Courtesy Reuters

The Financial Situation of France

THE French financial situation is a cause of deep anxiety not only to Frenchmen but to their neighbors and friends. What, exactly, are the difficulties in which France finds herself? What are their origins? What are the solutions?

Everybody knows that the present situation cannot continue indefinitely. But very few have the courage to face the fact that a crisis will inevitably occur unless remedial steps are taken. Politicians always have the vague hope that something unforeseen -- economic recovery or the revival of international trade -- will intervene to render painful decisions unnecessary. Self-styled financial writers, with more imagination than experience, offer all kinds of fantastic plans which obscure the stern realities. To be sure, France has known other periods in the recent past which were at least as difficult. In 1925 the task of balancing the budget appeared Herculean; the flight of capital out of the country seemed irresistible; the most absurd proposals received public credence. Yet at that time a firm determination to balance the budget was enough to restore confidence. Confidence, in the words of John Law, is merely "the certainty of being paid."

II

Two fundamental phenomena characterize the French financial situation of 1938: the flight of capital and the unbalanced budget. Any unprejudiced observer would regard the flight of capital as the result of the unbalanced budget. But not the French public or French statesmen. They are extremely loath to treat the matter so simply. Yet one has only to trace the development of each factor to realize how closely they are related.

The flight of capital from France did not begin yesterday, nor with the rise of the Popular Front to power in June 1936. It began much earlier. Ever since 1933 the Bank of France has been confronted with an outflow of gold. Measured in terms of the Poincaré franc, the Bank's gold reserves were 81.1 billion francs in 1933, 78.9 billion in 1934, 75.3 billion in 1935, 57 billion at the end of May 1936 and 50.1 billion on the eve of devaluation in September 1936.

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