than if you have a bank in a position of autonomy. The other recommendations were these: that financial statistics should be published upon the same basis as before the War, and that all information with regard to the revenue and expenditure of Germany should be open to the Committee of Guarantees which had been set up under the London Agreement in order to supervise, to such extent as was possible, the arrangements with Germany to meet its obligations.

Payments were made by Germany under these arrangements. Up till 15th June all instalments were paid. Then, at the end of June, as the House will remember, there occurred the deplorable murder of Dr. Rathenau, and there followed a distinct depreciation in the mark as a consequence of the unsettlement which was caused by this indication of trouble in Germany. On 12th July, the German Government asked the Reparation Commission for a moratorium on their payments. They said they were unable to meet the next payment which was due on 15th July, and they proposed that the moratorium should be granted to Germany on all payments down to the end of the year 1924. The Reparation Commission replied to that request that the difficulties in Germany were caused, not merely by the necessity of making payments in the shape of reparation, but by causes for which the German Government were themselves, to some extent, responsible. They accordingly asked that the payment due on 15th July should be made, and they said that they would give a definite reply to the general question prior to 15th August, when the next payment became due. In the meantime the Committee of Guarantees were to be engaged in an investigation in Berlin of the position of Germany, and they would have the report of that Committee before the general reply was given prior to the payment of 15th August. We are now, as the House knows, close up to the date, 15th August. The Committee of Guarantees has been at work in Berlin, and they have gone back to Paris where their report is being discussed. But it has not yet been finally presented to the Reparation Commission, and, accordingly, I am not in a position to inform the House of their precise conclusion. But I am able to say this much with, I think, pretty accurate information. The new taxes which it was suggested should be imposed in Germany have been imposed. The old taxes which it was thought could be increased have not been increased, because it was not supposed to be feasible, but, in lieu thereof, Germany has issued a compulsory loan to the amount of 70 milliard marks.

Major Sir GEORGE HAMILTON

What are they worth?

Sir R. HORNE

They are worth rather less than £20,000,000. At the time that the loan was projected I suppose it was worth something more nearly like £50,000,000. That variation in value shows the great difficulty which Germany has in combating the trouble in which she finds herself.

Lord ROBERT CECIL

What about the subsidies?

Sir R. HORNE

The subsidies have been abolished. With regard to the suggestion of an arrangement for preventing the flight of capital, the proposal which has been made and which, I think, is to be carried into effect, is that the Finance Ministry is to issue a licence to all people who desire to buy foreign exchange, but exemption may be given to firms who require facilities in foreign countries for obtaining the raw material for their business. These are general exemptions, but the Ministry of Finance reserves the right to obtain a scrutiny of the books if any firms who have such an exemption. They can make investigation at any time, they like and consider whether the amount which the firm is buying in the shape of foreign exchange is justified by the amount of business which they are conducting, and a severe penalty may be imposed where it is found that any person is abusing the right of exemption which is obtained. Frankly, although, as I understand, this arrangement satisfies those who are most anxious to have some such arrangement, in my view the only real and ultimately effective method of preventing the flight of capital from Germany is to make the people who hold capital have sufficient confidence in Germany to keep it there.

With regard to the Riechsbank, a law has been passed by which the Directors of the Bank have now the complete control of its operations, and the appointment of the directors will be under the control of the shareholders. The statistics which are required are promised to be provided, and, so far as the supervision of revenue and expenditure is concerned, I understand that it is agreed by the German Government that a member of the Commitee of Guarantees shall have full access to all documents and eaters in connection with revenue, and that another member shall have access to all documents and papers connected with expenditure, and that it shall be open to the members of the Committee of Guarantees to report to the Reparation Commission upon any matters to which they think attention should be drawn, either as to remissness in the collection of taxation or extravagance in the matter of expenditure. Accordingly, as I understand, though I am only speaking now from inadequate information, in the absence of reports from the Committee of Guarantees, for the most part the German Government has met the requirements which the Reparation Commission imposed on it. That is, I understand, the situation to-day.

To complete the story of this matter, I ought to make some reference to the Committee of Bankers which, as the House knows, assembled in Paris in the present year. At the instigation of the British Delegate on the Reparation Commission, they were assembled for the purpose of reporting what were the conditions upon which a loan could be obtained by Germany in the markets of the world. The House will readily understand that, in the condition in which Germany was and is, a loan seemed the only feasible method by which she would be enabled to discharge the immediate obligations in payment of the reparations which she owes to the Allies. This Committee of Bankers met on the 1st June. They inquired whether the set amounts in the Schedule of Payments were unalterable. That was, of course, directed to the essential question as to whether the amount, £6,600,000,000 sterling, set out in the Schedule of Payments, was to be regarded as the minimum of Germany's obligation to the Allies.

The answer given by the Reparation Commission—by a majority—was that they were not precluded from examining any conditions which would affect such a loan. But the French representative on this Commission dissented from this finding. He was alone, as I understand. In the result on the 10th June the Committee reported that they could not usefully continue to work. They said that the prospect of a loan would depend upon a favourable atmosphere, and that the conditions in which they were asked to perform their duty did not satisfy the necessity of the case. They pointed out in their Report that nothing could be clone with regard to a loan unless German credit was generally re-established, and they said that that would require some more or less permanent settlement of the reparations problem. They expressed the conviction that it was desirable to have such a definite settlement of reparations payments, and they indicated their willingness to meet again if France would adhere to the decision of the majority. The French representative on the Bankers Committee signed a Minority Report, refusing to contemplate new limitations on the amount of German liability, and, accordingly, the matter ended at that point.

Lieut.-Commander KENWORTHY

What were the countries represented?

Sir R. HORNE

I understand that the hon. and gallant Member refers to the Bankers Committee. The countries represented were England, Belgium, Italy, America and France, with a German representative and a neutral banker. The House will want to know what Germany has actually paid since the Armistice. I hope that I am making the history of this matter clear. There has been paid in cash to the Reparations Commission £77,000,000 sterling, and locally there has been paid in paper marks to the Armies of Occupation a sum which is the equivalent of £30,000,000 sterling, making in all in cash £107,000,000 sterling. There have been certain further payments in supplies to the Armies, the value of which I do not find it possible to compute. To these there have to be added the following items. Value of ships, coal, and payments in kind, £160,000,000. Value of Government properties in ceded territories, for example, in Poland, Danzig and Czecho-Slovakia, £125,000,000 Of course, these properties have all gone to the countries in which they are situated. The Saar Mines, which France obtained, and some minor items are estimated to be of the value, approximately, of £23,000,000 sterling. In all, the figures which I have given represent £415,000,000 sterling. I am excluding now what you would call State territories, which have transferred their allegiance from one Government to another. I am only taking the properties in the ceded territories which are definite Government properties, and have been transferred to the Government in which they are now.

Of this sum of £415,000,000 sterling, Britain has obtained £56,000,000 sterling. Practically the whole of that has been spent on the Armies of Occupation. That seems a large sum, but I would like the House to know that the great bulk of that expenditure was in the earlier period, between the Armistice and the time when peace was signed, when large armies were maintained by all the nations, and that to-day the cost of the British Army of Occupation is not more than £2,000,000 in the year. In fact, I should think that it would work out at less, and the cost of all the Armies of Occupation together is fixed not to exceed £11,000,000 sterling in the year.

In addition to these sums, there has been another matter which has attained some prominence in the last ten days. I daresay that the House appreciates that there is an arrangement by which individual creditors in Great Britain and France obtained payment through the German Government of debts due to them by individual debtors in Germany. These sums pass through a clearing house both in England and in Germany, and this matter has this importance that, though it is not one of the items in reparations, yet since this money has got to be found, cash has got to be found by the German Government, it affects the capacity of the German Government in finding the currency to perform their other obligations in the shape of reparations.

The amount which they have paid under the clearing-house system in all is, up to the present, £38,000,000 sterling. Of that sum, Britain has received £22,000,000 sterling France £12,000,000 and Belgium £2,500,000. There is still due to the Allies £35,000,000, of which £12,500,000 is due to us. The arrangement for payment involves that Germany should pay £2,000,000 per month towards these purposes, and I feel sure that Members who have read the newspaper Press recently will know that a difficulty has arisen in respect of this matter. The German Government have asked the Allies to allow the sum of £2,000,000 per month to be reduced to £500,000 per month. The French Government several days ago sent a reply which asserted that they were unwilling to assent to any such reduction, and another reply in that sense has been again received from the French Government within the last day or two.

Mr. ASQUITH

That £2,000,000 per month refers to private debts?

Sir R. HORNE

Yes, for which the German Government take the responsibility of finding the money, and, of course, that is a question which will come up for consideration at the meeting which is to take place on Monday between the French Prime Minister and the Prime Minister of England. I see that it is suggested in some organs of the Press that the action of the French Government was a reply to the despatch issued by Lord Balfour two days ago, but anybody who looks at the dates will see how impossible that is. In point of fact, the ultimatum of the French Government was issued several days before Lord Balfour's despatch was known to the world at all.

I am going to venture to deal with a question which is often put to me, and which, perhaps, creates the same puzzle in the minds of many hon. Members as it at first. did in my own, and as it certainly still does in the minds of many other people. The question is often stated thus. How is it that Germany, which is a well disciplined, well organised country, which has all the equipment which it possessed before the War left undamaged and undevastated, which has an industrial people, and which has had practically no unemployment during the last three years—How is it that a country of which these things can be said has been unable to provide snore than the amounts which it has been able to provide towards the payment of reparations?

Sometimes the question is accompanied by a reference to the case of the indemnity which France paid to Germany between the years 1871 and 1873. At that time, between the 1st May, 1871, and late in the year 1873, France, in fact, paid Germany an indemnity of £212,000,000 sterling. It is asked, how was it that France was able to do that in that period of time, and Germany, a country with a much greater population, in some respects better organised industrially, has so far failed to meet that which we expected of her? If I may take up the time of the House for a few minutes, I would like to indicate what, in my belief, are the elements of difference between the cases and where the explanation lies of the puzzle. In the first place, the Franco-Prussian War was a very short war. It lasted so short a time that France's foreign balances remained substantially intact. Her annual income from foreign investments was scarcely touched, and it was considerable. Looking to these considerations, she was able to obtain a loan from other countries. In fact, France raised a loan, or loans, amounting to £71,000,000 sterling. Last, but not at all least among these considerations, she had a large trade balance in her favour, both in 1872 and in 1873.

All the conditions with regard to Germany are just the opposite. The War was a very costly war and lasted a very long time. In the process of it Germany's foreign balances and investments in allied countries were sequestrated and were confiscated by the Peace Treaty, so that she had nothing left in respect of those capabilities of wealth. Her investments in neutral countries were practically exhausted by purchases of food and raw material in the course of the War, and the liability that she has had for reparation has, of course, made it quite impossible for her to raise a loan, inasmuch as the items which are the security for the reparation would require to be made the security for the loan. So that every condition which favoured France was absent in the case of Germany. But that is not all. Such resources as were left in Germany had to be drawn on heavily after the War for purposes other than reparation. During the War Germany was denuded of practically every class of stock, including food supplies, and that was so completely recognised by the Allies that permission was given her to use a portion of her stock of gold in the purchase of food immediately after the War. In fact, she had to spend £250,000,000 sterling in obtaining What was mostly food supplies and fodder. Fifty million pounds of that £250,000,000 was provided from a store of gold; £10,000,000 was provided from the sale of securities; and—this is the important point—£190,000,000 was obtained by temporary credits and purchase of exchange.

As the House will realise, that involved the sale of enormous quantities of marks. There was a very great speculation in marks, which has resulted in large quantities of marks being held in foreign countries and thrown on the market at any time when there has been something in the nature of a panic in regard to the value of the mark. In addition to that, there has been regularly throughout the period a deficiency of exports over imports; the trade balance has been adverse. The result has been increasing sales of marks and increasing depreciation in the value of the mark. The last circumstance has brought about the process to which I referred earlier. Many people, in fear that the mark was to go very much lower in value, sent what capital they had abroad. There is a certain amount of exaggeration with regard to that particular fact. I do not think there is anything like the amount of German capital abroad that some people suppose and that many people assert. It is necessary for a country like Germany, which is a manufacturing and industrial country, to have large stocks of foreign currency for the purpose of providing itself with the raw material necessary for carrying on its business, and nobody has any right to refer to that body of foreign currency as being in any sense illegitimate. I think there has been a certain amount of export of German capita] to foreign countries, as one would naturally expect. But my own belief is that the amount is very greatly exaggerated in most of the speeches that one sees on the subject.

Lord R. CECIL

Can the right hon. Gentleman give an estimate?

Sir R. HORNE

I hesitate to give an estimate. My own view—I can give it only for what it is worth, for it is a wild guess—is that, in addition to what is required for trading purposes, the sum which is held abroad by German investors is not more than £100,000,000 sterling. That is the maximum, I think.

I wish the House also to understand that while Germany has been the victim of the circumstances which I have described, she has to a considerable extent been the author of her own misfortunes. During the War she constantly met her expenditure by borrowing and not by taxation. In that respect she was a great contrast to this country. The result was that when the War ceased the system of taxation in Germany was wholly inadequate for the purpose of raising the revenue necessary to meet her expenditure. The Germans made no attempt at all to balance their Budgets. Deficits were met by printing notes, and, as the mark depreciated, salaries and wages increased, and as they increased more notes had to be printed and a corresponding depreciation took place in the mark, with the consequence that you had these two lines of inflation constantly pursuing each other in a vicious circle which Germany has not yet succeeded in breaking out of. That is one of the main reasons why Germany is in a very difficult position to-day.

We from this country for long have strenuously represented to Germany that until she made a change in her procedure no real progress could be made. I have given to the House particulars of the change which she has promised and has, to a certain extent, already put into operation. There is an improvement already as a result of the new measures taken. It is very slight, but still any improvement is all to the good. During the months from May to December, 1921, tax receipts were sufficient to cover only 63 per cent. of her domestic expenditure, but during the six months from January to June, after some of the reforms suggested had been put into operation, the tax receipts fully covered her domestic expenditure and left a balance over—even though a small one only—towards the expenses which are required by the Peace Treaty. That change is due to some extent to getting rid of the subsidies and to a more rigid enforcement of the Income Tax. I dare say the House will appreciate the great difficulty with which the German Finance Minister is confronted in raising the requisite taxation when the medium in which he works varies with such extraordinary rapidity from one day to another.

In the result, I venture the opinion that Germany can pay very considerable sums in the shape of reparation. I have come to that deliberate conclusion after examination of all the circumstances. But I am equally clear that she requires some respite.

Lieut.-Commander KENWORTHY

Right at last!

Sir R. HORNE

I do not know why the hon. and gallant Gentleman should say that. I think the action taken last year and at the beginning of the present year shows that we thought it necessary that. Germany should have some respite in the present year. Nobody wishes that Germany should be derelict through too strenuous action on the part of the Allies. On the other hand, everybody must wish that Germany shall not escape the results of her own wrong, and I have no doubt at all that in Germany itself there would be a desire to pay that which is reasonable and proper, according to her capacity. That, at least, ought to be exacted from her. I do not go further into that matter at present, and I hope that the House will not expect me to do so. As the French Prime Minister is to be here next week, it is obvious that anything said now as to the line which will be taken by the British Government might very easily have an injurious effect upon the negotiations. I gather from the Press that the French Prime Minister has already indicated that he is coming here with certain proposals to make to us, and, of course, these will be fully considered with him and negotiations will take place upon them. I am sure that the House will desire that the British Government should be free to deal with any proposals which the French Prime Minister has to make without any entanglement from remarks or opinions that might be publicly expressed at the present time—expressions, perhaps, without sufficient knowledge of the merits of that which he is to suggest.

I turn, for a moment, to a subject which is connected with reparation, namely, the topic of inter-Allied indebtedness. Everybody in the House is familiar with the text of the dispatch which has been issued by Lord Balfour to the Allied nations. The statement of the case which is there presented is so clear that no comment or addition can possibly be required from me. The phraseology in which the views of His Majesty's Government are expressed is so felicitous that I might only weaken or even distort the argument by any clumsy efforts of my own to re-state the case of His Majesty's Government. Nevertheless, there are one or two matters which, before I sit, down, I would like to emphasise. In the first place, I wish to make it clear beyond all possibility of misapprehension that we realise and recognise to the full our obligation to pay our debt to the United States of America. We do not mean in any shape or form to evade that obligation, and we are sending a delegation to America this autumn for the express purpose of discussing the arrangements to be made for the funding of our debt. In fact, the whole foundation of the Note, which has been issued by the Acting Foreign Secretary, is that our debt to the United States of America must be paid.

While this is so, we have never been blind in this country to the colossal burden which is imposed upon the nations of the world, at the present time, because of the indebtedness of one nation to another, and we hold very strongly the view, that no greater impediment exists to-day to the recovery of the world from the disastrous consequences of the War than that burden of debt. The real significance of what I have said is not in any way weakened by the comment that, while we undoubtedly are in a position to pay our creditors, we might not be able to colleen our debts from our debtors. The true aspect of the position is that in addition to the £850,000,000 which we borrowed from the United States of America for the benefit of our Allies, £2.000,000,000 of our war debts of £7,700,000,000 sterling, represents money not spent by us or on our own behalf, but lent in the course of the War by us to our Allies. In any proposal which we might have been inclined to make, we would still for all time be enduring the burden of that large portion of our debt while, at the same time, our agreement or willingness to forego what Germany owes us by way of reparation, would obviously make it much more easy for our Allies to obtain from Germany reasonable payment for that which they have suffered in the course of the War.

We hold the view very strongly that to get rid of these indebtednesses as between the nations would be the first thing to bring about a revival in the world, to give a new impetus to the reconstruction of the world, and a new stimulus to enterprise. In my view, history will not put any inglorious estimate, either upon the stupendous sacrifices which Britain made during the War, nor on the great concessions which she has been willing to make since the peace, for the purpose of the reconstruction of the world. But we cannot be expected in this matter to stand alone. We cannot forget the condition of our own people, the hardships they are suffering at the present time, the distress and the agonies they are enduring, and the great financial burdens which they, nevertheless, have got to bear. As the result, already, of our sacrifices in the War, we have a burden of debt, which is, I think, greater than that of any other nation of the world. I do not want to make any comparison which might be regarded as invidious, but I think, in the particular circumstances at the present time, I might be allowed to make a comparison between our condition and that of the citizens of the United States of America, and of France. Our debt of £7,766,000,000 sterling compares with a debt of £5,147,000,000 sterling in the United States of America, and one of £6,340,000,000 sterling in France—a sum which includes her debt both to the United States of America and to us. While our debt is £181 per head of the population, that of the French citizen is £162, and of the American citizen £47.

Mr. ASQUITH

How much does France owe directly to the United States?

Sir R. HORNE

Speaking from memory, I think it is between £500,000,000 and £600,000,000 sterling. In addition to the question of the weight of debt, we tax ourselves more heavily than either of these great nations. The British nation is taxed at 17 guineas per head as against £9 per head in France. Both in direct and indirect taxation the British citizen pays more than the French. Income Tax raises £7 10s. per head here as against £1 per head in France, and the taxation on wines, spirits and beer hers is £3 12s per head as against £1 per head in France. Similarly, if a comparison is suggested with America, and every allowance is made for State imposts in that country, taxation is twice as heavy here as in the United States. Indeed I think it is more than twice, but it is at least twice as much. It is always very difficult, as the right hon. Gentleman the Member for Paisley will remember, to get at the exact amount of taxation levied by the individual States in America. It is not easy to arrive at an exact computation making every allowance, but I would say that the taxation in America is not more than half what it is here. I say in those circumstances it is impossible to ask the British taxpayer alone to shoulder the burden of payment of war debts. Whatever our wishes in other circumstances might have been, we have got to face the facts and adjust ourselves to the realities We must turn our backs upon things which perhaps all the world was waiting for, reflecting that if it had been possible that the nations who fought in the War side by side shared the same privations, faced the same trials, endured the same agonies and the same losses—if only they had been willing to regard their subscriptions to the common success as tributes to the cause for which they fought in unison we might have been able to rid the world of many occasions of irritation and plant in the heart of humanity a new and inspiring hope.

Mr. ASQUITH

I am sure I am expressing the universal opinion of the House when I say we are very much indebted to the right hon. Gentleman for the lucid and able exposition of a very complicated situation which he has given. It is most desirable, not only that this country, but that Europe and America, should know the real facts in regard to this matter. The figures which the right hon. Gentleman has quoted, and which I am sure have been thoroughly well sifted before he quoted them, in regard to—I will not say relative sacrifices, for that is not the question at all—but in regard to the actual contribution which this country has made, in a voluntarily imposed burden of taxation to meet the cost and sacrifices of the War should be well known everywhere. It is not, as one of our poets has said, an adjustment of nicely calculated less or more. Everybody did what they could. We are making no reflection upon any of our Allies or associates, nor are we indulging, I hope, in undue self-complacency ourselves, when we realise, as the right hon. Gentleman has enabled us to do, that nowhere in the world did a country impose such a heavy burden of actual current taxation upon itself. Before coming to the figures which the Chancellor of the Exchequer gave us, figures of great value and instruction, I want, for a few moments, to bring the attention of the House to the actual situation in which we stand. We are in the midst of another reparation crisis—the latest of a long series and I think, in some of its aspects, the most formidable. We are obviously coming to the end of temporary makeshifts, and all dilatory methods must now be abandoned, because the longer the real settlement is delayed—and by a real settlement I mean a final settlement—the worse the position becomes, and incidentally the less the Allies who have suffered from the War are likely to receive. It is no exaggeration to say that the fortunes and the future of French and German finance, international trade and European peace, are all involved. The Government have taken the somewhat unusual step of issuing, as they did yesterday, a circular note of the Foreign Office. I say it quite frankly, that I confess I entertain grave misgiving whether its issue at this moment is politic or opportune. I earnestly hope—and I am speaking with perfect sincerity—that those misgivings may be falsified by events. At any rate I think it is our duty to-day—I shall certainly regard it as my duty—not to indulge in any criticism of the terms of that note in a polemical spirit. That will be done in due time. I am sure, by some of those to whom it was addressed,. The Government, of course, have, and must have, undivided responsibility for it, and I think it is not inopportune to make what contribution one can, with a sincere desire not further to embarrass an extremely grave situation. There is one paragraph in the Note to which I give the most hearty assent, and those are its concluding words, where the Acting Foreign Secretary says for the Government: So deeply are they convinced of the economic injury inflicted on the world by the existing state of things that this country would he prepared (subject to the just claims of other parts of the Empire) to abandon all further right to German reparation and all claims to repayment Allies by provided that this renunciation formed part of a general plan by which this great problem could be dealt with as a whole and find a satisfactory solution. That, I think, is an excellent sentiment, admirably expressed. Now I want, in the first place, to point out to the House what I think is a very important and, indeed, governing consideration in these matters, namely, the necessity of distinguishing between facts and words, and above all between figures and reality. That caution applies alike to the Allied claims on Germany for reparation, which are, of course, only an estimated sum, and the nominal indebtedness of the Allies, which is an indebtedness for money, or money's worth, actually received. The gross figures, as appears from this Note, of the Allied indebtedness to leaving out Russia—a most formidable item—amount on paper to £1,300,000,000. It is no use pretending that this is more than paper figure. It is as empty of meaning for practical purposes as. I regret to say, to me are the abstruse symbols of the higher mathematics. No mistake could be greater than to base upon those figures, as though they were realities, the assumption that that amount, or any substantial part of it, will, or can, be recovered. That is the first point which we ought to hear in mind.

5.0 P.M.

The next is that you should look at the actual situation in Europe. I have said, and said for a very long time, that the two problems of reparations and of Allied indebtedness are inextricable, and it is futile either to consider or to handle the one without the other. Now let me bring that proposition to a practical test by asking the House for a moment to consider the two European countries which, beside ourselves, are the most directly concerned—I mean Germany and France. The right hon. Gentleman has given us a lucid and informative account of the economic and financial situation in Germany. Under the Treaty of Versailles Germany was required to pay before the 1st May, 1921, £1,000,000,000. In point of fact, the right hon. Gentleman's figures correspond very much with those at which I had independently arrived; if you add up all the items in the account, ships, coal, dyes, property, even gold, she paid something slightly over £400,000,000. That was the state of the account at that date. The subsequent schemes of payment, settled first by the Reparation Commission, and afterwards, a year ago, by the London Conference, proved, in fact, unworkable.

The right hon. Gentleman has told us to-night that he agrees with a moratorium. I do not discuss its exact date, but a moratorium of some considerable length is agreed, I think he said, by all the representatives on the Reparation Commission, with the exception of the representative of France—a very important exception, I agree. You cannot obviously go on without such a moratorium. Let me just remind the House of the course of fluctuation in the German exchange during the last three years. At the end of 1918, at the time of the Armistice, the mark was 60; at the time of the London Conference, rather more than a year ago now, it was 245; in November of last year it was 1,000; and to-day it is somewhere between 3,000 and 4,000—in fact, I am not sure that to-day it does not exceed 4,000. That is a very remarkable and, indeed, unexampled fact in the history of financial exchanges. It is quite true, as the right hon. Gentleman has told us, that there have been contributory causes besides the incubus of the reparation claims. What are they? In the first place, there has been the deliberate and reckless inflation of the currency by the multiplication of paper money. In the next place, there has been an excess in Germany during all those years of imports over exports, which has had a very considerable effect. In the third place, it is undoubtedly true, for various reasons which it is not necessary to go into, that during that time the German nationals, that is to say, capitalists and investors, residing in Germany, have accumulated large credits in foreign countries. Those are all contributory causes, and I do not think we ought to minimise their importance, but the fact remains—and it is proved by the history of the fluctuation of the mark and the steady- deterioration, which has now gone on to unprecedented dimensions during the present year—that unless something is done, and done promptly, to arrest that course, Germany is heading straight for bankruptcy. There is no dispute about it. That has a vital aspect upon one aspect of the double problem of reparations and indebtedness; the adjustment of reparations to what. I may call payable dimensions, really payable dimensions, as regards total, as regards time, and as regards methods. That is the situation in Germany.

Let me now ask the House to look at the other great European country which is most directly concerned in this matter—I mean France. I know I shall not command universal assent in this, but I think in this country we have found, and still are finding, considerable difficulty in doing what we ought to do, in trying to look at, to appreciate, so far as we can to sympathise with, the French point of view. France is in this position—imagine yourself a Frenchman looking round at the situation now—that whilst she suffered more in material damage than any other country in the world, and has expended large sums, indeed enormous sums, not out of taxation, but out of borrowed money, year by year for the restoration of her devastated areas, she has received next to nothing from Germany—certainly nothing more, if it amounts to so much, as the cost of her army of occupation. She has received not a franc which could be applied to the reparation of the damage which she, above all other countries, sustained. Unless she receives speedy relief in some form or other, she is faced—I use moderate language when I say it—with an impossible financial situation. In those circumstances it can be under- stood why France is anxious for the fulfilment of the letter of the Treaty, and is indisposed to surrender any of the rights, either in the way of claims to reparation payments or the enforcement of guarantees which the Treaty assures her. That is the French point of view. You will never get to the root of this matter unless you try to put yourself, in imagination, in the position of all the countries concerned, including America. This is a problem, as I think a European problem, which we can only settle in conjunction with France, and by some settlement which can be only arrived at—I was very glad to hear that the French Prime Minister is coming here to discuss it with our Prime Minister next week—by mutual understanding, in which all the interests of the two countries, as well as the other countries in Europe, are fully taken into account That is the situation in France.

That has a vital influence on the other side of the two-fold problem, namely, the side of indebtedness. In my judgment, two things are absolutely essential if we are to deal adequately with this situation. What are they? Promptitude and certainty. The claim to reparation, as I have said already, not from any tenderness for Germany, but in our own interest, in the interest of our late Allies, but, above all, in the interest of international trade, should be definitely ascertained, should be scaled down to what is really practical. We should be ready, I think—I am glad to see the Note admits it—to forego our share, and, in regard to indebtedness, to remit what is due to us. That is no new opinion on my part.

The PRIME MINISTER (Mr. Lloyd George)

The Note does not say that we are prepared to remit all our claims unless there be all round remission.

Mr. ASQUITH

I go further.

The PRIME MINISTER

Yes, but that is not the Note.

Mr. ASQUITH

I am not quoting the Note now; I am expressing my own views, which are not the views of the Note at all. As I have said, that is no new opinion of mine, because, speaking as far back as February, 1920, two and a-half years ago—a long time in politics—when I was a candidate for Parliament, I said that, for my part, and I should not be at all surprised if the Chancellor of the Exchequer, now the Lord Privy Seal, agreed with me, if I were Budgeting in the future, I should write them off, and I have always been of that opinion. They are not good debts, not from any want of honour or good faith on the part of those who incurred them, but, without incurring something very nearly approaching national bankruptcy, they are not in a position to redeem their obligation. To remit, in my opinion, is not an act of magnamimity in the least. It is an act of good business. Let me say here—and now I am coming rather near the Note—there are, in my opinion, strong practical reasons against partial and contingent remission. I will tell the House what they are. In the first place, if you have partial and, still more, contingent remission, the European slate is not clean. It still remains with uncertain items, which may come in course of payment at indefinite and, probably, inconvenient tunes. In the next place, partial or contingent remission hangs up indefinitely under a cloud of uncertainty a fresh start in the general European economic life. Further, it interposes enormous and, I think, insuperable difficulties in the way of an international loan. Lastly, which is not the least important, it tends to stiffen the backbone, particularly in France, of those who maintain that if they are left with any part of the burden of these debts upon their shoulders, as they cannot discharge them themselves, they must shift them on to Germany. In other words, they will he harder than ever against any scaling down of the paper indebtedness of Germany. I think it is a thoroughly erroneous policy, when you are dealing with this, not to deal with it whole-heartedly, and, above all, not to deal with it in suchs way that this element of contingency will not hamper the whole future of European economic life.

I said a moment ago that there is another point of view which we ought to try, if we can, to realise, and that is the American. The United States of America know perfectly well—I am not dealing here with paper figures—that we in this country are both ready and able to redeem the whole of our indebtedness to them, and of that there ought to be, and there is, no doubt whatsoever on the other side of the Atlantic. I should very much deprecate any suggestion, direct or indirect, to the United States of America that they were under any obligation, moral or even sentimental, to abate in any way their just and righteous claim. But let me add this. I should be more than glad to see this question of American indebtedness kept quite apart from the pressing and urgent European situation. We may pay too high a price for strict logic and for abstract justice. It cannot be stated too strongly that this is purely a question of expediency and of policy, and, in the long run, their voice should be allowed to prevail.

Mr. WISE

I wish, as a back bencher, to thank the Chancellor of the Exchequer for his lucid and clear explanation of the European situation. There are two big problems in Germany, and they are interlaced with one another. I refer to (1) the political, and (2) the financial. With regard to the political, I cannot help thinking that to-day the political situation is worse than it was a year ago. The struggle which has started between the central Government in Bk3rlin and the Bavarian Government at Munich, is indeed a sore point. I think that this struggle is caused chiefly by the assassination of Dr. Rathenau, and you have, in the one case, the Berlin Government, which has brought in a new military law to endeavour to fight the assassins, disagreeing with the monarchical reactionaries in Munich. It is a dangerous situation. It has sprung up quite recently, and you cannot get confidence back to the country unless you have the political situation on a firm basis. The whole ethical situation of Germany has altered in the last 150 years. Germany in one sense has imposed on her system both political, moral and social, and the ex-Kaiser has been the head of that system. You should realise the position of Germany eight years ago when Germany was controlled by the ex-Kaiser, and where everybody knew his place, everybody obeyed his superior, and the ex-Kaiser was üfiber alies. We cannot get the financial position corrected, or into any sort of order until we see that the political situation is put on a firm basis. The cost of living which, at the time of the Armistice, was 60 per cent. above the pre-War level, is now 4,500 per cent. above that basis. If you want stability, you have got to give that country some hope, not necessarily for this generation, but for the generation to come.

I should like to refer to the financial position of Germany—my number 2 point. It is nearly four years since the Armistice, and with the mark at its enormous inflation, you cannot possibly get confidence back to anything near the 1914 basis. A year ago the mark was 280, and in this big inflation of 4,000, which it touched to-day, you have got to realise that that is equal to 20 in 1914. The whole financial policy of Germany is peculiar. You have a country with a depreciated currency, with the factories busy, and practically no unemployment. Certain people in this country think we should go back to a depreciated currency. I am dead against it. It would be the ruin of this country, which has to buy such an immense amount of commodities and raw materials from abroad. Germany is like a great bubble, and the more pressure you bring on to it, the more the bubble increases. But if you bring too much pressure on to it, you will find that that bubble will burst. We had only last week an instance of Germany getting into a worse financial position than she was previously by the rise in her bank rate. It has not been referred to to-day, but it is a very important point, and it is a point which must be realised that that bank rate has not risen since 1914. The flood of Fiat paper money is simply stupendous. In 1914 it was 2 milliard paper marks; at the Armistice, 27 milliard paper marks; and last week 179 milliard paper marks. The only way to deal with these paper marks is to devalue them. I mentioned last week in this House that Russia had started to devalue her rouble, which was 20,000,000 to the £. It has been reduced to 2,000 to the £. That is a start. Germany will have to do it and many other of the European countries as well.

Reference was made by the Chancellor of the Exchequer to the Budget of Germany. Perhaps I might be allowed to refer to the Budget Estimate for the fiscal year ending 31st March, 1923. It is divided into three sections. The first deals with general administration, the second with Government undertakings, and the third with the Peace Treaties. Let me deal with number one first—general administration. That includes the permanent expenses, the revenue, the taxes and items of that sort. It is often stated that Germany is not taxed. The estimate of taxation for this fiscal year, ending 31st March next, is 109 milliards of marks. If you put that on a gold basis it is £5,000,000,000. What I complain of is, that Germany may tax her people, but she is not collecting the taxes That is one of the important points. Number two of the Estimates is what is called Government undertakings, and this includes what has already been referred to by the Chancellor of the Exchequer—the Postal and Telegraph Services and the railways. In this fiscal year she estimates a loss of 2½ milliards on hot. Post Office and Telegraph Services and 17 milliards of marks on her railways. That should be stopped. With regard to number three, which is what is called the Peace Treaty Budget, there is an estimated loss of 226.5 milliards of marks. You cannot balance your Budget with a depreciated exchange. That is quite impossible. These large amounts which T have given by way of endeavouring to show the deficits are made up through this Fiat paper money, which is dealt with and sold wherever anybody will buy ii. There was a discussion recently of a loan for Germany that would help her and her credit, and I have taken from a German paper, the "Deutsche Allgemeine Zeitung," a letter written by Herr Stinnes, a gentleman probably known by name to many Members of this House. He says: A loan raised for reparation purposes would merely lead to a temporary change of our creditors. When its proceeds are used up we should have, not only to resume annual payments, but should have to add to them interest on the loan. Germany's gold payments would be increased permanently. It would mean filling a hole by making another. That is the opinion of one big commercial man. I feel that Germany does not want at the moment so much a loan as she wants credit. The Chancellor of the Exchequer has referred to the imports and, exports of Germany. He did not give any figures. Perhaps the House will bear with me if I just give them the figures for the last six months, which show the absolute impossibility of the financial position in that country. From January till 30th June the imports were 17,000,000 tons and the exports 12,000,000 tons. In value the imports were 142 milliards of marks and the exports were 130 milliards of marks.

Lieut.-Commander KENWORTHY

Gold marks?

Mr. WISE

No, paper marks! And the figures show that the imports were greater in this six months by 12 milliards of marks. If you put that on a gold basis, it means £600,000,000 for the half-year. There is no possible chance of Germany dealing with her financial position unless she devalues and starts almost afresh. The Chancellor of the Exchequer also referred to the migration of securities. He did not go into the details very closely. I cannot help thinking that there is more than £100,000,000 of private money outside Germany. I have in this House shown at various times how Germany has increased her holdings in various companies outside her own country. I think that should be taken in hand at once. Every day that migration of securities becomes more difficult because Germany sees, and sees wittingly, that she will endeavour, so far as she can, to get out of the reparation which is round her neck. We have to remember that Germany, at the London Conference, offered £2,500,000,000. Do not let us forget that. But there is no chance of getting that unless you have the political side in some sort of stability as well as the financial. Delay is dangerous. Delay is also costing money. Delay may mean that the bubble will burst.

I should like to refer to another country which is mixed up with reparation, and that is Austria. Austria has now a black cloud over her. Her quotation of exchange has gone up 250,000 compared with 24 in 1914. That explains the position in a nutshell. Why I mention Austria at the present time is that I feel Austria cannot live under present conditions. You have either to alter her boundary or join her up with another country. Something must be done. She is dying slowly. Look at the increased cost of living. Look at the prices in Austria during the last few months. Flour which was 70 kroner per kilogramme in 1921 has gone up to 800. Margarine which was 96 kroner per kilogramme has gone up to 2,420. People with fixed incomes have disappeared in Austria. But we have a great man there, Sir William Goode. He has endeavoured, and is still endeavouring, to bring Austria back to some sort of stability.

Let me also mention Poland, because it is all mixed up with reparations. You have to deal with the whole. It is not enough dealing with Germany alone. Poland is in almost as bad a position. Poland's estimated revenue was 38 milliard of Polish marks per month; this is working out at 12 milliard per month. The estimates are all wrong. I do not blame the Ministers, because I really feel that they have not. got men of ability and experience around them. There is another country I should like to mention, Mr. Deputy-Speaker, a country which I think would help our unemployed more than anything else. I refer to Turkey. I do wish we could get to terms with Turkey. You have again there the instability of the piastre, which was 110 in 1914 and is now 720. The imports into Turkey in 1921 were £121,000,000, and the exports in the same year only £30,000,000. That shows the position of the country and the instability of it. I think if we could get peace there it would bring back the trade we used to hold in 1914, when we carried on one-third of the trade with Turkey. If we had peace I feel confident it would help to relieve unemployment in this country.

My last point is the Allied debts. The settlement of Europe hangs on the Allied debts. It is no good considering that. there is much possibility of getting any of them, and I will state why I think so. Roughly, the House has been given the figures of what we owe and what we are owed. But let me put it in another way. Let me give the position of the big countries of Europe with regard to the War debt. The United Kingdom owes about £1,000,000,000. France owes £1,300,000,000—that is, to ourselves and to the United States; Italy, 1800,000,000; Russia, £700,000,000; Belgium, £200,000,000. If you add these together they give a total of £4,000,000,000. Then if you acid the reparations, which is £6,600,000,000, you get a total of £10,600,000,000 on a geld basis. It is quite impossible to think of paying these debts when practically every country has put up its tariffs against the others. Let me try to prove it. The total value of foreign trade of the world in 1913 was £7,700,000,000. If you double that, owing to increased prices, and call it £14,000,000,000, then it will be seen that it is quite impossible to pay, and not only not to pay the capital, but it is almost impossible to pay the interest.

The Chancellor of the Exchequer has referred to the Franco-German war. I was not going to allude to it, but I think we have to realise that that was not a world-war. We have to realise that we were able to lend France money, and through that she was able to pay her debts quicker than if it had been a world-war. But I should like to refer to what happened 100 years ago almost to this very day. This House was dealing with the Budget of 1822. There was a Member of the House then, a Mr. Grenfell—I do not know whether he is related to the present hon. Member for the City—but in his speech it is said that Mr. Grenfell begged to put a question referring to the Austrian loan from which he was sorry to see no sum carried to the credit of the year. He believed the amount was £17,000.000. Perhaps I may explain to the House that we lent Austria money in that war of 100 years ago. The reply of the Marquis of Londonderry was that The negotiation was still in progress, but from the state of Austrian finances a moderate compromise only could he expected. It would be too much for him to give any assurance that some arrangement might possibly be made, but. still he was not absolutely without hope in the matter. Out of that £17,000,000 we eventually received about £2,000,000, and we were glad to get that. We did not receive that until 1825. I feel confident that we can do nothing in a large way without the United States of America, because all these countries want credit, and we have not got all the credit to give them. Look at our debt with the United States. Take the interest. on it, which I agree must be met. It means about 1s. 6d. on the Income Tax, and then you are not allowing for the Sinking Fund. It is a very large amount, and it can only be paid for by the export of goods or in gold. I know that we have securities. I know that the Chancellor of the Exchequer realises that we still have a great number of American securities, and we could pay them in that way, but then you would be interfering with the individuals who have investments in the United States. We cannot get back to our normal trade until the debts are settled in some systematic or proper way. I suggest that we should get together with the United States. We ought to take a broad and courageous line, and only in that way can we think of getting back to the road to recovery. If we take that line, it will take years even then to get back to stability. We have to look ahead, and if we do that and deal with these problems in a businesslike way we shall get back eventually to stability, and look forward to permanent peace with security.

Colonel WEDGWOOD

The hon. Member who has just sat down always interests the House on financial questions. Although he gave us a very fair commentary on the present position of affairs in Europe, he did not answer the question which I wanted to put to him—what would he do in order to heal the disease of Europe. Does he approve or disapprove of the latest move of the Government, namely, the Balfour Note? That is the new fact which we have to consider to-day, and none of the previous speakers, not even the Chancellor of the Exchequer, has made it clear whether they were for or against the Balfour Note. It seems to me that this Note is the beginning of wisdom. It puts the cards upon the table as they ought to he. It enables us to look the financial difficulties of the world in the face, including America. Even the man in the street will see that it is obvious that we cannot pay our debts unless we are able to recover the debts owing to us. Anything else is Quixoticism and will not result in an actual carrying out of our obligations. We must expect to get something in, if not the whole, but, as the Balfour Note says, sufficient to enable us to square our debt with America. We cannot lightly disregard a permanent Income Tax of 1s. 6d. in the £ in order to feel good when we meet Americans. The arguments that are used, for instance, by the right hon. Gentleman the Member for Paisley (Mr. Asquith), and which I have seen used over and over again in the Press during the last fortnight, in favour of a one-sided cancellation of our debts, and that we should fulfil our obligations regardless of whether our debtors pay their debts to us; the argument that cancellation of debts would put Europe on its legs again seems to me to be quite unfounded. Beyond having a certain psychological effect it would do nothing to alter the actual position in Europe. If as part of a bargain of any one-sided cancellation of debt the French were to consent to accept a smaller sum in reparation from Germany, then, at any rate, something could be done, but even that itself will not put Europe on its legs again. Besides a reduction in the amount of reparations, besides a fixation if the amount of reparations, we want a different spirit right through Europe at the present time. If we cancelled the debts owing to us by France, Italy, and Belgium, there is nothing to assure us that that reduction of liability will not result in additional expenditure in those countries.

There is nothing to assure us for instance, that there will not be a larger expenditure on aeroplanes, or that the perpetual waste of the armies on the Rhine will not continue to drain the resources of Europe. There is nothing to assure us that the removal of this definite liability of debts will result in the various countries of Europe honestly balancing their Budgets and raising taxation to meet the debt. I think when we are reproached, as we have been during the last month, for a unilateral cancellation of debts, I think we must consider how the taxpayers of the two countries concerned in the transaction are going to be affected by this one-sided cancellation. We are told that. we are in a position to pay our debts, and that the French are not in that. position. What is the acid test of the ability to pay your debts? Surely it is the amount of taxation levied upon the people of a country.

I have taken the trouble to get out the figures of the per head taxation in France and the United Kingdom. From the statistics given before the Brussels Conference in 1920, I see that, reduced to an equivalent rate in dollars calculated on the rate of exchange at that time, France was paying in direct taxation 11 dollars per head of the population, and we were paying 49 dollars, which is more than four times as much as France pays in direct taxation. Turning to indirect taxation, France paid 14 dollars per head when we were paying 28 dollars per head. In other words, the taxpayers of this country, who are assumed, apparently, by the newspaper Press in this country as well in America and France to be able to meet their liabilities, are being taxed between twice and four times as much as the people in the countries with whom we are asked to have special sympathy, because they are quite unable to meet their liabilities. I think that alone is an argument which leads one to be satisfied that the Balfour Note, at any rate, does not put the case too unblushingly, from a materialistic point of view, so far as England is concerned. We contend in that Note that we are willing to cancel any superfluities of debt, but; I think we are entitled to ask from our debtors those sums winch we ourselves have got to pay over to America.

I have already said that a good deal more has got to be done if Europe, is to be put on its legs than the mere cancellation of debt whether it be a unilateral cancellation or not and a reduction in the amount of reparation. I am inclined to think that the last two months has made the problem of the reinstatement of Europe almost impossible. We have to look at what is going on in Europe. It is no good simply telling us, as one hon. Member has said, that the bubble will burst. The bubble does not burst as long as the various States in Europe can go on making their unfortunate nationals take their paper as good money, and so long as they go on printing more paper money as we see them doing in Germany the currency will continue to depreciate.

There is another point to be considered in this connection and it is whether a country will go bankrupt. Under present conditions not even Russia has gone bankrupt because what these countries do is merely to depreciate the currency and they meet the difficulty in that way. All over Europe the currency has depreciated, and then there has been a progressive movement. There has been, however, no country in Europe which has started depreciation and stopped it except France and Italy. Where the stoppage may be more or less temporary in all those countries if you go back 12 months the exchange was better. It is depreciating everywhere except in England because up to recently we have encouraged sound finance in this country. In all these other countries it is getting worse year after year and where the Austrian exchange is to-day we must expect the German exchange to be this time next year. In those countries the peasants on the land are quite prosperous even in Austria and they are prosperous where they are not starving even in Russia.

6.0 P.M.

The people who live on the land and produce the necessaries of life are all right, but the people who are suffering are the middle classes, who are ruined because their fixed incomes have become valueless. Take the workers in large industries which depend upon civilisation for their continuance. The industrial workers of Moscow and Petrograd have to go to the wall, and so have the industrial workers of Vienna. In spite of the exchange, industry becomes impossible when the exchange collapses in this way. When this condition of thing arises in Germany there is going to be trouble far worse than in Russia or Austria, because Germany cannot survive on its agriculture. Germany depends upon her industries, and when they cease there is going to be a disaster such as we have not seen in the four years of peace which we have experienced. One thing that is not always noticed, and which is really making things worse and worse in all these countries is that everybody up to now who has lent money in those countries has lost it. They lent their money when money was good in those countries, and they have been paid back when money was worth one-hundreth part of what it was worth when they lent it. Everybody who has lent money under those circumstances has lost it, and nobody will lend money today in Austria, Germany or Russia. It is fatal to lending when you feel that you will only get back one-hundredth part of what you lend, and the consequence is that the money demanded for accommodation is enormous. That alone does a very great deal to prevent the possibility of any industrial reconstruction in these dying countries. This is the abyss into which Europe is being driven, all Europe including France. It is of no use pretending that France is in a different position to Russia, Germany, Italy and Austria. As soon as the French realise that they are not likely to get these millions of reparation from Germany, as soon as that idea gets home, the French rente is likely to collapse, just as the other currencies have done, not so badly perhaps, because France is more of an agricultural country than Germany. Undoubtedly France cannot escape the cataclysm which is coming to Europe. In trying to save Europe, we are trying to save France; in trying to persuade France to save Europe, we are trying to persuade France to save herself. What is the position that is destroying Europe to-day? It is not only the financial uncertainty but it is the enormous expenditure on armaments and the unbalanced budgets. It is no good remitting debt and reducing reparation if all these little nations, from Poland to Finland or Serbia, are going to waste their money in building up gigantic armaments. You must somehow force them to balance their budgets. The French are talking of controlling the German Budget. I am glad to see that the Americans are giving the French advice as to how they can increase their revenue and meet their debts.

The position that faces the Prime Minister to-day in Europe is not simply a question of the translation of debt. It is not simply a question of the reduction of reparations; it is just as much his duty to cut down the waste of money on armaments throughout Europe, and to deal with the hopeless financial position which inevitably comes from unbalanced. Budgets. All along America has described this state of things, which we are only just beginning to realise in England, as a dog fight. They have said they will will not take any part in assisting Europe on to its legs as long as the dog fight is allowed to continue. That has been America's line for the last three years, ever since Wilson went under, and they will cut themselves adrift from Europe as long as Europe is thus afflicted with insanity. We have taken the other line. We tried Genoa. The Prime Minister went to Genoa believing that he could persuade France and M. Poincare, as he had persuaded M. Briand, that in the interests of France as well as of Europe it was advisable to relinquish a great part of the reparations claim. It is perhaps not going too far to say that the Prime Minister for the last year, by promises in one direction and another, has been attempting to bribe France to be good. Now he has changed his tactics. The Balfour Note is the change. It means we are taking up the same sort of attitude as America has consistently taken up.

Let the House consider what America has done by way of bringing pressure upon Europe to adopt a sane financial policy. America has not gone on its knees to either England or France or any other country to beg them to drop armaments or to adopt a sane attitude towards finance. Instead of that, they have asked for their debts to be funded; they not only ask that they should be funded, but they ask for interest to be paid upon them. They have asked this of France and Italy and other countries in order that they may realise the whip hand that the creditor has over the debtor. A very strong hold over Europe to-day is the fact that Europe owes America money. Then again, America suddenly shot in a new demand—an unexpected demand for their share of priority in reparation, in order to pay for the American troops in the Occupied Territory. That demand was made, not because. America wanted money, but because they wanted to have another screwdriver with which to drive sanity into the heads of the Allies and of the rest of Europe. In the same way, when the question of loans came up, when the bankers met to decide whether a loan could be given to Germany, the same line was taken by America, and they said that there should be no loan unless there was sanity in finance. Their refusal to take any part in the League of Nations, as at present constituted, is part of the scheme which prevents them helping Europe until Europe shows real signs of being willing to help itself. When we get, as I hope we shall soon, Germany into the League of Nations, when we get Russia in the League of Nations, which I also hope will soon occur, when we get armaments cut down on the Washington scale—not only Naval, but Aerial and Military—when we get Budgets balanced, then I think we shall find that America will take its part, not only in the reconstruction of Europe, but in the governance of Europe which the League of Nations must take up some time or another.

The Washington Conference itself shows the line which America wanted Europe to travel. That Conference was a great success and the Americans are proud of it. But it only touched the fringe of the difficulty. Capital ships were getting out of date in Europe before they were suppressed at Washington. There is still work to he done in the same direction, and I hope that this Balfour Note is the precursor of Conferences which will consider, not merely debts and reparations, but the stabilisation of Budgets and the suppression of the waste of money on armaments. The difficulty has been that the Americans themselves have had this Note suddenly sprung upon them at a time when they had been told by the most influential paper in the world that Great Britain was going to do something else, and was going to pay her debts and never be paid by anyone. How the "Times" continues to be considered an English paper I cannot understand. When the Balfour Note was read for the first time, the Americans seemed to think that it was directed against them. I should imagine the object of that Note was quite different. I should imagine the abject was to enable the Primo Minister next Monday to deal more satisfactorily with the Gentleman on the other side of the Table. The American criticism has been largely directed towards our supposed desire to appeal to their sympathies. No one likes having their sympathies appealed to, and I imagine the Americans feel over this question of debt just what the man in the street here feels when we are asked to cancel the French debt. I suppose the Note is to be used to show the French, the Italians, and the Belgians that there is no chance of the "Times" scheme being adopted, and that there is no chance of England being squeezed any more. But I think it ought to show America that we are coming round to their point of view, that we are adopting for the first time their attitude, and that we are allying ourselves with them in the problem how to deal with European insanity. I think the more we go on that line the quicker shall we be able to solve the problem. It is obvious that at the present moment, now that this policy has been adopted by the Government, there are snags ahead. We have adopted the policy. I hope we shall stick to it. The French are in the position now of either having to wait till it is really obvious to all men that they cannot possibly get their reparations from a bankrupt Germany, or else, alternatively, of acting on their own, seeking fresh sanctions and making the state of Europe more desperate than it is now. I hope they will take the first policy: It cannot be long before they must see that we and America are right in our methods of tackling the European problem. Sanity will come some time. I think it will come sooner after this pressure than it otherwise, would do. The French are bound to see sooner or later that their interests are ours as good Europeans.

But suppose they take the other line. Suppose they seize the Ruhr and carry on the occupation of the Rhineland after we and America have withdrawn our troops. What will happen then? Inevitably there must be disaster in Germany. The Republic in Germany will collapse. You will have a Monarchist counter-revolution. You will have in Germany the old Junkerdom enthroned It may be you will have civil war, or it may be they will he fighting the French. But, at any rate, you will have complete destruction of the remnants of civilisation in Europe. What line are we going to take under these circumstances? I hope this is only the beginning. I hope, whichever attitude the French take towards the question of reparations, the two Anglo-Saxon nations will come together and line up on this problem, acting in common, and that there will be no longer any suggestion of American isolation, but that England and America will be joined in their efforts to bring pressure to bear on the rest of Europe to adopt sane finance, to prevent waste on armaments, and, above all, to wipe out the tariff barriers that are obstructing the recovery of civilisation. If we-can work together on those lines, surely there is no power in the rest of Europe that ran stand against us.

Lord EUSTACE PERCY

The functions of this House in a Debate of this kind are somewhat doubtful. The House cannot, with any hope of success, attempt in such a Debate to excogitate lines of policy or try to influence negotiations which in these days are always going on, and in which to a great extent we have to give our representatives a free hand. But I think, perhaps, the' most useful function of a Debate of this nature at a moment like this is that it enables 'us to show the Government of the day that we are prepared to stand for certain things and to take responsibility for certain things. We have listened to a speech from the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) with which I have a good deal of sympathy. I have always advocated close working together between this country and the United States. I am afraid, however, that no really useful contribution can be made to this problem unless we recognise what are the necessary historical differences between the two countries. One of these is that America is not a signatory of the Treaty of Versailles, and we are. We are a signatory of a Treaty to which France has also affixed her signature, and, under that Treaty, we are bound to France in certain ways, of which reparation is one. I believe it to be necessary to revise that obligation, but, really, the hon. and gallant Member's proposal that, as the first step towards a revision of a written obligation, we should show France that we have the whip hand of her, is not calculated to smoothen out the beginning of the negotiations, nor is it likely to help to success in the end.

I want, if I may, to recall to the mind of the House one feature in the history of this problem. One thing which has largely contributed to the growing chaos on this question, which has driven the whole reparation problem, and the problem of the inter-Allied debts, down from depth to depth, almost to despair, has been the influence of political considerations in the different countries concerned—party political considerations in this country, in America, and in France. At every stage since the Armistice, when there seemed to be a hope of that ideal which the Chancellor of the Exchequer laid down to-day in his peroration—the ideal of a mutual cancellation of onerous obligations between nations who had fought together—every time there seemed to be a chance of the realisation, which is now shown in the Balfour Note, that reparations and inter-Allied debts are part of the same problem, at every such moment political considerations of one kind or another have intervened. Think for a moment of the Peace Conference. Personal reminiscences, especially from individuals who had no great responsibility at that Conference, are, I agree, of very little value, but, for what it is worth, I will say that I believe there was a real chance, in the first two months of that Conference, of really getting a cancellation of Allied debts in connection with the problem of reparations. It was not done. Let us remember what was the position of the two chief parties to the Peace Conference at that moment. There was the Prime Minister, fresh from the 1918 General Election, with certain pledges as to reparations which he had given; and there was President Wilson, prepared, like the Prime Minister, at that time to consider the whole question of the inter-Allied debts, but being advised by some of his economic advisers—who were also very deeply concerned in the political future of the Democratic party—that he must not give this handle to the Republicans, that the inter-Allied debts would be used in the campaign by the Republicans, and that he must not lay himself open to the danger of losing the next election. That is the kind of thing that has been going on ever since.

I agree with what was said by the right hon. Gentleman the Member for Paisley (Mr. Asquith), who asked that there should be no criticism of America, that we should understand America's point of view. At the same time, however, do not let us be mealy-mouthed about it. Do not let, us try and idealise the American attitude, as I think the hon. and gallant Member for Newcastle-under-Lyme does. The controlling fact in America at the present moment, as regards our debt to America, is that, again in the course of an election campaign, the people of America have been taught to believe that they can afford enormous soldiers' bonus payments, because they will get the money out of England. This is the kind of thing that is going on the whole time, and my fear at the present moment is that the Balfour Note represents another step on the same downward course—that, whatever be its actual purpose in international affairs at this moment, it will he used as an argument to the people of this country that we are standing up for having our debts by France and Italy paid, and that the people of this country will then find inevitably that, whether we cancel the Allied debts or not, whether we have hopes or not of the eventual payment of interest and sinking fund on those debts, we shall for the next three Budgets get practically nothing in the way of interest out of our Allies, while for the next three Budgets we shall also get no real progress in America towards a policy of the cancellation of our debt to America. Therefore, the burden of paying interest and sinking fund on the American debt must, for the next three years, lie on the people of this country, and the sooner they understand and realise it the better. That is the first thing that I wish to say, and I believe the people of this country would rather be told that, would rather face that fact, than be soothed down by any idea that it would be judicious or to their interest to try and get immediate interest payments out of the Allies. I am quite sure that, there is not a Member of this House who is not prepared to tell his constituents and to tell the country so, and to support the Government in such a policy if need be. Secondly, the Balfour Note warns the world that we hold certain trump cards in our hand.

Coronet WEDGWOOD

Hear, hear!

Lord E. PERCY

Yes, but at the very best, and even taking the hon. and gallant Member's estimate of the situation, they are trump cards which we cannot play for three or four years. For the moment we have no means of pressure on our Allies even if we wished to use it—no means of pressure which it would be judicious or convenient for us to use. We cannot expect to get anything out of them for the next three or four years. There is, however, one trump card which we do hold in connection with our negotiations with France, and it is a trump card to the use of which hon. Gentlemen opposite are, I am afraid, very much opposed, but which I am warmly in favour of using if the Government find it desirable to do so. Our real trump card is the pact of guarantee of the French frontier. Hon. Gentlemen opposite are very much against it. One of their objections is, of course, an objection of principle—that it tends to militarism, to separate alliances instead of to general alliances within the orbit of the League of Nations. I understand that objection, and I appreciate it. My answer to it is that, if you believe, as the Noble Lord the Member for Hitchin (Lord B. Cecil) believes, and I agree with him, that disarmament, and with it the balancing of the Budgets, cannot really be expected except as part of a general arrangement by which joint guarantees shall be given as to the frontiers and the integrity of the contracting parties—if you believe that, and if you think, as we must, that from the point of view of France and Italy, and from the point of view of this economic problem of Europe, the necessity for disarmament is urgent and cannot wait for the gradual negotiation of such wide and sweeping guarantees, then you must believe that a guarantee to France alone is a necessity, as a first step if you like, towards that broader system.

While, however, that is one objection of substance, there is another objection in the minds of hon. Gentlemen opposite—the old objection which I mentioned at the beginning of my remarks, the objection that it is unpopular. Of course it is unpopular. Of course it is very easy to misrepresent it on the platform. It is very easy to be told that you are pledging the people of this country to more blood and agony in the trenches of France in the future. There is nothing more easy than to show its unpopularity, but, in spite of that, I believe that there are many Members of this House who are fully prepared to support the Government in such a guarantee to France as part of a general arrangement for the settlement of the economic situation in Europe—that we are prepared to accept that unpopularity, that we have no fear of facing it, because we know that while, no doubt, we are asking the people of this country under any such arrangement for great sacrifices, we are offering them in exchange the leadership of Europe, the respect of America, and the homage of the world. I feel sure that there are many Members of this House who believe in such a clear-cut policy as that, who will support any Government which comes forward with such a policy, and will support no other Government.

Mr. THOMAS SHAW

Like every other Member who listened to the Chancellor of the Exchequer, I should like to pay my humble meed of thanks to him for the extremely lucid speech that he made. I think that no one in the House, whatever his politics may be, could take exception either to the method or to the spirit that animated that speech. So far as the spirit was displayed, the spirit was excellent, but I am afraid that the cautiousness of the right. hon. Gentleman's race prevented him from saying many things that he might have said with advantage. After all, we have a right to speak very frankly both to the French and to the Americans. We were engaged with them in a great struggle; we sacrificed as they did; and we did, I think, save France from losing, if not her independence, at any rate a considerable degree of that independence. If we feel that it is a necessity to speak quite frankly to an Ally, I think we have that right, provided that the frankness of our speech is animated by a real friendliness towards the nation to whom we speak, and towards Europe as a whole. We must try, as the Chancellor of the Exchequer asked us to do, to visualise the psychology of the French. Anyone who has travelled extensively in France, and has spoken with French people of all types, knows that, rightly or wrongly, there is in the French mind a fear that Germany will attack France again. Whether one believes that to be a possibility or not—and I do not believe it to be a possibility—one must take account of the fact that French people, generally speaking, do believe it to be a possibility, and must, accordingly, judge French policy and French tactics from the point of view of the state of mind of the French people.

But while one tries to recognise the psychology of the French, while one tries to put oneself so far as is possible in the position of the Frenchman, there are other things that one ought to say to the French. In my opinion, France will never get her reparation so long as her policy remains the policy of to-day. There has been a great deal of sword rattling in France. There was the speech at Bar-le-Duc, and it was stated in France, and I believe it is true to state it, that immediately after the speech instructions were given to armament and aeroplane works to prepare to work day and night. It is a fact that the latest Note from France talks about putting certain measures into force. These things are facts and we might as well recognise them. What France expects to gain in the shape of reparations by these methods I do not know, but what we and the Allies of France are likely to gain by them I feel I do know. I feel that we are likely to gain more unemployment, that. Europe is likely to suffer more than she is now suffering and that the general condition on the Continent is likely to become much worse.

Surely the condition of affairs in Europe is serious enough to cause all of us to think very seriously as to whether the methods pursued up to now have been the right methods or not. How can Europe settle down in a state of uncertainty? How can anyone settle now what Germany is really expected to pay, how she is expected to pay it sand what the Allies are likely to do in case they are not satisfied? The whole condition of Europe can never recover until there is something, at any rate, approaching certainty as to the bill that Germany is to have presented to her, and as to the time she is going to be allowed to pay and the concessions that may be made to her in order that payment shall be made. I think the nations ought to be very reasonable in this matter. Certainl the policy pursued up to now has resulted in nothing more than reparations, which have been practically eaten up by the Army of Occupation. French houses are still unbuilt. French villages and towns are still in ruins. The method at present pursued means that inevitably the ruins will remain and the houses will not. rise. As a matter of fact, even if Germany pays her all the money in the world, France has not the workers to repair the ruin, and it. could be a very fitting thing indeed that German hands, with German materials and German technical skill, should be asked to rebuild what. German guns have blown down, and I believe the German Government, and certainly the German organised workmen, are willing to make that one of the first reparations to be made. Only the French are in opposition to that method of reparation. If the present policy is pursued there is no end to the dispute. I am told on the best authority that France lacks 200,000 building workers for her present capacity for reparation, and what she would do if she were paid everything that had been prescribed by the Treaty of Versailles I cannot say. I want, even with the humble voice of a back bencher, to suggest, if one, may suggest it to France, that it would be fitting, and a tremendous moral lesson to the world, if German goods, German men, German money and German technical science were engaged in building what German guns have destroyed.

We hear a great deal about the condition of affairs in Germany. On the one hand, we are told that the Germans are amassing capital in tremendous quantities, which they are sending abroad, that there is no unemployment in Germany, that everyone is contented, happy and well fed, and that the Germans in reality are much better off than we are. That is not my experience. I find in going through German cities which I have visited a great deal since the War—cities that I had seen before the War—there is a tremendous difference in that country. I do not incline to the view that the Germans are as well off, or anything near as well off, as they were before the War. I know one big trade. I am the secretary of the international Organisation connected with it. I know that wages in that trade have gone up 14 times, or had done a few months ago, but it is extremely doubtful if wages now are 20 times what they were in 1914, and I am positively certain that the ordinary cost of living is at least twice 20 times more than it was in 1914. The Noble Lord shakes his head. I venture to express again the same opinion. [Interruption.] I. do not see what Alice in Wonderland has to do with the argument. The hon. Gentleman's practical sense of humour escapes me. I was trying to state a serious thing in a serious way, and there is no levity about the condition of affairs. There was a few months ago at. Charlottenburg an investigation into the condition of the children attending a school in a middle class district. It was found that 30 per cent of the boys in that school were without shirts. [Interruption.] I have been speaking about the condition of the workers. Now I am speaking about the condition of the middle class. The middle class women are trying by all kinds of methods, to eke out their clothes, and it is almost a certainty that, given another 12 months of similar conditions, the great lower middle class and professional class in Germany will be in rags. Those are facts as I have found them myself. I can only speak from my own personal investigation, claiming nothing more than an honest endeavour to find what was the truth, and to find it in the best possible way.

Mr. GIDEON MURRAY

How long ago?

Mr. SHAW

It is nearly five weeks since I came back the last time and eight weeks since I came back the time before. I have been told that the latest demand of either the Guarantee Committee or the Committee on Reparations is that German public expenditure, both national and local, should be submitted to allied control. There, again, my information comes from a source that ought to be reliable. It comes from a Member of the German Reichstag, who told me that the demand was that every public expenditure of over 500,000 marks, whether local or national, should be subjected to allied control. If that be the case, I suggest that in a huge country like Germany there must be hundreds of thousands of these schemes, and if every one of them has to be submitted to the control of some Allied civil servant, it means sending a horde of civil servants into Germany who will be like, locusts and will eat up far more than they are likely to gain by the control they exercise. I make the statements with due reserve, simply stating again that they come from a Member of the German Reichstag, who ought to know what he is talking about.

I want to suggest that the best way of getting reparations out of Germany is to get them in a friendly way. The present position of Germany is an extremely difficult one. We have need of stability all over Europe. When one thinks of the exchange in Poland, in Austria, and now in Germany, surely it behoves one to think as to the best method of finding a remedy. Suppose our Allies convince the Germans that the roost ruthless force will be used to get compliance with the terms of the Versailles Treaty, and that we convince the Germans that there are no bowels of compassion amongst them, what is the result going to be? Already in Germany any observer can see two main streams. You have Bavaria in the south inclining strongly towards monarchy and forming a real danger to the Republic, and the Communists in the north working as they alone know how to work. There is one thing Communists can do. They can work, however mad they may be politically. You have the two streams, and between them you have the Republic, the only guarantee of solvency in Germany, and the only guarantee of reparations. If you push the demand to such an extent that you drive the Germans into the arms of either of these sections, you can bid goodbye to reparations and to the stability of Europe. So I am making an appeal for a reasonable and even a friendly consideration. I was brought up in a workman's home, but I was taught that it was wrong for an Englishman to jump on an enemy he had defeated, and I am making an appeal for a principle that is well known amongst the members of our race all over the world. When you have defeated an enemy be as generous as you have been courageous. Incidentally, I believe that policy is not only true in ethics, but, in this particular case, would be true in economics. I fervently believe the only way to get real reparations out of Germany is by giving Germany a chance, and a real chance, of recovery. Do we want to drive her, I wonder, to the position that Austria is in?

I received a letter yesterday from a friend in Austria, and here are some of the figures he gives me. A kilo and a quarter of bread now costs 2,200 kronen, a kilo of sugar 8,000, a kilo of beef 8,000, a very poor quality suit of clothes 150,000, shoes 30,000 and a poor kind of shirt 20,000 kronen. It does not need many more months of the same method of dealing with the German mark to reduce Germany to the same state as Austria. The collapse has been sudden and violent. The state of affairs in Europe can be best explained if I tell the House a story. It is said that after the Genoa Conference the Prime Minister called a waiter and gave him a number of £1 notes as a tip. He received very profuse thanks. Then came along M. Berthou, who also presented one or two 1,000 franc notes. Again profuse thanks. The German representative handed over a handful of 1,000 mark notes. Thanks again, but not very profuse. The Austrian gave him an official looking document, and explained to the puzzled waiter that it was an acknowledgment from the station that a truck with the notes had arrived and he could fetch them when he wanted. Then came Comrade Tchitcherin, who handed over a heavy square packet. The waiter opened it and found a number of plates that looked like solid gold. Tchitcherin said, "Do not worry, they are not gold. They are simply copper printing plates for 10,000 rouble notes. Print as many as you like." I have told this story at a number of meetings in France where I have been speaking on the same subject, and they, too, have laughed. This story, however, hides a tragedy. The copper plates of Tchitcherin and the truckful of notes from Austria mean that children are starving both in Russia and in Austria. It can be of no benefit to us that children may starve in Germany. We cannot get reparations out of Germany except in two forms. Gold is out of the question. She can only pay in goods or in service. If France will not accept service for reparation then she can only have goods. She can only be paid in goods if Germany is prosperous. If Germany cannot export goods there can be no reparations for France, and yet we are all trying to stop Germany from sending goods out of Germany, and at the same time we are all talking about reparations.

Lieut.-Commander KENWORTHY

Safeguarding of industries.

Mr. SHAW

I am not talking about the safeguarding of industries at the moment. I am talking of what I consider to be elementary economic facts. Of course, there may be differences of opinion about them. From the Labour Benches we ask that it should be the policy of the Government to confine any claims for reparations from Germany to the actual material damage done in France, Belgium and the Allied countries. We believe that it would be very difficult for Germany to pay event that amount, hut Germany ought to pay. There is no question about that. The sole question is as to best method of getting it. We cannot realise it by going on as we have gone on so far. We have armies of occupation. Nobody heard with greater joy than I did that the cost of the army of occupation has been reduced. It is a fact that a sergeant in the British army of occupation costs Germany more than her highly-placed civil servants, while four Allied generals cost more than the President of the German Republic, the Chancellor of the Exchequer, all the Ministers and all the Under-Ministers. Can anyone wonder that the Germans are, for economic motives, desiring that the army of occupation should disappear as quickly as possible We hope to see the time when by a genuine arrangement with Germany, arrived at with a Germany that is a full and equal member of the League of Nations, it may be possible to get reparations without an army of occupation. An army of occupation must necessarily interfere with the manage- ment of the internal affairs of a country. I do not cant to speak about the introduction of black troops into the Rhine district. I have seen them, and I know what I should feel like if in my own town, no matter what England had done, we were guarded by black troops. I know what I should think, and I think I know what I should do. We are in favour of the withdrawal of the troops as soon as possible, and reparations being made by Germany as a free and independent member of the League of Nations. That is the best thing that could be done.

Let me deal with one further aspect of the question. There was a committee of experts, a committee of bankers, set up. Surely the common-sense thing to do would have been to say to these experts: "Without any bond on your capacity, without any limit to your terms of reference, sit down and tell us what in your opinion is the thing that can be done, and the best way to do it." Was that allowed? Not at all. The bankers were literally stopped from saying what they considered necessary under the circumstances, and what was the best thing to do. Surely that is one of the first things that ought to be done. We can pretty well agree, even the Germans will agree, to a reasonable amount of reparations; but reparations in the way we are demanding them and by occupation is absolutely impossible. We believe that the only thing it is possible to get out of Germany is material reparation for the damage done in the allied countries, and the best way to get it is not by an army of occupation and by threats, but by a careful investigation and by holding out the hand of friendship. The best way to get reparations is to make the German, or rather to get the Germans to rebuild what they have knocked down. The best and the truest way to get peace and security in Europe is to make it quite definite what Germany has to pay and what terms will be allowed. In the present chaotic state of things, nobody knows what she is to pay, and exchanges are tumbling down like houses of cards every day. Threats can lead to nothing, military occupation cannot lead to satisfaction, and it is time we had another policy in operation. It was with the greatest possible gratitude that I heard whenever the Chancellor of the Exchequer did express a sentiment that his sentiment was on the lines I had indicated, a sentiment which realises the necessities and possibilities of the situation, and a real desire to come to a settlement which will give Europe peace, stability and prosperity.

Lord ROBERT CECIL

We have listened to an extraordinarily interesting speech, full of facts gathered, not from second-hand information, but from firsthand information and personal investigation. There was one observation made by my Noble Friend the Member for Hastings (Lord E. Percy) with which I entirely agree. I do not think it is possible for the House of Commons or for any private Member of the House of Commons to attempt to lay clown the policy which the Government of the day should pursue. That must depend on a number of facts which are not known to the House and to Members of the House, and all that Members can do is to speak in somewhat general language and to indicate what they think ought. not to be done in this very serious crisis. My view of it depends entirely on the seriousness with which the present crisis is regarded. The Prime Minister in the Debate on The Hague Conference referred to something that I have said. He said: I do not accept the view of the Noble Lord that things are getting worse in Europe. If you compare Europe as a whole to-day with the Europe of three years ago, things are better. There are parts of Europe which may perhaps be conceivably worse, but, taking it as a whole, the well which was exhausted by the War is gradually filling."—[OFFICIAL REPORT, 26th July, 1922; col. 546, Vol. 157.] I do not know whether the right hon. Gentleman will repeat that view this evening. I hope that he may be able to do so. I confess that my reading of the position is that Europe is much worse than it was, and that the situation is extraordinarily serious. I read the other day a statement by an American banker, Mr. Vanderlip, who, like the hon. Member for Preston (Mr. T. Shaw), has gone to the trouble of investigating these things for the last two or three years, personally. He has travelled extensively in Europe, and made a great number of inquiries. This is the view which he expresses: The continually growing financial catastrophe is by no means confined to Germany. Austria, Hungary and Bulgaria are on the brink of ruin. Even Italy is in an exceedingly precarious position. It is not the War that has been the cause of the great losses, but the character of the Versailles Treaty. Versailles has proved disastrous for the victors as for the vanquished. Germany must soon collapse unless radical changes are made in the reparations burden. He points out that he thinks France ought to show a more reasonable spirit, and proceeds to say: In Germany there will soon be grave and growing unemployment which will coincide with rising prices and increasing inflation. The consequences must manifest themselves in street revolt and social chaos. In June an international loan might well have saved the situation. German bankruptcy will undoubtedly bring with it the bankruptcy of France. With partial remedies there is nothing further to be done. 7.0 P.M.

I should not have quoted this statement if it had not already been published broad-cast in Europe. It was published originally in a foreign newspaper, and republished in the "Daily Telegraph" here. That is a very serious statement. The hon. Member for Ilford (Mr. Wise) drew a very melancholy picture, and my hon. Friend who has just spoken drew an exceedingly melancholy picture of Europe. It all depends whether, in considering what remedies should be applied, you accept broadly that view of the circumstances, and realise that we are face to face with an economic crisis of enormous gravity. If so, one must be prepared for heroic remedies for treating the catastrophe that is threatened. I listened with great attention, as I always do, to the speech of the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) and with the greater part of his remarks I was in complete agreement; but when he repudiated as altogether ridiculous the possibility that this country may have to face even what he regarded as the quixotic measure of abandoning the debts due to us, even if we have to pay our debts to America, I think his estimation of the seriousness of the situation must be different from mine. That may or may not be the right thing to do. I am certainly not prepared to say that in the present immensely serious situation we should not be well advised to face even such a sacrifice as that, if it were really the only way to reach a solution of our difficulties. A settlement we must have, We must have it in order to secure relief from the dangers that are threatening. Let me say a word on Mr. Vanderlip's statement that the Treaty of Versailles is the cause of the trouble. I am afraid that in many quarters, and I am not now speaking of the Government, the same spirit prevails. The fundamental mistake that was made was in treating reparations on the economic side as part of the punishment of Germany. That really was a profound error. The whole purpose of reparations was to give compensation to this country and to our Allies. It was not for the purpose of punishing Germany. That was the fundamental mistake that was then made. Let me give an illustration from Bulgaria, which has quite recently come to my knowledge. In Bulgaria there is a university at Sofia. For that University the Georgieff Fund had been established before the War, which was being used for the repair and upkeep of the University buildings—a very essential work. A large portion of that money was in England at the time of the War, lodged there in order to finance purchases of building material, steel, and so on. It has been seized by the British Government under the Reparation terms—quite legitimately, so far as the Treaty is concerned, no one can dispute that. This 12,000 has been taken from the University of Sofia by us, as far as our debts are concerned.

Colonel Sir JAMES GREG

Why not?

Lord R. CECIL

I will tell my hon. and gallant Friend why not. This £12,000 meant an insignificant fraction of the monetary injury we had suffered, but to the Bulgarian University it was a matter of the greatest possible importance. It is quite true, as my hon. and gallant Friend will no doubt tell me, that the University had their remedy against the Bulgarian Government. Of course they had, but. there is not the least possibility of the Bulgarian Government finding the money. That means, in effect, that for an amount of money which cannot be regarded as in any real senses compensation to us, you are going to cripple this University. The consequences are that since the Bulgars, as the House is no doubt well aware, are a very highly educated race—scarcely any of them, only about 2 per cent. of the population, are illiterate—they have not been able to get their University teaching. They are looking about now to find where they can go. They cannot afford to go to England or to France; they cannot even afford to join the Robert College, which is in those parts. They can go to Germany because the exchange is so much in their favour that they are able to pay. The only effect of this policy, which is to give you a reparation of £12,000, which, I suppose, would pay for two minutes of the late War, or something of that kind, will be to drive the Bulgars to get their education in Germany.

If we regarded reparation from the true point of view—not as a punishment to our enemy, but as a compensation to ourselves—I cannot believe that a policy such as that could ever have been sanctioned by any Government. Take tic case of Germany. I think it was a profound pity that at the time of the Conference we did not discuss fully and freely with the Germans this question of reparation. It was not discussed at all. The Germans made an offer, which they called an offer, of 5,000,000,000 marks. It was not 5,000,000,000 marks, or anything like it, because, allowing for discount and so on, the great part of it was deferred payment, which was calculated at somewhere about 1,000,000,000 marks. Still, it was an offer. If we had been considering, not what Germany ought to pay or what punishment ought to be inflicted upon her, but what we could get out of Germany by way of compensation for our great losses, we should have negotiated with her and seen how much more than her first proposal—she would probably have gone much higher—she could have been induced freely to offer. The result of all this has been two-fold. In the first place, you have put the German Governments that have held office in German in an impossible position. They are always being driven to go to their people to ask for some fresh effort, all of which will be, as has unhappily turned out, unavailing. The result has been that is has contributed to what is the great danger here, the extreme weakness of the German Government. That danger is recognised by every right hon. Gentleman on the Government Bench and, as I happen to know, by every other statesman in Europe. It is a great danger. The Chancellor of the Exchequer, in his speech, which we all admired, said that the Germans have not taken the proper financial measures. I agree, and we all agree that they have not done so. Why? Because they have been too weak. I do not believe any right hon. Gentleman on the Government Bench will deny that the German Governments have, generally speaking, desired to meet the demands of the Allies and to take proper financial measures. They have been unable to take them because they have been too weak. One of the reasons why they have been too weak is that they have been put in an impossible position by the terms of the Treaty they are supposed to fulfil.

There is another great question. We imposed on the Germans, as the Chancellor of the Exchequer said, an indeterminate payment. The result of that was that everything the Germans had by way of surplus was to be handed over to the Allies. There was no inducement for them to pay; they had no hope of paying. They were in quite a different situation from the French in 1870, when the latter were able to pay off their indemnity in three years.

Sir J. GREIG

The Germans did not think they were going to pay in 1870.

Lord R. CECIL

What does that matter? I am dealing with what actually happened. I wish the hon. and gallant Gentleman would get rid of that idea; it does not matter whether they were right or wrong. The question is, how are they going to deal with a business proposition? What has been the result? Let us take one case, to which the right hon. Gentleman referred the other day, that of the mark. What do you expect Of course the Germans got rid of their capital out of the country as quickly as they could, in order to save it from what, from their point of view, was a perfectly useless payment to the Allies. They were bound to do it. Believe me, you get no good by ail these Committees of Guarantees, these regulations of the export of capital, and all the rest. They only still further hamper the capacity of Germany to pay, and Make it still more difficult for her to meet her obligations. I very earnestly hope that we have come to the end of this mistake, which has cost us and Europe very dearly. We must abandon that conception of dealing with the situation. We must be prepared to take a large view, and not merely that of a moratorium for a year. That is not going to cure Europe. We have got to get right down to the very foundations of the thing, and try to arrive at a solution and a remedy. Since we have signed this Treaty, and as we desire what is in effect a modification of it, we must be prepared, if necessary, to make concessions in order to obtain that modification. I agree most fully with what the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) said, that the reduction of armaments is quite as essential a part of the restoration of the economic position in Europe as the settlement of the reparation question; but you will not achieve even a reduction of armaments until you can get rid of this poison. in the international atmosphere, which is exaggerated by the reparation question. As was put to me very strongly by a gentleman in Paris the other day, it is quite true that it poisons the whole international atmosphere. Until you get that settled, you will not get back to a peace mind.

I said, in the beginning of my observations, that I would not attempt to lay down any exact policy for the Government. I venture, however, to assure them of this—whether they will value the assurance or not, I do not know—they need not fear about getting the support of the country for any measure they may take, however bold, and however, apparently, not in the immediate and direct interests of this country, provided it is going to produce a settlement. I am satisfied that our fellow-countrymen are wise enough to see that the settlement of the European situation is of far greater importance than any question as to what exact amount you are going to claim from the Germans. I ask the Government to treat this thing boldly and courageously. We have not any time to lose. The situation is intensely serious. The margin of economic safety which, to my mind, has always been very small—I ventured to tell the House so in September, 1919, and I have not varied from that view—has now become so small that it is very doubtful whether anything we can do will save Germany and Europe at large from the catastrophe that threatens. I earnestly appeal to the Government and the House and, so far as my words may reach them, to those outside the House, to take a broad view of the situation, and not. to be deflected, through any operation of national self-interest, from making a really sound and statesmanlke decision.

The PRIME MINISTER

I had almost made up my mind not to intervene in this discussion, because I should have been very glad To have left the statement, not merely of the Government case, but of the case of the British Empire. to rest upon the very able and clear speech of my right hon. Friend the Chancellor of the Exchequer. But there have been two or three things said in the course of the Debate that I cannot possibly allow to pass altogether without some sort of correction.

I was frankly disappointed with the speech delivered by the right hon. Gentleman the Member for Paisley (Mr. Asquith). It was a very unhelpful speech on a very serious situation. It is all very well to say that he appreciates the point of view of France, and that it is reasonable that since she has got to pay her debts to us she should press Germany. The right hon. Gentleman can understand the point of view of Germany, and thinks that is also reasonable—that she wants a reduction of the claims against her. He can understand the point of view of America, and thinks it reasonable—that she insists that we shall pay the whole of our debts. In fact, he went so far—and I regretted it—as to say he did not think there was any moral or sentimental ground why America should not press us to pay her debt. The one point of view which the right hon. Gentleman does not seem to understand is the point of view of the British taxpayer. He thinks it most unreasonable that the British taxpayer should not forgive everybody else the debts which are due to him, and quite unreasonable that he should not instantly and with alacrity pay every claim against him. I think that is a most unfortunate speech. It is a speech Which, naturally, will give satisfaction to everybody who wants to get rid of their debts to us as, and great satisfaction to the people who press us for the payment of our debts.

I am sorry that any Member of the British Parliament should think it his duty, under the present conditions, when we have all these difficulties, to encourage all these people who owe us something not to pay us, and to encourage those to whom we owe something to insist upon payment, on moral and sentimental grounds. My right hon. Friend went on to say that he was in favour of an absolutely clean slate. That is exactly what Lord Balfour said and proposed in his Note. But it is not a clean slate when you wipe off every debt which is due to us, but engrave more deeply on the slate the debts which are due by us to other people. That is not what I call "cleaning the slate." It neither cleans nor adorns it, nor makes it more useful for future use. Therefore, I t egret deeply that my right hon. Friend has made that speech.

He quoted a speech which he delivered two and a half years ago at Paisley, and said: "I have actually been consistent for two and a half years." I know, but he delivered another speech at another election on exactly the same subject. It was delivered after the speech which I delivered on the subject of reparations at Bristol, and my right hon. Friend was asked this question at Pittenweem in December, 1918: Will you make the Germans pay for the War? Mr. Asquith s reply was: Yes. I am in agreement in this matter with what the Prime Minister said yesterday. His policy then was identical with the policy of the Government. I am not complaining in the least that he has changed his mind. I do not think it in the least discreditable to him that he has changed his mind. The circumstances of Europe are such that you can only judge from year to year, very often only from day to day, as to what is the wise course to adopt. But can anyone say that he has been consistent for two and a, half years in this respect, if he is faced with a declaration of that kind, made at a time when the policy of this country was being framed and when this Parliament was receiving its mandate?

The same applies to the Noble Lord the Member for Hitchin (Lord E. Cecil). He took exactly the same line at the last election. Before I sit down, I will refer to a speech in which he said that he would draw no distinction between compensation, damage and indemnity. He would make the Germans pay all, and the only limit he would impose on it would be the limit of the capacity of Germany to pay. How can Gentlemen ascend a very high pulpit, and lecture us and say, "You were very wicked at the last election in misleading the electors, and that is what has brought you into trouble," when they said exactly the same thing in exactly the same words, and were very glad to get such measure of support as they could get by doing so?

I do not want to make this a controversial topic, and it is not my fault that it is so. It is because of statements which have been made in the course of the Debate. I was quite willing to discuss only the present policy of the Government and of the Allies in reference to reparations. The Noble Lord makes an appeal to us, and says to the Government, "Take a bold line." He says quite frankly that he does not know what the bold line should be, and that the Government must find it out but, whatever it is, as long as it is bold, he will support it. That is a promise which I have no doubt will he honoured in the votes which the Noble Lord will give in the Lobby when Divisions occur. But the Noble Lord has a tendency to criticise us from both points of view. I have called attention to it repeatedly. Hon. Members will find in speeches, not merely here, but especially in the country—that we are first of all to stand up to France, and to see that she does not press Germany too hard. That is one point of view. That is the point of view which appeals to one section of their supporters. Then comes the other point of view—"Whatever you do, you must agree with France. You must carry France along with you. We sympathise with the point of view of France. We do not think that France is unreasonable." You really cannot put those two policies, and run them together. That is one of the difficulties, and I agree with what was said by the hon. and gallant Member for Newcastle-under-Lyme {Colonel Wedgwood) that you have got to face the facts.

One of the realities of the situation is that it is not only negotiations between the British Government and Germany. It is negotiations in which you have four Allies—France, Belgium, Italy and Japan, as well as ourselves. We put forward a policy. We press it, but there is a point when you have either to compromise or to break. What is the wise policy? Is it that we should make the best arrangement we can with our Allies, and carry them along with us as far as we can, or is it for us to say to them, "Unless you take our policy such as it is, we will leave this conference, and there is an end of the alliance"? If anybody is talking about bold policies, are the gentlemen who recommend this prepared to give that advice to the British Government? If not, they have no right to say, "You are not bold enough in dealing with this matter."

Take the Versailles Treaty. That was a matter of arrangement between the Allies. Somebody has been good enough to publish a memorandum which, in the course of the discussion, I issued to the Peace Conference. I have no responsibility for publishing it. It was published originally by an Italian statesman. That represented my point of view. It represented not merely my point of view, but it represented the point of view of the British Delegation, and it was the result of very careful discussion among ourselves. I do not say that the Treaty of Versailles carries out literally the memorandum which I put forward, but there is another point of view. That is the French point of view, the Belgian point of view, the Italian point of view, and the point of view of about ten other Powers which had taken part in the War, and had suffered very severely, and were just as entitled to their point of view as the British Delegation. The best we could do was to accommodate all these points of view, and to put forward the proposals which we did.

The Noble Lord has repeatedly said, and has said this afternoon, "You ought to have had, a fixed and determined amount. You ought to have told Germany exactly what her liability was." She offered us the equivalent of £1,000,000,000 sterling. He admits that that is an impossible sum. He said, "You ought to have had some other figure." Consider for a moment what that means. There were two factors, which were accepted by everybody in this House without distinction of party, and which are accepted now—first of all, the amount of the damage, and, second, the capacity of Germany to pay. It was almost impossible to fix either at that moment. Why do I say so? If you were to fix the damage, you had to fix it upon the cost of repairing the damage. You would have fixed it at a moment when prices were inflated beyond comparison. For instance, most of the damage had relation to houses. There were hundreds and thousands of horses in France which had been destroyed, and there were factories and churches which were destroyed. A house which would cost £400 now would have cost £1,000 then. That gives you an idea of what the fixation of the amount of the damage would have meant at that moment. You would have chosen a moment when prices were at their very highest. Yen may say, "You ought to have anticipated that prices would go down." Who did? What men in business would have said, "In one year, two, three, or four. or ten years. prices will come down to that point"? Who could have said it then?

Sir H. BRITTAIN

No one except Kenworthy.

The PRIME MINISTER

The damage which we claimed was in the main shipping. We lost about 10,000,000 tons, or some figure of that sort. If you were to fix the damage for shipping at that time, the cost was £35 per ton. What is it. now? About £15, I think. lf, therefore, you Lad taken the advice of the Noble Lord (Lord R. Cecil) you would have fixed the damage to be paid for by Germany at a time when the cost of reparations was two and a half times what it is at the present moment. And that. is the way to relieve. Germany, and to save her from bankruptcy! I will take the question of capacity to pay. How could you estimate at that moment Germany's capacity to pay? You would have estimated the damage too high at that moment. You would have estimated the capacity too high. Why do I say that? Trade on the whole was going well. There was a big boom at that time. There was hardly any unemployment, except that men were coming hack from demobilisation, and there was some difficulty in absorbing them But there were big prices, big profits, and high wages. There were shrewd observers who thought. that was going to endure for some time There were others who took a different view, but there were many shrewd oh-servers who were under the impression that the boom was going to last, and there was some reason for that point of view.

The world needed goods, because of the gap of war. There were great arrears in every Department that had to he filled up. There were repairs to be done, and many shrewd observers said, "For the next few years the world will be as busy as it possibly can he in making up these arrears, and in repairing this damage, and we shall have a good time." The capacity of Germany would have been based upon that anticipation at that moment. So, if you had fixed the amount in June, 1919, you might have overestimated the damage, as you would, and you might have over-estimated the capacity, as you probably would. What did we do? We said: "At this moment we cannot possibly fix tie amount" there is another reason which I will give in a moment—"therefore set up a Commission, an impartial Commission"—and I think on the whole even Germany will admit that that part of the Treaty has been fairly and impartially administered by this Commission—"let the claims be sent in, let them be adjudicated on. Let them ho judged first of all upon the amount which it would take to repair the damage, and next upon the capacity of Germany to pay. Meanwhile we invite Germany to make her offer." She did not make the offer. The offer that was referred to by the Noble Lord was something that was done by Count Brock-dorff-Rantzau in May, 1919.

Lord R. CECIL

That was before the Treaty was signed.

The PRIME MINISTER

But this was an invitation after the Treaty was signed. I forget how many months were given to them. There was something like six months given to them to make their offer. They never made their offer, and the Reparation Commission sat down, and adjudicated upon the claims. There was another reason. There was no Ministry in France at that moment which could have accepted any figure such as has been suggested. It is no use, if you are dealing with realities, not to take political realities into account. M. Clemenceau was one of the most courageous statesmen who ever presided over the destinies of France. He was perfectly fearless. He was not afraid of facing opposition in the Chamber, but even M. Clemenceau would have shrunk from going into the Chamber at that time, and urging them to accept a figure which at present might be regarded as quite acceptable even by French statesmen. Therefore, for political reasons and for financial reasons, it was essential that you should have some machinery like the Reparation Commission, which would have given time for the examination of claims, for adjudication on claims, and, above all, to allow the passion, the temper, and the ferocity of war to subside, so that you could finally adjudicate in a calmer atmosphere the claims between the various parts.

I have gone so far to examine that, in order to make it clear why that policy has been adopted. But I want to emphasise again what was said by my right hon. Friend the Chancellor of the Exchequer—that the amount fixed, six thousand millions odd, is subject to adjudication from time to time by the Reparation Commission. That was introduced in the Versailles Treaty, but, for some reason, critics of that Treaty always conveniently, or from lack of knowledge, refuse to refer to that essential part of the Treaty. It is a vital part of the Treaty. That Commission can sit to-day and say, "Germany, for such and such reasons, cannot pay the amount which was adjudicated last year. She can pay only so much." That is treated as if it were an alteration of the Treaty of Versailles. It is incorporated in the Treaty of Versailles. The action of the Reparation Commission in declaring a moratorium, in reducing the annuities, is entirely under the authority given them by the Treaty of Versailles.

There are, two considerations which I want to put before the House and the country about reparation. My right hon. Friend the Chancellor of the. Exchequer says, and rightly says, that it would be undesirable to enter the discussion next week with the French Prime Minister and the French Finance Minister after committing ourselves to the acceptance or the rejection of particular proposals. M. Poincaré has proposals to put before us. I trust that the House will allow us to go there with a free hand to examine those proposals, to do our best to come to an arrangement. I agree with everything that has been said by the hon. Member for Ilford (Mr. Wise) and the hon. Member for Preston (Mr. T. Shaw), who made such a very able and well-informed speech that gave me much pleasure—that if you press Germany too hard, you may get nothing. Put it at the lowest, apart from the damage to Europe, apart from the general disturbance of peace; take it merely from the point of view of reparation, and you get nothing. It is what happens when you are pressing a debtor too hard. You may lose everything. You may get so much in the pound, but if you are greedy, and ask for more than that, you may lose even what you would have had had you been a little better advised.

There is also the danger—and I do not conceal it—that you may drive Germany into despair. Whether she throw herself into the bands of reactionaries or of Communists, there is very little to choose from our point of view. There would be no reparation in either case. There would he lots of trouble, but no cash—none. A revolutionary Germany right in the centre of Europe would be a very different thing from a revolutionary Russia. Russia, at best, was a very disorganised country, and in many respects contained a hopeless and helpless population. They ran even the revolution badly, and they ran it in such a way as to discredit revolutions, which, in itself, is an advantage. I think it has been a blessing to Europe that the first outburst of Communism took place in Russia. In fact, I am sure that in that respect. Lenin and Trotsky have been the saviours of society. That revolution has been run so badly that it does not encourage others—and there are others—to follow the example. Germany is different. There it would be a revolution in a well organised country, with a highly trained and an intelligent population, and it would be a real peril to the world.

Therefore, I agree that, from every point of view, it would be a mistake to press Germany beyond the limit of endurance and capacity. But I want to put the other point of view. I am bound to put it. It is a mistake, because of these risks and these dangers, to run away from a fair and just claim. Germany quite understands that she has to pay. It is just what happens between individuals. The Noble Lord (Lord R. Cecil) says that the vice of reparation is that people treat it as if it were the punishment of Germany. Not in the least. When somebody puts you in the court and brings an unjust claim against you, you get your verdict, and you recover your costs. You are not doing it for vindictive reasons. You are doing it because you are out of pocket, and you want your cash back. It is the same thing here. Germany has inflicted damage by the decision which she took, and by the action which followed it has inflicted costs upon countries which were wantonly dragged into this suit, and they say, "We want to get payment." That is not punishment. It is because we have a debt of over £7,000,000,000, and France a debt of £6,000,000,000 to 27,000,000,000. She has still reparation to make up, and she says that the party which inflicted this damage must contribute towards making it up. That is not revenge. I went to get rid of the idea that it is revenge. As an hon. Member says, it is justice. That is the only claim which we put forward.

We are not claiming the whole of the cost. We have claimed only part of the damage. That is because we say that it is no use claiming the whole cost. There is no country in the world which could pay the whole cost. This is the limit of Germany's capacity. Suppose you go from one extreme to the other. There is the extreme of over-estimating the capacity of Germany. Suppose you go to the other extreme, and under-estimate. Like every other country in the world, Germany is suffering from the fact that the world cannot trade. This is not the time to estimate her full capacity. Suppose that you under-estimate her capacity. Suppose that you put it at a figure, of £1,000,000,000 or £1,500,000,000, and you let her off. What will happen then? I want the House to face that side of the matter. Germany has practically wiped out her national debt. The fall of the mark may have very serious effects on the trade of Germany, hut: she has undoubtedly wiped out her national debt. It has a confiscatory effect; on debts of all kinds. Germany would then be in this position: She would have no national debt, and she would have an external debt of £1,000,000,000 to £1,500,000,000—not a single factory damaged, many of them re-equipped. She has in the last three years undoubtedly been using this inflation for the purpose of re-equipping her machinery, and perfecting her organisation. She has done it largely at the expense of her workmen and her middle class. I agree with what was said about that by an hon. and gallant Member.

Germany has 60,000,000 people, a very able and highly-skilled population. A time will come when the world will recover. The Noble Lord says that I am too sanguine in my estimate of Europe. I do not think I am too sanguine in my estimate of the realities. I agree that when you come to the agencies and the machinery, there is complete dislocation. But when you come to what I call the "filling up of the well," the production well, it has improved enormously in all these countries in the last two or three years. We have heard what an hon. and gallant Member said about the way the Austrian peasants are working. And the same thing applies to the Polish peasants.

What I want to say is that whether it come soon, or whether it come late, the world will recover. Men are working, and that is the basis of recovery. Workmen of all ranks and all classes are working as they have not worked for years; the labour of the world will heal the wounds of the world, and it will get strong again. These troubles will vanish when the world has recovered, and you cannot quite say what is going to happen. After the Napoleonic Wars, there was the sudden accession of invention and discovery, which nor merely enabled England to advance at a rate beyond that at which she was advancing before, but enabled her to leap forward. You cannot tell what is going to happen. The troubles of the world are forcing the brain of the world to think how to get out of its difficulties by all sorts of appliances and inventions—how to save here, to expedite there, to facilitate elsewhere, and generally how to increase wealth with as little waste and with as much power as possible. When that comes, beware lest you have a well-equipped Germany with its 60,000,000 people, with no internal debt, with an external debt which was fixed at a time when things were pretty bad, and an England with a debt of £7,000,000,000 and an external debt—which we are told neither sentiment nor morality ought to excuse our paying—of £1,000,000,000, entering into competition. I wish to look on both sides, and when my right hon. Friend the Chancellor of the Exchequer and I enter into the Conference on Monday, we shall bear both these considerations in mind.

There is everything to lose by driving Germany too far, but Germany went into court, and Germany had the verdict against her. Although it was the verdict of the sword, it was the tribunal which she chose herself, and she is estopped, at any rate, from saying that it is not a just verdict. That is the arbitrament to which she chose, to put her fate and the fate of Europe. She said, "We will trust the cannon; that is where the settlement is." It has settled the issue, and Germany has no right to say now, "We reject the sentence given by that tribunal," because that tribunal was her own choice. That is the position as I see it.

When we meet on Monday I shall, as I have done all through, resist any proposals which will simply have the effect of increasing the disintegration of Europe, without securing anything for ourselves. But there is one thing I want to say, and I think it essential that it should be said. I object to anybody saying that this trouble has to be* settled at the expense of Britain. We are there on equal terms; we are there, if you like to call it so, at a meeting of creditors in a concern which declares that for the moment it is—I do not say insolvent, but that it cannot pay. We have our claim, France has her claim, Italy has her claim, Belgium has her claim, but we must be considered quite equally. If we put forward a proposal that for the moment there should be a moratorium, a reduction in the annuity, it cannot be said to us, "If you do that, it must be at your own expense." What meeting of creditors has ever met under those conditions?

We go there, and whatever abatement be made, if there be an abatement, must he made all round. We shall do it in the interests of all. I agree that it is a difficult business, and I do not think you are going to settle it in a Conference on Monday. There are too many difficulties and too many complications. You have got to get the facts into the mind, not merely of the people of this country, but of the people of the Continent, and that is a difficult matter. It is the most difficult thing in the world to get people to face realities, and it is not going to be an easy matter in this instance. You must judge the capacity of Germany perhaps not on the basis of a lump sum, but you must judge the capacity of Germany to transmit wealth across her frontier. That is a difficult matter, but whatever be done, I hope we shall be able to march together—France, Belgium, Italy and ourselves. We will give reasonable consideration, sympathetic consideration, to every claim that is put forward. Britain is the last country to be accused of want of sympathy with her Allies. If anybody says that, I will show him a few figures which ought to answer any charge of want of sympathy on the part of Britain with France. We shall consider everything put forward by France, Belgium or Italy, but when the taxpayers of this country are bearing such a crushing burden, when, as my right hon. Friend the Chancellor of the Exchequer pointed out, they are bearing the most crushing burden of any people in the world, and when the fact that they have undertaken that burden is going to affect them for years to come, we cannot go there and say, "We will look after the interests of everybody, and we will see that everybody gets fair play except the people of our own land." We must have fairness to Germany, and nobody has stood more for that than I have. We must have justice and fairness, but justice means justice for the people of our own land.

Sir GODFREY COLLINS

The right hon. Gentleman in the concluding passages of his speech drew an attractive picture of a Germany without any national debt, with her factories untouched, competing in the markets of the world with Great Britain and America. As I heard the Prime Minister give expression to those utterances, I wondered why the Government had not adopted that policy themselves, because if that policy be the correct one, and if the picture drawn by the Prime Minister is accurate, then I take it, in his opinion, bankruptcy is better than solvency, because, undoubtedly, the picture which he has painted will go out to the public as showing that Germany will be a more skilled competitor in the markets of the world by reason of her present policy. Surely the Prime Minister excelled himself. In his opening utterances he was the champion of the British taxpayer—the Prime Minister who has laid a heavier burden on their shoulders than any Prime Minister or any chief of any country in the world, who has taken from the pockets of the taxpayers millions of money and poured it out in useless enterprises in every part of the world. Yet he has the audacity to come here this afternoon and make out that he is the champion of the British taxpayer, when his policy is driving many firms into bankruptcy. Unless I am much mistaken his foreign, policy is driving Germany into bankruptcy. In addition to driving firms in this country into bankruptcy, he is now driving nations into bankruptcy.

8.0 P.M.

The right hon. Gentleman quoted from speeches delivered by my right hon. Friend the Member for Paisley (Mr. Asquith)—as if election speeches should determine the policy of British delegates when they meet the representatives of Allied countries sitting round a table in Paris. The Prime Minister went to Paris as a trusted representative of the British people, and if that Treaty had been successful he would have been entitled to come to the House and point out that his policy had led to peace in Europe. He described the speech from which he quoted as unhelpful, but, at any rate, my right hon. Friend the Member for Paisley had the courage, this afternoon, to tell the public the truth about the debts of our Allies. For four long years the public outside have lived on hopes raised by the Prime Minister. They do not believe now the promises which he held out that money would be forthcoming from Germany. My right hon. Friend the Member for Paisley had the courage to state what everybody knows, and what the Prime Minister knows in his own mind, that the debts of our Allies are not worth 20s. in the £, and the sooner we realise that the better. After waiting four years to find out that the specious promises made by the Prime Minister that large sums would be coming from Germany to pay the cost of the War are unfounded, are we to wait another four years on the strength of the promises and hopes now held out by the Prime Minister that the debts of our Allies are to be paid in full? The sole record of the Prime Minister, so far as the question of reparations from Germany is concerned, is a simple one. It has cost this country £56,000,000 to collect £54,000,000 from the German people. I wish the Prime Minister would face realities. An opportunity has come to the British people to-day to face a large issue, one which seldom comes to a nation. I think myself that the problem of international debts cannot be settled in the spirit of the counting house, balancing one against the other. We have to take into account the situation which we find in Europe to-day, a Europe rent asunder by difficulties, staggering under a load of debt, deluged with worthless paper money, some countries still buoyed up by false representations, others driven forward by hatred, with the vagaries of exchange apparent to all, yet the British Government consider that this is the time to tell these nations, and to tell the public outside, burdened with taxation, that they should demand and that they should receive the payment of our loans made during the War. To my mind, a more cynical disregard of realities it is difficult to conceive. I think myself that enlightened self-interest points in another direction. Let them create and not crush these nations. The British Government offers to be generous if other countries are generous to us. It is not in that spirit that Great Britain faced the struggles during the War, nor was it in that, spirit that the nation welcomed the League of Nations in 1918, but this Note that is associated with the name of Lord Balfour proceeds an that basis. I am tempted to quote the words of Burke in this connection, but, as it might appear to be slightly personal, I refrain from doing so. Magnanimity is always the soundest policy in politics.

Our policy in regard to reparations has been made quite clear by the right hon. Gentleman the Member for Paisley. There is a distinct line of cleavage between the two sides of the House on that point, and I think, when they consider the long record of the Prime Minister so far as the question of reparations is concerned, the public outside will take note of the promises made, of the hopes which have been raised, and that they have all been dashed to the ground. When they remember that, and consider that the right hon. Gentleman the Member for Paisley has this evening had the courage to explain to the House of Commons and to the public outside that in his judgment—and I quite agree with him—the best thing this country can do is to face the realities of the situation, to scale down the indemnity, to ask for only the amount of material damage done to civilians during the War, to forgo our claims in favour of France and Belgium, and cancel the loans to these countries, they will agree that only by these means shall we take a step forward in putting Europe on its feet again.

At the beginning of the Session the Prime Minister challenged certain statements of mine about the bearings of reparations and unemployment, and, speaking in this House on the 9th February, he quoted Dr. Rathenau's figures at Cannes dealing with the export trade of Germany, in which he pointed out that Germany's export trade was only 25 per cent. in comparison with what it was before the War. He then went on say—and I quote his exact words: Ours is certainly more than twice that percentage, even in a bad year. In other words, that our export trade in a bad year was over 50 per cent. of the pre-war figure. I have since then had an opportunity of analysing the Board of Trade figures, and I find that in 1913—I am quoting from the estimated British exports in tonnage according to the Board of Trade figures—our exports amounted to 91,800,000 tons, and in 1921 to 33,000,000 tons, or about 36 per cent. If the right hon. Gentleman will analyse the Board of Trade figures himself—

The PRIME MINISTER

That, surely, is not the case. You have got coal. You must take values, and the comparison drawn by the Board of Trade is a comparison of values upon the 1913 basis. If you take this year, it is 67 per cent. I have had it worked out on the Board of Trade figures. Those figures were worked out on the basis of values, and this year it is 67 per cent.

Sir G. COLLINS

I am taking the Prime Minister's own basis. He was dealing with quantity, and in dealing with trade questions he will agree that it is not so much the figure that is under consideration, but the total tonnage in goods, and now the Prime Minister says you should delete coal.

The PRIME MINISTER

No. The hon. Gentleman must quote me accurately. All I want to say is that a ton of coal would be the equivalent of a ton of silk or of cotton manufactures. You must take the quantity of goods and the quality of goods if you are going to compare one year with another. I took the method of the Board of Trade, and I think it, is a sound one.

Sir G. COLLINS

The right hon. Gentleman is entitled to take the method of the Board of Trade, but I am taking his own basis, and he dealt with quantity, and advanced this argument in reply to myself, and surely he will agree that a ton of coal exported to a country is a very valuable export to our miners. Evidently the export of coal, when you are dealing with large quantities, gives employment to large numbers of people here. The right hon. Gentleman went on to say: The causes of unemployment are of a totally different character. It is attributable to causes deeper and more far-reaching. They are causes which will take a long time for the world to get over. They are the exhaustion of the resources of the world."—[OFFICIAL REPORT, 9th February, 1922; col. 406, Vol. 150.] There is no word in that statement that our export trade is disorganised through the depressed state of Europe, through this large indemnity banging over Europe. Several speakers this afternoon have quoted the opinions of America. Let me quote the opinion of the Bankers' Committee, which sat in Paris on that subject. They believe that a resumption of normal conditions of trade between the countries and the stabilisation of the exchanges are impossible without the definite settlement of the reparations payment, as of external debts. We argue that while this open sore exists in Europe our trade cannot go back to its pre-war level, and it is because we believe, and are stating so in public, that the policy of the Government announced this afternoon will not bring that rapid return which we all wish to see that we have challenged the policy of the Government this evening.

Major CHRISTOPHER LOWTHER

The question that I desire to raise is a difficult, a complicated, and a technical one, and it has this advantage, perhaps, over the wider question of reparations, that the British Government can itself afford considerable relief. The position arises in Articles 296 and 297 of the Peace Treaty of Versailles. Article 296 lays it down that all debts of ex-enemy aliens contracted before or during the War to British nationals, and vice versâ, must he paid through clearing offices established by the high contracting parties, and each high contracting party is responsible for the debts of its own nationals. The point of that Article appears to me to be this, that the State takes the place of the creditor and debtor in respect of the collection of the debts to which I have referred. Article 297 deals with property, rights, and interests, and the most important part of the Article, as I understand it, is that the Allies may seize, retain, and liquidate all property, rights, and interests belonging to ex-enemy aliens at the date of the coming into force of the Treaty. Of course, at the same time there is an obligation upon Germany to compensate her nationals who have suffered from the seizure of their property over here. Out of the property so seized, compensation is to be paid to those who suffered injury or damage inflicted upon their property, rights, and interests by our ex-enemies. Before passing to the practical effect of these Articles, which is the subject of a very interesting interim Report, I would like to make a few short, general observations oh the Articles themselves. I do not know whether the House realises that, as regards compensation which is paid by the German Government to its nationals for property which has been seized over here by the British Government, compensation is paid at the rate of only 75 marks to the £. It is perfectly evident that compensation paid upon that basis, when at the present time something like 3,500 marks go to make a £ sterling, represents little less than blue ruin, but with other ex-enemy aliens, such as Austrians, Bulgarians, and so on, no compensation whatsoever is paid by the Governments of those countries to their nationals, and for a very good reason. If they cannot afford to pay their own civil servants, if they cannot afford to pay for the bare necessities of the State, obviously they cannot afford to compensate their nationals who may have had their property over here sequestrated under the Articles of the Treaty.

As regards Article 297, I think it establishes what must be en entirely new principle, and that is you can take the property of a person over here in order to satisfy the debt which is owed by a man in Germany to an Englishman; that is to say, that you take A's property to satisfy a debt owed by B to an Englishman. The Treaty goes a good deal further than that, for the British Government may sequestrate the property of an Austrian over here in order to satisfy the debt due by Germany to England. And not only is there a seizure of ex-enemy alien property and rights over here, but the seizure is complete. It comprises personal ornaments, I believe, furniture, cash at the bank, and, in fact, everything. It may be argued that it is certainly incumbent upon Germany to make good what has been seized by the British Government of property belonging to her nationals over here. I have endeavoured to point out that, in fact, those who have their property sequestrated receive very little compensation indeed from the German Government, and, in the case of the other ex-enemy alien Governments, no compensation at all. I know there is a school of thought and a good many people who will say, "Serve them right, after all. They are nationals of a country and of countries which waged a savage, merciless, ferocious war, and anything that may befall the nationals of those countries serves them right."

I cannot honestly subscribe to that view. I think that it is contrary to British tradition, when the enemy's Government has been beaten in war, and when peace has been declared, to carry on the war against what are, in fact, defenceless private individuals. It was recognised by the Board of Trade that hardships were bound to arise, and I am not going to stress the broader point, but will devote myself to this particular side of the question. The Board of Trade, in order to alleviate these hardships, set up a Committee, which is presided over by Lord Justice Younger, and of which, I believe, the hon. and gallant Member for Reigate (Brigadier-General Coekerill) is a member. In May of this year that Committee made a very interesting Interim Report. They had by that month had some 900 applications before them for relief, and I believe I am not overstating the case when I say that they have come to the conclusion that the actual working of these Articles is very defective. The Report of the Committee says: The Treaties have not in this respect functioned according to their terms: the German Treaty has so functioned only most imperfectly; the others net at all. The result has been a growing suspicion and dislike of these Clauses in their actual operation, accentuated by the fact, which now seems certain, that in the final result they will operate with the greatest degree of harshness in the cases where it would be either the desire or to the interest of this country that they should not operate at all. The cases to which the Committee referred are, in the first place, English women who have married ex-enemy alien subjects, and I do not know whether the House realises, but it is a fact, that where an Englishwoman, between the date of the Armistice and the coming into force of the Treaty, married an ex-enemy national, her property was sequestrated by the Board of Trade under these Articles of the Treaty. I believe that the greater part of the property in question is property which is known as "marriage settlements," that is, settlements which are held by trustees for the benefit of the married couple. The other cases to which this Committee particularly turns its attention are cases where a man has had sons fighting in the War for this country, where a man or a woman either by the sympathy or the active help which they have shown to the Allies during the War, have been exempted from internment and repatriation; in other words, people who, during the War, were considered, not in the light of enemies, but in the light of friends, and now find themselves after peace has been declared, penalised as if they had been our bitterest enemies.

Let the House bear this in mind also, that where a German woman marries an Englishman, her property remains free. It applies only in the case where an Englishwoman marries a German. If Members are sufficiently interested in this matter to read, in words far more apt than I could ever put them, some cases of hardship which have arisen under these Articles, may I respectfully counsel them to look at the Report of Proceedings in another place, which, I think, makes astonishing reading? I will not venture, of course, to repeat anything of what took place there, but I would call the attention of the House to two judgments which were recently given in the Court of Appeal which are very pertinent indeed to the question I am raising. The first case was that of a man who had dual nationality, and the second was a case of the nationality of an Englishwoman married to a German. The first case was one where a man had acquired British nationality, and, at the same time, was a German national. Judgment was given in the Court of Appeal to the effect that his property should be sequestrated by the Board of Trade under the Articles of the Treaty. But there was a dissenting judgment, and it is to a phrase or two, in that dissenting judgment to which I would venture to call the attention of the House. Lord Justice Younger, who was sitting on this Appeal, said that the question affected a large number of persons other than the appellant and it would constitute a precedent by which the destination of property of great aggregate amount and value would be determined. Also the Appeal, he said, raised a question of the gravest constitutional importance. There was no evidence whether Germany would, even if she were able, make effective reparation. The question amounted to no less than this—whether the appellant and other British subjects in the same cases were by this Order in Council deprived pro tanto of the rights acquired by British subjects by the 39th Article of Magna Charta. The other judgment was against an unfortunate Englishwoman who had married an ex-enemy alien between the date of the Armistice and the coming into force of Peace. Her property was seized according to the judgment of the Court. I venture to think that there has been a case made out, not only in another place, by the report to which I have referred, but by the judgment to which I have drawn attention which should merit the attention of the Board of Trade. I am going to suggest this; they have set up a Committee which is presided over by a very distinguished lawyer who commands the respect of everybody in this country. On that Committee are two gentleman also entitled to great respect. I would suggest that the terms of reference to this Committee might be enlarged. At present the limits referred to in the Warrant of Appointment are, as follows: The Committee were authorised to recommend the release (1) to ex-enemy nationals now resident in the United Kingdom of property to the value of £1,000; and (2) to ex-enemy nationals formerly resident in the United Kingdom, but now resident elsewhere, of property of the value of £200. In addition to property the Committee were authorised to recom- mend the release of income up to a reasonable amount. Then later: The Committee were authorised to recommend the release to the owner, in order that he might resume business, of the proceeds of a business wound-lip under the Treaty with the Enemy Acts up to the sum of £5,000, where the owner was before the War, and had since been permitted to remain resident in the United Kingdom, and where the Committee considered that it was desirable in the national interest. I feel perfectly certain it was never contemplated at the time the Treaty was signed that gross hardships should accrue. I believe the Board of Trade have it in their power largely to ameliorate the hardships which have been proved over a certain period of time. I would suggest to the Board of Trade that they might very well, without injury to the national interest, relax the stringency of the orders which sequestrate all ex-enemy nationals' property whatever the circumstances or whatever the conditions of the persons. I feel sure that in doing this the Board of Trade will in no wise be affecting the significance of the Treaty; on the other hand they will be upholding the national dignity and honour in these matters.

Mr. MOSLEY

Those of us who came to the House this afternoon anticipating that the Prime Minister would favour us with a performance in his new, highly-successful, and increasingly familiar rôle of the Angel of Peace, were sadly disappointed. I can only ascribe the sudden change from last week to the absence of one of his most prominent supporters at the recent Free Church gathering. I refer to the Chief Secretary for Ireland, who was not in his place this afternoon to cheer on the sentiments of peace. At the luncheon party last week everything was so appropriate. The Prime Minister, Nonconformity, the Chief Secretary for Ireland—how beneficent a combination! How pregnant with all the noblest aspirations of humanity. All that was lacking in that idyllic picture was the robust figure of the Colonial Secretary. Possibly, however, it was felt that his virile presence might mar the newly-found harmony of reacting Nonconformity and repentant Black-and-Tanuary! But, oh! what a change of heart. The prodigal son of Nonconformity, after eating the fatted calf so generously provided, has broken loose again, and has descended upon the House of Commons this afternoon, thundering about the danger of a German trade revival, conjuring up terrible visions of a Germany restored to prosperity, and Europe restored to peace, by which, in some mysterious fashion, the trade interests of this country are to be undermined! Possibly the right hon. Gentleman has considered that even in politics some things are too abnormal to be swallowed by the electorate. If we were some morning to open our morning paper and see a conspicuously displayed advertisement headed: "Prominent burglar requires job as policeman, as he has no further prospect of remunerative employment in his own profession," we should consider that such an advertisement was rather strange, but in polities these things happen constantly. Possibly the Prime Minister reflected in the interval but his sense of the incongruous has inspired him to reverse his former attitude.

We have listened to the right hon. Gentleman in some very remarkable conceptions this afternoon. Not only have we been informed that the restoration of our second best customer to the economic comity of Europe would be fatal to the trade interests of this country, but that the facing of realities and the realisation of the position of other countries must be detrimental to the interests of the taxpayers of this country. Is it really in the interests of the taxpayers of this country to hold on to paper assets, whilst surrendering, perhaps in perpetuity, or in comparative perpetuity, those great trading interests and of those foreign markets on which our prosperity depends? Surely we are in a position of one who has made a great mistake and who has committed his signature to a bond which he is called upon to honour. He tries in some way to escape the onerous and irksome obligation into which he has entered and finds he can only escape by paying for his mistake. We have put our signature to something from which we cannot escape, and it is only by substantial concessions that we can hope to extricate ourselves from our difficulties and resuscitate the trade of this country.

In his speech this afternoon the Prime Minister once again failed entirely to face the realities of the European situation. It is not a question of haggling over comparatively small sums of money which are owing between Nations; it is a question of getting down to the real bed-rock of the economic situation. There are other factors in the situation. The right hon. Gentleman did not touch upon the question of disarmament. Who will deny that the armament question in Europe is, perhaps, the most potent factor in debarring America from participating in the solution of our difficulties? I agree entirely with what the hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) said when he emphasised the inter-relation of the questions which are in the European situation. It is a four-fold problem, a problem of guarantees of National safety upon which Disarmament is dependent, and the problem of the inter-Allied debt, upon which the reparation solution is dependent. Now, with all these questions outstanding, with no definite and concrete proposition from Europe itself, the Prime Minister tries to inveigle America into the European Madhouse by arguing it is not safe for her to remain outside. If only the right hon. Gentleman would face the realities of Europe and would try to get some agreement upon the European difficulties, contingent even, if he likes, upon American assistance—if he could get a European settlement and agreement, and then go to America with a concrete proposition for the solution of the problem in which her trade interests are as intimately bound up as our own, there might be some hope for escape from the difficulties in which we find ourselves.

It is really no good, however, merely sending out an invitation—for that is what it amounts to—to America to participate in the European situation which holds out not the faintest hope of solution. To come into Europe which is still spending something like five times what it did before the War on the maintenance of arms, and to give financial assistance to countries—and to one great country in particular—which is spending 45 per cent. of its substance on armaments, how can you expect any reasonable people not reared in a militarist tradition to participate in such a settlement? It is no good crying for help to other people until we have learnt to help ourselves. The right hon. Gentleman has never in the course of the last three years attempted to face the fundamental difficulties of Europe. Let him, by substantial concessions in the matter of debts, purchase a reasonable solution of the reparation problem. Let him, by entering into, not a unilateral agreement, but a comprehensive agreement compatible with and in accord with the spirit of the covenant of the League of Nations, such as that recently engaging the attention of my Noble Friend the Member for Hitchin (Lord R. Cecil), secure a measure of disarmament based upon guarantees of safety. Then, when we have faced the four great inter-related questions and have settled them to the satisfaction of Europe, when we are in a position to put up a concrete proposition to America based upon European agreement, then we may expect a solution of this question, and the participation of America as partners in a business which appears to have some prospect of success. Until the right hon. Gentleman faces the European situation, and has secured agreement among European countries, I cannot see how any reasonable person can expect America to intervene on our behalf. I hope the right hon. Gentleman will persist in the policy of seeking first a European agreement, and then approaching America with a concrete suggestion.

Mr. GIDEON MURRAY

I am extremely sorry that there is no one on the front bench at the present moment representing either the Chancellor of the Exchequer or the Prime Minister. I see my hon. Friend the Parliamentary Secretary to the Board of Trade on the Treasury Bench, but I do not know what he has to with this Debate. I hope, however, that what transpires will be duly conveyed by the Under-Secretary to the Prime Minister and the Chancellor of the Exchequer. I have listened with the greatest interest to the historical account which the Chancellor of the Exchequer gave this afternoon of the whole position with regard to reparations in Europe. I think we are extremely indebted to him for that account, because through the maze of negotiations and conferences and committees which have taken place during the past three years, it has been impossible for the ordinary layman to follow exactly what has occurred.

That account was followed by a speech from the Prime Minister, who also added greatly to our information, but neither of these right hon. Gentlemen gave us any information with regard to that very important document, which has been published in the Press within the last few days, namely, the document which will be known in future as the Balfour Note. They were particularly silent about that despatch. In certain quarters of the House it was suggested that it meant one thing, and in other quarters it was suggested that it meant another thing. It reminded me of John Collier's problem pictures, beautiful in production, but uncertain in their object. Like John Collier, the Government this afternoon was very successful in concealing the secret of the picture which is drawn in the document. I, for one, am not at all satisfied that this was an opportune moment to issue such a note from the Foreign Office. There are several reasons why it should not have been issued at the present moment. First of all, I think that it will give encouragement to Germany once more to evade her just debts. Secondly, America is on the eve of the elections which will take place in November, and I think that it would have been more judicious to have awaited the result of those elections before the issuing of a document which practically, whatever may be said, demands from America that she shall permit us to cancel our debt to her.

What is the actual position now that that despatch has been issued. America, through the Chairman of the Finance Committee and certain other distinguished persons, has publicly stated that she cannot agree to any cancellation of the debt, and so we are exactly where we were yesterday or the clay before the Note was issued. In other words, we have to go to this Conference in London between the Prime Minister and Monsieur Poincaré with the object of arranging German reparations quite apart from what is contained in that Note. Therefore I believe that it ought certainly to have been delayed, whatever the advantages of its contents might have been at a later date.

I listened with interest to the Prime Minister's statement in which he informed us, on the one hand, how fairly he had treated Germany, whilst, on the other hand, he described to us what he proposed to do at the Conference with M. Poincaré. Over and over again the Prime Minister at conferences has, in my opinion, given away the case of Great Britain, and I only hope that the words which he has spoken this afternoon, strong words which will have the sympathy of a great many people in this country, will be translated into action and not remain only words. The right hon. Gentleman informed us that there had been great difficulties in our negotiations with France. We are all aware that there have been great difficulties. Naturally difficulties occurred because our conditions are not altogether the same. I submit with all deference that the Prime Minister has not pursued the negotiations with France in a way likely to achieve success. He has gone to America, and to Germany, to seek his remedies instead of pursuing a definite line of action through France, and through France alone. The right hon. Gentleman has been to Genoa, San Remo, London and Paris, and almost every country in Europe has had its conference, and he has attempted there to come to an arrangement with France and Italy, whereas, if he had pursued those negotiations through the Foreign Offices of these respective countries, he would have been more likely to have achieved success. He has conducted these negotiations through multifarious conferences in a hole-and-corner atmosphere of intrigue and cheap journalism which has been the downfall of the Allies and Germany's opportunity. Germany has fooled us all the time and will go on fooling us unless we show her that we mean business. Now what has happened? She has never attempted to collect her available assets, she has printed unlimited paper money, she has never taxed herself commensurately with her capacity as we were told to-day in statistics given us by the Chancellor of the Exchequer; she has permitted her rich citizens and business firms to export all their available and transportable wealth, and, in the first instance, she depreciated her currency deliberately until now that which was intended to assist her to avoid payment has become a grave danger to her.

What is to be done? This afternoon we have listened to speech after speech from all quarters of the House in which the case of Germany has been described to us with every tenderness. We all know that the position at the present moment in Germany is a most difficult and dangerous one. It does not require the description given by the Chancellor of the Exchequer or by the hon. Member for Preston (Mr. T. Shaw), the latter of whom gave such a heartrending account of present conditions in Germany to bring home to us what that position is. It is perfectly true we must face that condition as we are told it is and the realities as we find them to be. What can be done? Obviously we are not going to help the position if we say to Germany, "Poor Germany, what a bad condition you are in. Now then, how much are we going to let you off?" That is not the way to get money out of a debtor, that is not the way in which hon. Members sitting on the benches opposite would act in business. No one would go in that way to a debtor if he wished to extract money from him. I think that the Prime Minister has been very culpable in the way in which he has conducted proceedings during the past three years, and I urge again my hope that he will translate into action the strong words he has spoken this afternoon.

How are you going to meet this position? If I may be permitted, I wish, with all respect, to outline what I believe to be the way of doing it. First of all, it has practically been arranged, I believe, that a moratorium shall take place. That is the one thing to be done. At the same time I would place in Germany a Receiver in Bankruptcy—a Debt Commission. I would transform the Committee of Guarantees, if they are a suitable body, into a Debt Commission and put it in Berlin with the object of controlling the finances of Germany for a fixed term of years. I would do what was done in Egypt over 30 years ago, when Lord Cromer, then Sir Evelyn Baring, went there with a Debt Commission and took charge of the Egyptian finances. It would be the duty of the Debt Commission to collect all available evidence with a view to fixing what Germany can pay, and that Debt Commission should take into account, not only all the revenue receipts of the country, its Income Tax and its Customs revenue, but also the wealth which has been exported from Germany. In fact it should take into account every class of revenue which could come within the purview of such a Commission. If that were done Germany would then be in the same position as Egypt was in the eighties. It would be possible for that Debt Commission to approach America or any other country that might be able to contribute to an international loan. With the information at their disposal and with the knowledge that the Debt Commission was sitting in control of her finances, it might be possible to get for Germany that credit for a loan which she is unable to secure to-day.

I want to make one suggestion to America, if I may do so. She finds herself unable at the present moment, perhaps she may find herself unable indefinitely, to cancel the debt of Great Britain to herself. Apart from any question of what we are prepared to cancel, she has stored up in her banks a vast amount of gold, aggregating, I believe, £280,000,000, of which only from £50,000,000 to £80,000,000 are of any use to her from the point of view of her own commerce and credit. I would suggest to America that it might alleviate conditions in Europe—because we live under a gold standard, and so long as the gold standard is there, gold is useful—if she would lend on interest to Germany for distribution as reparations, say, £200,000,000 of that gold now lying in her banks and earning absolutely no dividend or interest. In that way that gold could be distributed to Europe once more, and would help to create the credit which is largely lacking and which makes it so difficult to sell or buy goods.

I do not believe that any settlement should be made at this coming Conference, or at any Conference, which provides for cancellation of the Allied War Debts to Great Britain, unless the United States cancel our debts to them. Further, there should be no cancellation of German reparations until Germany has agreed, and satisfactory arrangements have been made by her, to pay France and Belgium in full for the damage done to their devastated areas. These are two most important points, and I believe that the view I have expressed upon them will receive the sup- port of the mass of the opinion of this country. I think they should receive every consideration in all negotiations that may take place in the future.

Mr. HASLAM

As I have just come back from a three weeks' tour in Germany, during which I have visited some of the principal towns and commercial centres, such as Cologne, Hamburg, Berlin, and Düsseldorf, I hope that I have some information which may he acceptable to Members of this House who have not had the opportunity of visiting Germany lately. On all hands I found an appearance of prosperity. One thing that I noticed particularly was the condition of the children in Germany. I found them to be clean and well fed, and apparently in good health. I found also that building was active, apparently, throughout the country. New factories were being built, and extensions of existing factories, and this was to be seen in all parts. There was no apparent unemployment, and I saw nothing like destitution. I found that taxation has been very low in Germany. Workmen's wages, too, have been very low, and those low wages have been helped by subsidies paid by the State. At Hamburg I found great shipbuilding activity, and all the shipping berths were, apparently, occupied. I was told also that the amount of clearance tonnage through the harbour was almost up to the pre-War level. In Berlin, also, I saw signs of great activity. I found that a new underground electric railway was under construction, that the main station was being rebuilt, and that banks were rebuilding and enlarging their premises.

I have come to the conclusion—a conclusion, by the way, to which I came 18 months or more ago—that the most important point that requires to be dealt with is the stabilisation of the currency. I found the effects of depreciation of currency to be most marked. I will give an instance. A man told me that he bought two identical suits of clothes within a week, and, while one of them cost 7,000 marks, the other, bought a week afterwards, cost 11,000 marks. That shows the effect of the instability of the exchange. I also found that things were very cheap in the shops. For instance, I could buy chocolates of the best quality, containing 65 per cent. of the cocoa bean, for the equivalent of 8d. per lb. Were the Germans to allow the export of these goods, they could, at these exchange rates, be brought over to this country and sold at a profit of 100 per cent. That, again, shows the great difficulty which the depreciation of the mark has introduced into business considerations. The next point that is most important is that their National Debt is virtually extinguished. The interest is not worth a fiftieth part of its former value, and to all who hold State securities, this represents an Income Tax which absorbs the whole income, that is to say, an Income Tax of nearly 20s. in the £ in the case of the unfortunate loan holders. The same, of course, holds good in the case of those who lend money to business undertakings, but those who are loanholders have practically no interest at all. That, on the other hand, helps the business man, and helps towards the encouragement of enterprise in Germany. The State's yield from taxation constantly goes down, on account of the depreciation of the currency, because, as the value of the mark goes down, the taxation being, as a rule, fixed, the amount of value received becomes less and less. I found, also, that the State railways were charging fares very much below their real value. The passenger traffic figures, for instance, have only gone up 15 times, while the internal value of the mark has probably depreciated at least 70 times. To give an instance, I may say that the journey from Hamburg to Berlin, a distance of about 200 miles, cost me about 5s. first class, or about ¼d. a mile, while the third class fare is less than half that. This represents an increase of about 19 times on the first class fares, and 15 times on the third class, over pre-War rates, in paper marks, but in real value they ought to have been advanced about 70 times. The State railways have thus shown very heavy losses, and, indeed, for 1921 the total deficit on these railways was about £40,000,000.

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It will thus be seen that the people of Germany have the advantage of these low taxes, which, in addition, have advanced the interests of all business transactions. The amount of tax actually collected or paid is very low. The postal rates, also, are about one-fourth of what ought to be charged if they paid anything like the price that should be paid according to the depreciation of the mark. All this helps industry. On the other hand, the internal wealth of Germany is gradually but steadily increasing, but I feel sure that Germany must still have time to recover.

I want now to show the other side of the picture. Germany has paid in respect of the London Resolutions, in cash and in kind, £500,000,000, and, in the form of the State property ceded, she has also had to pay £100,000,000 in addition. The total claim made by the Allies in respect of reparations, apart from the clearing house of enemy debts, was estimated to be £6,600,000,000, which would be about three years' total income of the German people before the War. I maintain that it is totally impossible for the Germans to pay that amount. After the War, Germany was financially and morally exhausted. She handed over 15,000,000 of population and consequently one-fifth of her sources of revenue, while by transference of territory she had to part with 24 per cent. of her coal producing and 79 per cent, of her iron ore producing resources. Her merchant tonnage, which before the War was 5,000,000 tons, has only been restored to the extent of 2,000,000 tons. By the Treaty terms she had to deliver to the Allies 5,000 locomotives, 150,000 trucks, and 730,000 head of livestock. In West Prussia she has lost her richest area for the growing of rye, beet sugar and potatoes. The production of these foodstuffs, for 1921, showed a decrease of about 40 per cent., which was much greater proportionately, of course, to her population, owing to the transference of German territory.

Germany, again, has had to form a new Constitution upon a republican democratic model, and she has had to resist the monarchist and militarist section of the people, which is a matter of great difficulty for her. We should endeavour to strengthen the young German Republic in every way. The German people, as a whole, are honestly opposed to the old Junker militarist section, and need our sympathy and support. I heard a working man say in the street, referring to the occupation, "We have to thank Bismarck for this," and that is the sentiment of most of the people. In conclusion, I should like once more to refer to the essential necessity for restoring stability to the currency. All efforts should be directed towards that end. The first necessity is the restoration of German credit, as the best means of causing the tendency towards appreciation of the mark. Germany is undoubtedly increasing her internal wealth, but unless she is able to export much more than she imports it must be impossible for her to buy foreign credits with which to pay reparation charges. In order to help her to meet her obligations a moratorium to enable her recovery should be agreed upon, or a sufficient period for the purpose. If possible, an agreement should be come to with the German Government, and a large reduction made in the amount of reparations, the dates and the amounts of payments being fixed. Means will have to be taken to enable France to tide over her present financial difficulties. Whether America will come to the aid to save Europe from disaster is a question which must be left to her own conscience and common sense. We were partners during the time of destruction. Are we to be partners in endeavouring to restore prosperity to the devastated nations? America has the gold. Is she willing to help? I am convinced that the French and German Republics will gain by goodwill and by laying aside old animosities. If they come to a voluntary agreement, as time goes on, with Germany's fulfilment of her obligations, I believe the necessity of exercising force would become less. A method might be arranged for stabilising the German currency by a reduction in the monthly payments in gold at a certain percentage for every 100 points of the approach of the mark towards parity. Thus Germany's interest in the appreciation of the mark would become a solid and a tangible one. A new German par value of the mark should be aimed at, and in the course of time stabilisation would be effected. The formation of an international financial authority, to establish ways and means by which currency stability should be promoted, would in itself go a long way towards the restoration of confidence and towards the attainment of European prosperity.