Germany's Good Name

Like watching a newsreel run backward, delegates from 23 nations have been meeting in London, threading their way through the financial tangles of two global wars. Phrases that were headlines a quarter-century ago (Dawes Plan, Young Plan, Hoover Moratorium) ran through their talk as they sought a way to settle Germany's $6 billion foreign debt. The problem, said U.S. Delegate Warren Lee Pierson, T.W.A. chairman and an old hand at international financial powwows, was "probably the most complicated in financial history." Last week, at a press conference in Manhattan, Pierson announced that the problem had been settled. It was good news to U.S. investors, who hold nearly half of all the German bonds sold abroad and who have received no interest or principal for some 18 years. Under the terms of the agreement, said Pierson, they will eventually get back their principal and most of their interest.

The most complicated problem started in 1933, when Germany began to default on interest payments on state, municipal and corporate bonds. To give her a breather, President Hoover arranged a moratorium on all payments in 1931. Shortly after, Adolf Hitler repudiated the whole debt; he charged that it was caused by reparations and was one of the injustices of the Versailles Treaty.* As the market value of German bonds tumbled, Hitler's agents quietly bought up blocks of them at fractions of their par value, stored them away in Berlin. When World War II broke, the U.S. suspended trading in German bonds for fear Hitler would somehow slip his uncanceled bonds back into the U.S. stock market, thus raise cash. Allied bombs destroyed many of the bonds held in Berlin, and Russian looters took what was left, clandestinely began selling them. Thus there was no accurate record of which bonds still represented valid claims. Another complication was that many of the bonds called for payments based on a gold standard, which the U.S. and Britain have long since abandoned. In addition, the bonds had to take second place behind the $3.7 billion which the

Bonn government owes the U.S., Britain and France for economic aid.

At the London conference, the three Allies sensibly took the view that Problem No. 1 was to restore Germany's good name in the world money market so that she can raise money for reconstruction and get back all the financial tools necessary for international trade. Accordingly, all three waived a big part of their postwar claims. They concentrated on cleaning up Germany's prewar $2.3 billion private-bond debt. Under the agreement, the West German government will provide the foreign exchange to pay for all the private bonds floated by prewar Germany, although safeguards have been set up to protect her against counterfeit or illegally held ones. Other agreement highlights :

P: The 1924 Dawes Plan 7% bonds, which were scheduled to mature in 1949, will now mature in 1969. U.S. holders will receive 55% interest after March 31, 1953. They will, also be issued 20-year bonds, paying 3% and, after five years, an added 2% to cover unpaid past interest.

P: The 1930 Young Plan 5 1/2% bonds (maturity date 1965) will now mature in 1980. U.S. holders will get 5% interest after March 31, 1953, 20-year bonds at 3% and, after five years, an added 1% for unpaid interest.

P: Instead of gold payments, as called for in some of the bonds, the U.S. dollar will be used as the basis of exchange.

P: On state and municipal bonds, there will be no reduction in principal, but interest will be fixed at 75% of the contract rate.

After the agreement is formally approved by the Bonn and interested governments, trading in the bonds will be resumed on the world's exchanges. When last traded in the U.S., the Young 5 1/2% had fallen to $2.50 (par value: $100). But on Swiss markets, where trading never stopped, the Young bonds last week climbed to $46.

* Of the billions which Germany borrowed, chiefly from the U.S. and Britain, during the 19203, a sizable amount went right out again as reparations payments. But with the remainder, Germany completely modernized its heavy industry, built housing projects, athletic stadia, etc.

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