"We have proposed peace to our enemies," he said to the correspondents, "because we feel that we have been victorious and because we believe that no matter how long the war continues the Allies will not be able to defeat us. It will be interesting to see what effect our proposal has upon Russia. Reports which we have received, coming from unquestionable sources, state that internal conditions in Russia are desperate; that food is scarce; that the transportation system is so demoralised and that it will be at least eight months before Russia can do anything in a military way. Russia wants peace and needs peace and we shall see now whether she has enough influence upon England to compel England to make peace. We are prepared to go on with the war if the Allies refuse our proposals. If we do we shall not give an inch without making the Allies pay such a dear cost that they will not be able to continue." The Foreign Office was not optimistic over the possibilities of success; officials realised that the new Lloyd-George Cabinet meant a stronger war policy by Great Britain, but they thought the peace proposals might shake the British confidence in the new government and cause the overthrow of Lloyd-George and the return of Asquith and Viscount Edward Grey. From all appearances in Berlin it was evident to every neutral diplomat with whom I talked that while Germany was proclaiming to the whole world her desire for peace she had in mind only the most drastic peace terms as far as Belgium, certain sections of northern France, Poland and the Balkans were concerned. Neutrals observed that Germany was so exalted over the Roumanian victory and the possibilities of that campaign solving the food problem that she was not only ready to defy the Allies but the neutral world unless the world was ready to bow to a German victory. There were some people in Germany who realised that the sooner she made peace the better peace terms she could get but the Government was not of this opinion. The Allies, as was expected, defiantly refused the Prussian olive branch which had been extended like everything else from Germany with a string tied to it. For the purposes of the Kaiser and his Government the Allies' reply was exactly what they wanted. The German Government was in this position: If the Allies accepted Germany's proposal it would enable the Government to unite all factions in Germany by making a peace which would satisfy the political parties as well as the people. If the Allies refused, the German Government calculated that the refusal would be so bitter that it would unite the German people political organisations and enable the Government to continue the war in any way it saw fit.