FRANCE’S POSITION

Evening Star, Issue 20986, 28 December 1931, Page 9

FRANCE’S POSITION

HER INTERNATIONAL POWER EMPHASISED BY REGENT EVENTS . Recent events (says Mr P, J. Phillip, in the New York ‘ Times), the latest of which is the Laval visit to the United States, have emphasised the dominating position in internatoinal affairs which France has attained. This power has been achieved through the thrift of her people and an almost fantastic series of events and circumstances. To understand bow it lias happened one must go back and trace the origin of France’s present financial strength. Primarily it lies in the economical and saving habits of her people and in their enormous sense of national discipline. It is on that foundation that the present position lias been built. Without these for basis nothing that the successive Governments of France have in these past ten years accomplished would have been of great value. ADHERING TO A DOCTRINE. Secondly, in this accomplishment must be counted the wisdom of having a doctrine and sticking to it. That has been the great merit of these successive Governments, despite their many changes. There are no people of this generation, who, for the past thirteen years, have not heard, day by day, year in and year out, the tale of France’s hardships, of her burden of debt, of the insecurity of her position. That plea of poverty is at the basis of that hoard of £450,000,000 worth of gold in the vaults of the _ Bank of France. That argument of insecurity, the citing of the many invasions of France, is the origin and support of France’s immense military and naval force, which costs the taxpayer £128,000,000 a year. Thirdly must be counted an element of luck —of that kind of luck, perhaps, that men of destiny have, but of luck nevertheless. In certain circumstances the characteristics of a man or of a nation may he a liability. In others these same characteristics are an enormous asset. Because of circumstances in the years from 1919 to 1924 the French characteristics of postponing the evil day, and even their virtue of economy, contributed to disaster. Their successive Governments refused to take the political risk of imposing taxation for the payment of war. They preferred to live by borrowing, and to borrow on the belief that Germany would pay. The French people, rich for the moment in that first after-war rush of business, poured money into the Treasury, buying national defence bonds with every penny they saved. Even until 1924 all but a very few people of France seemed to suffer from the illusion that all would be well and that German payments could be counted upon. It was impossible for any foreigner or any Frenchman to try to show that it. was impossible for Germany to pay for the war and for all the borrowing which took place after the war. THE RUHR—AND AFTERWARD. The occupation of the Ruhr was the final effort of those who argued and based their policy on the belief that Germany must and would pay for it all. M. Poincare was Premier. There came the collapse of the mark. Germany, with her burden of debt, found complete bankruptcy the only way out. It was that which first shook this country. Even the Chamber of Deputies began to wonder how Prance _ was to carry the burden of debt which bad been piled up and to see the postponement of what Caillaux called “ the great penitence ” could not be much longer delayed. It was not the foreign debt which was embarrassing. The United States and England had shown they could be generous creditors. It was the immense burden of internal debt, and especially that enormous volume of # short-term national defence bonds which threatened disaster. So long as that fickle thing called “ confidence ” remained these bonds were renewed; but the evil day was only being postponed. When the country elected a Left majority in 1924, the flight from the franc began. There were in it elements of a political nature. By July, 1926, the Treasury was empty, the franc bad fallen to forty to the dollar, and the Left Government was got rid of. THE ROAD TO SUCCESS. That happened only five years ago, yet France is to-day in the position of financial dictator of Europe and copartner with the United States as its banker. In the development of that position there are elements which have never been properly estimated. One finds, however, this: That what contributed most to creating the position was exactly those same two characteristics' of national thrift and a tendency to postpone a decision which threatened to be costly. This time, however, the circumstances were different, and the result was success instead of ruin.

By his creation of a Government of National Union, by his personal reputation and the application of some elementary and some severe financial measures, Premier Poincare pegged the franc at 25 francs 50 centimes to the dollar. Every country which had an interest in preventing its large franc holdings from becoming valueless as had become German bonds, helped in the operation. • Fixing the value of the franc so low was an enormous impetus

to business, for wages and values had not been entirely readjusted. Poincare did his country one great service. He established the national sinking fund, and,_ by putting it into the Constitution with certain revenues definitely appropriated to it, he prevented that tendency to waste which has always been one of the weaknesses of the French Parliament, as of most other parliaments. Poincare’s greatest service to his country was, however, one of almost accidental character. Just as he and his predecessors between 1918 and 1924 had, with some small exceptions, postponed facing the necessity for imposing taxation and balancing the Budget honestly, Poincare postponed for nearly two years legally stabilising the franc. It is to these two years between 1926 and 1928 and to this fatal procrastination that can be attributed France’s present good fortune and something at least of the misfortunes of many other countries. ,

PREMIER’S HESITATING POLICY,

To prevent the franc , from rising above the value of 25J- to the dollar, at which it had been in fact stabilised, the Bank of France was constantly engaged during this period in selling francs abroad—that is to say, in buying dollars and sterling in New York, London, and Amsterdam. The attitude of the then Premier may he justified on many grounds. His hesitancy was perhaps due to his sympathy with his fel-low-countrymen. He belongs himself to that French middle class which had suffered most by the amputation of its savings through the fall of the franc to one-fifth of its value. He desired if possible to revalorise at a higher figure, as the Italian Government had done, to save more from the wreck, and for nearly two years he hesitated. In a book— 4 Le drame financier de 1924-28 ’ —which he published recently, Raymond Phillippe, a former director of Lazard Freres and a member of the Committee of Experts appointed by Briand and Caillaux in the dark days of 1926, whose advice was, for the most part, taken by Poincare, has described the result of this hesitation on the part of the Premier. As it has a direct bearing on the present situation of the world, this essential passage may bo quoted; SOURCE OF WORLD TROUBLE. “ During these eighteen months (between the recovery of the franc and the legal stabilisation) the Bank of France was obliged to buy 30,000,000,000 francs’ worth of dollars and pounds, and to create abroad a kind of inflation which was to be a source of trouble in world economy and indirectly in the economic situation of France. “ If th© franc had been stabilised in 1926, as the Committee of Experts asked, it is certain that the flow or foreign capital and the repatriation of French capital exported since the war would have brought into France the same accumulation of foreign credits. But an immediate corrective would have been found. Faced with this influx of capital the Bank of France would naturally have been compelled to import gold. This importation of gold would have produced a diminution of the monetary basis in th© markets of New York and London, and these places would at once have been compelled to raise their discount rate, with the result that money would have been tighter, and that would have been the best check to the excessive speculation which had begun. SHORT-TERM LOANS.

“Instead of that, what happened? The money brought to France by the speculation was put back into circulation by the Bank of France in the form of short-term loans. In this there was double profit, but, by _ permitting speculation to take place in. two or three places at the same time with the same money, a very threatening financial situation was created. During the whole of 1927 and the first six months of 1928 “ the gold point ” was no longer operative, and speculators could go wild without any attention to dividends because they had artificial resources placed at their disposal by the effects of a heedless policy. The results could not be otherwise than brutal on all markets. They came in October, 1929. It may seem to some that the connection between France’s policy, or rather hesitation, in 1926, 1927, and 1928, and the frenzy of the speculation, with its disastrous climax in New York, is strained. M. Phillippe, of course, admits that other factors were involved, and that a collapse would probably have come in 1927 if the advice of the Committee of Experts had been taken and the franc legally stabilised. But, he adds, “the effect in that case would have been as if a man had fallen out of a first-floor window.

He would have broken his leg and re-J covered in a few months. What hap*3 pened was that he fell from the seventh"' story and his life is still in danger. THIRD ACT OF THE DRAMA.It was, as M. Phillipe shows, in large, measure due to the accumlation o£ 30,000,000,000 francs’ worth of foreign! moneys and to their profitable' use onJ short-term loans that the Bank om France was able to build up its pre-*j sent dominant position. Bjr and accident France became again, and! in an incredibly short time, the second? most important financial power in thaii world. _' ■ , W© come to the third act of tha drama of France’s recovery. By cir-J cumstances and the application ofij some of her national characteristics shaj was reduced in- th© years between 1918] and 1926 nearly to ruin. Since 1926,4 in other circumstances, these sameT characteristics of thrift and hesitation] have raised her to a dominant position] of wealth. What is she going to dad with that position? We find ourselves again compelled toj take these two characteristics,into that fullest account. Since 1926 the French] people hav© increased rather than di-o minished the economies. The saving] habit has become even, more generalJ There has been a considerable curtail*] ment of expenditure by all classes, and!] it is curious to note that it is in this] richest country in Europe that the 3 standard of living has made the leasm advance since the war. There has been] some progress, some modernisation, buta there has been no development such asp there has been in England and even, 1 * in Germany. What has been most remarkable; and most disturbing has been the grow*] ing reluctance of the saving- classes to; do mor© with their money than saveA Th© French never were risky'investors,-] except in moments of national eu-1 thusiasm or when over-tempted, as iit| the days of Law and the Mississippi Company. They have had their mo-] ments of folly as marked as Wall street J But normally they prefer to hoard] rather than to invest, and at this mo-1 ment when their hoardings are so|3 needed to promote business in thou world, their tendency to hoard and to] refrain from risk has become their ruU 1 ing passion. MILLIONS OF IDLE MONEY. There is to-day in the Bank of France —and this statement is made! on the highest authority-more than] £140,000,000 of idle money saved byJ French people, who refuse to take the risk of buying any bond and of putting! their savings to any commercial pur-j pose. After having caused an indirect! inflation at home by the periodical pur-1 chase of national defence bonds, and] after having caused a kind of inflation] abroad by the purchase of short-term! loan of dollars and sterling, they arej by their economy and their timidity in] investment, causing an restriction of credit just at the .time! when an expansion of credit and tha] use of all available moneys is de-’ manded by the world at large. For this reluctance to. lend there are* f of course, many excuses. . The Frenclii people’s memory of foreign investment] is of the billions poured into Russia be-j fore th© war. Their memory of . home J investment is national defence bonds] and war loans, for which they got back! twenty cents in the dollar. It has been] by saving and by small investments that] they have reached their present posi*. tion as the money masters of Europe,; and they see no reason why they should take any risks.