CAB129-45 — Page 521

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2. Page The view587 the three Governments that, in order further £587

re-establishment of normal economic relations between the Federal Republic and other countries, the settlement should:

(a) eliminate the state of default of Germany to the utmost extent possible by suitable treatment of matured and maturing debts and of arrears of interest;

(b) lead to a situation which would permit a return to normal debtor- creditor relationships by providing methods for settling these debts by agreement between the parties;

(c) be of such a character as to contribute to the recovery of Germany's inter- national credit by the restoration of confidence in her financial standing and reliability as a borrower, while giving a reasonable assurance that Germany will not again default on her undertakings; (d) be compatible with and as far as possible facilitate Germany's eventual compliance with obligations which members of the International Monetary Fund and the Organisation for European Economic Co- operation have assumed with regard to the transfer of payments on current account, including interest and earnings on investments.

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3. The three Governments, which are also Occupying Powers, have a special and continuing interest both in the attainment of the above-mentioned objectives and in the settlement arrangements adopted to promote them. They have indicated to the Federal Government in their letter of 23rd October, 1950, which continues to represent their views, that provided a settlement plan is worked out which is acceptable to them, they will modify the priority of their claims in respect to post-war economic assistance to the extent necessary to permit the fulfilment of such an agreed plan. To be acceptable the plan must conform to the following principles:-

(a) It should take into account the general economic position of the Federal Republic; it should not dislocate the German economy through undesirable effects on the internal financial situation, nor unduly drain existing or potential German foreign exchange resources, and it should not add appreciably to the financial burden of any Occupying Power.

(b) It should provide for an orderly overall settlement of the debts to be included in the plan and assure fair and equitable treatment of all the interests affected, including those of the Federal Government. (c) It should be subject to revision as soon as Germany is reunited and a final peace settlement becomes possible, and should be capable of adjustment in the light of changed circumstances.

In the view of the three Governments agreed procedures and controls must also be established to govern this settlement and all payments made under it.

4. The settlement of debts can only be put into effect by agreements between particular German debtors and their foreign creditors, but the three Governments have agreed that such individual settlements should conform to general settlement arrangements which would reflect the foregoing principles. These arrangements would be arrived at in negotiations between representatives of creditors and debtors, the Federal Government, the three Governments, and other interested Governments, and would be incorporated in an intergovernmental Agreement. This Agreement would provide patterns for the latter agreements between the individual debtors and creditors. If a creditor does not wish to accept settlement in accordance with one or other of these patterns, then under the intergovernmental Agreement there would be no present possibility of the debt being discharged.

5. It is clear that a settlement plan of the nature outlined above requires that all parties be prepared to make sacrifices in the interest of common agree- ment. It cannot be expected that creditors will make sacrifices unless the Germans make real efforts to meet their obligations and unless the German Federal Government on their side pursue such foreign exchange and internal fiscal policies as will enable German obligations to be met under the settlement agreement. The Germans must also bear in mind the heavy burden borne by many other countries. On the other hand, other creditors, like the three Governments, will have to give due regard to Germany's present and future economic position, the other economic burdens which she has to bear, and the fact that she is still receiving governmental economic assistance from abroad. 6. The three Governments will give due consideration to the internal financial position of Germany and the budgetary position of the Federal Govern- ment, both of which will be affected by certain problems such as the impact of Western defence requirements.