FRENCH FINANCIAL CRISIS

Evening Star, Issue 19128, 21 December 1925, Page 10

FRENCH FINANCIAL CRISIS

SOLUTION BY INDUSTRIALISTS LARGE LOAN PROPOSED, Presj A«soci»tio&—By T«legr*ph—Copyrijfht. PARIS, December 18. A plan by which the leaders of industry shall come to the rescue as a solution of the financial crisis has been submitted to M. Doumergue by the northern industrialists. It is suggested that all the French industrialists shall float a loan of ten milliard francs both at home and abroad, secured by onetenth of the business turnover ot French industry. JVL Doumerguo was touched by the oiler. The plan is already in the early stages of discussion with Ministerial quarters.—lieu ter. PLAN FAVORABLY RECEIVED. PARIS, December 19. Various important groups of French industry, including the silk and metal trades, adhere in principle to the plan of the northern industrialists who are chiefly textile, and most vulnerable to the fluctuations of the franc. _ The loan would be purely a voluntarily effort, and be launched especially in America. The proceeds will form a sinking fund for the amortisation of the public debt. It is hoped thus to avoid the necessity for the crushing new taxation proposed by the various finance Ministers and to restore confidence in French State finance in the future. The plan generally has been favorably received.—Reuter. A GLEAM OF HOPE. LONDON, December 15b The Paris correspondent of the ‘ Daily Express ’ reports that when the President ri'ccp, cl the northern industrial is Is scheme he exclaimed; “At last there is a« gleam of hope for ns.” M. Brin ml was profoundly moved, and-de-clared: “What you have proposed is going to strengthen Franco with a new force in international dealings.” Ihc initiators of the scheme insist that it will lie a voluntary national effort to save frame and .slave ofl inflation. It is French industry throwing itsell info the battle. French financiers arc now npenlv expressing their admiration of the (Icnnan decision to scrap billions of paper marks and create (lie renleiimark. which limy stigmatised at the time as (ho greatest psychological swindle ever perpetrated. The new proposal has had an immediate died on the sterling exchange. According to the newspaper ‘L’lnIransigcan!l,lm Lyons silk trade and also the metal industry will min in the effort.--A. and NCable. T!IK FUANC RECOVERS. LONDON. December 18. The franc dosed at. 12787. L rallying from LTCLo under the influence of the suggested Industrial loan. The franc in London further appreei--1 jvf.cd to I'AL 1 ,, tint subsequently it roil apsed to R’liL— -Renter.

Huav France has arrived at Iwr pvcsent parlous Ij ll u<-i:i 1 position is most lucidly ami ini crcsi ingly explained in a volunii', ‘The Financial Crisis of France,’ published in London by Macmillan and Go.. Lb!, The author, the Jlon. George Fed, has boon closely identified with the ibitish Treasury, and has jlevol.ed particular attention to the finances of Frame, lie begins his book by an assort ntn ibal, at the dale of the opening of the Great Vi ar the system of French public finance was well-night obsolete, and needed reconstruction: but that the foundations of reforms conceived in the thick ol warfare, though marred by many delects, were well and truly laid. Unfortunately, while France was being given a sound taxation system, eonversc things wore happening on the other side of the account.. In ten ycarV time, from the middle of 1914 to the jmiddle of 192-1, the internal national debt of France rose from about IF! milliards to about 278 milliards. Added to this was the external debt, which, if expressed in francs at their par gold! value, was approximately 3C milliards. -The service of the internal debt, amf also the service of about one-seventh of the external debt, was lining duly met. Even (his restricted payment. however, was already absorbing a high percentage of the reorganised and expanding revenue. This ratio may he taken as not far from 50 pier cent, lu the budget of 191.3 that ratio has been only 20 pier cent. The raising of this enormous debt bad been dictated by the necessities of the life-and-dcafh struggle, hut there were several avoidable errors which accompanied tin’s process. During the war more debt was raised than need have been, amh (next, it was issued on terms morel onerous to the State than was necessary. Thirdly, after the war was over more debt was again raised than was essential; and, lastly, the error was committed throughout of arranging the maturities of the various forms of debt in a sequence which would inevitably involve the most dangerous embarrassments in tlie near future. Precisely in the middle of those operations, and perhaps because of them, a new and startling factor entered upon the economic scene. The franc, of which the average yearly rate had been 25.13 to the £ ii. 1914, and which was still field at the rale of 20.75 to the £ |in 1918. fell thenceforward to the levels we know. What contributed mostly to the disastrous position of to-day was the extraordinary leniency adopted to taxpayers during the war years. It was from a praiseworthy motive, if, as it turned out later, a somewhat reckless one. that after the outbreak of war French taxpayers were in many cases relieved of the necessity of paying the existing taxes, the tax collectors i being instructed not to prosecute in cases where demobilisation could bo pleaded. Also, under the terms of the moratorium, proclaimed at the outbreak of war, mobilised rentjiaycrs or their families were dispensed from house rent, fanners from agricultural 1 rent, and debtors from the discharge I of debts. Again, the families of mobilised men received allowances on a gradually increasing scale, with the result that a man with a wife and three children received eventually 40.25 francs a week. This repirosented a total charge on the Slate of more than 2.500 million francs a year, or nnohiilf of the total pre-war budget. Until 1917 the French Government performed the feat, of carrying on the most expensive of all wars without requiring the French lax-payer to contribute a single penny. In 1923 the total revenue bad been a little over 5,000 million francs. For the four years ending with 1017 the average total revenue was 4.773 million francs, so that up to the opening of 1918 ilm revenue, on the average, was somewhat less than before the war. Even when the figures for 1918, when some new taxation began to toll, arc included, the average revenue up to the end of 1918 was only 5,219 million friines, only a trifle higher than the revenue for 1913. Taxation contributed practically nothing toward war expenses. The financial result, was that, whereas the total revenue of France for the live complete years. 1914-18, was 2G.098 million francs, the expenditure during that same period was 1(59,929 million francs. That vast gap of 143,831 million francs had, therefore, to be filled by borrowing in one shape or another. In fact, the whole of f lic war expenses proper wore defrayed by borrowing. The actual increase in the national debt in the live Win - years was 145 milliards, and, while tlie annual charge, for the debt in 1913 was 1,355. million francs, idle

sum had risen to 7,021 miHioDS is 1918, and, including the pension charges, to 7,093 million francs in 1919, an increase in annual as measured in francs, of about six times. The war, as far as France was concerned, was financed by borrowing as to 80 per cent, from within France, find as to 20 per cent, from outside.* In its war-timo financial operations tho Government called to its assistance the Bank of France. It was the general policy of this institution in pre-war years to keep about 70 per pent, iq specie and about 30 per cent, in loans and discounts against its liabilities in the shape of its note circulation and; deposits. By 1918 this ratio of specie to circulation and deposits had fallen! To 18.49 per cent., and at the close of 1921 to 14.80 per cent. The reason fan the change was that advances to tin# State had swollen from 3,900 million francs advanced to the Government, as at the date of the outbreak of war up to 20,000 million francs in February, 1919. The note circulation of 6,051 million francs at the outbreak of thft war had attained to 32,000 million francs in February, 1919, In that year the enormous sum of 26,000 million francs was raised by Treasury bills. By that time the amount borrowed by Treasury bills, etc,, was about 29 pcf cent, of tho total war borrowings.