XIII. THE FRENCH INDEMNITY. THE PAYMENT OF THE FIVE MILLIARDS. BLACKWOOD'S EDINBURGH MAGAZINE, FEB. 1875, pp. 172-187. A S soon as it became known, five years ago, that France had to hand over £200,000,000 to Germany, it was generally predicted that the financial equilibrium of Europe would be upset by the transfer of so vast a sum from one country to another, and that the whole system of international monetary relationship would be thrown into confusion. Apprehensions of an analogous nature were abundantly expressed when the two French loans successively came out. Wise bankers shook their heads in Frankfort, London, Amsterdam, and Brussels, and assured their listeners that, though the money would probably be subscribed, it could not possibly be paid up under five years at least. And yet the whole of this vast transaction was carried out between 1st June, 1871, and 5th September, 1873; twenty-seven months sufficed for its completion; and not one single serious difficulty or disorder was produced by it. The fact was that the commercial world had no idea of its own power; it thought itself much smaller than it really is; it failed altogether to suspect that its own current operations were already so enormous that even the remittance of five milliards from France to Germany could be grafted on to them without entailing any material perturbation. Such, however, has turned out to be the case; and of all the lessons furnished by the war, no other is more practical or more strange. The story of it is told, in detail, in a special report which has recently been addressed by M. Léon Say to the Commission of the Budget in the French Chamber. It is so curious and instructive that it is well worth while to analyze it. It may, however, be mentioned, that the order of exposition adopted by M. Say is not followed here. To render the tale clear to English readers, the form of it is changed. But before explaining the processes by which the war indemnity was paid, it will be useful to recall the principal features of the position in which France was placed by her defeat. It is now computed that the entire cost of the campaign amounted, directly and indirectly, to about £416,000,000; and this outlay may be divided into five sections, the first three of which were declared officially by the Minister of Finance in his report of 28th October, 1873, while the two others have been arrived at by a comparison. of various private calculations. They are composed as follows: 1. Sums paid by France for her own military operations— War expenses to the end of 1872 £76,480,000 Cost of issue of the various war loans, rebates of Loss or diminution of taxes and revenue in conse- Total of collateral expenses £25,247,000 14,567,000 £39,814,000 Supplied by towns or individuals, including the 5. Loss of profits consequent upon the suspension of trade £15,000,000 £30,000,000 £107,203,000 224,478,000 39,814,000 15,000,000 30,000,000 General Total Now, what has France to show against this? £416,495,000 Her annual gains before the war were put by M. Maurice Block ("Europe, Politique et Sociale," p. 317) at £900,000,000; unfortunately he does not tell us how much of this she spends, and how much she lays by; but there is a prevalent impression in France that her annual savings amount to £80,000,000. We shall mention presently a calculation which seems to indicate that, during the later period of the Empire, they must have amounted to a considerably larger sum than this; but if we admit it, for the moment, as correct, it would follow that the cost of the war, in capital, represented five years' accumulation of the net profits of the country. It is not, however, in that form that a proportion can be established between liabilities and resources; the measurement must be made, not in capital, but in interest; for it is, of course, in the latter form alone that is to say, in new taxation to pay interest on loans that France now feels the pressure. That new taxation, when completed (it is not all voted yet), will amount to about £26,000,000 a year; and that is the real sum which is to be deducted from the annual profits of the country in consequence of the war. Now, if those profits were only £80,000,000, and if they are not progressing, but standing still at their previous rate, this deduction would absorb almost a third of them; but as they are continually ad as vancing as every branch of trade in France is active foreign commerce, which is generally accepted as a safe test of national prosperity, was one fifth larger in 1873 than in 1869 -it may fairly be supposed that, after paying the £26,000,000 of war taxes, France is effectively laying by as much as she did in the best years before the war, whatever that really was. After this rough indication of the situation, we shall better understand the story of the five milliards. It is scarcely possible to disassociate it from the general attendant circumstances of the position as a whole; the two should be kept in view together. The payment of the indemnity, and the detailed conditions under which that payment was to be made, were stipulated in the three treaties or conventions signed successively at Versailles, Ferrières, and Frankfort, in January, March, and May, 1871. It was determined by the last-named treaty that "payments can be made only in the principal commercial towns of Germany, and shall be effected in gold or silver, in English, Prussian, Dutch, or Belgian bank-notes, or in commercial bills of the first class." The rates of exchange on coin were. fixed at 3f. 75c. per thaler, or at 2f. 15c. per Frankfort florin; and it was agreed that the instalments should be paid as follows: 30 days after the suppression of the Commune 1st May, 1872 2d March, 1874 Total £20,000,000 40,000,000 20,000,000 120,000,000 £200,000,000 The last £120,000,000 were to bear interest at 5 per cent. It must be particularly observed that no currency was to be "liberative" excepting coin, German thalers, or German florins. The other forms of money which the German Government consented to accept did not constitute a definite payment; it was not until those other forms were converted into their equivalent value in thalers or in florins that the payment became "liberative." This was the essential basis of the bargain. Furthermore, it was declared that the instalments must be paid at the precise dates fixed, neither before nor afterwards; and that no payments on account should be allowed. It was not till July, 1872, that leave was given to make partial payments, but only then with the express reservation that such partial payments should never be for less than £4,000,000 at a time, and that one month's notice of them should be given on each occasion. Under no circumstances, from first to last, was any payment permitted on account. Two main conditions, therefore, governed the operation: the first, that all payments made in anything but coin or a proper German form were to be converted into a German form at the expense of France; the second, that the proceeds of all bills or securities which fell due prior to the date fixed for an instalment, were to be held over until that date. The dates themselves were ultimately changed, the last payment was advanced six months; but, with two special exceptions, those conditions were rigorously enforced throughout the entire business. As the annexation of Alsace-Lorraine to the German Empire obliged the Eastern Railway Company of France to abandon all its lines within those provinces, it was agreed that Germany should pay for them, that the price should be £13,000,000, and that this sum should be deducted from the indemnity. This was the first exception. The second was that Germany consented, as a favor, to accept £5,000,000 in French bank-notes. By these two means the £200,000,000 were reduced to £182,000,000. But thereto must be added £12,065,000 for interest which accrued successively during the transaction, and which carried the total for payment in coin or German money to £194,065,000. And even this was not quite all, for France had to furnish a further sum of about £580,000 for exchange, and for expenses in the conversion of foreign securities into German value. This last amount does not appear to be finally agreed between the two Governments; there is a dispute about it; but as the difference extends only to a few thousand pounds, the final sum remitted may be taken at about £194,645,000 or at |