Lloyd George: Yes, and it is we who will decide.

I see here a proposal to expel all the clergy from Silesia; it is impossible, it would place the Catholic Church against us. It is necessary to leave to the commission, which will be sent to the site to assure the most favorable conditions for the plebiscite, the task of deciding who are the peoples there who are to be expelled individually.

Clémenceau: I do not propose that the clergy be expelled. But we must recognize that their influence will be considerable.

Lloyd George: It is the same in Ireland, and we do not expel the Irish clergy.

In my opinion, the institution of a plebiscite will permit the Germans to sign the treaty. In a conversation between one of our officers and Warburg in Versailles, the latter said that one of the questions, which move Germany most was that of the eastern frontier. If a plebiscite takes place, that will undoubtedly not satisfy the Germans, but it appears to me certain that it will deprive them of any pretext for complaint. According to what Warburg said, it is quite necessary that some concessions be made in the chapter on reparations. His interlocutor believes that, these concessions made, the Germans will sign.

The Germans do not know where they are. They resemble a man taken up in a cyclone, who would suddenly be asked: “At what price do you sell your horse?” Moreover, we are a little in the same situation. One of my financial experts has just left us, because he finds our terms too hard. We must succeed. We cannot restrain any of the other nations as long as we have not made peace with Germany.

I am told that the Yugoslavs are advancing on Klagenfurt.

Aldrovandi: They have just occupied it.

Wilson: Do you want to reexamine the question of reparations before seeing the experts again?

Mr. Lloyd George said that he had suggested that the Committee should work it out on alternative hypotheses. He had told Mr. Headlam Morley that it was not the business of the Committee to discuss policy but merely to work out the details, leaving the policy to the Council. In reply to President Wilson, he said that there were certain other difficulties, for example, some members of the Committee wished the clergy to be removed from the area during the time preceding the plebiscite, which was obviously impossible. He was inclined to leave all these details to the Commission to be set up by the League of Nations for the purpose of conducting the plebiscite.

(The above views were accepted, and, at the request of the Council, President Wilson retired to the next room to meet the Committee and give them verbally the Council’s instructions.)

2. M. Orlando said he had information that Klagenfurt had now been occupied by the Jugo-Slavs.

3. Sir Maurice Hankey reported that M. Clémenceau had that morning handed him a fresh proposal on the part of the Delegation of the Serbs, Croats and Slovenes, in regard to the Klagenfurt question. He had at once sent it to be translated.

4. Mr. Lloyd George reported that he had received a letter from the Esthonia Delegation, asking that action might be taken to bring to an end the German activities which were affecting their operations against Petrograd.

(It was agreed that the letter should be communicated to the Military Representatives at Versailles, for their consideration. Sir Maurice Hankey undertook to hand it to Major Caccia, the British Secretary.)

Lloyd George: I think we must do it. If General Franchet d’Esperey were a diplomat, he would compel these people to agree on a line of demarcation, and he would stop them.

Clémenceau: At this time, the Hungarians are the conquerors; would they obey?

Lloyd George: No doubt they would say: “We will withdraw if the Rumanians, for their part, withdraw to the first line fixed at the time of the Armistice.”

Wilson: In any case, it would be madness to allow the Rumanians to advance again; you would never make them pull back.

Clémenceau: What will we answer our military, who are proposing to have the Rumanian army advance?

President Wilson said that no such reflections were intended. General Bliss said the military advice was good, but drew the attention to the political risks.

M. Clémenceau said the political risks had already been taken when the telegram was sent to the Hungarian Government.

Lloyd George: Between now and tomorrow, we will see what we have sent as materiel to the Rumanians. It is hardly worthwhile to say to them: “We will stop supplying you,” if what we have given them already is sufficient for a rather long time.

Behind all these difficulties, I see the hand of M. Bratianu.

Mr. Lloyd George said that, by the following day, M. Clémenceau and he himself could ascertain how much war material was being sent to Rumania. General Sir Henry Wilson had informed him that a good deal of material was on its way and he had asked him to stop its delivery. He suggested that a report should also be obtained from the Supreme Economic Council.

(It was agreed: - 1. That Mr. Lloyd George should ascertain the amount of British war material on its way to Rumania, which could be stopped. 2. That M. Clémenceau should obtain the same information as regards French war material (he instructed M. Mantoux to initiate the necessary inquiries.) 3. That Sir Maurice Hankey should obtain the same information from the Supreme Economic Council.)

President Wilson reads aloud the report of the commission charged with preparing a reply to the German counterproposals under the heading of reparations.

That reply relates to three principal points: (1) the constitution and the powers of the Reparation Commission; (2) fixing a total figure of payments demanded of Germany; (3) the expenses of the army of occupation and certain deliveries which the Germans object to.

On the first point, the commission is unanimous; thus there is no reason to linger over it.

Concerning the figure of reparations, the French and English experts think that it cannot be fixed now without danger; for if it is fixed too high, the Germans will be more frightened than ever, and if it is fixed too low, discontent will be very sharp in France and in England. But all the experts agree in recommending that we examine, within a period of time to be fixed, any proposal made in good faith by the Germans themselves, after examination on site of the damages to be repaired.

On Germany’s financial capacity, only hypotheses can now be made. The period of two years fixed by the treaty corresponded to the period during which any calculation could only rest on arbitrary conjectures.

The delegation of the United States has refused to associate itself with these conclusions; it does not think that it suffices to indicate the intentions of our government. It believes it necessary to fix a figure as of today; it proposes that of 120 billion marks in gold, which would be accepted for practical reasons as the maximum of Germany’s debt in capital vis-à-vis the Allied and Associated Powers. This immediate specification seems to it indispensable in order to establish the bases of international credit from now on. At the same time, it proposes to leave Germany the minimum capital, which she cannot do without for the recovery of her economic activity, in tonnage, in gold, and in negotiable securities. As for the expenses of the army of occupation, the delegates of the United States think that it is necessary to make them known in order not to create in impression contrary to our intentions.

The representatives of Great Britain and of France oppose these concessions and think that they would be impolitic. The Italian experts agree with the French and English experts on the impossibility of determining now the total debt of Germany, but believe it desirable to be able to fix this sum by common agreement in the near future. In their opinion, the limitation of the expenses of the military occupation must not be settled by the treaty, but by later negotiations among the Allied and Associated Powers. The representatives of Japan also think that it is impossible to fix the total sum at present; in particular, they oppose, in the event that Germany should keep the capital indispensable for the recovery of business, that any ships be left to her.

6. President Wilson read a letter he had received from the Commission on Reparation, explaining the differences of opinion that had arisen. (Appendix I.)

(Sir Maurice Hankey was instructed to circulate this document immediately).

Lloyd George: What is most important is the question of fixing the total sum. There is much to be said in favor of the idea that all that can be determined now must be; nothing would so much cause the Germans to sign. What troubles them most is the uncertainty in which they find themselves. The minimum capital, which they need in order to resume their economic life, also has a very great importance. It is obvious that if we do not leave them the means to revive their economic activity, that would be as much against our interest as against theirs.

As for fixing the total sum, it is a question, which I have thought about very much, and nothing would be more dangerous. Either the figure, which we might fix, would terrify the Germans, or it would be impossible for M. Clémenceau and me to get public opinion to accept it. Mr. Bonar Law was rather of the opinion of the American delegates; he would have liked to see a figure set down in the treaty; but as soon as one was proposed to him, he drew back.

It is moreover a question of justice among allies. France cannot accept less than the complete reparation of the damages, which she suffered. I believe that the estimates made up to the present time are exaggerated; but I could be wrong, perhaps they are below the reality. What I think is that, in three or four months, one can arrive at an estimate, not perfect, but sufficient in order to give a figure, which will not be purely arbitrary.

As for us, I do not see how we could manage to apply our minds to this problem in the midst of all the tasks that burden us. A multitude of questions press upon us from all sides, we are caught up in a whirlwind. Responsible as I am to my compatriots, I cannot apply myself enough to this study in order to take responsibility for it. We must have time, and the same information reaches me from the side of the Germans; it is better for them as well, to have a little time and then to find themselves faced with a figure reasonable prepared. The period of time, which I proposed, for this summary inquiry is three months. M. Loucheur would prefer four months. During this period, the devastated regions would be inspected by ourselves and by the German experts, and the latter would see to what extent they can undertake reparation in kind. From the time of the signing of the peace treaty, our experts and those of the Germans will be able to meet.

On the other hand, I agree with the Americans in thinking that the sooner German industries begin again to produce, the better that will be.

Lloyd George: Nor Germany’s capacity to pay.

Wilson: Any figure will necessarily be arbitrary. But the Germans want a figure.

Lloyd George: I am not sure of that.

Wilson: The only question, which we have to face, is this: will this concession be useful? If the peace is not concluded, or if it is not concluded at an early date, my financial experts fear the gravest consequences. Business the world over cannot resume as long as that question is not settled.

After signing of the treaty, we will have to study the financial system upon which world commerce can be reestablished; the basis of this system can only be credit. I warn you solemnly that, if you do not leave the Germans the assets necessary to reconstruct their credit, their industries will not start up, and your entire plan for reparations will collapse. America is completely ready to lend its assistance. But the government of the United States cannot lend money to Germany; she can only obtain it from banks, on a commercial basis. The bankers of the United States will not be able to lend without knowing how their money will come back to them, that is to say, without having some idea of the future of German industry and the wealth of Germany. If we want to act as practical men, we have no time to lose. It is necessary either to renounce reparations, while leaving Germany to fall to nothing, or, better, in view of the very reparations to be obtained, to give Germany the means to get back on her feet.

Mr. Lloyd George said that neither had he.

President Wilson said that the only argument in favor of fixing a sum was to provide a basis for credit. Supposing, for example, the sum were fixed at twenty-five billion dollars, the financial world could then form a judgment. If it was thought that Germany could pay this sum, many would be willing to lend to her on the strength of the bonds to be issued under the reparation scheme in the Treaty. Otherwise, money would not be lent. To find some way of making the bond issue the basis for credit, was the whole question.

M. Clémenceau said he agreed in this last statement.

Mr. Lloyd George thought it was impossible to fix a sum before Peace was signed.

Wilson: I read you a draft reply prepared by the American experts.

(Summary) The Allied and Associated Powers refuse any discussion on the principle of reparations. But the fears of the Germans are based only on a false interpretation of the treaty. The problem of reparations is so complicated that it can only be resolved through long work, entrusted to a commission. But the instructions of the latter will prohibit it from doing anything, which could impede the industrial and commercial life of a Germany sincerely returned to peace. The commission cannot fix the taxes that the German taxpayer will pay; it must only make sure that the burdens of the latter are no less than those of the taxpayers of Allied countries. The power given to the commission to effect certain changes in the provisions of the treaty was provided only in the interest of Germany herself, if it is acknowledged that it is truly impossible for her to pay within a certain period of time. Moreover, Germany has the right herself to appoint a commission, which will be constantly in contact with the Reparation Commission.

The total sum of reparations is estimated at approximately 120 billion marks in gold. This figure would be accepted at the maximum in capital, of what is due by Germany. We take note of Germany’s offer to assist in the restoration of the devastated regions by furnishing manpower.

Lloyd George: And materials.

Wilson: On this point, we answer that the Reparation Commission is authorized to accept payments in various forms.

The Allies take care not to ignore the needs of Germany. The commission will receive the formal instruction to take into consideration the necessities of the social and economic life of the German people. That is why the American experts propose that, during a period of two years, Germany keep 30 percent of her commercial fleet and a certain amount of capital. In particular, it would be stipulated that the first payments will not be made in gold.

During the first year, France would receive only 50 percent of the coal, which is promised her. A special arrangement would settle the furnishing to Germany of iron ore from Lorraine. The expenses of the army of occupation would be fixed at an annual figure of 250 million marks at most.

In conclusion, the German plenipotentiaries have seen in the treaty what we never wanted to put there. The burden that Germany will have to bear will be heavy, but it is determined only by considerations of justice.

Mr. Lloyd George said he like “the crust and the seasoning but not the meat”. He did not think it was necessary to go as far as was proposed. According to his information this was not necessary. He would like President Wilson to see the man who had given him this information.

President Wilson said that the difficulty was that the information was so conflicting.

Mr. Lloyd George said it was necessary to act on some information.

President Wilson he did not agree in this. At the meeting of the United States Delegation it had been proposed that all the Commissions should be instructed to consider the concessions that could be made to Germany. He had replied that our objects should be to show the reasonableness of the Treaty and to make it workable. That was what he had in view in the present discussion.

Wilson: My dear friend —

Clémenceau: I am always a bit afraid when you begin by calling us “my dear friend.”

Wilson: If you prefer: my respected colleague. You must however prepare your stomach for a meat that will be able to sustain you.

Lloyd George: Yes, under one condition: it is that you give me enough of it.

Clémenceau: And, especially, I would like to be sure that it will not go into someone else’s stomach.

Wilson: Mr. Lansing asked me the other day: “Have you appointed a commission to examine the concessions to be made to Germany?” I replied, “No, and I told you what I thought about concessions in general. The only question is to know how we can make this treaty workable.”

President Wilson agreed that for the moment it would be desirable to leave out fixing the sum to be paid.

Mr. Lloyd George agreed that this was important. But he thought it was unnecessary to make the concessions in regard to shipping. He was prepared to meet the Germans in regard to the gold assets.

The question was adjourned until the following day.

7. M. Orlando said that his reply was ready and he could discuss the matter at once.

President Wilson suggested that M. Orlando should forward his reply in writing in order that the Council might consider it.

M. Orlando agreed to do this.

8. M. Clémenceau said that a repetition of the telegram containing Admiral Koltchak’s reply had been asked for.

(It was agreed that nothing should be published until the repetition had been received, as there were various important points still obscure, particularly the passage in which reference was made to the regime in force in Russia in February 1917. It was not clear as to whether the possibility of a return to this regime was or was not contemplated.)