The French Financial Dilemma

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AT THE moment when hostilities ended and France was completely liberated, the new French Government headed by General de Gaulle faced a singularly grave financial situation. This can be pictured by a few statistics. The daily indemnity paid to the Germans during the occupation, first amounting to 300 million and finally to 500 million francs, had increased the bank note circulation from 142 to 572 billions. The level of official prices, taking 1938 as the basis for comparison, had risen from 102 to 276; but the real level, reflected by black-market prices, had approximately quadrupled. Expenditures in the 1945 budget reached 512 billions (not including 88 billions outside the budget), while receipts amounted to 207 billions -- whence could be foreseen a deficit of about 300 billions.

These figures evoked a double problem, at once monetary and financial. Was it feasible then and there to fix on an acceptable rate of exchange for the franc with the pound and the dollar, from which it had been cut off for five years? Secondly, could budgetary expenditures and receipts be balanced while the foundations of the French economy were shattered? -- while the railways, bridges and roads remained partly destroyed and the system of electrical production and distribution was in chaos; when coal output was reduced by half; when automobile production and repair had not functioned for five years; when there was a dearth of gasoline; and when foreign trade was practically suspended, which meant that the only way to pay for imports was to draw on the reserves of the Bank of France?

Budgetary problems, monetary problems and problems of reconstruction thus loomed up at the same time and inextricably intermingled. It is hardly surprising that at the outset proposed solutions were hesitant and uncertain. However, one fact seemed obvious and dominated all the others: the systematic inflation organized by the Germans had to be stopped as soon as possible. The military and administrative expenses of the state must be reduced and efforts concentrated on reconstruction. Thrift must be encouraged and bounds set to the rise of prices...