France Public Finance

France Public Finance

While in the second half of 1932 and at the beginning of 1933 the crisis could be considered partially attenuated, the devaluation of the dollar occurred in March which, in addition to hindering the already difficult adaptation of prices to the new world situation, could not fail to seriously affect France, both for the large capital movements that preceded and followed it, and for the fears about the fate of the franc that ensued.

According to, the internal political conditions meanwhile complicated the problem of the balance of the budget and the compression of the public debt which was not at all resolved by the economies voted in 1932 and in the spring of 1933, and only in the first months of 1934 did Minister Germain-Martin seriously address the situation by making approving the budget first with an exceptional procedure (for which the Daladier and Sarraut cabinets had fallen in the autumn) and then establishing by decree large reductions in salaries and pensions that avoided the use of inflation and freed the treasury from serious difficulties. From November 1933, however, unemployment had begun to rise again and the economic situation was worsening more and more mainly due to the difference between the domestic purchasing power of the franc and the foreign one. Foreign trade contracted, also as a result of protectionism, the activity of industries slowed down, while various international ciccostanze concurred to provoke large outflows of capital. At the end of 1934 the financial problem was pressing again and after a further widening of the possibility of using Treasury bills in January 1935 (the authorization granted by the law of December 1933 being completely exhausted), and an unsuccessful attempt to feed treasury with recourse to the money market rather than to that of long-term capital (it was in fact difficult to act on treasury capital given the growing mistrust), in June 1935 the so-called Laval experience was reached, i.e. the most remarkable and organic effort made by France to rebalance its budget. Thanks to full powers, a 10% reduction was in fact adopted in all normal expenses of both the state and local authorities, public institutions, etc. But how to contract the exceptional expenses that made the pressure of the state on the capital market more and more serious, and how to overcome the reduction in revenues, in the growing isolation and slowdown of the French economy? The financial problem was only part of the larger economic problem of adapting the French piezzi to the world ones, which could only be solved through a devaluation or general economic deflation. On the other hand, the government’s own agricultural policy and the resistance of the industrial environment were stronger than intentions; deflation remained pure budget deflation, protectionism was maintained and indeed accentuated; foreign trade and domestic activity continued in the opposite direction to that desired; prices and cost of living continued to rise as employment and wages fell amid growing social unrest. Moreover, not even a year after its apogee, the general elections were to definitively condemn the deflationist policy.

In the meantime, the franc, which had firmly resisted the crisis and the fluctuations of the Anglo-Saxon currencies, both due to the new concerns created by the devaluation of the Belgian (March 1935), and above all as a consequence of the internal financial situation, had been invested in May and November 1935. by two broad waves of mistrust which resulted in a contraction of the gold reserves of the Bank of France (from 80.6 billion on 30 April 1935 to 61 on 1 May 1936) caused by considerable outflows of capital. From March 1935 to April 1936 it is estimated that the French market lost between 25 and 27 billion gold, mostly French capital. After importing more than 80 billion gold from 1928 to 1933 (it can be said that in 1933 France had entirely reverted to the gold standard), both in exchange for currencies sold by the Bank, both for repatriation of capital or the creation of reserves abroad, and again for the inflow of foreign capital that had taken refuge in France during the fluctuations of other currencies, the opposite phase in which, for essentially political and psychological reasons, gold began to leave France (the balance of accounts was in fact practically in equilibrium).

The coming to power of the Popular Front in May 1936 marked, as already mentioned, the arrest of deflation and the beginning of the so-called reflation policy. The balance of the budget was taken second place in the face of the economic recovery that was sought to be achieved through an increase in the purchasing power of the masses. The situation on the labor market was in fact very serious and the government tried to remedy it with a series of measures (Matignon agreements, collective labor agreement, compulsory arbitration, etc., and most recently 40 hours), which resulted in a very significant increase in wages (by 15-25% towards the middle of 1936, by 48-58% at the end of the year, and much more in 1937, when, also taking into account family allowances, insurance costs, etc., it is estimated that the cost of labor had almost doubled). The rise in wages and costs thus came before the economic improvement, so that the absorption of unemployment was necessarily slower than it would have been if the recovery had been stimulated with a moderate devaluation (from 439,000 at the end of 1935 the unemployed dropped to 413,000 and 365,000 at the end of 1936 and 1937), and when the devaluation finally came, the benefits had already been largely discounted.

With the stock exchanges closed, the convertibility of the franc suspended in practice (with the rise in the minimum value of the ingot transferable to individuals from CHF 215,000 to 5 billion) and the export of gold prohibited, on September 26 the devaluation was finally announced together with the conclusion of the Anglo-Franco-American tripartite agreement for exchange rate stability, and on 1 October the chamber voted on the value of the new franc (49-43 mg. gold at 900/1000). The reserves (reduced to 50 billion) were revalued by 30% and of the resulting 17 billion capital gain, 10 were used to constitute the fund for the stabilization of exchange rates and the rest was attributed to the state. After a brief period of euphoria the However, gold began to flow again, so much so that at the end of February 1937 the fund had already exhausted its endowment in addition to 2 billion gold purchased by the public following the measures adopted in October to avoid speculative profits and affect the presumed considerable hoarding.. The increase in expenditure resulting from the reflationary policy had on the other hand aggravated the budget deficit by making the treasury situation precarious and forcing the government to borrow on increasingly unfavorable conditions, which resulted in a further increase in interest rates. interest with a serious impediment to the recovery. At the end of June, the financial and monetary situation was so serious that Chautemps requested full powers and adoption of draconian measures. The limits set in October 1936 on the gold value of the franc were abolished, which thus became a floating currency (like sterling since 1931), the bank’s advance margin was raised by 15 billion (i.e. to 40 billion) and a revaluation was authorized. reserves on the basis of one franc equivalent to 43 mg. 900/1000 gold. On the other hand, a general increase in tax contributions and tariffs for public services was resorted to, as well as cost savings and severe measures against speculation. A certain restoration of public credit and a temporary easing of the money market followed these measures.

Economic life, however, was on the whole still depressed, although some branches of activity had been stimulated by the double devaluation, and heavy industries drew nourishment from the growing needs of national defense; the progressive rise in domestic prices (in November 1937 the weighted index of wholesale prices and that of the cost of living in Paris were 78% and 34% higher than those of November 1935) had on the other hand translated into a decrease in the effective purchasing power of a large part of the population with repercussions on consumer industries and widespread discontent. As a result of this generally bad general situation, as well as political uncertainties and treasury difficulties, the franc had thus gone with some fluctuations always worsening against the pound sterling and the dollar (from 105 frs. = 1 pound until the end of April 1937 to 129 with 1 July and 147 at the end of the year), until, due to a re-accentuation of the mistrust connected above all to the fact that in the last days of December the treasury resorted to the Bank of France for another 5 billion, on 27 January 1938 a new exchange crisis began (155 frs. = 1 ??? 116? (May 4). In the official session of the foreign exchange market the following day, the gold value of the franc fell to just 28 mg. of gold at 900/1000 (179 frs. = 1 ??? 116 ???) and the French government undertook the commitment to consider this price as the maximum level of folding. A commitment that can be considered, in a certain way, as a de facto stabilization of the franc, and which does not preclude the way to a revaluation consequent to the undertaking of economic reconstruction.

For the reform of the state accounting (1930-36) which made the control of the Court of Auditors faster and more efficient, the usual delay in the publication of the financial statements was eliminated, which since 1933 have given the following figures in millions of francs:

At 31 December 1937 the internal public debt amounted to 395 billion, of which 87 was floating. The war debts to Great Britain and the United States at the date of suspension of service (1 July 1932) consisted of 765 million pounds and 6,648 million dollars, respectively.

On 24 July 1936 the statutes of the Bank of France were reformed in order to allow all shareholders to participate in the general meeting and to ensure the representation in the general council of the most representative groups of the national economy. Crédit industriel e commercial (1859) should also be mentioned among the major credit institutions. The Banque nationale de crédit was put into liquidation in 1932. As of December 30, 1937, notes in circulation amounted to 94 milliards and reserves to 59 milliards in gold and 0.9 in foreign currency.

France Public Finance