GERMANY: Schacht Solution

Tempting terms had to be offered investors in 1924 to get enough money to refinance the Reichsbank or State Bank of Germany. Shareholders were promised a fat minimum return of 8%, plus one half of all excess profits, the other half going to the German Treasury.

As Germany has rolled from lean to prosperous years, this state of affairs has come to be known in Socialist Berlin as "The Reichsbank Problem"—the problem being how to cut down the original Capitalist investor's paunchy profits, and how to give the Government more money.

Last week dramatic Dr. Hjalmar Schacht, President of the Reichsbank, announced to reporters in his home, which occupies the top floor of the Bank Building (he walks up three flights) that he has solved the problem.

The Schacht Solution, which the shareholders themselves will have to approve on Feb. 15 for it to become effective, was called in Berlin fiscal circles last week "eminently fair."

Today the Reichsbank stock with its 8% plus is speculative. Dr. Schacht proposes to give it almost the stability of a bond by substituting for 8% plus a flat 12%. In lean years this 12% dividend would be maintained by drawing on the Reichsbank's large reserve, which up to now has absorbed 20% per annum of the profits. Under the Schacht Solution only 10% instead of 20% would go into the reserve fund, and after deducting 12% for the guaranteed stockholder's dividend almost the whole remaining net profit would be turned over to the German Treasury. Estimators figured, last week, that this would increase the revenue drawn by the State from the Reichsbank five or six times.

In calling the Schacht Solution "fair" Berlin commentators pointed out that the profits of the Reichsbank have largely arisen from its right to issue paper money —a right conferred by the State. In the present Socialist temper of Germany a general belief that the original subscribers to the bank stock were "profiteering" on their 8% plus dividends might easily lead to a situation in which the Government would be forced by public opinion to curtail the Reichsbank's profitable right of issue. Under the new plan imputations of profiteering can hardly arise, yet the stockholders will receive—if they agree to take it—the liberal guaranteed return of 12%. "Fair" though this may seem, the net result was to send Reichsbank shares down from 319 marks to 310 last week. But they had risen to 319 from a quotation of 280 a fortnight previous, buoyed up by rumors that the Schacht Solution would be not merely "fair" but "generous."