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.
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  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 , 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  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.
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.
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  and Signor Mussolini. The British Minister at Vienna  was assured, however, that the Austrian Government had no intention of dropping contacts which they have now begun to resume with Czechoslovakia.
7. The settlement of the Keelung incident  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 , 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.
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.