The Wanganui Chronicle. SATURDAY, NOVEMBER 30, 1935. THE FIGHT FOR THE FRANC

Wanganui Chronicle, Volume 79, Issue 281, 30 November 1935, Page 8

The Wanganui Chronicle. SATURDAY, NOVEMBER 30, 1935. THE FIGHT FOR THE FRANC

'p.HL ability ui i'rauee to leuiaiti on gold Ims ottcc again bci'ii challenged, and with the sudden raising' ui the bank rate another financial and political crisis has arisen which may yel seal the fate of the Laval Government and possibly cause important world currency developments. In the meantime; however, defeat for M. Laval has been averted by the failure of the l.ei'tisi parties to agree on a, combined front. Since 1932 French Governments have been trying to meet ihe crisis by Ihe orthodox methods of deflation; a reduction ut costs was lo lie effected in order to encourage new production, and a necessary part of the programme was to have balanced Budgets and to maintain the franc on the gold standard. But the economy cuts were not acceptable, and when the Flandiu Government came to office last November, the Premier announced that they had gone far enough. Henceforth Budget balance was to be achieved through economic recovery, and Government revenue would improve as the incomes of the people rose again. There was to be a little “backdoor inflation by liiiancing the Budget deficits by the issue of Treasury bills, wliieh were to be discounted by the Bank of France. But Ihe Rank of France was reluctant to fall in with this policy, and to make matters worse the anxieties oil the international situation led to an increase in the French defence vote which iitcrmised the prospetive deficit. When the survey of national finances in .May showed a dangerous drift towards increasing deficits the bank did not hesitate to raise the bank rate sharply from 2'l per cent, to 4 per cent., and then to 6 per cent, during the last week of May. when ihe French gold reserves began to flow out. 1 his policy, of course, was quitd incompatible with Al. Flaudin s previously declared objective of cheaper credit facilities and an expansionist programme. The Government, acting apparentl\ in aeeord with the Bank uf France, returned to ihe previously denounced policy of cutting Government expenditure, Inn there vas still Parliament to be reckoned with, and the members were plainly getting tired of the policy of deflation. It was in this spirit that the Chamber upset in quick succession the Cabinets of Al. J.-'landin and Al. Bouisson, when these gentlemen asked tor a free hand to reduce Government expenditure by a series ot decree laws.' The deputies were averse to such a financial dictatorship, but in -June Parliament became alarmed at the threat of a renewal of street riots. When Al. Laval approached it with liis new Cabinet, and s request for full financial powers for a limited period, they consented to a further dose bi. the economy cuts by emergency decrees, and hoped for the best. The economy campaign continued to be resisted by popular rioting and violence, in which the sinister power of the "street threatened Parliamentary Government by a resort to direct action. These Fascist I.eagues still provide a serious problem which Al. Laval says he is determined to face, but in the meantime it is the financial crisis which is engaging attention. A few weeks ago it was stated that the etwency crisis had abated, but with the outward flow of gold again well under way and the bank rate again rising, the ability of France to remain on gold is once more in question. Ihe increase of the bank rate must, of course, react very seriously on the financial plans of the Government. A low bank rate.'as an index of. and a factor in, low interest rates generally, is an essential point in the policy, as extensive debt conversion operations are in mind. M. Laval now announces that he has abandoned deflation, but this only makes the problem more difficult of solution It s mild appear that the monetary crisis is near at band.