THE CHANCELLOR OF THE EXCHEQUER stated that he had explained to the Cabinet the alternative proposals made earlier that day by the Free State representatives. The Cabinet had carefully considered them and had accepted them in principle. They had done so in order to give one more manifestation of their desire to make the Treaty policy a permanent success. There were certain outstanding matters apart from Article 5 which it was desirable should be settled now once for all. He suggested that the Free State Minister of Finance¹ and his advisers should be summoned to London at the earliest moment. The Cabinet preferred the alternative proposal which was based on compensation. It would be necessary to define it in more detail than had been possible that day and to agree a method of payment.

He wished to repeat the expression of his satisfaction in making this announcement of the Cabinet's agreement to the representatives of the Free State and to have been authorised to make it in the most friendly and generous temper.

MR. COSGRAVE agreed that his Finance Minister should be summoned immediately and that among the outstanding matters to be fixed up should be the Income Tax deductions on Land Purchase Annuity payments.

MR. COSGRAVE (continuing) said that he most gladly welcomed the action of the British Cabinet. It would go far to cement the friendship of the two peoples. He appreciated fully the great care the question had received at the hands of His Majesty's Government and from the Chancellor personally. He knew something of the financial troubles which weighed upon him. His own Irish burdens were colossal. The arrangement now proposed showed a spirit of neighbourly comradeship which had never before been revealed. The active cooperation of Sir James Craig in promoting this spirit was also most welcome.

THE CHANCELLOR OF THE EXCHEQUER said that he understood the two alternative proposals were to be regarded as roughly equivalent in respect of the payment to be made. The details could be arranged on the next day. It would be a triple arrangement involving the acceptance of the present boundary, the waiving of Article 5, and the recognition that the burden of compensation would be assumed by the Free State.

MR. O'HIGGINS said that the Cabinet had chosen the form of payment which would be the better, politically, for the Executive Council. It would enable them to say that they were prepared to shoulder their own burdens arising out of the disturbances in Ireland.

THE CHANCELLOR OF THE EXCHEQUER said that he had informed the Cabinet of Sir James Craig's concurrence in the proposed arrangement so far as Northern Ireland was concerned.

MR. COSGRAVE said that while Sir James Craig would be able to announce that he had given nothing away it was clearly understood between them that every effort would be made to promote goodwill between North and South.

MR. O'HIGGINS promised that what seven men could do to clothe the agreement with the spirit of friendship should be done, and they would also use what influence they possessed to induce the Nationalist members in Ulster to take their place in the Northern Parliament.

After MR. COSGRAVE had again expressed his gratitude for the generosity of the terms proposed and his recognition of the courage and resource of the Chancellor, the conference adjourned until 10.30 a.m. on Thursday, December 3rd.