july 1934 The French Financial Outlook Paul Reynaud Volume 12 • Number 4 The contents of Foreign Affairs are copyrighted.©1934 Council on Foreign Relations, Inc. All rights reserved. Reproduction and distribution of this material is permitted only with the express written consent of Foreign Affairs. Visit www.foreignaffairs.com/permissions for more information. THE FRENCH FINANCIAL OUTLOOK By Paul Reynaud a a IN period that offers spectacle of constant and dramatic us a changes, and charges good price for the entertainment, an note. France is contributing original The unexpected and recover almost offhand rapidity with which she is able to her bal a ance is source of unending astonishment to the world. Last summer an authoritative American critic voiced the fear that France would be unable to balance her budget and save the a we franc. Well, within period measured in weeks, found the French budget balanced, the railroad deficit halved by the stroke a of pen, French government bonds again soaring, gold streaming back into the Bank of France, American eagles and British sover on as a eigns dropping exchange result of decreased hoarding, and industrial securities again finding buyers in the stock markets. a was Confidence, in word, had been restored. And it done by simple, nay classical, procedures. same Much the thing has happened again in the three months since the events of the Sixth of February. Then many an era people abroad felt that of unrest and bloodshed might be opening in France. But lo! within two days the "Sage of Tourne a feuille," M. Gaston Doumergue, had national coalition govern ment organized, calm had been restored, and a Chamber that had been cabinet after cabinet on the was upsetting financial question to to getting ready docilely authorize the ministry do by proc lamation things that it had been refusing for over two years to do itself. The matter-of-fact way in which France gets onto her feet an after apparent collapse is somewhat irritating to foreigners causes are who do not grasp the underlying of her conduct and inclined to see something shocking to established usage in her impulsive reversals of form. ii to The present situation goes back the Sixth of February. A ? a a tragic day and turning point. That evening Left majority was an in the Chamber giving impressive vote of confidence to the Daladier ministry. It was its first contact with it. It had done the same was with the five preceding ministries, and again all primed Council on Foreign Relations is collaborating with JSTOR to digitize, preserve, and extend access to Foreign Affairs ® www.jstor.org THE FRENCH FINANCIAL OUTLOOK 611 to overthrow the new government a few weeks later when it would have to deal with the financial problem and try to take moment war veterans were action. At that very lines of marching down the Champs Elys?es carrying their battle-flags and singing were the Marseillaise. They headed for the Pont de la Concorde were beyond which lay their goal, the Chamber of Deputies. They as young men, afraid of nothing. Unarmed they were, they were dashed upon the cordons of police that guarding the bridge. was out en The police fired. Blood shed. The people of Paris turned masse for the funerals of the victims. There were wounded be men to sides. The notion that unarmed should be ready risk their lives for an idea came as a shock, and as a decided comfort, to those who loved France but had come to doubt her. The thing that was stirring in the veterans was above all a a sentiment of outraged honesty, very powerful emotion in the French population. A fifteen million dollar "swindle" had been so on made possible, it seemed, by political complaisance the Left. A Left ministry had declared itself opposed to the usual in commission on which all would be ?vestigating parties represented the only way of guaranteeing the seriousness of the effort to fix sense responsibilities. The of national pride is strong in Paris, and on was most of its deputies sit in the Center and the Right. Paris a disgusted with the impotence of Chamber that had overturned one five governments after the other in rapid succession. Paris rose was more in wrath, and the wrath the violent because the city had been suffering severely from the dropping off in the tourist trade. a wave The Daladier ministry collapsed before of popular indignation. And the Left majority, which had broken five gov ernments now was in twenty months, itself broken. The Left had held on romantic The two majority together? largely grounds. on which it rested the Radical-Socialist and the Social parties? ist were in disagreement as to ways and means of dealing with the problems of public finance. The Radical-Socialists had been for some time shifting back and forth between the Right and the Socialists. In the general elections of May 1932 they had made the an mistake of striking alliance with the Socialists without coming to an agreement on the issue of financial reconstruction. After the Sixth of February, they abruptly deserted their allies and com to a new bined with the previous opposition make up majority of so-called National Union (it does not include the Socialists, with 130 votes, nor some 20 Communists and others). The manoeuvre 6l2 FOREIGN AFFAIRS was an made possible by calling in ex-President of France, M. same Doumergue. The thing had been done in July 1926 by call ing inM. Poincar?. The Doumergue ministry could boast the two party leaders of Right and Left, M. Tardieu and M. Herriot, both now former premiers and ministers pompously styled "without of portfolio." Marshal P?tain became Minister War. The port an folio of foreign affairs went to ex-premier, M. Louis Barthou, who away back in 1913 had met the increase in the German army with the three-year service bill. act new was to one com The first of the government appoint mission to get to the bottom of the Stavisky scandal and another to fix responsibilities for the casualties of the February riots. a While these commissions were getting to work, budget was voted a in a matter of days instead of matter of months; then the Gov ernment sent Parliament home for a two months' vacation and at axe tacked the problem of balancing the budget, plying the of executive decrees to effect reductions in public expenses, the blows war falling on office-holders, retired public officials and pensioners a case men who had been drawing $40 year in the of of 50 years of age, and $80 in the case of men above ss* The war veterans had been accounted the most dangerous, especially after their victory of February 6. M. Doumergue handled them successfully with his was smiling good-nature, and the Government strong enough to issue the decrees which reestablished budgetary equilibrium. The Socialist Party had constantly maintained that the reduc tion of public expense by cuts in the wages and pensions of gov ernment and veterans would tend to the employees augment of depression by lowering the buying power of those portions the consuming public. The C.G.T. (Conf?d?ration g?n?rale du travail), which is closely connected with the Socialist Party and counts more office-holders than workmen in its membership, a in favor of opened campaign against the executive decrees and to even a organized resistance them, making veiled threats of to a general strike in the public services force reconsideration of or them by the Government Parliament. Some disturbance of routine work actually occurred, particularly in the postal and was at telegraph departments. The Government first considerate, then more or less inclined to be harsh. The agitation came to an end once it became clear to the leaders of the government employees was and the C.G.T. that public opinion hostile to any movement of protest. THE FRENCH FINANCIALOUTLOOK 613 was are a That hostility natural enough. All producers having hard time in France, whether in the mills or on the farms. Wages have been cut to the bone in most branches of industry and a a commerce, so that miner today is being paid less than farm are laborer. The young people who graduating from school, with are to their diplomas all in order, finding places closed them. on are State employees, the other hand, drawing salaries in paper francs that are seven times larger than their wages in gold francs before the war, whereas the franc has fallen only four-fifths. The so purchasing power of money has increased during the past four years that, even with the cut of 10 percent which the decrees are were made effective, public employees better off than they were four years ago. Of this they in general aware, and they also saw that the purchasing power of their salaries would be safe guarded if the budget could be balanced and the franc saved from a new depreciation. a Once the danger of revolt in the public services had been averted, the effects of the executive decrees began to become rose manifest. On the Bourse, French government bonds rapidly a in value; and indeed continuation of that improvement would seem as to justified, for whatever one's guess the future of the as as franc, it unquestionably is solid the Dutch florin and the are Swiss franc. Now Swiss and Dutch government bonds yield ing 4 percent while the French yield 5 percent, which is another are way of saying that by comparison the French undervalued by 25 percent.