LONDON, 10 March 1937

THE FOREIGN SITUATION-MARCH 1937

THE SITUATION A YEAR AGO

At the beginning of 1936 the foreign situation might have been
summarised as follows: 'Germany is still rearming at full speed,
rejoicing at the dissolution of the Stresa front of Great Britain,
France and Italy, and aiming at a bloc which will include Poland,
Hungary, Bulgaria and, if possible, Yugoslavia. Further, by reason
of Germany's desire for eastern expansion both Austria and
Czechoslovakia are threatened, though not immediately.

Italy has become antagonistic to Great Britain, due to the policy
of Sanctions, and will necessarily emerge in a weakened condition
from the Abyssinian struggle, whatever its issue.

France, weakened by her internal condition, both economic and
political, has proved an unreliable collaborator for Great Britain
at Geneva, and Anglo-French relations generally are severely
strained. The unity of the European nations which could hold
Germany in check has thus been seriously weakened. The United
States remains strictly isolationist.'
At the last Imperial Conference, in 1930, the first aim of British
foreign policy was enunciated as being 'the preservation of peace
based on security and the Covenant', and this might have been
literally true for some years thereafter.

The Italo-Abyssinian dispute, however, tested for the first time
the obligations imposed by the Covenant upon League Members, and
by reason of these obligations Great Britain antagonised Italy
with whom she had had a long tradition of friendship. With a
militaristic Germany rapidly rearming there was danger for the
Empire in an estrangement with Italy, lying as she does athwart
the main British communication to the East, which, with the
development of the air arm, would be increasingly vulnerable. If
Japan too had been antagonised at this time the situation would
have been one of the utmost gravity. Empire security demands of
British foreign policy that no situation shall be allowed to arise
in which Germany in the West, Japan in the Far East, and any
Power, such as Italy, on the main artery between the two are
simultaneously hostile. At least it can be said for 1936 that it
did not see any serious estrangement of Japan.

SUMMARY OF THE SITUATION TODAY

Today, in the first quarter of 1937, the situation, particularly
as regards Germany, is no less strained than it was at the
beginning of 1936, probably even more so. At the same time several
new factors have entered into it, some of which are favourable to
Great Britain and the Dominions.

In the first place Great Britain is in process of rapid rearmament
and is probably already in such a position as to render it likely
that her policy will be respected and feared.

Secondly, Great Britain has now 'shaken hands' with Italy in an
agreement which, though it has yet to be tested, was undoubtedly
strongly desired by Italy, and which is probably an indication
that Italy is not wholly committed to Germany [1]

Thirdly, Great Britain and France have come together again and
have for some time been acting in close co-operation, though
France's internal political position still remains far from
stable.

Fourthly, France has probably once more succeeded in drawing
Poland back towards her or at least to some extent away from the
orbit of Germany.

Fifthly, the position in the Mediterranean and Near East has been
improved by the conclusion of a satisfactory treaty between Great
Britain and Egypt [2], and by the happier relations which have
been established between Great Britain and Turkey, and which were
manifest at the satisfactory conclusion of the Montreux Conference
[3]

Lastly, turning to the Far East, despite the known aims of
Japanese policy, which may at any time involve a clash with China,
Russia or the British Empire, and despite the recent German-
Japanese rapprochement, there are signs that Japan, like Italy,
does not desire to substitute German to the exclusion of British
friendship and would be glad of a closer understanding with Great
Britain. At the same time Japan is probably impressed, to some
degree at any rate, by the substantial nature of British
rearmament.

Despite these favourable factors the situation generally remains
very tense. Germany is the chief danger in Europe and, though her
long expected demarche as regards Austria [4] proved more pacific
than was anticipated, the move against Czechoslovakia, when it
comes, is likely to be serious. Germany's internal condition
presents grave features and may lead her present irresponsible
rulers to seek escape in an 'adventure', probably in Eastern
Europe. Meanwhile, in Western Europe, the Spanish civil war
presents a prolonged menace to European peace, not in itself, but
because of the intervention of Germany, Italy and Russia.

In addition, there are other potential centres of disturbance,
such as Memel and Danzig.

GREAT BRITAIN

It would still be true today, as at the time of the Imperial
Conference of 1930, to say that 'the preservation of peace based
on security' is the first aim of British foreign policy, but many
would now hesitate before including, as they did then, the
Covenant as a further basis for preserving peace. The events of
1936 have undoubtedly gradually weakened the League's prestige,
and there were no League successes, such as the solution of the
Saar problem and the Hungarian-Yugoslav settlement of the previous
year, to offset the failure to cope with the Italo-Abyssinian
dispute. On the other hand the League can claim some credit for
the apparently satisfactory settlement, in January, 1937, of the
dispute between France and Turkey in regard to the Sanjak of
Alexandretta.

The need for some reform of the Covenant has been universally
recognised and a Committee is now working on the numerous
proposals which have been put forward, but little is expected from
its deliberations. None the less collective security, and the
Covenant-in a limited form-remain in the forefront of British
policy. In his Leamington speech on 20th November Mr Eden [5] said
that British arms would never be used for a purpose inconsistent
with the Covenant or the Kellogg Pact. [6] He then went on to
define Britain's present commitments:-

'(a) British arms may and if the occasion arose would be used in
our own defence and in defence of the Territories of the British
Commonwealth of Nations.

(b) They may and if the occasion arose they would be used in the
defence of France and Belgium against unprovoked aggression in
accordance with our existing obligations.

(c) They may and if a new Western European settlement can be
reached they would be used in defence of Germany were she the
victim of unprovoked aggression by any of the other signatories of
such a settlement.

(d) Those, together with our Treaty of Alliance with Iraq and our
projected treaty with Egypt, are our definite obligations.

(e) In addition, our armaments may be used in bringing help to a
victim of aggression in any case where, in our judgment, it would
be proper under the provisions of the Covenant to do so.'

In a slightly later speech, at Bradford on 14th December, Mr Eden
[5] also used a noteworthy phrase:-'We must neither mislead others
nor be misled ourselves by any of those comfortable doctrines that
we can live secure in a Western European glasshouse.' He also
stressed the desirability of Germany's co-operation, not only in a
Western agreement, but in European affairs generally.

On 17th February the United Kingdom Government issued a White
Paper on Defence announcing a possible expenditure of as much as
1,500,000,000 in the next five years. A few days later, the
Chancellor of the Exchequer [7], speaking on the second reading of
the Defence Loans Bill, which is desired to empower the Treasury
to issue sums not exceeding 400,000,000 for defence services
between the present time and March 1942, said that 'it would be
unfortunate if any apprehension of imminent war was created at a
time when there is no reason to suppose that there is
justification for such fears,' but they could not afford to relax
until they had provided for the country's safety and for its
ability to fulfil its international obligations.

The British Ambassador to Germany [8] has since reported that the
United Kingdom Government's decision has had a very wholesome
effect in Berlin. The German public, he said, had sufficient sense
left to realise that Great Britain was not rearming without good
reason, and this, combined with the intensive rearmament which
they observed everywhere throughout their own country, had aroused
uneasiness. One result had been the reference in Dr Goebbels' [9]
speech on 12th February to the unlikelihood of war and the
peaceful intentions of the German Government.

THE LOCARNO NEGOTIATIONS

With regard to Western Europe, it does not appear that the long-
mooted conference between Great Britain, France, Germany, Italy
and Belgium with a view to replacing the Locarno Treaties is any
nearer. It cannot, however, be ruled out entirely, in view of the
facts that (a) despite grave doubts which are entertained as to
Germany's intentions, there are signs (such as Dr Goebbels' recent
speech) that Germany does not desire to estrange the friendship of
Great Britain, (b) the relations between Great Britain and Italy
are distinctly better, and (c) France may well be disposed to
allow the Franco-Soviet Pact which is anathema to Germany and
unfavourably regarded in Great Britain and in Belgium to go into
cold storage.

BELGIUM

France is still uneasy at Belgium's attitude, expressed in King
Leopold's recent speech on Belgian neutrality, despite the
subsequent assurance that Belgium would stand by her League
obligations. Belgium's attitude must be largely influenced by the
recent rise of a Belgian Fascist party, the Rexists, sympathetic
to Nazi Germany. The Brussels correspondent of the 'Times'
reported on 6th March that Germany intended to make a new
diplomatic offensive to persuade Belgium to break her links with
Britain and France and reach a separate understanding with Berlin.

Great Britain has not hesitated to affirm that the independence
and integrity of Belgium are one of her own vital interests and
that she would help Belgium in the event of unprovoked aggression.

FRANCE

Similar mutual assurances of assistance have been publicly
exchanged between Great Britain and France. They relate solely to
obligations already in existence, i.e., the remnants of the
Locarno Treaties, but they arc welcomed as a clear statement of
intention, in contrast to the hesitation and doubt about British
commitments to France before 1914.

Relations between Great Britain and France have steadily improved
during 1936; their close co-operation is best seen in their
attitude towards the civil war in Spain.

The joint action in September last of the three great democratic
countries, Great Britain, France and the United States, with
regard to French monetary policy, and their decision 'to maintain
the greatest possible equilibrium in the system of international
exchanges', was a happy instance of international co-operation,
particularly as the French devaluation was rapidly followed by
similar action on the parts of Switzerland, the Netherlands and
Italy.

Unfortunately, the internal political situation in France remains
uncertain.

NETHERLANDS

The Netherlands have recently drawn closer to Great Britain and
away from Germany. They fear in particular a combination of
Germany in the West and Japan in the East, with consequent danger
to their colonial empire in the East Indies. Although the
integrity of the Netherlands is almost as vital to Great Britain
as is that of Belgium, no commitment has been assumed in this
direction.

SPAIN

The one part of the world where war is actually being waged is
Spain. The military situation remains practically unchanged and it
looks as if the struggle will be prolonged. Roughly speaking the
insurgents occupy the western half of Spain, while the Government
retains the eastern half, plus the Basque provinces on the Bay of
Biscay. The fight for Madrid goes on, the insurgents having
occupied one section of the city proper for two months past. It
would seem that General Franco failed to follow up his initial
advantage and lost his opportunity of dislodging the Loyalist
forces from the capital on 7th November, the day the Government
removed to Valencia. Meanwhile a large section of the city has
been destroyed and the evacuation of the civil population has been
speeded up.

During the last months of 1936 volunteers poured into Spain from
abroad and soon thousands of Germans and Italians were fighting
with the insurgents, while French and Russians joined the side of
the Government.

After long efforts by the British and French Governments Germany,
Italy, U.S.S.R. and Portugal were induced in February 1937 to
impose a ban on 'volunteers' in Spain, to take effect on the 20th
February, and a ban on war materials to take effect on 6th March.

Plans for the supervision of the principal ports and frontier
posts have been elaborated.

ITALY

The year 1937 began well with the signing in Rome on 1st January
of an Anglo-Italian 'gentlemen's agreement' [10] This had been
gradually led up to by the conclusion of commercial and clearing
agreements, by the exchange of friendly speeches during November,
the withdrawal of the British Legation guard from Addis Ababa, and
the withdrawal of the Italian agent, Count Rossi, from the
Balearic Islands. The agreement took the form of a declaration
whereby Great Britain and Italy recognised that their interests in
the Mediterranean were vital to both parties and were not
incompatible. Simultaneously there was an exchange of notes, with
an assurance that so far as Italy was concerned, the integrity of
Spanish territory should remain intact and unmodified. In addition
the British and French Governments have recently informed the
Italian Government privately of their willingness to reduce the
status of their legations at Addis Ababa to consulates-general,
which would amount to a de facto but not a de jure recognition of
the Italian conquest of Abyssinia.

Signor Mussolini recently made a speech in which he said that all
African accounts were now settled to the last penny; although
Fascism rejected the fable of perpetual peace, it desired the
longest possible period of peace.

On the whole it would appear that despite their recent agreement
[11], Italy is not so deeply committed to Germany as was feared in
the latter months of 1936.

As far as the internal situation in Italy is concerned, informed
opinion holds that, although the failure of the wheat crop in this
of an years will add to the economic strain on the Italian people
and lead to discontent, the Fascist regime is certainly not yet in
danger on the political side, but could hold the economic
situation for a considerable time. The position was analysed by
Sir Eric Drummond [12] as follows, in a despatch of A December. 'I
am not prepared to estimate the term in years of this
"considerable time". If in the absence of world economic
improvement and of direct financial assistance from either France,
Great Britain or United States, the Fascist authorities begin to
realise that the limit of Italy's powers of endurance has been
reached, then I think we must look for danger ahead. No doubt at
this point the Fascist Government would make one last appeal to
those Powers who could render them assistance. It is only if that
appeal was rejected that I would apprehend some attempt to
distract attention from internal affairs by a foreign adventure.'
On the 2nd March, the Fascist Grand Council decided on a five-year
programme of militarisation.

VATICAN

The Pope's [13] condition appears to have slightly improved, but
in view of the complex nature of his illness and his advanced age
there can be little chance of his recovery.

GERMANY

Germany remains Great Britain's major pre-occupation. Political
factors which have entered into the problem are-(a) Germany's
agreement with Austria, (b) her rapprochement with Italy, though
this has probably been off-set to some extent by Italy's recent
approach to Great Britain, (c) her pact with Japan [14], either
with or without the alleged secret military clauses, and (d) her
relations with Russia, against whom the Nazi Government, whether
from real or manufactured hatred, never ceases to fulminate. As
for the internal situation this winter there is a wheat shortage,
prices of wheat and rye being three times world price. In this
connection see the following authoritative estimate from Berlin:-

'Last winter was bad and the coming winter seems likely to be in
reality worse although the Government is sufficiently warned of
the dangers to be ready to prevent any too startling or acute
shortages in the food supply.'
The four-year plan which is part of the rearmament process is in
full swing; and a military adventure in the east or south-cast of
Europe is a grave possibility. Dr Schacht [15] continues to harp
on the themes of raw materials, both for industry and as
foodstuffs, and of colonies (which would include New Guinea). Some
solution may be found to the former problem, but any concession as
regards colonies would probably only serve to whet the Nazi
appetite for increased territory in Europe.

In view of the long delays in the preliminaries of a Locarno
conference, a purely political agreement satisfactory to Germany
does not seem very likely. Many authorities hold, however, that
Great Britain must, as a safety valve to ensure peace, take some
action to case Germany's economic situation. They suggest that an
outlet be provided for German goods, and that as a beginning the
United Kingdom, Australia and New Zealand might do something with
Germany in the way of three-sided exchanges, the two Dominions
taking more manufactured goods. Failing a political agreement or
an economic settlement, and excluding the unlikely possibility of
the waning of Nazism, it would appear that the hope of averting an
'adventure' on the part of Germany lies in the strong position of
Great Britain today by reason of her rearmament.

POLAND

While it would be unsafe for Great Britain to count too much on
continental 'friends', it is probably true to state that Poland is
today less in the German orbit than before. She has once again
drawn closer to France, and the Polish Foreign Minister [16]
recently came to London on the first official visit yet paid to
Great Britain.

AUSTRIA

The question of a Hapsburg restoration has again been looming on
the horizon. On 14th February the Chancellor, Dr Schuschnigg
delivered a speech to Officials of the Patriotic Front the
dominant note of which was reported to be 'a firm intention to
continue the policy of Austrian independence with a gradual trend
towards a monarchist consummation.' Late last week, however, it
was reported in the press that owing to recent Italian press
articles expressing hostility to the restoration of the Hapsburgs,
Dr Schuschnigg had cancelled his intended visit to Rome. (As late
as the end of November 1936 the British Minister in Vienna [17]
reported that Italy 'still counted for much in Austrian
counsels'.)

CZECHOSLOVAKIA

In November last it was reported from Prague that Czechoslovakia
was far from contented with its economic relations with France and
that French efforts in Prague were not being particularly
successful in restoring confidence to a public which was
hypnotised by the growing bogey of German domination of Central
Europe.

On 15th February M. Delbos [18] told the British Ambassador in
Paris [19] that the French Government were afraid of Germany
forcing the situation in Czechoslovakia in the near future. He
referred to the intense press campaign in Germany against
Czechoslovakia, and to Germany's slackening of interest in Spain.

He spoke of his Government's recent move for mutual assistance
between the Little Entent [20] collectively and France, and
admitted that Yugoslavia and Roumania were hanging back and it was
feared they might come into the GermanItalian orbit. His
Government felt that it was essential to show Germany that if
Czechoslovakia were attacked they would be solidly supported by
the Little Entente and France. In the French view the proposed
Treaty was the best way to give the warning.

THE BALKANS

Yugoslavia seems still to be steering a middle course, despite her
close economic relations with Germany. Dr Schacht has been very
active in the Balkans, even going so far afield as Turkey, in
addition to turning his attention to Denmark and the Baltic
States, and the close economic relations with Germany that now
exist may well lead to closer political relations in the case of
at least some of these smaller nations, particularly Greece.

Yugoslavia and Bulgaria, long on bad terms, have recently entered
into negotiations for an agreement. Turkey has given her approval,
but the other members of the Balkan Entente, Greece and Roumania,
would prefer a multi-lateral treaty. Greece was apparently only
won over at the end of the year by the efforts of the Turkish
Foreign Minister [21] and his undertaking that Turkey would assist
Greece in resisting any attempt by Bulgaria to raise the question
of an outlet (which would be at the expense of Greece) to the
Aegean.

Yugoslavia, regarded since the War as Italy's hereditary enemy,
has also recently been offered an alliance by Italy, who is
anxious to placate all neighbouring countries so as to be free to
exploit her Abyssinian success.

RUSSIA

Great Britain during 1936 was liable to be closely linked through
France to Russia. Co-operation between the two would probably
never be more than temporary and possibly against Britain's
permanent interests, at least so long as the policy of the 3rd
International for world revolution has the support of the Soviet
Government.

During 1935 Germany had allegedly spent the major portion of her
revenue on armaments the exact figures being unknown, as Germany
has not issued a budget for 3 years. In the second week of 1936
Russia replied by almost doubling her military expenditure and
announcing that the strength of the Soviet military forces had
reached 1,300,000 men as compared with 940,000 a year before.

Relations between the two countries remain severely strained.

During the year Russia has added to her forces in the Far East and
consolidated her influence in Outer Mongolia.

In a despatch of 16th November the British Ambassador in Moscow
stated that in his view, as long as the map of Eastern Europe
remained unchanged, it was hardly too much to say that there was
only one contingency which the Soviet Government really feared: a
combined attack by Germany and Japan. 'This contingency', Lord
Chilston continued, 'they obviously fear very much indeed, for all
their enormous recent progress in the sphere of defence. And if
they could come to an agreement with Germany which would
positively ensure the neutrality of that country in the event of a
Japanese attack in the Far East, they would presumably be prepared
to pay highly for it. But they would be optimistic indeed to
regard an agreement of this sort as a practical possibility while
the two regimes last.' A little later in his despatch Lord
Chilston adds-'There is one contingency which, in my opinion,
might possibly lead to a Soviet-German rapprochement of a
thoroughly undesirable kind. Good reasons appear to exist for
believing that the Reichswehr may gain control in Germany in the
not far distant future; and if the Red army were to achieve a
corresponding ascendancy in this country, then a military alliance
might well result.' He concludes, however, by expressing the view
that M. Stalin is still to all appearances the undisputed master.

EGYPT

Turning to the Near East, the situation in Egypt is satisfactory.

The Anglo-Egyptian Treaty was approved by both Parliaments in
November. The entry of Egypt to the League of Nations will shortly
come before the Assembly at Geneva, Australia being among the
countries which has extended an invitation. At present Egypt is
awaiting the Conference, at Montreux, to discuss the ultimate
abolition of the Capitulations in which Great Britain is lending
assistance. Great Britain has sent a circular despatch to the
other Capitulatory Powers supporting the Egyptian claims and
pointing out that the Powers are likely to obtain less rather than
more if they are intransigent. There are 14 capitulatory powers
and it may well be a lengthy process before the necessary
agreements are secured and the Mixed Courts are abolished.

PALESTINE

The situation in Palestine has been much quieter since the British
Government took firm measures in September and October last. The
Royal Commission which was appointed to enquire into the causes of
unrest commenced work in November. At first it was boycotted by
the Higher Committee of Arab Leaders because of the British
Government's refusal to suspend Jewish migration during the period
of inquiry, but the boycott was terminated early in January. It
appears that at the sittings of the Royal Commission extravagant
demands were put forward by both Arabs and Jews, and neither side
seemed to be actuated by the spirit of compromise. Since neither
side seems disposed to make any material concession it seems
doubtful whether stable conditions are likely to be established in
Palestine in the near future.

On the contrary the present comparatively peaceful situation is
probably nothing but a truce, and disorders will almost certainly
break out on an even more serious scale than before as soon as the
Royal Commission concludes its task.

The Foreign Office view is that the United Kingdom Government must
be prepared, immediately after the issue of the Commission's
report, to adopt a clear and consistent policy, based on principle
and not merely expediency, which can be shown to the world at
large to be a genuine effort to strike a just and fair balance
between the two conflicting obligations. To fail to adopt some
such policy and rely rather on repression would probably result in
the United Kingdom Government being faced with such wide-spread
and bitter hostility in the Middle East and in the Moslem world as
very seriously to threaten Great Britain's strategic position, and
gravely to cripple her in the event of a larger conflict breaking
out elsewhere.

IRAQ

Iraq appears to be fairly quiet since the military coup in
November, though it is too early to be sure either of Hikmet
Sulaiman [22] or General Bakr Sidqui. [23] A few days after the
accession to power of the new Government the Syrian Fawzi, an
anti-British leader in the recent Palestine disturbances, received
an official welcome and he was recently reported to be stirring up
trouble in Iraq.

SYRIA

The conclusion in September of the treaty between France and
Syria, designed to replace the French mandate, and forming a close
parallel to the British treaties with Iraq and Egypt, had one
unfortunate sequel.

Late in November France, for reasons which seemed sound to the
United Kingdom Government, declined to negotiate with Turkey over
the independence of the Antioch-Alexandretta region of Syria, and
rioting occurred in front of the French consulate at Istanbul.

Turkey referred the dispute to the League Council which decided in
December to send observers to the spot and to adjourn until
January. Early in the New Year it was reported that Turkey,
possibly encouraged by Germany, who would eagerly seize on any
precedent for the return of territory lost after the Great War,
was demanding an immediate League decision and mobilising forces
near her southern frontier. The January Council meeting has since
solved the difficulty.

ARABIA

Italy is reported to be endeavouring to gain from the Yemen a
foothold on the Arabian side of the Red Sea in order to protect
her African empire. This aspect is being closely watched by Great
Britain.

JAPAN

Turning to the Far East, 1936 passed without any grave political
situation arising between Great Britain and Japan. A year ago in
reviewing the world situation one could hardly have failed to
stress the desirability of a policy of accommodation and
neighbourliness with Japan, while at the same time admitting the
difficulties in the way though these were less serious than in the
case of an agreement with Germany. The past twelve months have
been by no means wholly satisfactory so far as the Japanese
situation is concerned.

In the first place Japan withdrew from the London Naval Conference
in February [24] and has not acceded to the 1936 London Naval
Treaty. This agreement replaces the Washington and 1930 London
Treaties which expired on December 31st, but is an inadequate
substitute.

Secondly, Japan remains silent on the question of the maintenance
of the status quo with regard to fortifications in the Pacific,
hitherto secured by Article 19 of the Washington Treaties, which
it was hoped to save from the wreck.

Thirdly, Japan, like Italy, has recently co-operated with Germany
in concluding an agreement, allegedly against Communism.

Fourthly, there have been unpleasant incidents such as the ill-
treatment of British sailors at Keelung in Formosa.

Fifthly, the campaign in Japan for the 'Southward advance' policy.

Perhaps the most hopeful sign in recent months is the initiative
of the Japanese Ambassador in London [25] with regard to an Anglo-
Japanese agreement. Though feeling was somewhat frosted by the
Keelung incident, the British Government apparently does not
intend to let it affect relations generally. The negotiation of an
Anglo-Japanese agreement is perhaps even more of a major
consideration for Australia than the securing of an agreement with
Germany. In each case unfortunately there is the query, having
regard to the form of control, as to whether there is reasonable
hope of the Government as at present constituted keeping the
agreement. In the case of Japan too, as with Germany, the internal
economic condition is a factor which Great Britain must take into
close account and can possibly turn to her advantage.

The British Foreign Secretary on 18th January, 1937, handed the
Japanese Ambassador in London an aide-memoire setting out the
preliminary observations in the reply of the British Government.

On 6th March the Commonwealth Government despatched a telegram to
the British Government [26] stressing the desirability from
Australia's point of view of better relations between Great
Britain and Japan, and the need for a definite understanding,
perhaps in general terms on the idea of the recent Anglo-Italian
pact, and expressing the hope that, should the present political
situation in Japan not jeopardise this favourable atmosphere, no
opportunity would be lost of pursuing the matter to a mutually
satisfactory conclusion.

The political situation referred to was the fall of the Hirota
Administration at the end of January, the inability of General
Ugaki to form a Cabinet because of the Army's refusal to supply a
Minister for War, and the eventual formation of a government under
General Hayashi [27] (Minister for War at the time of the military
rising of 26th February, 1936). The External Affairs Officer in
London [28] reported early in February that the position in Japan
was said to be chaotic, the Premier being 'a child in politics'.

The military hierarchy, on the other hand, feared being put into
office themselves, in view of the unanimity of the press against a
military government.

CHINA

The relations between Japan and China are, outwardly at any rate,
a little easier than they have been in recent months. Until the
announcement of the German-Japanese agreement, it seemed probable
that Japan would refrain from pressing things beyond a certain
point. Now future developments seem to depend on (a) how far the
Japanese Government are emboldened by reason of the German
agreement and, (b) how far the Government in Tokyo can restrain
the military extremists.

During January in certain quarters a rapprochement was predicted
between the Central Government of Chiang Kai-shek and the
Communists in China in a United Front against Japan. When,
however, the Central Executive of the Kuomintang met during the
third week in February it took a firm line as regards co-operation
with the Communists and declared that no reconciliation was
possible unless the Red Army and the 'Chinese Soviet Republic'
were both dissolved. The British Ambassador in China [29]
considers that the line taken by the Executive on the Communist
question should allay Japanese fears and that, coupled with the
conciliatory tone of the recent Japanese approaches, it allows a
hope that a new atmosphere is about to pervade Sino-Japanese
relations. U.S.A.

Little has occurred in recent months to alter the view that the
United States remains at heart isolationist. On the credit side of
international co-operation are the agreement with Great Britain
and France over the latter's monetary policy [30], and certain
aspects of the American attitude to both the Italo-Abyssinian and
Spanish wars. There is too always a remote possibility that
President Roosevelt, secure in his second and final term, may lean
more towards European co-operation, especially if internal
conditions continue to improve. His re-election is rather more
promising from the point of view of international co-operation
than would have been the accession to power of the Republican
candidate.

SOUTH AMERICA

South America remains outside the complicated picture of world
politics. In December 1936 President Roosevelt attended the
PanAmerican Conference at Buenas Aires. Though of small practical
moment it should be noted that it resulted in the signing of a
convention of collective security by 21 countries, providing for
an obligation to consult among themselves in the event of a threat
of aggression to the American countries.

BRITISH COMMONWEALTH OF NATIONS

Close co-operation between the members of the British Commonwealth
of Nations remains a major interest of Great Britain and of
Australia in international affairs, but there are recent
indications that this might not always be the case with Canada.

The absence of liaison of any kind with South Africa remains a
notable gap in Australia's information on Empire affairs. [31]