In his annual address to Congress on January 3, 1934, Roosevelt touched on foreign affairs, noting that fear of immediate or future aggression, the concomitant expense of vast sums on armament, and continued building of trade barriers stood in the way of lasting peace.1 This international outlook clearly reflected itself in relations between the United States and Germany. Problems that strained relations in 1933 -- debt payments, persecution of the Jews, exasperating trade negotiations, fruitless efforts to revive disarmament -- all continued into the new year. But where initially time, patience, and energy had seemed on the side of resolving difficulties, such was no longer the case. Throughout 1934 relations between the two countries worsened.
The debt settlement of January 31, 1934, was at best temporary and, contrary to public pronouncements, wholly satisfactory to neither Germany nor the United States. Two weeks before the agreement, Phillips had warned that acceptance of discriminatory terms might establish a precedent for other debtor countries. The State Department complained to the German government that discrimination by creditors on a basis of a direct bilateral trade balance would only create a new area of controversy. The Germans, Ambassador Dodd reported, told him that they had granted American creditors a slight increase not be-____________________