EUROPE FIGHTS INFLATION

Press, Volume LXXXIII, Issue 25090, 23 January 1947, Page 3

EUROPE FIGHTS INFLATION

VARYING SUCCESS OF COUNTRIES CHECK ON SPIRALLING PRICES / (From Our Own Correspondent.) / NEW YORK, January 14 Inflation is Europe’s most durable economic problem. Last year the struggle against the now familiar rising spiral of prices and wages dominated the public life of Allies and enemies alike, writes Michael Hoffman in a dispatch to the “New York' Times’’ from London. Yet not all European currencies deserve to be dismissed as “worthless” by those who live in the world of the dollar. There are “hard” and “soft” currencies and some called soft are much firmer than others. The Swiss franc is harder—and harder to get than the United States dollar. Even currency as weak as the French franc has struggled through the year better than most speculators thought' it would.

The only really hard currencies in Europe are the Swiss franc and Swedish krona. That is not to say that Sweden and Switzerland do not have their inflation problems. But the demand for their currencies from outside is very much greater than can be satisfied by amounts their respective monetary authorities will permit outsiders to have. Their hard currencies reflect the fact that Sweden and Switzerland are little islands of wealth in the midst of poverty-stricken Europe and all their neighbours keep trying to buy means to command a share of such riches.

Well-Managed Currencies The British pound, Belgian franc, Netherlands guilder, Danish and Norwegian kroner and probably the Czechoslovak crown fall in the middle group of currencies. They are not hard in the sense that they are in short supply for the world as a whole. They are. however, well-managed currencies that perform their functions of serving as a standard of value and medium of exchange efficiently within their areas, and are willingly accepted by foreigners within reasonable limits in settlement of international debts. The rest of Europe’s currencies are either definitely soft or simple empty shells. Germany, for instance, can hardly be said to have currency now, as the mark has no international value and is practically useless as a medium of exchange even within Germany. Even now, however, it is possible to see that, faced with similar problems of shortage of all goods, destruction of i wealth, and breakdown of administraI tion, some countries have done better than others. Belgium and Czechoslovakia, to take two outstanding cases, now have monetary systems that do what they are supposed to do —provide standards of value and medium of exchange that people use and respect. Why have they succeeded, provisionally at least, where France, seems to have failed? Political Position Some say French inflation is just a reflection of the political instability of the country. Yet Belgium put through a drastic programme of .monetary reform during the months when her Government w r as less stable than France’s then was, and the country was divided by the question of King Leopold’s status. Belgium’s Governments have, by modern European standards, been rather to the Right; Czechoslovakia veers to the Left. Both Czechoslovakia and Belgium are inherently less free than France to control their own moneys because of the greater dependence on foreign trade. The outstanding fact about Belgian and Czechoslovak experience is that at the earliest possible date after the liberation the Governments of these countries took drastic steps'to absorb excess German-created purchasing power and imposed rigorous fiscal controls. The French did not do so, and that is the main difference in the events leading up to the present contrasting situations. Norway, Hungary, and to a lesser extent Denmark and Finland have followed the Belgian pattern, which ironically was modelled on a French plan worked out in detail under the direction of Mr Pierre Mendes, Finance Minister of the French Committee of National Liberation in Algiers, with varying degrees of success. While they have all got many economic headaches, their moneys are all performing functions efficiently. Hardship in Italy « Some countries have faced nearly an impossible task. Monetary techniques can perhaps solve monetary problems, but they cannot create something out of nothing. Italy exhibits all the characteristics of modern inflation—plenty of luxury goods in shops, little available at controlled prices, energies of- the population diverted into frantic black market scramble, and steady rotation of Finance Ministers.

This year the nations of western Europe are looking hopefully to two factors to aid in battle. The first is the increase in world supplies of basic necessaries, notably wheat, the steady flow of which will do more than anything else to reverse the price trend. Not less important, easier supply conditions will make existing and new monetary controls much more efficacious.

Second, Europe is looking to the International Monetary Fund to reduce if not eliminate chaos in foreign exchange relationships that multiplies difficulties of hard-pressed national finance authorities. Many experts believe that the greatest single advantage this generation has over the last in fighting post-war inflation is that within little more than a year, instead of six years as before, the pattern of exchange rates has been set by agreement.