Chapter XXIV: Part 8: French Delegation for Economic Affairs

Wiesbaden, 18 March 1941
[Rubber Stamp]
German Armistice Delegation for Economic Affairs
18 March 1941
No. 5409
Enclosures.

No. 15447/DE

The President of the French Delegation for Economic Affairs, to
Monsieur Hemmen Minister Plenipotentiary

President of the German Armistice Delegation for Economic Affairs.

Sir:

I have the honor to communicate the following to you on the orders of my government:

Since the fixation of the daily indemnity by Germany, the French government has paid over 108 million as occupation costs.

The burden of this payment, aggravated as it is to this degree, can no longer be borne by the economy of this country without serious danger. There is a risk of its causing a disorganization of its social and political structure from which German interests would be the first to suffer.

The representatives of the German government have several times manifested their intention of dealing considerately with France’s domestic order and her attempts at recovery.

It is the purpose of safeguarding the economic forces necessary for Franco-German collaboration that the government has the honor of setting forth the motives and objects of its request for the revision of the indemnity.

I. MOTIVES

1. _Monetary_

The total of the sums paid by France is so great that financing has to be covered by repeated appeals to the Bank of France.

As a result, the monetary circulation is increasing at an exceptionally dangerous rate.

In January 1939 it did not exceed 110 milliards. In January 1941 it had already been doubled. At the present rate it will soon reach three times its pre-war volume.

2. _Economic_

This enormous mass of buying power weighs down an impoverished country, whose reserves have been exhausted by war and whose production is cramped by the lines of demarcation. It can not be reabsorbed by taxes, since budgetary recoveries, which already represent a very heavy burden on the taxpayer, do not exceed 60 milliard francs. It can not be absorbed by loans, since subscriptions to treasury bonds only just cover the expenses of the French state.

The mass of currency thus exercises considerable pressure on prices, so that it is difficult to prevent them rising.

3. _Psychological_

This is particularly the case owing to the fact that, all holders of francs are showing an increasing propensity to fly from money. The rise in the rate of interest on shares, hoarding by merchants and individuals and rise in real estate prices reveal the progressive depreciation of the national currency.

The fall of the franc was considerably accelerated when, the State’s Fourth Convention with the Bank of France (20 January 1941) became known. It is to be feared that the publication of the Fifth Convention, dated the 20th of February, will be still more disastrous, unless it is accompanied by the announcement of a revision of the indemnity.

II. OBJECTS

1. _Reduction of the indemnity_

The indemnity was fixed at 400 million francs per diem, as the result of a decision by the German Armistice Commission for Economic Affairs on the 8th of August 1940, to meet the expenses of the occupation troops.

But these troops have decreased in number since the armistice, and one must reintroduce the distinction between operational troops and occupation troops, the latter being the only ones who were to be supported by France, according to the Armistice Convention.

Furthermore, the debits actually entered on the account of the Reich Credit Bank [Reichskreditkasse] with the Bank of France have been used to cover other needs than that of supporting German troops.

Finally, in spite of these non-military uses to which the indemnity has been put, German expenses have not absorbed the credits which were opened.

Thus it came about, that on the 12th of March 1941 the payments made by France amounted to 108 milliards, while the Germans had only drawn up to half this figure.

It would therefore only be fair, to reduce the daily payment of 400 millions by a very considerable fraction.

2. _Incorporation of all French obligations into the indemnity_

The present indemnity does not include all the obligations which France has to meet.

The French State meets the expenses of lodging and billeting separately.

The fiscal exonerations which Germany recently decided her purchases in France should enjoy, deprived the French Treasury of a considerable income.

It would only be fair that the new payment should cover all the obligations falling on France as a result of the occupation.

3. _Reduction of the rate of exchange of the mark_

The rate adopted for the mark, as a result of the decision of the 8th August, is 20 francs to the Reichsmark, whereas the official parity between the two currencies is 17 francs, and real parity, based on a comparison of their buying power, is still lower than this figure.

This over-valuation of German currency does not have as its only effect a considerable aggravation of the burden of tribute. It also exerts an upward pressure on French prices which tend to adjust themselves to German prices, on the basis of the excessive rate of exchange of the mark.

The parity between the two currencies should therefore be brought back to a level which stands in a closer relationship to economic realities.

4. _Alteration of the method of payment_

The habit of making payments in currency in settlement of the requisitions supplied to the occupation authorities is the principal cause of the exaggerated monetary circulation.

It is therefore essential that the needs of the German occupation troops be met, in principle, only by requisitions in kind;

that the methods used in the Rhineland from 1919 onwards be taken as an example and the French authorities be made responsible for obtaining these requisitions and debiting the occupation account with the value of the products and services provided in France;

that payments in currency be limited to a few purchases direct from commerce and industry made by soldiers of the German army out of their pay;

that payment for purchases in Germany for the maintenance of the occupation troops in France be met by the Reichsmarks which the French Compensation Office holds in Berlin. The cost of these supplies would be debited to the account opened to follow the use of the daily indemnity.

The French government strongly hopes, that the reasons for her preoccupations will be understood. It urgently requests, that talks be begun rapidly, so that the indemnity can be readjusted before the currency has lost its value completely. It counts on the German government agreeing to no new payments being made, until the necessary negotiations have been completed, as the needs of the occupation troops are covered for many months by the money at present credited to them in the Bank of France.

I am, Sir, etc.
/S/ Yves de Boisanger.

[rubber stamp]
The President
French Armistice Delegation
for Economic Affairs.

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