Allies pool their financial resources

A British chronology of the war records under 5 February 1915 that the governments of Great Britain, France and Russia reached agreement on pooling their financial resources. The arrangements were made in Paris, at the first joint financial conference of the Entente powers. It brought together the British Chancellor of the Exchequer, David Lloyd George, the French finance minister, Alexandre Ribot, and the Russian finance minister, Pyotr Bark. According to Lloyd George the talks lasted three days and ended in recommendations which the ministers presented to their governments.

The most expensive war in history

After six months of fighting it was clear that the war would swallow sums never known before. Lloyd George estimated that in 1915 the combined expenditure of the Allies would approach £2 billion, the largest share falling on the British Empire. The positions of the three states, however, were very different. Great Britain and France, the bankers of the world, could long finance the war from the income of their foreign investments. France at the same time bore, in proportion to its means, the heaviest burden of the fighting, and part of its richest territory remained under occupation. Russia had enormous natural resources but lacked capital, and the war had made it hard for it to reach its markets. It could barely sell its goods abroad, yet had to buy ever more weapons and ammunition there. The smaller Allied states also sought support, especially almost wholly occupied Belgium and Serbia, which was fighting its third war in two years. Money was also needed by neutral states preparing for war, which could borrow only in Paris and London. In January Romania obtained a loan in London.

What was decided

The ministers considered issuing a joint loan of the three powers, much discussed in the press, but rejected it. Lloyd George later explained that such a loan would have damaged the credit of each state, because it would have been impossible to fix a single rate of interest for all. It was decided that each country would borrow money for its own needs on its own market, and that those states which were able to help at a given moment would finance the others’ purchases abroad. An exception was made for the smaller states, both those already fighting and those that might join the Entente. The three powers were to share responsibility for loans to them and, at a suitable moment, convert these into a joint loan.

The most important decisions concerned Russia. Great Britain had already granted it £32 million of credit for purchases, and Russia had sent gold worth £8 million to London. Now London and Paris agreed to raise a further £50 million on their markets, half each. Russia was assured that it could place orders without hesitation for everything its army needed. In return the Russians undertook to facilitate the export of their goods, above all grain, to the Allied countries.

It was also agreed that if British gold reserves fell below a certain level, the central banks of France and Russia would come to the rescue. France gained access to the London market for its franc-denominated Treasury bills. The Allies further decided to coordinate their purchases in neutral countries. Until then they had bought in the same places and outbid one another, which drove up prices.

No war of limited liability

Lloyd George presented the arrangements to the House of Commons on 15 February. He argued that each ally must contribute everything it had to the common cause: some men, others a fleet, still others capital and credit. “You cannot conduct a war alliance on the principles of limited liability,” he said. That same day the London subscription for £10 million of Russian Treasury bills closed, the first large loan on Russian credit on the British market. According to the Chancellor the subscriptions exceeded the amount offered. The Paris agreement opened the way to further Allied financial conferences, and Great Britain gradually became the chief banker of the whole coalition.