WHAT BONNET FACES

Evening Post, Volume CXXIV, Issue 64, 13 September 1937, Page 4

WHAT BONNET FACES

GRAVE FISCAL TASK

RESCUING THE FRANC

Georges Bonnet, when he returns from his Ambassadorship in Washington to become the new French Finance Minister, will face a task or restoration resembling in many ways that undertaken by the late Raymond Poincare in 1926, said a Paris message lo the "New York Times" on June 22.

It may even entail revaluation o£ the; franc, for behind the political events of the last few days lies a serious financial situation that can be solved by the new Government only if it succeeds in reviving confidence both in French finances and in the future of currency.

Drastic measures will have to be taken by the Ministry now taking power if a grave collapse is to ba avoided, in the opinion ■of the bestinformed persons in financial circles here.

Several incidents in the last few days and the tone of the Bourse have given warnings of how critical the situation is. The resignations of Charles Rist and Paul Baudoin, competent and trusted experts, from the Exchange Equalisation Fund, and the withdrawal of Jacques Rueff as Director of Funds, were plain indication of the difficulties at hand.

The steady decline in rentes until 3 per cents, were down to 60 francs was another alarm signal, and gold exports at the same time were continuing.

The existence of this very critical financial situation accounts, in the opinion of many here, for the, visible weakness displayed by both- former Premier Leon Blum and his Finance Minister, Vincent Auriol, in defending their Government before the Senate.

It is evidence also that all parties, even those in the Popular Front, arcagreed that the pressing problem is now finance, and that politics can be relegated backstage. If this can be done, French finances can be restored and the real wealth of the nation brought back to the country, financial experts believe. Exchange fund low. A survey in financial circles this afternoon showed the present situation to toe as follows: The exchange equalisation fund created by the Devaluation Law last September for the defence of the franc has virtually depleted its reserves in gold and foreign currencies. , The Treasury has not sufficient resources with which to meet current expenses, and must somehow raise an extra 4,500,000,000 francs to reimburse the loan from Britain, which must be paid up by December. Under these conditions, recourse to new loans abroad and at home has become increasingly) difficult, and the only possibility of continuing appears to be some expedient to raise temporary funds to tide the nation over during the time it takes the new Government to create a feeling oi confidence.

One of these expedients that the new Government could resort to would ba a readjustment in the value of the franc.

Under existing laws the Government may, without consulting Parliament, stabilise the franc at its lower level set for the sliding scale system on which it was established by the devaluation measure. This operation would release 10,000,000,000 francs set aside for the uses cf the' Exchange Equalisation Fund and another 8,000,000,000 resulting from further devaluation. But a serious difficulty would be encountered here, because the law provides that any profits' from the Exchange Equalisation Fund must be devoted to amortisation of -the^public debt. . - '':?.'.. :■•. h,'

At the present moment the Exchange Equalisation Fund has been transformed from gold into paper francs during the process of defending the franc in the last six months. The way it operated was to change gold into sterling and then on the London market purchase francs in order to support that currency in the international markets. '■

It would now be possible to fund the purchase of more gold with these paper francs from the Bank of France, if, in the view of most of France's financial experts, the Bank of France's gold reserves had not already dwindled to a figure that approximates minimum needs in the event of war or othor emergency. NEW LAW NEEDED. It is therefore likely that the authorisation of Parliament would be necessary in order that the new Government might utilise for current needs any profits, from a new devaluation or from suppression of fhe Equalisation Fund through stabilisation. Should such a plan be followed by M. Bonnet, it (is thought here, he would have obtained assurances in the United States that France could do this without upsetting the tripartite monetary accord, and in any event the United States would facilitate as much as possible any rearrangement that gave promise of greater stability for the franc and restored confidence in French finances.

There is another possibility for raising funds ■ now under discussion, and that is for the Treasury technically to conform to the stipulation for using the equalisation fund profit for amortising the public debt by purchasing Treasury bonds with it. It would then be possible, technicians say, to use the bonds acquired to borrow on without asking Parliament's consent. Still a third proposal is for the Bank of France to make an advance of 10,000,000,000 francs to the Treasury, which can be done, in the opinion of some noted financiers, only if the bank feels confident that sound financial reforms are on the way.

The important thing is for the new Cabinet to create an atmosphere that will attract exported capital, which M. Auriol estimated- at 60,000,000,000 francs, volutarily back to France, which in reality would remain the richest country on the European Continent if its true resources had not been scared into exile. '