The Triple Entente is weaker than it looks. A breakdown of communication and trust between military chains of command very nearly sundered Britain and France during the war’s opening weeks, in the days between the Battle of Mons and the Battle of the Marne. Both Paris and London were surprised and dismayed by continued Russian obfuscation and foot-dragging over their huge army’s ammunition shortage in December. Now, competing national financial policies are creating disunity just under the smooth public surface of their tripartite alliance.
Yesterday, Chancellor of the Exchequer Lloyd George finished a three-day conference with his allies. His British deputation included Sir Walter Cunliffe, Governor of the Bank of England, and Financial Secretary Edwin Montagu, in discussions with Russian Minister of Finance Pyotr Bark and Artur Raffalovich, the financial counselor to the Russian embassy in Paris. Also present is Alexandre Ribot, former French Prime Minister and current Minister of the Economy, Finance, and Industry, with two regents of the Bank of France, Charles Lem and Charles Sergent.
While French and Russian soldiers are already doing the great majority of the fighting and dying in the Great War, Paris and Petrograd expect the British government to compensate by leading a united financial front against the Central Powers. But Lloyd George is adamantly opposed to Russia’s request for a £100 million unsecured loan because he doubts it will be spent wisely, while Cunliffe and Montagu are worried about London’s relatively small gold reserves. Ribot does not wish to see Paris decline in relation to London, which has immense capital holdings overseas.
Ostensibly aimed at coordinating the financial, material, and strategic goals of the Entente, the meeting has in fact been an effort by each ally to finance the common war effort on their own terms, to their own advantage. No human subset embodies theories of economic behavior as unadulterated self-interest quite like bankers.
Inauspiciously, the conference — which began only after George held a daylong, secretive consultation with Bark — started with a debate over what statement the allies should make about their meeting. Lloyd George proposed an unremarkable and rather meaningless text which Ribot rejected, proposing a stronger declaration of financial unity and a joint war loan to back it up. This proposal was unacceptable to Lloyd George, who recognized its ‘moral force’ with neutral nations, but argued that it would squeeze their individual governments out of the credit markets and hurt allied war bonds already on the market. Arguing in consonance with Lloyd George, Cunliffe doubted that a joint loan could attract British investors. Clearly, Britain doesn’t want French and Russian bond issues flooding the financial engine of their economy.
It was at this moment that Bark — perhaps acting on his previous secret discussion with George — unexpectedly threw the French delegation under the proverbial bus by rejecting a joint loan and requesting a Fr 2 billion loan instead. Seething at this complete reversal of previous Russian policy, Ribot counter-proposed a £100 million loan for their smaller allies, including Belgium and Serbia, and refused to sign any final diplomatic communiqué without a tangible, joint financial arrangement.
Turning away from this impasse, George proposed a joint gold reserve pool with each partner supplying an amount in ratio to their holdings, and any withdrawals by one partner to be reimbursed by the other two. This transparent bid to have France and Russia backstop British bankers drew an immediate rejection from Ribot, who pointed to the three countries’ vastly-different monetary policies. “An international convention able to influence the gold reserve by unknown amounts and with no fixed limits” is unacceptable in France, where the government has kept the currency tied to gold in a way that Britain has not. Russia’s biggest financial problem is her ice-locked, war-blocked ports, which prevent the Tsar from sending grain and gold to buy shells and ships in the West.
During the second day, Lloyd George offered a different, more detailed plan that merely provides a floor to the British gold market. If reserves fall below £10 million, he proposes that Petrograd and Paris be responsible for transmitting up to £12 million to London, allowing banks to keep their loans extended with confidence. Britain’s financial system is a golden goose, but Lloyd George won’t let it be strangled.
As the price of cooperation, Ribot demanded freedom to sell French debt instruments in Britain denominated in francs. Lloyd George assented, closing the deal, but the Ministry of Treasury will hold the agreement inapplicable to ‘sterling’ notes, angering France with yet another betrayal. Bark wins a £1 billion loan split between Paris and London and access to sell Russia’s risky-but-rewarding war debt instruments in both countries.
Lloyd George returns home to Number 11 Downing Street tonight with an agreement, in principle at least, to create some sort of joint allied financial system and to float a loan for their minor allies — and to woo more of them to the cause. Back in Paris, Ribot confirms the French government’s fears that their vital ally is a gold-miser; Lloyd George and Ribot have ended the conference more distrustful of each other than they were before the conference.