Fay Finds Young Plan Helps Germany But Shows Need of Change--Even With Reductions Payments are Too Great

payment, together with an increase proportional to Germany's future economic recovery.

"The Dawes Plan was a great advance over previous discussions of Reparations because it was based upon a sounder psychology: it took it for granted that Germany was honest and was willing to pay what was possible, and that the Allies were not bent on crushing Germany permanently both economically and politically. The Dawes Plan also recognized the difficulty of making the transfer of such vast payments across the German frontier. The transfer was no longer a duty of the German Government but of the Agent General for Reparations at Berlin. If he found it impossible to transfer Reparation payments from Berlin to Paris, London, and the other Allied capitals, the "transfer clause" of the Dawes Plan provided for a temporary cessation of payments, and so "protected" Germany's foreign exchange."

Had Predicted Revision

Though the Dawes Plan proved a great blessing to all concerned as compared with the economic chaos of 1924, Professor Fay predicted in 1924 that within five years it would have to be revised. His prediction was verified by the proposal of the Young Plan in the spring of 1929. With slight modifications made at the Hague last August and now being made at the same place, the Young Plan marks a great improvement over the Dawes Plan in many respects, he said. But it also, in Professor Fay's opinion will have to be revised certainly within twenty and probably within ten years.

"The Young Plan for the first time fixes the total sum, principal plus interest, and the total period of German payments. As compared with the Dawes Plan, it reduces the average annual payments to about two billion gold marks for 37 years (1.707 million in 1930 rising to 2428 million in 1966), followed by annual payments averaging a little over a billion and a half for 22 years from 1967 to 1988. The payments are calculated to cover all the war debts owing by the Allied Powers to the United States Government and in many cases to leave an additional fund for covering the cost of repairing the damages caused by Germany in the war.

Absence of Transfer Clause

"About 700 million gold marks, that is about one-third of the annual payments for the first 37 years, are 'unprotected' by any transfer clause. Germany must make the payments no matter what the state of her foreign exchange may be. These payments are to be "mobilized", that is they are to be transformed into a bond issue which is to be sold to private individuals in all countries. Once in private hands, it will be impossible to scale them down in the future. The other two-thirds are given some 'protection' in the shape of a limited moratorium in case Germany has economic difficulties at home or finds it impossible to make transfer of payments without upsetting the foreign exchange."

Professor Fay believes, however, that the Young Plan, like the Dawes Plan, will ultimately have to be revised, for several reasons. "Germany hitherto has paid all Reparations only as a result of the foreign loans made to her. These foreign loans cannot go on at the same rate in the future as in the past. In the long run, Germany can only pay the interest on these loans together with the Reparation payments by a surplus of exports over imports. But for the last twenty years she has always had a surplus of imports over exports. It will be impossible for her sufficiently to change her balance of trade to meet interest charges and Reparation payments.

"Furthermore, if the United States continues to pay off her own internal war debt at the present rate, she will have paid it off in about fifteen years. When this happens the Allied Powers are likely to raise objections to making further payments on their war debts to the United States for they would seem to be paying the running expenses of the United States instead of helping her to pay off Liberty Loans. Finally, the United States tariff policy, and the inevitable economic laws relating to international trade may make our worthy Senators and statesmen realize the futility of trying to make Germany make the 'unprotected' payments provided for in the Young-Plan."