The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

I beg to move, "That this House do now adjourn."

3.30 p.m.

I rise for the purpose of making the statement about the American Debt which was promised by my right hon. Friend the Lord President of the Council on Monday last. It will be for the convenience of the House that I should make such a statement as a preliminary to the discussion which is to take place, and it had been intended that my right hon. Friend the Prime Minister should wind up the Debate to-night, but I am sorry to inform the House that he is still suffering from a very severe cold, which has been, I am afraid, aggravated by his travels to Geneva and to Paris, and he is confined to the house. In those circumstances, if the House will extend to me its indulgence, I think perhaps it would be best that I should myself wind up and reply to any points which have been raised in the course of the Debate. During the last month, when Notes have been passing between the United States Government and the British Government, the House has been extraordinarily tolerant, and has abstained from asking that there should be any Debate on the subject.

The Government very warmly appreciate that attitude on the part of the House. No doubt hon. Members have realised that discussion cannot be confined to the Members of this House, and that anything that is said here is naturally made known elsewhere, and that a Debate in which it would be necessary not merely to give explanations, but perhaps possibly to state intentions, might have been extremely embarrassing while negotiations were still in progress. Now that the exchange of Notes has been concluded we welcome very warmly the opportunity of making our statement to the House, because we have naturally felt at some disadvantage while communications from us were being published without the comment which, but for the circumstances I have mentioned, would naturally have accompanied them.

I might, perhaps, have begun my story with the conclusion of the Lausanne Conference, which has already been discussed in this House, but I think it would be better that I should go back a little further, because it is only by examining the whole history of this affair that it is possible to realise how strong is the title of this country to claim that the whole subject of debts should be revised; how consistently and persistently successive British Governments have from the beginning urged the cancellation of the whole of Reparations and War Debts; how reluctantly other countries have accepted that view, but how steadily they have been forced by the power of hard facts and by bitter experiences to come closer and closer to the point of view originally enunciated by the British Government. I would like to add this, that when we are told that contracts must be kept sacred, and that we must on no account depart from the obligations which we have undertaken, it must not be forgotten that we have other obligations and responsibilities, obligations not only to our own countrymen but to many millions of human beings throughout the world, whose happiness or misery may depend upon how far the fulfilment of these obligations is insisted upon on the one side and met on the other.

I may remind the House that the whole of our debt to the United States was incurred after that country had entered the War. Our expenditure in the United States after they had joined us amounted to £1,444,000,000, out of which we found from our own resources £258,000,000. We were reimbursed by our Allies, for expenditure on their behalf, £371,000,000, and the remainder of the £1,444,000,000, namely, £815,000,000 was financed by a loan from the United States Government. I would like to emphasise that the whole of that expenditure for the purposes of the War. The whole of it was expended on goods purchased in the United States, some of it on munitions, some on food, some on clothes. Whether it took the form of munitions which were blown to pieces in Flanders, or of food which was consumed by our people and our soldiers, or of uniforms which were worn to rags in the course of the fighting, the whole of that expenditure was just as non-productive as if it had been spent entirely upon tanks or artillery or shells. There was no addition to the wealth of this country, and really there is no distinction between the various war services upon which that money was spent.

When, however, the War was over we were left with this huge debt to the United States, incurred for a purpose in the pursuit of which she as well as we had been engaged; on their part our Allies also had incurred great debts; while upon Germany lay the immense burden of reparations. The question was how these debts were to be dealt with. Very early in the history of the post-war period the British Government came to this conclusion, that payment of these great inter-Governmental obligations inevitably postponed indefinitely the economic recovery of the world. On the 5th August, 1920, the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George), who was then Prime Minister, wrote to President Wilson that the British Government had informed the French Government that it would agree to any equitable arrangement for the reduction or cancellation of inter-Allied indebtedness, but that such an arrangement must be one that applies all round. President Wilson's reply was not encouraging. He said: The United States Government is not prepared to consent to the remission of any part of the debt of Great Britain to the United States, and he asked that a British representative should go to Washington without delay to fund the War Debt. After that, the Coalition Government had, I believe, decided to send a Mission to the United States, in order to carry out the funding of the Debt. In the meantime, the Balfour Note had been published.

Mr. LLOYD GEORGE

I am sorry to interrupt the right hon. Gentleman. I have been looking up all my documents. The sending of the Mission to America was part of the discussion on the Balfour Note, and therefore the Balfour Note was part of the instructions of whoever was to be sent there.

Mr. CHAMBERLAIN

I was not going to say anything different from that. I am only endeavouring to give a brief historical survey. I recall the terms of the Balfour Note, which said that the British Government was in favour of writing off, through one great transaction, the whole body of inter-Allied indebtedness. Failing this, it was said, we do not in any event desire to make a profit, and in no circumstances do we propose to ask more from our debtors than is necessary to pay our creditors"; Then it was added: and while we do not ask for more, all will admit that we can hardly be content with less. I would just like to remind the House of what our position as to debts was at that time, as detailed in the Balfour Note. There was due to us by Germany £1,450,000,000; by France, Italy and other European debtors, £1,300,000,000; by Russia £650,000,000, making a total owed to us of £3,400,000,000.

Mr. SMITHERS

May I ask the right hon. Gentleman—

HON. MEMBERS

"No!"

Mr. CHAMBERLAIN

I shall be glad if the hon. Member will allow me to finish. Against that, our debt to the United States of America, together with accrued interest at that time, amounted to £850,000,000. The House will see therefore that in the Balfour Note what we offered was, preferably, total cancellation all round, and failing that, an offer on our part to waive our surplus of £2,550,000,000. It is seen how ready were the Government of this country to show their good faith and their sincerity in their affirmations, by sacrifices on the part of the British taxpayer. Before the Mission of the Coalition Government could go to America, that Government fell, and consequently it became the task of my right hon. Friend the Lord President of the Council to carry out the agreement with the United States. My right hon. Friend is sometimes accused of having invented the American Debt. Imaginative journalists, with more than a spice of malice in their hearts, have accused him of having fastened the burden of the American Debt upon the shoulders of this country. Of course, the fact was that the debt existed before my right hon. Friend went to the United States. It existed in the form of notes of hand payable on demand, and what in fact my right hon. Friend was able to do was to obtain a remission of the debt which, on the basis of 5 per cent. interest, amounted to 28 per cent. of the original figure. In our turn, we also carried out funding agreements, and my right hon. Friend the Member for Epping (Mr. Churchill) in 1926 made an agreement with the Italian Government which scaled down their debt, on the same basis, by no less than 86 per cent., and in the same year he made an agreement with the French Government which scaled down theirs, still on the same basis, by 62 per cent.

In the meantime, Reparations also had begun the downward path. In 1924, under the Dawes Agreement, the original fantastic figure, as it sounds to us now, of £6,600,000,000 of Reparations was brought down to a total capital liability of about £2,000,000,000. In the early days of those agreements, and in the early days of the Dawes Plan, the annuities payable by Germany were paid without much difficulty, partly because the early payments were smaller in character than the later ones, but largely also because at that time the United States of America was lending very large sums to Europe. In fact, the real position was that the Reparations were being paid out of the American loans to Germany, and the allied countries out of these Reparations were paying their annuities to the United States.

Unfortunately, that was not a position which could go on indefinitely. In 1929 there began that great fever of stock exchange speculation in the United States, and instead of long-term loans to Europe, only short-term credits were at that time granted, in the hope and expectation that very soon these short-term credits would be replaced by further long-term loans. In October of that year, came the crash on the American stock exchange, and immediately all the short-term credits were withdrawn, so far as that was possible, and the crisis arose which hon. Members have not forgotten. In 1930, it was seen that the annuities fixed under the Dawes Plan for Germany. were still too high, and, with the extraordinary optimism which has characterised the proceedings of the nations all through this history, a final settlement was made with Germany under the Young Plan, by which the 2,000,000,000 to which I have already alluded was scaled still further down to £1,600,000,000.

So we see, as I said before, that step by step the nations were being forced to come nearer and nearer to the goal which we had set before ourselves at the outset. In May, 1931, the confidence in Europe had so far disappeared, and credits were so far frozen, that it was no longer possible to avoid disaster. The Credit Anstalt fell, and very soon it became clear that Germany herself was heading for bankruptcy, and that those loans which had been made by the United States and by other countries to Germany and to some of her neighbours were likely in all probability to become a total loss.

It was in these circumstances that, in June, 1931, President Hoover proposed a moratorium. He proposed, not a moratorium only of War Debts, but, by implication, he recognised the connection between War Debts and Reparations, for his proposal was that all inter-governmental debts should be suspended for the space of one year. Many people thought at the time that one year was not nearly enough, and they have been proved to be right since; but, for the moment, the Hoover Moratorium saved the situation, and once again hope sprang in the breasts of those who had so often hoped in vain before, for it was thought possible that, when the Hoover Moratorium came to an end, circumstances would have so changed that the resumption of those debts could begin again.

In July of that year, as affairs were still serious, there took place the London Conference. Once again, at the London Conference in July, the British Government urged its old policy of cancellation. Unfortunately, neither the American nor the French representatives at that conference were at that time prepared to entertain any proposal of the kind. The London Conference, therefore, failed to achieve any improvement in the situation so far as inter-governmental debts were concerned.

Now we are getting very close to the events which led up to the Lausanne Conference. I would like, first, to recall that, in October of 1931, the French Prime Minister, at that time M. Laval, paid a visit to Washington, where he had conversations with President Hoover, and at the end of those conversations a communiqué was issued at Washington, from which I quote these words: Prior to the expiration of the Hoover year some agreement on inter-governmental obligations may be necessary covering the period of business depression. The initiative in this matter should be taken early by the European Powers principally concerned, within the framework of the agreements existing prior to the 15th July, 1931. I may say that the United States Government indicated also to the British Ambassador that, if the European Powers devised a reasonable reparations settlement, this would be the best method of approach with a view to the revision of the War Debts due to the United States of America. That is an important matter, because it is the justification for the statement in a recent British Note that the initiative taken by the European countries at the Lausanne Conference was taken with the cognisance and approval of the United States Government. In December of last year, the Special Advisory Committee appointed under the Young Plan, on which, of course, an American representative sat, issued a report in which they said: The adjustment of all inter-governmental debts, reparations and other war debts, to the existing troubled situation of the world—and this adjustment should take place without delay if new disasters are to be avoided—is the only lasting step capable of re-establishing confidence, which is the very condition of economic stability and real peace. We appeal to the Governments on whom the responsibility for action rests to permit of no delay in coming to decisions which will bring an amelioration of this great crisis which weighs so heavily on all alike. I think the House will see, then, that there were direct invitations to the European Powers to get together at the earliest possible moment to exercise their initiative to try and settle among themselves reparations, namely, that part of the twin problem which concerned them; and they had at least good reason to suppose that, if they could come to a successful conclusion there, they would have made the best approach possible to a revision of the War Debts due to America. It was hoped to hold the Lausanne Conference in the first month of the present year. Owing, however, to the elections in Germany and France, the Conference had to be postponed, and, in fact, it was not possible to hold it until June. But the time thus spent was not wasted, because during the six months a very remarkable change took place in European public opinion, and particularly in France; and, owing largely to that change in public opinion, it was found possible to achieve at Lausanne a success far more complete than at least was anticipated, I think, by most people before the actual Conference had begun.

The effect of Lausanne was that it put an end to the existing system of Reparations, and the Conference opened in a far more favourable atmosphere to the views which had been so constantly urged by the British Government than had ever existed before. I know that an opinion has been expressed that, if we had only been sufficiently persistent, we might have obtained at Lausanne a total cancellation. That is a matter which is incapable of proof. All that we can say is that we did our best, and, if we did not actually obtain total and complete cancellation, at any rate we got something very near it, since the ultimate maximum liability to which Germany is now exposed in respect of Reparations is only £150,000,000, instead of the £1,600,000,000 at which it was left under the Young Plan.

I may say, in passing, that the renewal of confidence which followed upon the success of the Lausanne Conference had very wide results, and, among other things, it is fair to say that the value of the money which had been lent by the United States to Europe was very materially appreciated, if not saved altogether, by the success of that Conference. But I would also like to say that Lausanne was really only the second stage in the process of putting an end to the whole system of Reparations. The first stage was the Hoover Moratorium, which, whatever its intentions, in fact profoundly modified and changed the whole situation in regard to the system of Reparations and War Debts.

In my opinion, the Hoover Moratorium was wise and praiseworthy. I believe it did, as I said before, save the situation in Europe at the time, but it was no use to think that once that Moratorium had been put into operation it was possible to go back to the system which existed before. It had a very important bearing upon how far agreements made before the Hoover Moratorium still held their old force. It was, of course, only a provisional settlement that was arrived at at Lausanne. Although the American Government had more than once expressed the view that there was no connection between Reparations and War Debts, they could not prevent the actual fact that there must be such a connection in the minds of the debtor countries. It would have been impossible for any of the signatories of the Lausanne Conference to contemplate a future system under which they could have released their debtors to them from all obligations, and at the same time be released from none of their obligations to their creditors, and, of course, that was a maxim which applied just as much to the debts owing to the United Kingdom as to the debts owing to the United States.

At Lausanne, the British Government once again urged the policy of cancellation, and once again stated that, failing total cancellation, they still stood by the policy of the Balfour Note, that is to say, they would ask for no more from their debtors than they were obliged to pay to their creditors. But, at the same time, as I said before, they could hardly be content to ask for less, and if the United States of America had been willing to send a, representative to Lausanne, then, indeed, we might have made a final settlement upon the spot; but since they were rot willing to do that, since we had Lo carry on the discussions on Reparations without them, all we could do was to make conditional settlement, only we anticipated that we should be able to enter upon discussions with the United States Government, not immediately, it is true, owing to the intervention of the Presidential Election, but as soon as that. election was over, and we undertook, accordingly, that we would suspend any request for payment in respect of Inter-Allied Debts until either the Lausanne settlement was ratified, or until it was decided that no ratification was possible, it being understood that ratification by the signatories of the Lausanne Conference would depend upon their obtaining a satisfactory settlement with the United States.

Now I come down to the present negotiations, which, no doubt, are fresh in the minds of all hon. and right hon. Members. The first step was taken by the transmission of the British Note of 10th November in which we asked two things—for an exchange of views between the two Governments upon the whole question of the Debt as it then stood, and, secondly, for a. suspension of the payment which would fall due in the ordinary course on 15th December. I must say that I had been sanguine enough to hope that we should have had a ready response to both those requests. So far as suspension was concerned, that could have been allowed without the slightest prejudice to the ultimate settlement. Indeed, we specifically stated that that was our desire, and that having been the course that we had followed ourselves at Lausanne with our debtors, we did not see any valid reason why similar treatment should not be meted out to us. However, we were disappointed to receive the note of 23rd November in which the United States Secretary of States said: As to the suspension of the instalment due on the 15th December, no authority lies within the Executive to grant such an extension, and no facts have been placed in our possession which could be presented to Congress for favourable consideration. We understood those last words to be, in fact., an invitation to us to supply the facts, and, accordingly, in the longer Note of 1st December, we developed at considerable length the conclusions at which we had arrived that any resumption of the War Debt payments would be bound to accentuate gravely the present crisis. In the meantime, we explained fully the reasons which had actuated us in asking for a suspension. Once again I had hoped that that Note, which was expressed in moderate terms, but which sought to set out as fully as was necessary all those broad considerations which had weighed so much with us—I had hoped that that Note, which seemed so convincing to the people of this country, would also carry weight on the other side. I hoped that we might then have obtained that suspension for which we had asked, for I feared that if the payment on 15th December were insisted upon, one of the results might be default on the part of one or more of the European debtors. I thought, perhaps, that Congress was assuming too readily that they had only to say "Pay," and the payment would be made, and it seemed to me that if default took place on the part of some of the European debtors, it might make it hereafter more difficult to obtain that satisfactory settlement of all the debts to the United States Govern-men which would be necessary if the Lausanne settlement was to be ratified.

Again, we were disappointed. It is true that there was one proposal discussed through diplomatic channels which for a moment led us to hope that we might be able to arrive at some agreed method of postponement. The proposal had reference to the issue of serial bonds for the amount of the instalment which would become payable at different maturities, but, unhappily, when it came to be examined more closely, it turned out that it was necessary that those bonds should be in such a form as to be marketable on the New York Stock Exchange, and it was, in fact, intended that the United States should so market them. It was obvious, of course, that that was not a postponement at all. It was merely another way—not a very agreeable way—of making payment, and, indeed, we were given to understand that cash, and cash only, would content the members of Congress. Therefore, while we appreciated the efforts of the American Government to facilitate the means of payment, we did not feel able to take advantage of them. We were obliged to express to them our conviction that suspension alone would overcome those difficulties, and our regret at their decision that they had not been able to recommend this solution to Congress.

What were we to do in view of that refusal to entertain suspension? There were three courses which were open to us. We could have declined to pay on the ground that payment would have still further aggravated the serious situation in the world. We could have invited the United States Government, or the United States Secretary of the Treasury to exercise his power of waiving the 90 days' notice, and have requested that payment of the principle should be postponed w1hile interest was paid. Or, thirdly, we could pay in full. I need hardly say that the Government very carefully considered all these alternatives before coming to a decision. If we had adopted the first, whatever motive we might have adduced for our action, it would, in fact, have been equivalent to default, and a default by the British Government, on a sum which they could not truthfully say they were unable to pay, would have resounded all round the world. It might have been taken as a justification for other debtors to follow their example, and, further than that, a default at that time and in those circumstances would have administered a shock to the moral sense of our people which might have had a very profound effect upon our whole conception of the meaning of obligations, public or private, with consequences that one could only guess at. We felt that in such circumstances we could not contemplate that alternative. We rejected the second alternative also. We had put forward reasons, based on very wide considerations, for the suspension of the whole payment. Our request had been refused. After that, to have gone again to make a plea in forma pauperis that we should be let off a part of the payment would not have been a dignified proceeding, and, indeed, it might have prejudiced the final settlement at which we hope to arrive later on. Therefore, we decided upon the third alternative, to pay in full.

I have heard or have seen suggestions that we should have done better, when we had decided to pay in full, to pay and say nothing about it. If we had taken that course, consider what would have been the consequences. If we had done that, this payment of approximately $100,000,000 would necessarily have been taken out of the purview of the final revision of the debt. We could not have re-opened it. It would have been a part of past history. It would have gone with the other payments that we made before the Hoover Moratorium. But, further than that, if we had made this payment at the same time relinquishing all idea of discussing that payment as part of a final settlement, what would have been our position with regard to the debts owed to us. It would not have been possible to say anything on that. We should have been obliged at once to inform our Allies that we expected them to make a payment to us in respect of their debt corresponding to the payment that had been made to the United States. The mischief would not have stopped there, because the Allies must necessarily have passed on their request to Germany to begin again the payment of reparations.

Quite apart from what might have been the ultimate results of requests of that kind passing from Government to Government, will the House consider for a moment how that would have affected the good will existing between European nations, how it would have affected their relations, how it would have affected the prospects, for instance, of the Disarmament Conference which, thanks to the efforts principally of the Prime Minister, has now apparently been got going again. We could not leave our payment to be taken as though we were resuming the old system of War Debt payments. We could not leave Congress under any misapprehension as to what our views were about the possibility of continuing such payments in the previous form in the future, and, therefore, we considered it necessary, while informing the United States Government of our determination to pay the instalment, to intimate at the same time our intention, when the discussions on the final settlement began, to put forward our contention that the old regime which was interrupted by the Hoover Moratorium can never be revived. Therefore, the payment which we have made meeting our obligations is not to be taken as implying a revival of the old system, but it must be taken into account when we are considering the new regime which will be expected to result from the discussions with the United States Government. I think our position has been made perfectly clear to the United States Government by the last exchange of notes, as theirs has been made clear to us.

I want to return for a moment to the position which was established at Lausanne between our debtors and our- selves. I am surprised at the amount of misunderstanding which seems to have existed on this subject, and which I cannot imagine could have arisen if the actual terms of the Lausanne Agreement had been carefully studied. Under that agreement no payment was to be exacted from any of our debtors until one of two contingencies arose, either the Lausanne Agreement was ratified after a satisfactory settlement with the United States or it was decided that the Lausanne Agreement could not be ratified by one or other of the signatory Powers in consequence of failure to obtain such a settlement. I would call the attention of the House to this, that under our agreement the complete remission of the Debts owing to us could only be called for on one condition, that is, that our Debt to the United States is completely remitted, including the payment which we are just about to make. That is the only condition on which we are called upon to remit completely the Debts that are owing to us. But on any other terms there is to be a further discussion between our debtors and ourselves. If Lausanne is not ratified, we go back to the legal position that existed before the Hoover Moratorium, though, as I have pointed out, in fact and in reality, we can never resume that position. If we could agree with the United States upon a final settlement under which let us say, for example, some reduced capital sum could be fixed in lieu of the outstanding amount of our Debt, still in that case our debtors must come and discuss with us on what terms and to what extent we shall be prepared to scale clown their Debts to us. Our position in this matter still remains where it was at the time of the Balfour Note. We shall not ask from our debtors more than we are called upon to pay to our creditors, and they can hardly expect us to be content with less.

Perhaps the House might like to be informed as to what is to be the machinery for the payment of the instalment on Thursday. Payment will be made in gold in New York on the 15th of this month. The House may inquire how it is that we have been able to provide for so large an amount of gold to be available in New York at such short notice. For this we have to thank the Federal Reserve Bank of New York, which has been good enough to make an arrangement for the purpose, in co-operation with the Bank of England. Under this arrangement the Federal Reserve Bank will provide in New York the amount of gold required to make the payment. The Bank of England will earmark in London simultaneously for the account of the Federal Reserve Bank an equivalent amount of gold to be taken from the Issue Department. The gold thus earmarked will be later on shipped by the Bank of England in such manner as may be arranged between the Federal Reserve Bank and themselves.

Perhaps there is something further that I ought to add, because it may be that hon. Members may like to have some view as to how this payment is going to affect our financial position, and, in particular, how it may affect the Budget. It would be of no use to pretend that we can view with indifference the loss of this huge quantity of gold, coming perhaps at the most inconvenient season of the year and certainly in circumstances that were quite unexpected. It means a serious weakening of the resources of the Bank, and I think we may expect to see that reflected in some rise in the very low rates which have prevailed for the discounting of bills. I have heard it suggested that the fiduciary issue will be raised. I have no doubt the House is aware that that can only be done by the Treasury on a. representation from the Bank of England. The Bank of England has made no such representation, and I should be surprised if it had, because it is in my opinion very essential at this time that we should not give the impression abroad either that we are careless about our reserves of gold or that we want to mask the real truth or to conceal anything of what is taking place. As to the Budget, the payment will, of course, mean a deficit equivalent to the amount of say the £29,500,000 that is represented in sterling by this payment in gold. I propose to deal with that deficit by having recourse partly to the saving arising from the lower rates of interest on Treasury Bills and partly to the funds provided for sinking funds which are no longer required by Statute on account of the rise in the value of gilt-edged securities. I need hardly say to the House that, while this is a device that can be applied to a single payment, it is not one that can be repeated, and further payments will have to be found out of current revenue. In my opinion, the present condition of taxation in this country is sufficient argument, if argument were required, to prevent us from acquiescing in a treatment of inter-Governmental Debts which would leave us under a liability to pay and without the possibility of receiving.

In conclusion, what about the future I am sure we are all earnestly desirous of making a final and a satisfactory settlement with the United States, feeling that that would have the result of benefiting not only our two countries but the whole world. It is equally important, I think, that we should do all we possibly can to save the settlement that was arrived at at Lausanne. Upon the preservation of that settlement must depend the continuance of harmony among European nations and must depend largely the stability and security of the financial situation of a large part of Europe. We must remember that a selfish game, if it were played by us without regard to the interests of other countries, would be bound, sooner or later, to recoil upon our own heads. Whatever may have been in the past the possibilities of relying upon our own unaided efforts to get us through our difficulties, in these days we cannot shake ourselves free from our international connections. It is only by a policy of frankness, sincerity and loyalty that we can hope to obtain the co-operation of other nations in restoring the vanished prosperity of the world.

4.31 p.m.

Sir STAFFORD CRIPPS

The right hon. Gentleman in his admirable speech upon the question of the War Debts to America stated that when the Hoover Moratorium came into existence it was obvious that the old regime which had preceded it could never come back again. I am not certain from his speech as to the attitude which the Government are taking up as regards any further payments to America. I understand from him that the payment which is being made is not regarded as a payment of capital and interest under the old pre-Hoover Moratorium agreement.

Mr. CHAMBERLAIN indicated assent.

Sir S. CRIPPS

I notice that I am right. Therefore, the position which His Majesty's Government are taking up at the moment is that they have already repudiated the American Agreement of 1923, but they have offered to pay, and are paying, a sum towards the capital settlement of the outstanding debt with America. I think that it is right that we should get clear in our minds exactly what is the position which His Majesty's Government have taken up. As far as our party are concerned, we have always believed, and we now believe, in the complete cancellation of War Debts and Reparations. Indeed, as the right hon. Gentleman has said, this country, whatever Government has been in power, has always taken a lead in that direction both in Europe and vis-ávis America. We have constantly urged and supported such a policy, and we have reiterated again and again that the imposition of reparations in the ridiculous astronomical figures that were used at the time of the Versailles Treaty was one of the gravest and stupidest mistakes that civilisation has ever made.

Mr. LLOYD GEORGE

My hon. and learned Friend is not correct. There were no figures, astronomical or otherwise, mentioned in die Versailles Treaty, and he is one out of a great many people who abuse the Versailles Treaty without ever having read a line of it.

Sir S. CRIPPS

Unfortunately, it has been my lot to read it many times for the purpose of legal arguments, and the right hon. Gentleman will excuse me if I impugn his accuracy. I said "at the time of the Versailles Treaty," and not "in the Versailles Treaty." We hope that the American people will come to realise, as the people of this country have realised, that War Debts and these enormous inter-governmental payments which depend upon them and have to be made in respect of capital and interest from year to year must, if civilisation, trade and industry are to continue, be cancelled. But we also agree with the action which has been taken by His Majesty's Government in making this payment, because we believe that at this late time, no arrangement having been made with the United States, it was impossible for us to put forward any substantial and sufficient plea to entitle us not to make the payment. We had the gold; we had the means of transmitting the money without doing any serious damage to our exchange, and it seems to us that, in view of those circumstances, this Government, at any rate, whatever some wicked Socialist Government might have done, could not possibly have put forward any valid excuse.

The attitude which His Majesty's Government are taking up raises a number of very difficult and vital questions as regards other things besides War Debts. The right hon. Gentleman stated in his speech that, of course, other debts were not the same. Default in one kind of debt did not carry with it a right to default in other kinds of debts. I venture to suggest that the main thing which makes the difference as regards default is whether you are the creditor or the debtor, and it so happens that we are in the fortunate position of only being debtors upon this one matter of War Debts. In all other matters concerning international debts, speaking generally, we are creditors. We have to see what the reaction will be upon our debtors in those matters in which we are a creditor nation.

Before dealing with the question of policy, I want to add one matter to those matters which the right hon. Gentleman mentioned in his historical survey and which, I think, perhaps he overlooked. It is the vital effect which the general deflationary policy which has been carried out during the last five or 10 years has had upon the problem of War Debt payments. It is very largely that policy, initiated and carried out by tile great financial authorities of the world, which has brought about the critical state in War Debt payments owing to the enormous fall in the price of commodities, and, consequently, the vast quantity of commodities which are necessary to transfer from one country to another in order to satisfy such a thing as a transfer for a debt payment. There is no doubt that that policy, pursued purposely and intentionally by the financial authorities of the world, and the Bank of England among them, has largely contributed to the very critical difficulties in which we find ourselves at the present time. But at the bottom of the whole difficulty lies the problem of piling up, in snowball fashion, international payments of interest upon capital, and then reinvesting the interest again as capital and so making a vast snowball of payments which have to be transferred from country to country without any equivalent movement of goods against them in the opposite direction, as one would have in the case of purchases in the ordinary course of events.

I want to deal with one or two points as regards the procedure of His Majesty's Government in dealing with this problem. There are two very vital matters, neither of which the right hon. Gentleman mentioned in his speech, which we think are of supreme importance in dealing with this question of the American Debt. The first of them is Disarmament. There is no doubt whatever, whether one reads the statements made in speeches in America or whether one reads the actual notes which have passed on the question of the War Debt settlement in the course of the last few weeks, that America attaches the greatest importance to the matter of Dis- armament. May I remind the House of the passage in Mr. Stimson's Note of the 7th December He says: And you will understand that the problem of foreign debts has, in the American mind, a very definite relationship with the problem of Disarmament, and the continuous burden which competitive armaments imposes upon the entire world. We believe that had this Government been more active in pushing forward a policy of Disarmament at Geneva we might now, vis-á-vis the American public, be in a better position as negotiators as regards the American Debt. We believe that it is absolutely essential, if we are to enter upon negotiations with America upon this matter, that we should show that we are determined to bring about a reduction in the burden of which Mr. Stimson speaks.

Sir FRANCIS FREMANTLE

Does the hon. and learned Gentleman mean unilateral or bilateral Disarmament?

Sir S. CRIPPS

I am dealing, the hon. Gentleman may note, with the attitude which we have taken up at Geneva, and, in my submission, that attitude has not been nearly as vigorous as it might have been, and it is that lack of vigour which will cause us to suffer when it comes to the negotiations with America. There is another matter to which I also want to refer in that regard, and that is the question of Ireland. As the House knows, America has always been, and still is, very sensitive on the matter of the condition and relationship of Ireland. I am convinced that a speedy settlement of the difficulties with Ireland would go a long way in assisting negotiations on the debt question with America. As long as the ridiculous dispute with Ireland continues, I am sure that we shall be jeopardising our chances of convincing the American people that we are entitled to give up paying our debt to America. They may possibly point to our action vis-á-vis Ireland, and say that, if over a small matter such as £4,000,000 or £5,000,000 it is right and necessary to take the action which we did against Ireland, so much the more necessary is it for America to insist upon the letter of her bond.

There is one other criticism with regard to the form of the notes which the right hon. Gentleman sent to America. One of the notes was an admirable exposition of the history and the arguments as regards war debt cancellation, but, unfortunately, the Conservative or the. National Government, having been furnished with a new rattle—the tariff rattle—were bound, in the middle of that document, to bring it in as a threat against the American Government. I can imagine nothing more unfortunate than to put forward a threat that you were going, if America insisted, to put up tariffs in order to prevent American goods from entering into this country. The right hon. Gentleman has told us something about the payment of this sum of money, and, as I understood, that the £20,000,000 of gold which is going to pass out of the Issue Department of the Bank of England, partially at least if not all of it, is gold which has been purchased since the institution of the Foreign Exchange Fund. The right hon. Gentleman will remember that since the institution of that fund gold has passed into the Issue Department at a fixed price, and the excess price has been debited against the Foreign Exchange Fund. I should like him to explain how that excess sum which is being debited against the Foreign Exchange Fund is going to be dealt with as a matter of accountancy in this transaction. The gold in the Issue Department of the Bank of England is, I presume, money which belongs to the nation. It is money under the control of the Bank of England, but I take it that the actual money belongs to the Exchequer. The withdrawal of the £20,000,000 from the Issue Department will, of course, entail a reduction of £20,000,000 in the note issue; not in the note issue in circulation but in the notes in reserve in the Banking Department of the Bank of England. In order to make good that loss to the Banking Department the Treasury will no doubt issue private Treasury Bills to the extent of £20,000.000 to make good that sum, or they will borrow £20,000,000 from the Bank of England as an overdraft. In addition to the £20,000,000, the further £9,500,000 which the right hon. Gentleman mentioned will, some of it, I presume, go to the bank and some of it to the Foreign Exchange Fund.

Mr. CHAMBERLAIN

The Exchange Equalisation Account is the proper title of it.

Sir S. CRIPPS

I was under the impression that that was the original Fund and that it had been merged in the Foreign Exchange Fund. I am much obliged to the right hon. Gentleman. The whole of that further £9,500,000 is dealt with as being the excess price of gold over the fixed price and, therefore, it goes into the Exchange Equalisation Fund. The net result is that Treasury Bills to the extent of £29,500,000 will he issued at interest in order that we may make use of the £20,000,000 that belong to us in gold in the Issue Department of the Bank of England.

Mr. CHAMBERLAIN

It does not be- long to us. It is the profits of the Issue Department that go to the Treasury.

Sir S. CRIPPS

I was under the impression that the gold in the Issue Department, although controlled by the Bank of England, could not be used by the Bank of England for any purpose except that of the Issue Department. It is the Issue Department's gold and not the Bank of England's gold. However, the Issue Department is a national institution simply under the control by Statute of the Bank of England, and whether technically it can be termed, because it is under the Bank's control, as the Bank's money or as national money, the net result is that in order to get the £20,000,000 to pay America in gold the nation has to issue £29,500,000 of Treasury Bills, and to pay interest on them until such time as they are repaid. Therefore, as I understand the transaction it is not really from the national point of view apart from the exchange point of view any better than if we had paid sterling to America. The impression abroad is that we are only paying £20,000,000, but from the national point of view I understand that we shall be paying £29,500,000, just as if we had not paid in gold at all.

At the time of the last Budget the right hon. Gentleman will recollect that he stated that he would have to submit a proposal to Parliament if he intended, after Lausanne, to pay the American debt. I am not clear whether he is going to submit a definitive proposal to the House or whether he is merely taking this discussion upon the adjournment as being sufficient to authorise him to make this payment which was not authorised in respect of the last Budget. He stated in introducing the last Budget:

" Later in the year, when we know the outcome of the deliberations which will begin nest June at Lausanne, I shall submit to Parliament whatever proposals may be necessary to give effect to the measures we have agreed upon."—[OFFICIAL, REPORT, 19th April, 1932; col. 1419, Vol. 264.]

I understood that that reservation included the payment of the American Debt. Surely, if authority is required for that payment it cannot be obtained from this House merely on a Motion for the Adjournment. I presume, therefore, that either immediately afterwards or upon the payment of the debt the right hon. Gentleman will introduce some form of resolution in order to get authority for the payment of this money. It may appear that this is a small matter, but so far as the financial control of the House of Commons is concerned it is an important matter. Once the right hon. Gentleman had announced upon the Budget that he did not intend to ask for any authority to pay this money, because of the Lausanne proceedings, then, in our submission, it became necessary for him to get some definite authority from the House of Commons before any resumption of payments was made. No doubt he will explain to the House when he winds up the Debate how he proposes to ask for and to get that authority.

As regards the question of policy, we believe that it is essential to get these debts cancelled, somehow or other, but not by a one-sided repudiation, because there at once comes into play the question, which most vitally affects this country, as to what is to be the criterion for one-sided repudiation. Is any debtor to be entitled to send a note, as we sent to America, and say that it is very adverse to world trade and world economics and so on, that we should pay, and that therefore we will not pay? I could well imagine the people in the Argentine writing a most appealing note, pointing out that it is extremely antagonistic to the trade of this country in South America that payments of interest should be continued, and that if only we realised how hard it would hit our traders, we should say at once: "We desire to remit the debt forthwith." Surely, that cannot ever form a satisfactory basis for international arrangements as regards international financial obligations. The real trouble, in our submission, is that there is no recognised international bankruptcy court. Capitalism, in order to work in national cases, internally, has been forced to devise bankruptcy courts and a method of liquidation, so that when a debt burden becomes too great a person or a company is able to throw it off and start again with a clean sheet, until the debt is piled up again to a sufficient size, when it is thrown off again; and so the process continues. Surely, the only possible solution if this method of repudiation which His Majesty's Government have now initiated—

Mr. CHAMBERLAIN

No.

Sir S. CRIPPS

I thought so. Let me get this matter quite clearly. I have no desire, I can assure my right hon. Friend, in any way to misrepresent anything that he has said, and I do want to get accurately what the position is. I understood him to say that this payment which is being made to America is not a payment of capital and interest under the terms of the Agreement of 1923.

Mr. CHAMBERLAIN

It is rather important that it should not go out that the hon. and learned Member understood my statement as meaning that we had declared our intention to repudiate any of our obligations. What I said was that we had stated our intention of putting forward, in the course of the discussions which we are going to have with the American Government, the view which he has quoted. That is a very different thing from repudiation.

Sir S. CRIPPS

I hope the right hon. Gentleman will excuse me. I took a note of what he said on the point. I do not want to bind him in the least to anything that is wrong, but I think he will find that what he said was that this payment must be taken as a payment not on the old pre-Hoover Moratorium basis but a payment which we make towards the capital.

Mr. CHAMBERLAIN

That is the view which we shall put forward.

Sir S. CRIPPS

Do I understand that the payment that is being actually transmitted to America is payment of capital and interest under the Agreement of 1923? That is the point that I want to have cleared up.

Mr. CHAMBERLAIN

It has been accepted by America in that form.

Sir S. CRIPPS

I am not entitled to cross-examine the right hon. Gentleman, but I must pursue the argument as I see it. The form in which America is accepting it, aparently does not bind us as regards the payment. But either we intend, until we get an agreement, to comply with the terms of the Agreement of 1923, or we have departed from that and have tendered the sum of £20,000,000 in gold which is to be taken as a sum towards a final capital settlement of the debt. We must take up one of the two positions. We cannot say that it may be one or it may be the other. [HON. MEMBERS: "Why not?"] Because when one sends a sum of money in payment of a specific debt one must either say: "I am paying under the agreement under which I owe you the money," or, "I am not paying you under the agreement."

Sir JOHN WITHERS

You can pay without prejudice.

Sir S. CRIPPS

You can pay without prejudice, but that has not yet been suggested by the Chancellor of the Exchequer. Let me, in dealing with this very difficult question of why we are paying, deal with the matter on the assumption that we do not propose to pay in June. Let me deal with it on the assumption that this is our last payment. There must be, sooner or later, some means arranged by which the justice of people who say they cannot pay their debts, can be judged. It cannot be left solely to the debtor to determine and it cannot be left solely to the creditor. We are not prepared to leave America to decide it as regards our debt, and the Americans would not be prepared simply to allow us to decide the matter. We hope that by the interchange of views a satisfactory decision may be arrived at.

Suppose the American Congress says, before next June, as they very well may: "We will not let you off your payment." What are we to do? Is the country to repudiate its obligation? We have had a long argument from the right hon. Gentleman on the necessity for sticking to the high moral position which this country has always adopted. We have heard on many occasions from the Dominions Secretary that a bargain is a treaty between two sides and cannot with impunity be repudiated by one of the parties, that an agreement by two sides can only be altered by the consent of the two sides, and that bargains kept faithfully are the whole fundamental basis of the structure and comity of nations, and so on. Who is to determine whether we are right or wrong as regards the Agreement with America in 1923, in saying that we will pay no longer Hon. Gentlemen in this House who shouted the loudest about Ireland's repudiation seem to shout the loudest when anybody mentions our repudiation of the American payment. From the point of view of morality, I cannot see that it is any more moral for us to say that we shall not be able to make that payment than for Ireland to say that she will not do it. We may think that the Irish argument is too stupid for words and forms no basis for repudiation, and so may America think that our argument is too stupid for words.

Unless there is to be set up some permanent means of settling this question of what International Debts are to be paid, we see no solution in the future for the whole mass of International Debts, which are at present clogging commerce—not only War Debts, but ordinary commercial debts, debts between municipalities, and debts between various Governments and between various individuals in various countries. After all, if this principle is to be applied, why not apply it to the unemployed man? Why not let him say, when he tenders his rent on the next occasion, "This is a tender of capital towards payment for the house, and I do not suppose I shall be able to pay you any more"? Then, the right hon. Gentleman said, "We must think not only of ourselves, but of those millions dependent upon us." No doubt the unemployed man would say to his landlord: "I am not thinking only of myself; I am thinking of the children of my family who are dependent upon me." There must be some limit to this system, and nationally we have determined the limit by setting up tribunals to decide on the justice of matters of the sort. I beg that His Majesty's Government will start to probe the problem of the definite question of the solution of the repudiation difficulty which is going on all over the world to-day, and which is obviously, when one comes to matters such as War Debts, becoming more and more critical.

There is one other matter to which I wish to refer. That is the essential interdependence of international trade and these War Debt settlements. America has already told us that she is looking to some commercial concession as a quid pro quo for letting us off the War Debts. It only shows how extremely difficult you make the position for yourself if you start trying to settle these things sectionally. Ottawa obviously prejudices us as regards the American Debt settlement if there is to be a commercial quid pro quo. We are now negotiating with Argentina, we understand. Argentina and America are vital competitors, for instance, with the wheat crop. What is to happen when America comes along and says: "The only basis on which we can let you off your Debt is a commercial quid pro quo"? Mr. Stimson, in his Note, said: In such an examination there would necessarily be consideration of other forms of tangible compensation available for the expansion of markets for the products of American agriculture and labour. We have to remember that if we are going to do a deal with America it may be necessary to go back on what has already been done at Ottawa. [HON. MEMBERS: "No!"] Hon. and right hon. Gentlemen shake their heads or say "No," but I say "if we are going to do a deal with America," and that will be at least one-half for America to say and not only for the people in this country. It may be a vastly difficult problem to satisfy America that she should forego the whole of these debts without some form of compensation, and it all arises in our view from trying to look at these problems sectionally, and from not trying, as we urged on the Government over a year ago, to get one complete outlook en the whole problem at one and the same time. Disarmament, tariffs and debts are all parts of the same problem they are all parts of the system which capitalism has built up. It may be wise or unwise, but hon. Gentlemen cannot deny that the system of capitalism has built up the present international debts on a vast structure. It is also generally admitted that those debts and the payments of them are the very things which to a large extent are clogging international trade. The problem with which the world is now faced is to get rid of that structure which has been built up. It may be a desirable structure, but it is a curious thing if it is that the world is devoting all its power to try to get rid of it. We believe that this is only one more example, and that this War Debt problem will make people realise that it is a curious system when, on one day, you have people saying that you must for ever honour the letter of your bond and when, on the next day, you find them explaining with equal conviction that only repudiation or cancellation of those bonds can possibly save the world. We hope that it will make people realise just once again that it is necessary not only to cancel War Debts but to change the system under which they were built up.

5.8 p.m.

Mr. CHURCHILL

I do not propose to follow the speech of the hon. and learned Gentleman who has just addressed us, except in so far as to note with approbation the strong sentiments against repudiation which are entertained by the Socialist party as the result, I presume, of electoral tuition. My right hon. Friend the Chancellor of the Exchequer gave a very broad and impressive survey of the whole past history of this subject, and I must say that I found myself in very close agreement with practically every fact with he adduced, with their sequence and, to a large extent, with the emphasis which he assigned to them. I do not propose to go back into the whole past controversy which has ranged around the original American Debt settlement. I am much more interested in what has occurred in this Parliament and during this Parliament, and I shall draw the attention of the House to aspects of the Government conduct of this matter during the present Parliament. I do not desire to dispute the historical basis; I am much more concerned with the method. One would have imagined, to hear my right hon. Friend's admirable speech, so well posed in its presentment of a great topic, that the Government management of this affair had been impeccable. I certainly do not think that is the case. I think it would tax the resources of my vocabulary to do justice to a series of wrong turns which I venture to think has characterised their conduct in this grave matter.

When we last debated this matter in July we had before us the Lausanne Agreement. That had just been signed. It was hailed as an immense personal triumph for the Prime Minister. May I say how sorry I am that he is not with us to-day, because this is, above all things, a, matter on which the head of the Government would have wished to have laid his views before Parliament, and, above all things, a matter on which Parliament would have desired to hear a statement from him. Lausanne was hailed as a great triumph for the Prime Minister. We were led to believe that the whole curse and burden of War Debts and Reparations had finally been lifted from the world. It was only after some severe interrogation, in which I ventured to take part, that it was found that the cheering was premature. It was only after some considerable pressure that it leaked out that the settlement of Lausanne was no settlement at all; that it was a settlement contingent only upon satisfactory remissions being obtained from the United States. After some protest and some hard work, papers were drawn reluctantly from His Majesty's Government revealing, what everybody was bound to find out and what had already been made public in the foreign Press, that there was behind the much applauded settlement of Lausanne a so-called semi-secret Gentleman's Agreement, which took away with one hand all that had been accomplished with the other.

During this Debate my right hon. Friend the Chancellor of the Exchequer was good enough to censure me in very severe terms. I have great regard for him, and I greatly admire his conduct of his arduous office, but no one shall say what he said on that occasion without my endeavouring, amicably and at the same time pointedly, to show that there were more sides to the controversy than were represented in his censure. My right hon. Friend said: The Member for Epping has done no service to the country in endavouring to undermine any confidence which may have been aroused by this settlement [HON. MEMBERS: "Hear, hear."] Oh, there were many more cheers last time, I can tell you— and in suggesting we have in any way made more difficult or more embarrassing the relations with our own creditors elsewhere."—[OFFICIAL RFPORT, 11th July, 1932; col. 974–5, Vol. 268.] Of course, you may say that we ought never to criticise—a perfectly reasonable view. You may say that this House should abrogate its functions of criticism and censure, and that the only place from which words of warning and words of controversy should come is the diminutive representatives of party on the Front Opposition Bench. I would warn the Haute very earnestly, and, above all, the great Conservative majority which not only fills it but bears the whole brunt of responsibility, that if it were thought that we were careless of our duties and did not examine these matters with great attention: if it were thought that Members were liable to be driven this way and that by the guidance of my hon. Friend on the Front Bench and the other Whips, not only would this Parliament, from which so much was hoped by our working people, pass away in derision, lint The very gravest injury would have been done to the very structure of Parliamentary institutions altogether. Let us see who rendered no service when we debated this matter in July. The Chancellor of the Exchequer led the House to believe he and the other British representatives had carried the United States Government with them in their negotiations at Lausanne. I am gong to lead his words: After all, we have been in touch at Lausanne not only with European representatives, but we have had the opportunity of conversations with the representatives of the United States, and I would ask the House to believe that in this rather delicate situation we have no reason to believe that the course we have taken is one which is going to lead to any of these unfortunate results which the right hon. Member for Epping antieipates."—[OFFICIAL. REPORT, 11th July, 1932; col. 975; Vol. 268.] I am not quarrelling about the actual words, but, if they did not mean that he hoped and believed that they were carrying the representatives of the United States with them, I do not know what they mean. The statement- certainly was accepted by the House in that sense. T have no doubt whatever that when my right hon. Friend makes a statement like that he is sincere, and I have no doubt whatever that he had mounds for what Ito said. But whether he was wise to say it is quite another matter. I was astounded to hear him say it, because, knowing something of the feeling in the United States, having had some opportunity of seeing it, I was sure that nothing would more disturb President Hoover, when the lines of electoral battle were being drawn, than for any statement of that kind to be made. But what, happened? The very next day, or the day after, President Hoover wrote to Senator Borah: I wish to make it absolutely clear that the United States kayo not been consulted regarding any agreement reported by the Press to have been concluded recently at, Lausanne, and that, of course, it is not a party, nor in any way committed to any such agreement. But look what followed, much more remarkable still. On 14th July the following communiqué was issued to the Press from the Treasury, the Chancellor's own Department: Misunderstanding has arisen regarding Mr. Chamberlain's reference, in his speech in the House of Commons on Monday, to conversations with representatives of the United States. He did not suggest, and, of course, had no intention of suggesting, that representatives of tile United States had approved, either tacitly or explicitly, of what was done at Lausanne. We find this Treasury communiqué served up to us as a valid retort in the communication which Mr. Stimson addressed to us the other day in response to the admirable Note setting forth the opinion of this country. Now, if it comes to a question of who did no service to this country at that moment I am prepared to stake my claim before any fair tribunal as against that of my right hon. Friend. It was a very unfortunate indiscretion on his part. I would like to say to the House that, personally, I always think it is rather shabby to criticise a Government after the event unless you have given warning somehow or other beforehand. I am in the recollection of the House, and I say that I did in May last warn the Government of the dangers of reaching a conclusion on the debt question at Lausanne. I am not going to read a quotation from my own speech, but I begged the Government not to bring this matter to a premature conclusion then. There was no need for them to do so. A simple prolongation of the Moratorium would have avoided bringing this matter into the whirlpool of American politics.

Having said that in May, I felt fully entitled in July to criticise them when they had committed this great mistake. But my friends, many of them on this side, were not pleased with me, and I dare say they will not be pleased with me now. But still I shall take my course, as I think fit. I say that there were three reasons why Lausanne was a great mistake. First of all, we released our hold upon our debtors, upon our assets, before we had obtained release from our creditors. In the second place, we offended the United States and plunged this question into their electoral affairs. In the third place, we prejudiced our own British case in the United States by linking it up so much with France. Now we have reaped to some extent what we then sowed. Let me say to the House that I think there is no truth in the claim that Lausanne was necessary to save Europe, that a settlement then was indispensable to save Europe. Still less can it be claimed that it has saved Europe. Anyone can judge that. The position in Europe is worse, from many points of view, than it was in July. The efficacy of the Lausanne settlement was destroyed from the moment when it was realised that it was only contingent upon a settlement with the United States.

The immense relief which Lausanne accorded to Germany, largely on paper, the immense relief from obligations which the settlement accorded to Germany, was immediately made the starting point for fresh demands, and demands of a more disturbing character, disputes about money matters and debts, disputes about how soon that great nation was to be able to re-arm. No sooner was Germany relieved of her solemn obligations to pay Reparations to the countries devastated by the War, or countries like ours whose prosperity had been undermined by the War, than, on the very next day, the Germans, with that naivety and spontaneity which renders them so attractive, immediately exclaimed, in the presence of the whole world, "Good, I am better off now. I shall go out and buy a large cannon." So far as Austria was concerned, the loan which emerged from the settlement at Lausanne was only accepted by them after an immense internal struggle by a single vote, showing how great was the difference of opinion in that country upon the subject.

Generally, I say there has been no substantial advantage of any kind to compensate for having brought Lausanne to this premature conclusion. There was perhaps the hope that the Prime Minister would revive and strengthen his prestige by another triumph on the Continent. The Prime Minister likes very much to pose in self-admiration before the broken looking-glass of Europe. Some success, however dearly bought, it was felt necessary must be extracted from this confusion of European conferences, this labyrinth of European conferences in which he lives, moves and has his being. I will not suggest for a moment that that was the determining argument in the minds of those who signed, but it may well have had some bearing, and, if it had, all I can say is that even that gain has been found fleeting. The results of Lausanne were nugatory and illusory. They prejudiced and compromised our chances of satisfactory settlement with the United States.

But I am not going to over-state my case and argue that if there had been no settlement at Lausanne the, United States would have let every one off their debts. Nor am I going to argue that, now there has been a settlement at Lausanne, the United States will not arrive at a satisfactory solution of these difficulties. All I argue is that the Government took the course which was least calculated to make our difficulties smooth, and that they have greatly aggravated our difficulties. I do not say they have ruined our prospects, but they have sensibly added to the complications which we have in any ease to face. Where are we now? The machine-like workings of the United States Constitution have created what is virtually a hiatus in the relations of that great country, the vast, intricate vital relations of that great country, with the outside world. Until a new Government is in power and responsible, writing Notes to the United States is like writing Notes to the Atlantic Ocean. No one feels this difficulty more than enlightened, leading Americans themselves. It is a survival from an older form of constitutional Government, very arbitrary.

In this hiatus, this interval, payment has been demanded of us, on 15th December, and, at grips with this grim situation, the right hon. Gentleman and the Government have decided to pay, and to pay in gold on that date. There is not the slightest doubt that the overwhelming majority of this House consider that they have decided rightly. I think also they have decided rightly to pay in gold. I do not intend to be dragged into the currency question to-night. I can only say that nothing is more significant of the way in which world opinion is forming on the subject of gold than that, when we had to make this payment, there was unanimity of feeling in this country that gold was the least valuable thing we had to send, and that there was apparently equal unanimity in the United States that gold was the least desirable thing they could receive. Certainly, that is the crowning insult which gold has received since it has been the great standard of measurement of values between man and man. I think the Government were right, and I still would hope that they will handle this transference of gold in such a way that there will be no deflationary effect upon our trade. But that we shall have an opportunity of considering, no doubt, at a later period.

I only wish that the Government had taken their decision to pay on the 15th, and to pay in gold, a little more promptly and a little more unitedly, with a little more conviction, and, I must say, with a little more dignity. I was very glad indeed to hear the Chancellor of the Exchequer denounce the idea of repudiation or default to-day so strongly in his speech, because it has not been at all pleasant for those of us who are his admirers to read day after day in the columns of the Press uncontradicted assertions that he had been in favour of default on this occasion, and had been overruled by his colleagues in the Cabinet. We are glad to know that there is no truth in that. Anyhow the House I am sure will support the Government in their decision to pay. I agree with a great deal of what has been said on both sides on this subject, that the whole world has an immense, vital, practical, material interest in the solvency and fidelity of Great Britain. We, ourselves, as I mentioned upstairs the other day, have only to think of Mr. de Valera in Ireland, Mr. Lang in Australia and the Shah of Persia, to realise that we have a very considerable interest in it too. Therefore, anything in the nature of default could only be justified by Great Britain when every other alternative had been exhausted and when the whole world w as convinced that every other alternative had been exhausted.

I cannot feel that the situation is hopeless by any means or that we shall be driven into all those difficulties which the hon. and learned Gentleman opposite foresaw. It is our absolute duty to make a further effort, if it is in our power, to avert the catastrophe—for such it would be—to the economic, social, capitalist civilisation of mankind, of an open default by Great Britain of her contractual engagements. We ought to pay a heavy price, we are paying a heavy price, to avert that. But here let me say, in answer to a point raised by the hon. and learned Gentleman, that there are some prices which we could not pay and which we ought not even to consider paying. The hon. Gentleman said that we must disarm in order to please the United States and win their favour. I do not admit for one minute that there is the slightest connection between debts and national defence. The debts of a nation affect its credit. The defence of a nation affects its sovereignty, and sovereignty is in a different sphere altogether from anything connected with finance or credit. In the same way all suggestions of cessions of territory are covered by sovereignty. In China in former days people used to sell their children, but that is a practice which has never taken root in Western Europe. When the question is one of money and we have the money, when it is one of gold and we have the gold, it is well worth our while making this additional payment, injurious though it is to us, to make sure that we can say with the assent of all the nations that we have left nothing undone that it was in our power to do.

I am bound to say that I did not like the last Note but one which my right hon. Friend sent to the United States. Of course, repudiation or default means the refusal of one party to carry out his contractual obligation to another, and certainly my right hon. Friend has made it plain that nothing of that kind is in our minds or intentions at the present time. Still, this Note which was made public on Monday did seem to hold out a threat of a unilateral decision by this country, in certain circumstances which we trust and hope will not arise. I must say that I think there was no necessity to have made any such suggestion in. the Note. When we are paying, as we are, let us have the full credit and distinction which attach to that operation. There is no need to give notice of repudiation. It is not a matter which requires notice. I hope it may never come to this country, and I wish that my right hon. Friend had reserved any suggestions or hints such as were contained in that Note until they could be exchanged in all the secrecy of an international conference.

I am not going to keep the House very long, because I know there are many who wish to speak. I have finished what I have to say about the United States and I turn to France. No one can accuse me of being unfriendly to the French people. I have always been supposed to take very much their view about the European situation, but I think that the policy of His Majesty's Government has been most mistaken in their relations with France. We ought never to have associated ourselves with France in dealing with the United States upon War Debts and we ought never to have tolerated, let alone encouraged, the idea that France might be allowed to pay the United States and not to pay us. Good news has arrived from Paris to-day which enables me very greatly to abridge the remarks which I venture to offer. But I must remind the House of the facts a little more in detail than the right hon. Gentleman dealt with them in his retrospects.

The French and Italian debt settlements, for which I was responsible, were made upon the sole credit of France and Italy. The Cabinet definitely decided that they would accept a substantially smaller sum, on the sole credit of those two countries, without reference to Reparations, than they could otherwise have obtained. One has only to read all the correspondence which was published and the statements which were made to see how completely and absolutely that was accepted by France. It is true that M. Caillaux wrote a letter suggesting, in certain circumstances, if there was a failure of German reparations of 50 per cent. or more, and if exchange difficulties were serious, that there should be reconsideration. In the answer which I sent on behalf of the Government we pointed out that in those circumstances we should also be heavy losers from the cessation of German payments, and that we also should have to consider the payments which were required from us. But nothing in the right to ask for reconsideration implies, in any way, the right of one party to decide the matter in his own sense.

Therefore, I say that our claim against France was absolutely good and valid and that there was no necessity for France, if we had enforced our claim or if we were to enforce our claim, to require payment again to be made from Germany. France was in a position quite easily to pay, for she had nearly £1,000,000,000 of sterling in the form of gold or gold equivalent, and £30,000,000 or £40,000,000 of balances here. It is idle to pretend that the payment of the £6,000,000 which has been due and has been accumulating month by month, ever since June last, could not have been transferred without the slightest disturbance to the exchange. That was the first of the conditions which the Cabinet laid down for the settlement of the French and Italian debts—that it should be on the sole credit of those countries. There was another and a very important one—the doctrine of pari passu. That implied that France and Italy must treat us as well as they treated any other of their creditors. Obviously debtors may not discriminate between creditors. Creditors may discriminate between debtors but the usage of every country is that payments to creditors must be made in equal proportions. I said in the House on the very first occasion that I spoke as Chancellor of the Exchequer on this subject: Any payments made by our debtors in Europe to their creditors in the United States should be accompanied simultaneously pari passu by proportionate payments to Great Britain."—[OFFICIAL REPORT, 10th December, 1924, cols. 264–265, Vol. 179.] A communique was issued on the same point from which I may read one extract: It is a very good communique I may say—I wrote it myself: His Majesty's Government have from the outset made it perfectly clear that any arrangements which they can come to with France must be governed by the principle so often declared that they must receive from France proportionate and pari passu payments to any she may eventually make to the United States in settlement of her war debt. It would be no service to Europe already so grievously stricken, if the sacrifices of one creditor of France merely conduced to the advantage of another. Why did the Government whistle all this down the wind so lightly and so easily? When I read on Friday that the Government were actually urging France to pay the United States, having cheerfully let them off the obligation to pay us, I was profoundly shocked and distressed. It seemed to me that it was hardly possible that such an inversion of good sense could have been put forward. We were actually urging the French to pay the United States at our expense. [HON. MEMBERS: "Oh !"] Of course, if they were to pay £4,500,000 to the United States and we had foregone the £6,000,000 due to us. That is the position which still exists, I believe, in the case of Italy. If Italy pays the United States, she will pay the United States £250,000 and withhold the £2,000,000 which it is in her power and her duty to pay under the very generous settlement, the too generous settlement—[HON. MEMBERS: "Hear, hear !"] Well, no one can call it too generous now. I thought in those days that we were getting all we could, but how lucky we would be if we could get a half or a quarter of what we got in those days, under what we thought to be a generous settlement with those countries.

In the case of Italy, as I say, that situation will still obtain, but France has cut the Gordian knot. There has been, evidently, an explosion of opinion, of passion almost, which has induced them to put aside the enormously favourable opportunities which, with the assistane of the British Government, have been placed at their disposal of making a payment on this occasion and of coming to the International Conference with all the éclat and prestige of a solvent and paying debtor—and the whole of it would have cost them nothing because it would all have been borne on the expenses of Great Britain. The situation, however, has been changed by the French vote, and it has been changed greatly to the British advantage. I congratulate His Majesty's Government on being liberated from their own errors against their own will. We are not now going to be discriminated against. We are still the debtors of the United States but we are not going to be the debt-collectors of the United States or furnish their other debtors with the means of paying. At any rate we are treated pari passu by France with other countries. There is an even greater advantage which, I think, we have derived. We are absolutely free from all contact with France in our negotiations with the United States. Do let us make sure that we begin on that basis from to-day. By that means we shall have a far better chance of reaching a solution, which is so earnestly desired. Our case with the United States is entirely different from that of France. People are sometimes inclined, and it is very natural, to feel harshly about the United States, but let me say that the treatment of France was generous. At this moment I understand that France would be paying, under her debt agreement, no more than the cost of the post-war loans. France made a very good arrangement for herself with the United States, and it is the greatest possible mistake for us to get so close to France that our just claims are, as it were, smirched and confused by that association. But it is not only a question of the actual terms of the debt settlement. There was a very strong feeling of irritation in the United States against France, which we have no need to mix ourselves up in at all. When I was in Washington in January the air was full of rumours of a flight from the dollar, and the French were withdrawing, I believe, 50 millions in gold from the United States. The greatest bitterness prevailed, and was not concealed, and especially was this bitterness felt because it was only a few years since France had received the very liberal terms, as they were thought then, from the United States in the matter of her debt.

Why should we involve ourselves again, now that, we are free, in all this unpleasantness and difficulty? I say that to be forced to link our case with France would be a disaster, but to try to do it—I do not know what to call it—would be the acme of ineptitude, the quintessence of maladresse. It passes all understanding that we should have got ourselves into that position so lightly, and I should like to ask the Government this question: I have only the newspapers to guide me, but I read a report in the "Times" of M. Herriot's speech—a very abridged report—which contained the statement that England could easily have made better terms for herself, but would not, out of loyalty to France, or words to that effect. Is that true? If it is true, is it sane? On what grounds are we not to make the best settlement that we can for ourselves? As I say, I think His Majesty's Government have had a great deliverance by what has taken place in Paris, because, whatever may have been agreed upon, it is perfectly clear that we can now start fair, and it is because we are free and can start fair that I am hopeful.

If the House will read between the lines of Mr. Stimson's reply to the right hon. Gentleman's second Note, they will see that the greater part of that Note is addressed to other Powers, not to us to whom it is sent. A great part of it is quite inapplicable to our case. Those statements were not inserted by accident, but were inserted by friendly hands on the other side of the water which have been aiming at getting into a situation where better treatment can be given to Great Britain. Take the question of tourists. That has nothing to do with us; that is France. Take the reference to the remittances; that is Italy. The whole of that Note, although addressed to us, is conceived, I think, to hold out the prospect that the negotiations which are going to be started have at any rate some hopes attaching to them, and make it absolutely clear that we should be wrong to abandon those hopes at this stage.

There are many passages which are most favourable to an Anglo-American discussion. A distinction is drawn between war and post-war debts; a distinction is drawn between supplies which were consumed in the fighting and loans which were expended for other purposes. By all such tests, we could be judged without the slightest apprehension. I am not saying for a moment that such principles would be acceptable—that is another matter—but I do say that the whole of this Note is instinct with the possibilities of a favourable negotiation, as long as we can go there ourselves, with our gigantic case, and without mixing ourselves up in the troubles or difficulties of other people. Everyone who is in touch with American opinion knows that there is a great and growing desire to treat fairly the best customer of America, the punctilious debtor, the only debtor that has made an immense contribution in the payment of her debt.

The new men who will shortly take power in the United States and exercise influence there are animated, I believe, by warm sentiments towards this country. They reverence the memory of President Wilson. There were many points on which Europeans differed from him, but this I will say, that President Wilson was the best friend of Europe who ever sailed Eastward across the Atlantic. Our payment to-morrow, when others default, and all the more because others have defaulted, will strengthen all this friendly movement. It is much too soon to despair of a just and an honourable settlement, for the making of which the two great world-creditor nations and the two English-speaking peoples have an equal and a paramount interest.

5.53 p.m.

Sir ROBERT HORNE

The House has listened to a very lively speech from my right hon. Friend the Member for Epping (Mr. Churchill)full of light and colour, and not devoid entirely of touches of fancy. For my part, I am afraid that all that I can do is to fill in a humdrum and some what drab background to show up the picturesque figures that he has created. With a large part of his speech I necessarily agree, but there are other things with which I disagree. I agree with him that in all this matter of the American Debt we ought to act alone. That has been the demand of America from the beginning. In 1922 they refused to consider any suggestion of our meeting them along with other nations. We have quite a fair ground for separate dealings in the fact that the settlement effected with us is much more exacting than that with any other nations. We are, therefore, now entitled to special consideration, and with the best will in the world towards France, I do not think that she, in all the circumstances, can object if we in this matter, especially now, should act alone.

I agree with my right hon. Friend also that it is incumbent upon us to pay at the present time, and that it is wise to pay in gold, but I hope the House will forgive me if I do not deal with that topic quite so cursorily as he did. He said he would not enter into the question of currency, but I believe that to be a matter of immediate moment, and I was startled to hear the very explicit statement made by the Chancellor of the Exchequer to the effect that he did not in tend to do anything by way of increasing the fiduciary issue. I was a little relieved to hear, in answer to a question, that we dia intend to issue a relative amount of Treasury bills, and that consoles me to some extent, but it does not console me by any means to the full extent. It is quite an anachronism to-day that, while we are off the Gold Standard, we still have a Statute which says that an issue of notes shall be conformable to a certain amount of gold, with certain powers beyond that. There is no meaning now in this country in the dependence of an issue of currency upon the gold in your reserves. The only use of your gold is to pay debts which you have contracted to pay in gold, but so long as that Statute remains on our books, the abstraction of£20,000,000 of gold must have the effect of limiting the currency in issue to the extent of £29,500,000 sterling, as I think the Chancellor of the Exchequer said. It must have the effect of bringing down the amount of your reserves.

I have no doubt the bank will say it has already in reserve something like £48,000,000. But to reduce that reserve means a contraction of credit in this country. That contraction of credit is not entirely made up by the issue of Treasury bills, because upon the amount of reserve in the Bank of England there can be granted a very much larger amount of credit, and what you are really doing is to contract the amount of which the public will be able to take advantage. I have not the slightest doubt that right down from the Bank of England, through all the media of our monetary system, a contraction of credit is going to take place which will be bad for this country, and I beg the Chancellor of the Exchequer to take this again into his serious consideration. It is not enough to say that the Bank of England has not asked for any increase of the fiduciary issue. It is obvious that the Chancellor of the Exchequer can make a suggestion to the Bank of England with propriety, if he wishes to do so. I am sure that what he has stated to-day will not be satisfactory to a very large number—in fact, to the great mass—of the people who are studying with interest, and indeed with anxiety, the monetary system of this country.

Mr. D. MASON

Does the right hon. and learned Gentleman advocate inflation?

Sir R. H0RNE

The hon. Gentleman seems to think I shall be frightened by the bugbear of inflation, but I have no terror of that kind at all, and I am most anxious at present that the amount of currency at the disposal of the British public should not be less than it has been. That is the point that I am endeavouring to make. I would remind the Chancellor of the Exchequer that any deflationary process of this kind is entirely contrary to what was decided at the monetary conference in Ottawa. There the conclusion was come to that there should be larger credit and cheap money. We cannot achieve it by this method, and accordingly I ask for a reconsideration of that topic.

I agree also with my right hon. Friend the Member for Epping that it would have been better if payment had been made, in the end, without any qualifications. The difficulties into which you get by attaching, if I may use a colloquial expression, any string to your payment were exhibited to-night by the dilemma in which the Chancellor of the Exchequer was put by the question of the hon. and learned Member opposite. Either you pay according to your bon