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Hamburg Institute of International Economics (HWWA) (Ed.)

Article — Digitized Version French devaluation: A first step towards realignment?

Intereconomics

Suggested Citation: Hamburg Institute of International Economics (HWWA) (Ed.) (1969) : French Franc devaluation: A first step towards realignment?, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 04, Iss. 9, pp. 268-269, http://dx.doi.org/10.1007/BF02926265

This Version is available at: http://hdl.handle.net/10419/138249

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A First Step towards Realignment?

ince 1968, two main points everybody suspected was on General de Gaulle had left the S of discussion have attracted the threshold of revaluation. political stage, but this time the spotlights of the international Veritable torrents of "hot mon- Bonn found that rela- drama of the : should ey" from , but also from tions had become a burning is- the French Franc be devalued, the UK and the US, began to sue in internal German politics and the German Mark be re- pour into Germany and set up and the government could there- valued? The first of these two an international currency crisis. fore not hammer out a rational points on the agenda has been solution of the problem. wiped out overnight, when the This was the reason why the This left only one way open successors of General de Gaulle Federal Government was kept to the new masters in Paris for lowered the Franc's exchange under strong pressure in favour protecting the Franc against ir- rate. Those who are familiar of a DM revaluation at the in- resistible pressure-to make with the matter had long known ternational currency conference their own isolated attempt to of the necessity of such a step. convened to Bonn in November, 1968. The Federal Government follow the dictates of economic rationality. Necessary Devaluation stoutly refused to make the de- sired adjustment but, as a Last year's industrial strike in substitute, offered to levy an A Model of TacUcal Wisdom France, and especially in Paris, export tax on German goods The way in which this was had compelled the government and cut the turnover tax on Ger- done compels admiration. With- to make vast concessions to the many's imports, measures which out giving speculators the slight- strikers in the form of increased were eventually adopted. This est chance to cash in, the French social security benefits and behaviour had consequences government devalued the Franc higher wages, which conse- for the Franc. at a moment when almost no- quently drove the prices up. Before the Bonn conference body expected it. Advancing brought with started, and during it, ap- it a large adverse balance of pearances and general ex- German quarters, it is true, French payments, which under- pectations seemed to predict a bewailed the fact that the French mined confidence in the French simultaneous devaluation of the had neglected to preface their currency, producing a first wave Franc and revaluation of the momentous decision with the of devaluation rumours. A policy DM. However, General de Gaulle promised bilateral consultations of vigorous economic expansion, followed the Federal Republic's the Franco-German Friendship some kind of "Great Leap For- example and proclaimed the Treaty provides for, so that the ward" to evade the financial existing exchange rates as sa- Franco-German friendship was aftermath of the riots, only ad- cred and immutable. only apparently a paper pledge. ded to the burden piled up on But have the critics who voice the shoulders of an already Victory of RaUonality such complaints asked them- weakened currency. Neither the selves what further consultations outside world nor Frenchmen It is true that international would have meant in terms of themselves could believe any credits secured a brief respite the danger of indiscretion- longer that a devaluation of the to France, but monetary equilib- especially as Germany had long Franc could be avoided, in spite rium had been irretrievably lost. ago advocated such devalua- of the currency reserves hoard- In May, 1969, a new breakdown tion? The secrecy with which ed under de Gaulle. The great in international currency rela- the French government prepared flight of French capital from the tions occurred but again was its devaluation measures has country began. The longed-for not made the occasion for a been a model of such excel- haven which all flight capital was general realignment of distorted lence how such things ought to seeking was the DM, which exchange relations. It is true that be done that every government

268 INTERECONOMICS, No. 9, 1969 which might in future be forced wages and prices, except the progressively advancing on a to devalue could not do much prices for imported goods. The slippery protectionist road, which better than to emulate the French government must at any eventually will make pro-ration- French procedure. rate avoid jumping the traces, ing of production or the fixing for example, when the fore- of harvest quotas unavoidable. Difficulties of the Home Market shadowed reform of its social With advancing time, chances security programme takes place, that might once have existed It is only to be hoped that all because this would create new for revising this protectionist further steps the French govern- incentives for rising imports and policy are gradually growing ment will take in the economic for boom conditions in the home slimmer and slimmer. field will be imbued by similar market. wisdom, because the targets Overall Solution named to regain equilibrium for Farming a Separate Problem France's balance of payments, But this is not so in the field and even more so for its balance The markets for farm produce of currency relations. The sub- of trade, without a strong up- form, as usual, a special set of ject of international realignment ward drift of prices, cannot pos- problems. Prices of farm prod- of currency values, which had sibly be reached, under present ucts, as is well known, have been debased, for a while, to conditions, by simply devaluing been hitched to the US $ as a become an exclusive subject of the Franc and leaving it at that. unit of accounting in the - academic discussions at High pean Common Market. This is Table, seems to have genuine The full potential of increas- why the Franc devaluation has chances again. The Federal Re- ing French exports through cut- created confusion in the price public, for example, is by no ting the nominal equivalents of structure. means yet free of all its worries its prices will, at the first place, after devaluation by the French. French farmers, of course, not be realised since French ex- Though France is Germany's would not object to their receiv- porters and foreign importers most important trade partner, ing higher prices but this would will not pass on the full price Germany is in surplus on trad- drive up the cost of living in cut to their clients. Secondly, ing account with France to the France, which the French gov- any increase in French delivery tune of DM 6,700 mn of which, ernment intends to avoid. How volumes, even the minimum however, only 17 p.c. are deriv- this problem has been settled needed merely to stabilise the ed from straight exchanges of by the Council of Ministers of value of French exports after goods with Franc. This share the European Community is a devaluation, will be hampered is not decisively increased by textbook example for the way by the hk,' degree of utilisation adding the account Germany in which a single block of in- of Fre,'~,~ production capacities has with the entire Franc Zone. terested parties, in this case that has been prevailing during In order to redress the balance the farmers, are being granted recent months. And thirdly, of payments and trade, Germany favours at the expense of the elasticity of demand, especially will eventually have to revalue, consumers and naturally also for durable consumer goods, is whether the Federal Government the entire European Community. very limited and thus will en- likes it or not, and this would For the Common Market for farm able exports to grow only spar- be welcome support for the ef- products is now to be suspend- ingly, more so since other non- forts of the French to stabilise ed for at least two years. Dur- price-factors often have a more their economy. The present of- ing this period, the products of decisive influence than the price. ficial view in Germany that the the French farms, insofar as rate of exchange of the DM is Whether the intended cut in their marketing was regulated stabilised like the proverbial imports can be achieved, de- by Community agreement, will pends also largely on whether be untied from the former com- "rocher de " for ever and demand is sufficiently elastic mon unit of accounting, which a day, is simply untenable. If and whether prices will remain will remain in force for the re- Germany lifted the exchange stable. However, in addition to maining five EEC member coun- value of its currency, this might the direct impact of inflation on tries as a joint basis of pricing. prompt other countries to ad- French foreign trade, it is high France will thereby be compel- just the rates at which their cur- home market demand which led to react to this complicated rencies are bought and sold, must be curbed before an ex- system with a no less involved so that the "Great Currency Re- port drive can have any chance system of export taxes and im- form", a universal international of success. It will only then be port subsidies of its own. revision and correction of mu- possible to speak of a fair suc- The adjustment of the French tual currency value relations, cess of the devaluation mea- Franc's international value has which seems indispensable, sures if and when the govern- again made it blindingly clear might yet be carried through. ment succeeds in stopping the that the European Common France has set the wheel in permanent upward drift of both Market for farm products is motion, ogm./ke. INTERECONOMICS, No. 9, 1968 269