LONDON, 11 May 1937

FOREIGN SITUATION IN MAY 1937

It was noted in March that various new aspects of the foreign
situation were favourable to Great Britain and the Dominions.

Since then it is probable that the tendency to improvement has
continued. An accumulation of evidence suggests that this is due
in a very high degree to the United Kingdom's programme of
rearmament. The chances of a sudden outbreak in Europe or the Far
East are now regarded as distinctly less than they were six months
ago, and in addition the endeavours to reach a general settlement
in Europe have, principally under British leadership, advanced a
further stage.

2. The most notable event has been the recognition by France and
the United Kingdom of the Belgian desire for the new international
status outlined by King Leopold last October. By the joint
declaration of April 25th Belgium was released from her
obligations under the old Locarno Treaty and the provisional
arrangement of March 1936, while retaining the Franco-British
guarantee of her independence. In return Belgium reaffirmed her
intention to defend her own frontiers and to maintain her
commitments under the League Covenant. This arrangement, not
contemplated in the early stages of the negotiations for a new
Western Pact, has nevertheless been designed to fit into whatever
future Five-Power Treaty may be secured. The prospective nature of
such a pact, however, has considerably altered. While the German
and Italian Governments maintain a broad preference for the form
of the old Locarno, the United Kingdom Government are thinking
more on the lines of a simple exchange of non-aggression
guarantees. In the hope of carrying the negotiations a stage
further the French Government have now been requested to examine
whether they cannot meet in some way the German objections to the
exceptions to non-aggression implicit in French obligations
towards Eastern Europe and Soviet Russia.

GERMANY

3. The interval has thrown no new light of importance upon German
policy. Various reports suggest that events such as the Spanish
civil war have for the moment induced a mood of circumspection in
the Nazi leaders, but as the late Ambassador in Berlin [1] made
clear in his final despatch, there is no reason to suppose that
the ultimate German aims have undergone any modification. The
immediate need of the German Government appears to be a decision
of their relations with the United Kingdom, as it is becoming
increasingly clear that British policy is likely to be exercised
in the future as the main obstacle to expansionist designs. On the
surface it must be observed that Anglo-German relations have
deteriorated in the last few weeks. British policy with regard to
Spain has, in particular, been criticised immoderately. On the
other hand, Herr Hitler, in interviews with Sir E. Phipps and Mr
Lansbury [2], has shown no alteration in his well-known desire for
an Anglo-German understanding.

4. Internally Germany remains stable, and the Four-Year Plan is
apparently being worked with considerable success. On a visit to
Brussels in April Dr Schacht [3] showed himself not
unaccommodating towards suggestions for German return to economic
co-operation, but there is no evidence that this course is being
impelled on the German Government to any greater degree than for
the last two years.

ITALY

5. Anglo-Italian relations have also deteriorated since the
Mediterranean Agreement at the end of 1936. Italian activities in
Abyssinia and Spain have been sharply commented on in the British
Press, and in return Italian opinion has expressed a strong
resentment of British rearmament and of an alleged British
intention to obstruct Italian policy. The Italian Government have
been particularly active in attempts to increase their influence
in South-east Europe and Asia Minor. Yugoslavia considered it
politic to meet the Italian request for a pact of friendship;

Roumania and Turkey, however, have so far remained negative in the
face of similar approaches to themselves. It is noteworthy that
all three States have throughout attached primary importance to
the effect which such transactions with Italy would be likely to
have on their relations with the United Kingdom.

CENTRAL EUROPE

6. In Central Europe both Italy and Germany have continued their
efforts to strengthen the so-called 'Rome-Berlin axis', and in
pursuance of this the special relations between Austria and Italy
were emphasized at a meeting at Venice in April between the
Austrian Chancellor [4] and Signor Mussolini. The British Minister
at Vienna [5] was assured, however, that the Austrian Government
had no intention of dropping contacts which they have now begun to
resume with Czechoslovakia.

JAPAN

7. The settlement of the Keelung incident [6] to the moderate
satisfaction of the United Kingdom Government, and the continued
affirmations of friendship on the part of the new Japanese Foreign
Minister, Mr Sato, have led to a substantial improvement in Anglo-
Japanese relations. It was significant that a version of the
overtures made last year by the Japanese Ambassador in London [7],
which appeared in the Tokio Press in April, was received in
Japanese opinion with much cordiality. But doubt remains as to how
far Mr Sato will be able to influence Japanese policy in practice,
although recent events in the Diet, together with the results of
the general election, may be interpreted as some slight setback to
the military party.

U.S.A.

8. The present attitude of the United States in international
affairs has been confirmed by the passage (April) of a new
Neutrality Act in terms reasserting the mandatory function of the
President in prohibiting the export of arms or munitions to
belligerents. The Act represents something short of extreme
isolationism, however, in its provisions allowing the President
certain discretionary authority in prohibiting general exports to
a belligerent. [8]