France and the Nazi Threat: The Collapse of French Diplomacy 1932-1939 (15 page)

After this spectacular success, further steps became possible, even more so since there were indications that the Red Army and the Reichswehr had severed their military ties. The secret German “training camps” had lost their usefulness with the announcement of “equal rights.” Hitler was vigorously fighting German communism, and violently attacked international communism. Ambassador François-Poncet was closely following these developments. He carefully pointed out whatever seemed to indicate a continued special relationship: newspaper articles, the brochure written by General von Seeckt, and commercial relations (in 1932 the USSR had been “the biggest customer by far, for German industrial products.)”
¹⁰³
In May 1933, Germany ratified a 1931 protocol that renewed the non-aggression treaty of 1926. Meanwhile, François-Poncet noted how Hitler was particularly friendly to the Soviet ambassador.
¹⁰⁴

What Paris didn’t know was that the dismantling of German military installations in Moscow was going on unabated. On September 23 there was a farewell banquet just before the German officers were to leave. The atmosphere was cordial, but the break was taking place.
¹⁰⁵

Several factors contributed to the Franco-Soviet rapprochement. First was the development of commercial relations. The USSR had generally been a net creditor in its balance of payments with France (470 million in 1932). In the past, revenues from the “Russian bonds” made up for this deficit, which was mainly created by oil. Something had to be found to replace those revenues. The best way was to “create a purchasing program with France.” But this implied granting loans, and the French state could not guarantee them until the Russian debt had been resolved. This was the reason France felt it could buy Russian oil through a barter system.
¹⁰⁶
Ambassador Alphand (see below) backed granting credit since, in his opinion, the USSR, due to its state-controlled economy, was “virtually one of the best debtors in the world.”
¹⁰⁷

But personal contacts played a greater role than vague commercial efforts. On March 13, Charles Alphand was appointed as the new French ambassador to Moscow. On June 14 he presented his credentials to President Kalinin who mentioned “the extremely desirable political rapprochement,” which was in any case “in the nature of things.”
¹⁰⁸
Also, for the first time a French military attaché, appointed by Daladier on February 15, 1933, was sent to the USSR. He spoke Russian fluently and was extremely
well received.
¹⁰⁹
During a reception, Marshal Budienny, a hero of the civil war, had, while being somewhat inebriated, even kissed him on the mouth! It appears that the idea of sending a military attaché originated with an officer in Weygand’s cabinet, Lieutenant-Colonel de Lattre de Tassigny, in October 1932. This officer happened to be a friend of Ostrovski, the president of the
Société Française du Pétrole Russe
.

Closer relations crystallized during the summer of 1933. France signed a declaration that the Soviets had produced, defining the aggressor. Alphand met with Molotov, who was a member of the Politburo.
¹¹⁰
But the trips to Russia were to be the most important events.

First, Herriot repeated his 1922 gesture to visit the Soviet Union “as a private citizen and a tourist.” He took a trip in August 1933 and was given a warm welcome. N. Bulganin, president of the Moscow Soviet, invited 150 people to a banquet in his honor. During this banquet, Kaminski, president of the Moscow Regional Soviet, alluded to a possible Franco-Soviet alliance for the first time and described how vigorously the USSR was preparing for its defense. “And it is my hope,” he stated, “that we will carry out this defense together.” The entire room then burst into cries of “Vive la France!”
¹¹¹

Then Pierre Cot, the minister of air, made another important trip. He had been invited by the Soviet embassy in Paris and discussed it with Daladier on June 4, saying that the visit would give him the opportunity to create an outlet for the French aeronautics industry “in order to maintain its vital potential for national defense.”
¹¹²
The trip, which took place from September 13 to 22, was particularly fruitful. Pierre Cot traveled with General Barrès, who was the inspector of the air force, and some technicians. He was able to observe the progress made by the Soviet aeronautics industry and thought it capable in a few years of becoming two to three times stronger than Germany’s. Its equipment was “equal or slightly superior” to the French equipment in service at the time. He also noted that the USSR was detaching itself from Germany and was seeking closer ties to France. French language learning had become compulsory in Soviet military academies. Pierre Cot thought military exchanges had to be increased, Marshal Tukhachevsky should be invited to France, and an air force mission sent to Moscow. A contract for mutual industrial assistance in case of war should be drafted and, finally, the possibility of a mutual assistance pact was to be examined.
¹¹³

Other visits came later, notably that of a delegation of the scientists Jean Perrin, Paul Langevin and Paul Mazon. On the Soviet side, Litvinov
visited Paris in July 1933. He dined with Paul-Boncour, who mentioned the possibility of the USSR joining the League of Nations.

These overtures yielded two results during the period we are examining. First, in August 1933 a provisional commercial protocol was signed in Paris. France would ease the entry of Soviet merchandise by increasing its quotas and other measures. The USSR would sign contracts with French industry for 300 million francs and France would extend up to 22 months’ credit.
¹¹⁴
The time had come, wrote ambassador Alphand, to take Germany’s place. Germany had been selling about 20 billion francs’ worth of merchandise to the USSR since the Treaty of Berlin of 1926. “We must prove that we are capable of supplying machines that are as good as the German or American ones, which they think are the only ones in the world.”
¹¹⁵
As a matter of fact, the USSR asked for intensified technical aid for the navy
¹¹⁶
and the air force.
¹¹⁷
The commercial agreement itself was dated January 9, 1934.
¹¹⁸

The second result was even more important. The Soviets officially proposed that the two countries go further and contemplate a real alliance, which Paris thought was probably compatible with the Franco-Polish alliance. Alphand, who had to weigh the meaning of this rapprochement, was troubled by this possibility.
¹¹⁹
But Paul-Boncour and the Quai d’Orsay found it more and more appealing and on January 2, 1934, Soviet Ambassador Dovgalevsky told Alexis Léger that the USSR was, first, prepared to become part of the League of Nations on certain conditions; and, second, that his country wanted “an agreement for mutual defense that would include only the USSR, France, Belgium, Czechoslovakia, Poland, Lithuania, Latvia, Estonia and Finland.”
¹²⁰

Therefore, on the eve of Paul-Boncour’s departure from the Quai d’Orsay, France and the USSR had improved their relations to such a point that
the issue of an alliance had thus been raised
.

5.

T
HE
M
OVE
T
OWARD
E
CONOMIC
N
ATIONALISM

Neither Paul-Boncour, who was hardly qualified in financial matters, and not Herriot, nor Daladier, could direct France’s external economic policy, insofar as it could be “directed” to any degree. The ministers of finance in 1933, Henri Chéron, “the treasure hoarder,” and later, Georges
Bonnet, did play a role. Raymond Patenôtre, the undersecretary of state for economic affairs, also had considerable influence (except during the short Sarraut ministry)—he was the only man on the moderate left to recommend devaluation. Certainly, at the technical level, the most influential people were Wilfrid Baumgartner, the director of the
Mouvement général des fonds
at the Ministry of Finance, his assistant, and the financial attachés in London (Jacques Rueff) and in Washington (Emmanuel Mönick).

All of them wanted to develop some sort of worldwide economic cooperation. So did the key ambassadors: François-Poncet dreamt of Franco-German economic collaboration; de Jouvenel wished to privilege Franco-Italian relations; Paul Claudel wanted ties with the United States and with Belgium; Charles Corbin with England and Charles Alphand with Moscow.

And yet a kind of fateful destiny seemed to push the entire world and particularly France, into remaining isolated. The end of reparations and war debts in 1932 was just one of the signs of general disorder where every country fended for itself in seeking to apply its own methods.

A quick look at France’s balance sheet will explain how this happened. First, the balance of payments, which had been positive at the end of the twenties, became broadly negative. Taking 100 as a base number for 1928, the following chart clearly shows this change:
¹²¹

The deficit was 1.3 billion gold francs in 1929 and 2.5 billion in 1936 despite the decrease in foreign trade.

From 1927 to 1931, the balance of trade, which included “invisible exports,” had a positive yearly balance of 3 billion gold francs. Between 1932 and 1935, this positive balance turned into an average yearly deficit of 2.7 billion. France stopped paying its debts to England and the United States, and the number of foreign workers decreased sharply while income
from tourism collapsed. The revenue from “services” remained fairly stable, but the interest on funds invested in foreign countries, which had been growing until 1933, began decreasing. Also, French exports were increasingly based on foodstuffs and raw materials while manufactured goods were decreasing. French industry’s position in the international markets was steadily weakening, except for some “new” industries.

Of course it was also true that all markets were shrinking. In 1931–1932, Great Britain had put an end to its long-standing free market. We have already mentioned the huge Hawley-Smoot tariff of 1930 in the United States.

More importantly, the relative international monetary unity, with currencies tied to the gold standard, came to an end. Three national “blocs” were then formed. The gold standard bloc, including France, Italy, Switzerland, Belgium, the Netherlands, and Luxemburg, kept the parity with gold and a relatively free currency market.

The second group adopted a system of “exchange controls.” This was the Soviet system from inception. In 1931 it was adopted by Germany, followed by twenty-one other countries. When Dr. Hjalmar Schacht was named president of the Reichsbank on March 17, 1933, the system was reinforced under the pretext that it was necessary to prevent the Jews from exporting their capital. Within this system the currency can theoretically be linked to the gold standard but its market is not free and exporting it is forbidden. For instance, foreign exporters were obliged to spend the revenues from their sales inside Germany. The system allowed the state to manipulate its currency freely and, obviously, constituted a powerful check on foreign trade.

The third group was made up of the countries whose currency was off the gold standard and thus effectively devaluating it, their goal being to boost exports. The “gold-standard bloc” of countries, where prices were high, were consequently severely hurt. England abandoned the gold standard in September 1931, followed by the Commonwealth (except Canada), Japan, most of South America and Central Europe. The United States followed suit in April 1933 after Roosevelt’s election. Canada joined in at the same time.

The measures taken by France to fight against these various systems were totally
ad hoc
. Internally, France followed a policy of deflation—in order to lower prices—which is not directly relevant to our study but whose effects would eventually influence foreign policy. Deflation was a source of discontent. Chancellor Brüning’s policy of deflation in Germany
in 1930 had led to the election of 107 Nazis and increased votes for the communists; similarly, deflation in France explains the crises of February 1934 and, later the rise of the Popular Front, events that were both to weigh heavily on the country’s fate.

Externally, the various French governments resorted to taking a few classic measures:

1.
    
They began by raising import tariffs in 1931, starting with farm products; then they cancelled trade agreements and established a surtax on goods originating from countries that had devalued their currency. Finally, they set up a system of quotas.

2.
    
In order for French importers to be paid by the countries that had established exchange controls, the Paris chamber of commerce was allowed, by a decree of December 3, 1931, to create an “office of compensation” that collected the funds owed by French importers, using them to pay French exporters selling to countries with exchange controls. But, for this system to work efficiently, imports and exports to a particular country had to be matched. French importers were asked to obtain an “import permit.” Lastly, “clearance agreements” were signed in 1933 and 1934 with Hungary, Austria, Bulgaria, Greece, Yugoslavia, Turkey, Romania, some Latin-American countries, and finally, with Germany. After 1935, clearance agreements would be replaced either by “private barter agreements,” where a balance was maintained, or through “payment agreements.” From then on the central bank collected the funds instead of the “office of compensation.”