in the Treaty of Rapallo, which was intended to be the challenge of Moscow to the Western European Powers. The meeting which had been boomed and trumpeted for months beforehand ended in a dismal series of ineffectual resolutions, and the Allied statesmen, particularly Mr. Lloyd George-who had originated the plan-returned to their homes with tarnished ideals and shaken reputations, amid the triumphant brayings of the French Press.

During this period, the modified scheme of reparations fixed by the Reparation Commission was working, on the whole, satisfactorily. The mark remained fairly steady: the revenue of the German Government was regularly expanding and sufficed to cover the domestic expenditure and indeed to leave a small surplus over towards the cost of reparations. The Commission then took a further step: it convoked a Committee of Bankers, including Mr. J. P. Morgan, Sir Robert Kindersley and Mr. Vissering, to advise on the possibility of mobilising part of the reparation debt by means of a foreign loan. The negotiations appeared to be progressing favourably and loans of £200,000,000 or more were being spoken of, when the bankers were brought up abruptly against an insuperable barrier and their work had to be discontinued. They asked the Reparation Commission whether as part of the scheme for raising a loan, they could envisage the possibility of a reduction of the charges imposed upon Germany in May 1921. It was obviously impossible to interest the market in such a loan if the security offered could be destroyed by further exactions being at any moment imposed upon Germany, which would reduce her to bankruptcy. The majority of the Commission, consisting of the British, Belgian and Italian members, with the support of the unofficial American member, replied that the Committee should examine every possibility of raising a loan, including any conditions affecting the general credit of Germany; but the French member on the instructions of his Government voted against this resolution. The bankers decided that in view of the opposition of the French Government-the chief creditor of Germany-to any reduction of Germany's full liabilities, it was useless for them to pursue their task. The Committee therefore adjourned its labours, while expressing readiness to re-unite if at any time the Reparation Commission by a unanimous' vote renewed the invitation given by the majority.

The instructions given by M. Poincaré to the French delegate in this matter were a fatal mistake, which has already reduced greatly France's prospects of reparation receipts. At the time, as the Bankers' Committee pointed out, conditions were favourable for the issue of a very substantial loan, from which France would have profited immediately. But credit, like love, has wings: and of nothing is it more true than ' unto him that hath shall be given, ' and from him that hath not shall be taken even that which he 'hath.' The breakdown of the Bankers' Committee on June 10th last had an immediate effect on the market. The franc and mark began a gradual decline. The assassination of Dr. Rathenau in Berlin a fortnight later, at a time when a newspaper strike left the German markets at the mercy of rumour, led to a panic which started the mark plunging on the downward career which it has followed since.

The next stage was one of drift. The collapse of the mark evoked a request from the German Government for a further reduction of its reparation liabilities, as fixed in the previous spring, as well as of its liabilities to the Allied Governments on account of pre-war debts-both of which had up to the 15th July been punctually met. The French Government's attitude was soon made clear. As regards the Clearing Office payments, the German Government was sternly summoned to keep its engagements under threat of effective sanctions, which subsequently turned out to be the seizure of German goods and bank balances in Alsace-Lorraine. These measures had to be withdrawn within a month owing to the universal outcry they provoked from the inhabitants of Alsace-Lorraine, who proved to be the chief sufferers; but the threats which had been broadcasted increased the nervousness of the markets. As regards the reparation payments, M. Poincaré insisted on taking the German appeal out of the hands of the Reparation Commission (with which body it rested under the Treaty provisions) and called for another of the conferences which had been so fatal to M. Briand. announced at the same time-although no definite proposals were ever published--that the French Government was ready to consider some reduction of the German debt if it could thereby obtain the cancellation of inter-allied debts and the grant of priority to France's claims.

It was

M. Poincaré had apparently come round to practically the same

policy for which M. Briand had been driven into the wilderness; but, as it happens, his conversion came too late and was subject to too many conditions. He did not yet realise that it was to the interests of France herself to write down the German debt to practical dimensions and that on this condition alone could the debt be collected. Mr. Lloyd George's advocacy of reasonable treatment for Germany seems to have induced him to believe that a concession to Germany was equivalent to a concession to Great Britain, and that that country would be willing to pay the expenses of the amputation of the German debt. But popular feeling in England, in regard to inter-allied debts, was swinging round more and more to the American point of view and the British taxpayer was—not unreasonably-asking how he was going to pay the British debt to the U.S.A. if he was both to write off the loans he had made to Europe and to renounce his share of German reparations, without, incidentally, having any security whatsoever that France would adopt a policy which would allow some perspective of the resumption of international commerce. Just before the conference started, this feeling crystallised in the Balfour Note, in which it was pointed out that the British Government was prepared to join in a general all-round cancellation of war obligations, but that England intended to recover from her Allies any sum she had herself to pay to the United States.

This pronouncement of British policy necessitated a change in M. Poincaré's tactics. He could not for the moment ask for the cancellation of the Allied debts, and he was driven back to his old policy of coercion. He might indeed agree to some purely temporary moratorium for a few months, but only if certain 'productive guarantees' were given him which he could put in his political shop window. These included the occupation of the Ruhr and the seizure of German factories in the Rhineland, but he laid most stress on the seizure of certain mines and forests which happened to belong not to the German Empire, but to the States of Bavaria and Prussia. As the Reich was at that moment engaged in a bitter controversy with Bavaria (which at one time threatened to secede from the Empire) this demand provoked the maximum political difficulties for the German Government, while being likely to have the minimum financial value to the Allies. The British Government was faced with a difficult dilemma. It had either to support France in excessive demands on Germany,

which might well involve fresh military operations; or it had to face the odium of an open breach in the Entente and risk the possibility of isolated action by the French. Mr. Lloyd George, therefore, proposed a compromise which was apparently satisfactory to the Belgians and the Italians, but M. Poincaré obstinately adhered to his demands and the conference broke up with a formal announcement of disagreement.

Apprehension of separate action by the French Government precipitated a further and more serious break in the German mark. Meanwhile, a bad harvest endangered the food supplies of Germany, and the Government had to procure considerable amounts of foreign exchange for wheat imports, while at the same time the industrialists were buying heavily for ordinary commercial needs. Despite restrictions on exchange dealings, the mark, which on 1st January 1922 was quoted at 794 to the pound, and which on the 1st June was still only 1190, passed in the following months to—

after having been as low as 42,000 on one day in November.

The franc followed slowly in the same direction, passing from 48.90 to the pound on the 1st June to 57.48 on the 1st September and 63.50 on the 1st November.

At this point starts the third phase, which is still at its commencement. The movement of the exchanges made a lively impression on French public opinion, which began to fear the consequences of the policy of drift which had been followed since the early summer. No alternative policy to that of M. Poincaré had, indeed, been formulated; and the collapse of the mark was still attributed to the deliberate machinations of German capitalists, assisted by the connivance of British statesmen. But a wave of pessimism prevailed and the feeling gained ground that France had been duped and that her policy was leading to national bankruptcy. The Turkish victories gave the French Government an opportunity to revenge themselves upon Mr. Lloyd George, but the sentimental satisfaction derived from this score was

mitigated by the suspicion that Germany might learn a lesson from the Kemalists and that the Treaty of Versailles might follow the Treaty of Sèvres to the scrap-heap. The necessity of revising the Treaty, or at least of suspending cash payments for the time being, became tacitly admitted and attention was devoted more and more to the question of stabilising the mark.

At this stage, the French delegate on the Reparation Commission was replaced by M. Barthou, who had been the French representative at Genoa; and the Commission went to Berlin to discuss with the German Government the preparation of a concrete programme for the restoration of its finances. The German Government had simultaneously invited a number of leading economists and bankers, including Mr. Keynes and Mr. Brand (from England), Prof. Jenks (from the United States), Dr. Cassel, Mr. Vissering and Mr. Dubois (from neutral countries) to Berlin, and the negotiations between the Government and these two committees were pursued concurrently. The doctors all agreed that the mark was very sick, but they could not entirely agree on the prescription to be administered. There was, however, substantial unanimity among the experts that the first thing necessary was to rehabilitate the currency and credit of Germany, and until this could be secured it would be necessary to suspend all reparation payments. The German Government framed a proposal on these lines, with the assent of the political groups and resigned immediately after. Dr. Wirth had, despite considerable internal difficulties, pursued with honesty and with courage since May 1921 a policy for executing the Peace Treaty; but he had never succeeded in persuading the French that he was more than the tool of the industrialists and his fall was preluded by a violent Press campaign in Paris. His successor must presumably follow the same lines, but, not having such wide political support, it is at least doubtful whether any Government that can be formed at present will have even such strength as Dr. Wirth's.

Meanwhile, Mr. Lloyd George had resigned in Great Britain, and a Conservative administration had taken his place, from which French sentiment confidently anticipated friendlier treatment. The Italian Government, under M. Facta, which had occupied the ship of State rather than directing it, was at the same time swept away by the remarkable nationalist movement under