France and the Nazi Threat: The Collapse of French Diplomacy 1932-1939 (36 page)

*
Is God French?

Chapter VII

F
RANCE
’
S
W
ORLDWIDE
E
CONOMIC
I
NTERESTS

E
ven in a system where the middle class controls practically every power center, clearly the objectives of the governments—that were the direct result of male universal suffrage—and those of business interests overlapped but did not exactly match. There appeared to be two “power centers” trying to use each other. For larger initiatives governmental power is required. Political power attempts to use, especially overseas, the influence wielded by the capitalists. But to be in power one must be elected by large groups of voters and therefore the concessions made to vast interests had to be limited, even more so because they were, contrary to myth—of “the two hundred families,” “the merchants of cannon,” “the great capitalists”—violently antagonistic among themselves and did not possess a single center.

The First World War, by using a large portion of French capital, made the display of economic imperialism abroad even less effective. France had lost a large portion of its credit and foreign investments. She was in a new world where tangible pre-war realities were shattered. This was true for every economic instrument: the currency, the budget, and foreign investments.

The franc, which had been taken off the gold standard in 1914, had only been de facto stabilized in 1926 and legally in the spring of 1928. The coming of the world crisis gave the monetary issue an entirely new and hitherto unknown dimension. The positive balanced budgets prior to 1914 covered a huge permanent deficit in the trade balance. Without having solved the export issue the revenues were being whittled away. About two-thirds of all investments and placements had been lost, encouraging a very cautious public to remain extremely fearful. The one hope was the Empire, which was under political and military control. A rather considerable source of disillusionment!

Yet foreign affairs had never been so pressured by economic matters. With war debt, reparations and all types of intercountry debt, there was a need for new staff that would be capable of holding the most technical kinds of discussions. Relations between the Quai d’Orsay and the ministries of finance and commerce were bound to increase. Young treasury officials and a few other specialists were promoted to prestigious positions and part of the country’s fate would be in their hands if the politicians, tied to tradition and an all-powerful Parliament that was not well informed, did not constantly act to hold them back.

This was the great revamping of the diplomatic service that was just beginning. After the war, with the economic crisis it would cause a lot of confusion and a terrible incoherence.

1.

T
HE
“G
OLD
-B
LOC
”

Currency, one of the state’s main attributes, can be used as a powerful weapon by the government in its foreign relations. The French were accustomed, since Controller General Orry in 1735 and even more since the establishment of the franc-germinal, to the great stability of their national currency that had lasted up to 1914, and felt that the franc should be tied to the gold standard; they had failed to understand its weakness resulting from the war. Just like Poincaré, they were looking for a return to normalcy after the war. As Sauvy wrote, “The era of the gold standard” looked more like a “golden age.”
¹
Churchill had been successful in England where the sterling had been restored in 1923 to its parity with
gold, as it was prior to 1914. When the Poincaré franc returned to the gold standard in 1928 at only one-quarter and one-half of its traditional value it was felt to be the equivalent of bankruptcy, which may have been inevitable, but was painful and seen as a form of theft. The French loved gold; they hoarded it in private and considered the gold reserves of the Bank of France to be extremely important. We should add that Keynes was the author of a much more relativist theory, and was known to the French only because of his small book published in 1919,
The Economic Consequences of the Peace
, which that they viewed as a Gallophobic pamphlet and the expression of the worst aspects of “perfidious Albion.” Very few specialists showed any interest in his broader economic theories. Even at the political level the French view of monetary issues was extremely rudimentary.

England’s decision to devaluate in September 1931, allowing the sterling to float, was viewed with amazement. With Roosevelt’s election there was the hope of compelling the British into a stabilization when the new American devaluation had distressed the French people. The failure of the London conference proved that parity with gold could not be reinstated for all world currencies. Those who had neither devalued nor imposed exchange controls should at least stick together. Faced with monetary chaos, France, Belgium, the Netherlands, Switzerland, and Italy called themselves gold-bloc countries followed with interest by Poland. Georges Bonnet, who was finance minister from January 31, 1933 to January 21, 1934, considered himself its originator.
²

As France enjoyed increased production from mid-1932 until June 1933 (the industrial production index at 100 in 1929 had fallen to 77 in June 1932 and was back up to 91 by June 1933) and a decrease in unemployment—the indicator most sensitive in the eyes of public opinion—the establishment of the gold-bloc was apparently ushering a return to prosperity.

However, starting in the summer of 1933, the trend was reversed in all gold-bloc countries while British industrial production rose by 10%. The reasons for the relapse appeared to be coming from abroad and not from within.
³
By January 1934 the industrial production index was at 79.5 and unemployment was on the rise. The French governments, those of 1933 as well as the Doumergue government in 1934, were well aware that French prices were too high but they only considered internal methods to bring them down. This was the “deflationary” action, consisting of multiple measures to reduce the cost of goods. This affected salaries,
pensions, taxes on prices, and even discouraged manufacturers from buying new machinery. The government unanimously rejected the external cure consisting in a devaluation to lower French costs to the same levels as the British and seriously stimulate lagging exports.

Yet in 1934 and 1935 there would be a lively dispute having direct bearing on certain issues that interest us directly.
⁴
Paul Reynaud was the main supporter of devaluation in France. He wrote in his memoirs that the idea came to him at the beginning of 1933.
⁵
If this is the case he didn’t show it because for part of 1934 he preached deflation and budgetary restraints along with most of the right.
⁶
Not only in 1933 but in his first speech of 1934 on February 20, he simply explained the deflation-devaluation dilemma without taking a position for the latter. He felt that devaluation, “the fashionable solution,” would mean yet another amputation of national wealth.
⁷

He became a convert during his second speech on June 28. It probably happened once he took stock of the then unfavorable economic situation. It took a lot of courage on his part. Germain-Martin, the finance minister in the Doumergue government, had made an impression by condemning this Anglo-Saxon and therefore suspicious method. The entire right-wing press approved that line of thinking. On the left the communists and the radicals were against devaluation. The socialists—Léon Blum, Vincent Auriol—were less adamant. According to them, the crisis was a product of the capitalist system: “Devaluation is a capitalist illness.” But should it be definitively excluded?
⁸
As for the great economists of the day—Charles Rist, Roger Nathan, Jean Meynial, Robert Wolf, René Courtin, Gaëtan Pirou—they were all silent on the issue of the discrepancy between French and foreign prices.
⁹

On June 28, 1934, Paul Reynaud acknowledged that the crisis was worsening for the gold-bloc countries, while economic improvement was taking place in the thirty-five countries that had devalued. French prices, “dragged down” inside the country, were too high in gold-francs overseas compared to world prices. The result was a contradictory government effort to attempt to get prices to rise internally while lowering them abroad. This absurd situation could one day bring about a French devaluation “not by choice but rather forced upon us, an operation that wouldn’t take place gradually but under duress.”

The speech came unexpectedly and provoked all kinds of attacks by the right-wing press.
L’Action Française
, which had always hated Paul Reynaud, was happy to have a new reason to hurl insults at him. The
“devaluator” was generally described as a false prophet. Some showed “indignant surprise.” “He has,” wrote Lucien Romier in
Le Figaro
, “seriously damaged the Doumergue cabinet’s financial policy and undermined or at least negatively affected France’s monetary position.”
¹⁰
Le Temps
wrote that it was “a call for an easy artificial monetary policy.”
¹¹
“The devaluators must be viewed as defeatists.”
¹²
. It was equivalent to treason for a man of the right to make such statements. Devaluation “would end up ruining our middle class.”
¹³
Mr. Paul Reynaud “appears to have bought into the theories of Mr. Keynes and Mr. Roosevelt’s brain trust.”
¹⁴

This condemnation, backed by most business leaders (C.J. Gignoux, Duchemin, Fougère, Citroën, Lambert-Ribot, Peyerimhoff) and Joseph Caillaux, Doumergue, Germain-Martin, Pierre-Etienne Flandin, the press and its experts, the chambers of commerce, the council of regents of the Bank of France with the “duumvirate Wendel-Rothschild”
¹⁵
and Governor Jean Tannery—basically all of France’s experts and semi-experts and “interests”—is somewhat surprising since it always discussed France but never brought up the gold-bloc.
¹⁶

Interestingly enough, there was a rather weak attempt to strengthen the solidarity among countries committed to the gold bloc. Perhaps international solidarity could provide solutions to the consequences of an excessively rigid policy. In April 1934 the French chamber of commerce in Lausanne informed the ministry of foreign affairs of the creation of a “committee for the economic strengthening of the gold-bloc.”
¹⁷
The Marseille chamber of commerce joined it on July 12, followed by many other organizations. The committee was followed on October 15 by a “grouping of economic organizations favoring an understanding among gold-bloc countries” led by Eugène Fougère who had long been president of the National Association for Economic Expansion and was a republican deputy elected in the Loire department. There were three Belgian organizations that also joined as well as two Italians, two Dutch, two Swiss and seven French that were the most important ones.
¹⁸

This was an opportunity to exert enormous pressure on the government and, in fact, the minister of commerce and industry, Lamoureux, agreed with the Belgians on September 24 and 25 to invite a commission of experts to meet in Brussels. The six gold-bloc countries and their colonies did, after all, represent 24% of world trade, with 36% of gold reserves, and 250 million consumers. Wouldn’t it be possible to transform this “monetary bloc” into an “economic bloc”?
¹⁹

A meeting of the delegates of the gold-bloc countries was held in Switzerland on September 24 and 25, where it was decided to set up a “permanent commission.”
²⁰
On the French side on September 29, Bonnefous-Craponne, head of commercial agreements at the ministry of commerce; de la Baume, deputy director of commercial relations at the Quai d’Orsay; Devinat, head of the office of compensation, and several top officials from finance, agriculture and mining prepared the meeting of the permanent commission. It was necessary, through multilateral agreements, to increase trade among the six countries. A decision was made for the French delegation to be headed by Lamoureux, along with Bonnefous-Craponne, Robert Coulondre, deputy director of commercial affairs at the Quai d’Orsay; Jacques Rueff, deputy director of the
Mouvement Général des Fonds
; Billet, deputy director at the ministry of agriculture; and Lynman, inspector general of the highway department.
²¹

There were high expectations in France. “
The creation of this common commercial entity is a new and essential event in the history of Europe’s economic organization.
”
²²
[Emphasis added.]

The commission met in Brussels on October 19 and 20. It set up subcommittees for commercial propaganda, tourism and transportation that met in November.

The results were extremely disappointing. Besides a few agreements on tourism and customs, the only decision was to offer a ten percent increase in trade among member countries.
²³
But this remained wishful thinking. No one wanted to increase the import quotas awarded to the other participants. On January 29, 1935, Marchandeau, the new minister of commerce and industry, wrote to Laval, the minister of foreign affairs, that he did not favor preferential tariffs to the other bloc countries.
²⁴
The permanent commission was indeed created and was supposed to meet again in March 1935 but no one believed in it. “It doesn’t appear,” wrote the deputy director of political and commercial affairs, “that this diplomatic activity has yielded any substantial results.”

French ambassadors and ministers overseas sent in their impressions regarding this issue. Only the British were pleased: “Great Britain is very much interested to see the gold-bloc continue, since British exporters and industry now have an advantage over their French, Belgian, and Dutch competitors.”
²⁵