TAILS, WE ALL LOSE

The Reichsbank raised the discount rate from 6 1-2 to 7 1-2 per cent yesterday, according to reports from Berlin. This is declared to be an attempt, belated say the French, to check the outflow of gold from Germany which has been going on with increasing strength since the bank rate was lowered from 7 to 6 1-2 per cent, in January.

All this is of particular moment to the world because the recent crisis in the activities of the Experts' Committee now meeting in Paris has been reflected in Germany in accelerated outflow of gold, and the adverse movement of the foreign exchanges.

But it is not the situation surrounding the raising of the German discount rate that is of primary interest to the world. It is the fact that gold should be drained so readily at the loss of confidence. And it is of as great consequence that the Allied press should seize upon these facts as proof of German bad faith.

By all odds the most anxiety-giving phenomenon, however, is the situation of the German budget. That the German government should have to resort to such extreme measures as it has employed during the past week or so, borrowing hundreds of millions of marks at a time from semi-public bodies, is indeed grave. Budgetary difficulties were shown by Professor Allyn Young to be the primary cause of currency instability in 1922-23. The order was budgetary difficulties, currency instability, disordered exchanges. And the German government seems to have assisted in bringing the country to a point where the same merry round is visible in the offing.

But matters are not to be improved by saying to Germany, you are guilty. And the Allied representatives, under the leadership of Owen D. Young are pursuing the only salutary course for the good of the world in trying to meet Dr. Schacht, the German spokesman, half way. External war debts, on such a scale as at present, are a new phenomenon in international affairs. Their effect on the national economy is not well understood, and so long as the world sticks to its determination to see them paid, payment must proceed slowly and be safeguarded as far as possible.

A crisis in Germany now would be very damaging to the prosperity not of Germany alone, but to the world. Beside the political eventualities, which are not small, of a socialist or nationalist rising, there are economic repurcussions on a grand scale. American holders of German securities might have to stand large losses, or unnecessary loss of confidence on their part might produce liquidation which would be disastrous to German borrowing. Nations which find Germany a good market for their goods, and secure from Germany many necessary goods in return, would be injured. The problems of Allied debt payment would be sharpened. Allied budgets, dependent on reparation payments, would be endangered.

In such parlous times it behooves all those in power to tread carefully. Bold words and recriminations are not to be valued when they promise to prove boomerangs. Dr. Schacht has indeed acted strangely in receiving Allied reductions so coldly, and precipitating the present impasse. He seems to be playing for high stakes, and Germany stands to lose heavily if he loses. The members of the Committee and their governments are eager to avoid the abyss which he has opened before them, but there is great question whether governments do not move so ponderously that even though the will of the people were for such sweeping reductions of the German debts and such guarantees of political restoration of Germany as he proposes, the machinery could work smoothly and rapidly enough to give him his wish. If the Dawes Plan breaks down, European reconstruction may be set back ten years.