ness by deliveries in kind. The important passages in this connection are paragraph 19 of Annex II and Annex IV, which together make extensive provision for the delivery, through the Reparation Commission, to the Allied and Associated Powers of machinery, equipment, tools, reconstruction material and, in general, all such material and labor as is necessary to enable any Allied Power to proceed with the restoration or development of its industrial or economic life.

Germany's obligation being stated in terms of gold and not in terms of commodities, provision has necessarily been made in all cases for crediting Germany, from time to time, with the fair value, as assessed by the Reparation Commission, of such deliveries. Moreover, since the proportions received by the respective Powers in kind need not necessarily correspond exactly with their respective shares in Germany's reparation payments, as determined by inter-Allied agreement, provision is further necessarily made in the treaty to render each Power accountable not only to Germany, but to the Reparation Commission, for the value of these deliveries. Thus, on the one hand, the treaty stipulates as between the Allies and Germany that the value of services under the annexes shall be credited towards the liquidation of Germany's general obligation, and the schedule of payments assigns the value of annex deliveries to the service of the bonds handed over by Germany as security for her debt. On the other hand, the treaty provides that for the purpose of equitable distribution as between the Allies, the value of Annex deliveries shall be reckoned in the same manner as cash payments effected in the year, and the schedule of payments stipulates that the value of the deliveries received by each Power shall, within one month of the date of delivery, be paid over to the Reparation Commission, either in cash or in current coupons.

Further, the treaty imposes upon the Reparation Commission not only the duty of fixing prices, but also of determining the capacity of Germany to deliver goods demanded by any of the Allies, and, by implication, of deciding between the competing demands which are made upon that capacity by the Allies themselves.

The Wiesbaden agreement provides for the delivery by a German company2 to French sinistrés of "all plant and materials compatible with the productive capacity of Germany, her supply of raw materials and her domestic requirements," that is to say, of the articles and materials which can be demanded under Annex IV and paragraph 19 of Annex II, which are, by the terms of the agreement, in so far as France is concerned virtually sus2 The arrangement under which a German private company is to be created to deal directly with the orders without the intervention of the French and German Governments is intended to obviate the delays which experience has shown to be inseparable from the employment of the present machinery. It does not appear to have any important bearing on the general financial situation, since the deliveries will clearly have to be financed by the German Government and will ultimately be paid for by means of a reparation credit in account with the German Government.

pended, the obligations of Germany to deliver to France under the other annexes remaining unaffected.

Any question as to the capacity of Germany to satisfy the requirement of France, and all questions of price, are to be settled by a commission of three members, one French and one German, and a third selected by common agreement or nominated by the Swiss President.

The aggregate value of the deliveries to be made under the agreement, and of the deliveries to be made under Annexes III, V and VI (hereafter, for the sake of brevity, called the "Annex deliveries") in the period expiring on the 1st May 1926 is fixed at a maximum of 7 milliard gold marks.

In regard to the Annex deliveries the agreement in no way modifies the treaty provisions under which Germany is credited and France debited forthwith with the value, but special provisions, which are financially the essential part of the agreement, are made for bringing to reparation account the value of the Agreement deliveries. These special provisions are designed to secure that Germany shall only be credited on reparation account at the time of delivery with a certain proportion of them, and that deliveries not thus accounted for, which may be called "excess deliveries," shall be liquidated over a period of years beginning at the earliest on 1st May 1926. The provisions themselves are somewhat intricate, comprising as they do, a series of interacting limitations, and they require some elucidation.

(1) In no case is credit to be given to Germany in any one year for Annex and Agreement deliveries together, to an amount exceeding one milliard gold marks.

(2) In no case is credit to be given to Germany in any one year for more than 45 per cent. of the value of the Agreement deliveries or for more than 35 per cent. if the value of the Agreement deliveries exceeds one milliard gold marks.

The effect of the above is to prescribe that 55 per cent. (or, if the agreement operates successfully, 65 per cent.) of the value of the Agreement deliveries as a minimum will be the object of deferred payment by instalments. If the Agreement deliveries reached really high figures, the operation of the milliard limitation would make the carry forward much more than 65 per cent.

The excess deliveries are to be liquidated with interest at 5 per cent. per annum in ten equal annual instalments as from 1st May 1926, subject to certain conditions:

(1) France shall in no case be debited in one year for Agreement deliveries with an amount which, when added to the value of her Annex deliveries in that year, would make her responsible for more than her share (52 per cent.) of the total reparation payments made by Germany in that year.

(2) Agreement deliveries continue after 1st May 1926, with the same provisions for deferred payment. If in any year between May 1926 and May 1936 the amount (not exceeding 35 or 45 per cent.) of the value of

that year's Agreement deliveries to be credited to Germany, together with the annual instalment to repay the debt incurred in respect of the period ending 1st May 1926, exceeds one milliard, the excess is to be carried forward from year to year until a year is reached in which no such excess is created by the payment. But in no case shall the amount credited, even if it is less than one milliard gold marks, exceed the limit laid down by the preceding condition.

(3) Any balance with which Germany has not been credited on 1st May 1936 is to be credited to her with compound interest at 5 per cent. in four half-yearly payments on 30th June and 31st December 1936 and 30th June and 31st December 1937. But, again, these half-yearly payments shall not be made if the effect of making them would be to exceed the limit laid down in condition (1) above.

(4) Agreement deliveries continue indefinitely after 1st May 1936, with power, however, to Germany to arrest them whenever the execution of them would result in France owing more than 52 per cent. of Germany's annual reparation payment in respect of Annex deliveries, deferred payments already matured, and the 35 or 45 per cent. of current deliveries.

From the above it is to be noted that, while there is a limitation for the first five years of the amount of Agreement deliveries which can be demanded, there is,

(1) No point at which the right of France to demand these special deliveries automatically terminates;

(2) No final limitation upon the value of the deliveries which can be demanded by France during the lifetime of the agreement;

(3) No definitely prescribed period within which France's debt to Germany and to the other partners in reparation shall be liquidated.

The financial effect of the agreement is perhaps best shown by taking hypothetical examples.

Let it be assumed that Germany's annual reparation obligation under the schedule of payments amounts to 3,300,000,000 gold marks, of which France, under existing inter-Allied agreements, is entitled to receive 52 per cent., or, 1,700,000,000 gold marks. Let it be assumed again that France receives annual Annex deliveries to the value of 450,000,000 gold marks. The Annex and Agreement deliveries together in the first five years are not to exceed 7,000,000,000 gold marks. Five years' Annex deliveries, on the above hypothesis, amount to 2,250,000,000 gold marks, leaving a maximum value of 4,750,000,000 gold marks for the Agreement deliveries over the same period. Let it be assumed that the Agreement deliveries are spread equally over the five-year period, with the result that their annual value amounts to 950,000,000 gold marks. In the first year, 1921-22, it is specially provided that not more than 35 per cent. shall be credited to Germany, or 332,500,000 gold marks, leaving payment to be deferred of 617,500,000 gold marks. In the second and subsequent years, up to May 1926, 45 per cent. of the 950,000,000 gold marks, or 427,500,000 gold marks, would be credited, leaving

522,500,000 gold marks to be deferred. At the end of the period, therefore, France would owe a total of 2,707,500,000 gold marks, together with simple interest at the rate of 5 per cent. per annum.

Leaving out of account the complication of interest, France is to liquidate this debt in ten equal annual instalments of 270,750,000 gold marks, subject to certain conditions, and the effect of these conditions must be stated with the aid of further hypothetical figures. Let it be assumed that the amount of Germany's annual reparation obligation and the amount of France's Annex deliveries remain constant, and let it further be assumed that France continues to call for Agreement deliveries to the value of 500,000,000 gold marks a year. France will then be debited for the year 1926-27 with 450,000,000 gold marks for Annex deliveries, 270,750,000 gold marks for the earlier Agreement deliveries, and 225,000,000 gold marks, being 45 per cent. of the current year's Agreement deliveries, making in all a total of 945,750,000 gold marks. She will have paid off 270,750,000 gold marks, but have incurred a fresh debt of 275,000,000 gold marks. She will then owe 4,250,000 gold marks more on the 1st May 1927 than she owed on the 1st May 1926. This process might continue until 1st May 1936.

Should the Agreement deliveries continue on a higher scale, France's debt would be more heavily increased in proportion. Let it be assumed, for example, that the Agreement deliveries in the year in question amounted to a value of 900,000,000 gold marks. France cannot be called upon to pay more in a year than one milliard. She will have to pay in respect of Annex deliveries and previous Agreement deliveries a total of 720,750,000 gold marks. It follows, therefore, that not more than 279,250,000 gold marks out of 900,000,000 gold marks, which represent the hypothetical value of that year's Agreement deliveries, will be paid for, leaving a total of 620,750,000 gold marks to carry forward, and an increase in France's debt of 350,000,000 gold marks.

The results might be indefinitely varied by choosing different figures for any one of the factors which enters into the problem. It is perhaps unnecessary, however, for the sake of seeing the effect of the agreement, to vary the above hypotheses in more than one respect. It is desirable to consider the effect on the above calculations of a decrease whether by reason of an actual German default or through a postponement regularly accorded by the Reparation Commission under Article 234 of the treaty, in the amount effectively paid by Germany on reparation account in any one year.

Let it be assumed, for instance, that Germany pays on reparation account in the year 1922-23 only 1,000,000,000 gold marks, of which France is entitled to 520,000,000 gold marks. She cannot be debited in that year with more than 520,000,000 gold marks, and she is automatically debited to the extent of 450,000,000 gold marks for Annex deliveries. Credit will therefore be given to Germany for no more than 70,000,000 gold marks in respect of Agreement deliveries, leaving a deferred payment of no less than 880,000,000

gold marks effectively paid to France by Germany and not available for distribution among the other Allies before, at the earliest, 1926-27. A continued failure by Germany to pay on account of reparation the amount contemplated at the beginning of these calculations would proportionately increase the amount deferred and therefore the size of the ten annual instalments which, subject always to the conditions indicated above, begin to be credited to Germany after 1st May 1926. Continued failure on Germany's part after May 1926, combined with the continued operation of the Agreement deliveries, would result in a more and more rapid accumulation of French indebtedness in the subsequent period for which no means of liquidation is provided.

It remains necessary to draw attention to one subsidiary point of a financial character under the schedule of payments. Part of Germany's annual reparation liability consists of the payment of 26 per cent. of the value of German exports in each period of twelve months, and part of the security for the payment consists of the proceeds of a levy of 25 per cent. on the value of all German exports. The French Government has undertaken to support a request, to be submitted by the German Government to the Reparation Commission, for the inclusion in the exports which form the basis of these calculations of that part only of the value of the deliveries made under the agreement which is credited to Germany and debited to France during any particular year.

If it can be assumed that any part of the special deliveries to be made under the agreement would, in the absence of the agreement, have been diverted to Germany's ordinary external trade, then the concession desired will have the effect of diminishing the annual payments made by Germany for the benefit of the Allies as a whole.