France and the Nazi Threat: The Collapse of French Diplomacy 1932-1939 (51 page)

The decision was made on September 8 following the flight of gold at a meeting in Vincent Auriol’s office, which included Baumgartner, Rueff, Mönick and the American financial attaché Cochran. A note was drafted, requesting “a real economic and monetary peace” from London and Washington. The value of the franc was to be set at a new level reflecting world pricing. “The final objective of the contracting parties was the return to the international gold-standard.”
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While the Anglo-Saxons approved of the devaluation of the franc they were not ready to reestablish a vast “gold-bloc” around the new franc. On September 10 Morgenthau made a proposal to Auriol for a simple “declaration” showing British and American commitment to helping the franc. He didn’t want a more involved statement nor a fixed exchange rate. These were the same positions at the failed London conference of 1933. Chamberlain responded only on September 14 and also rejected limiting his freedom of action to a formal agreement.

Blum, Auriol and their staff were disappointed. On September 16 they at least considered that the “statement” be a joint one signed by Roosevelt and Morgenthau, Baldwin and Chamberlain, Blum and Auriol. They encountered a British-American refusal to mention a potential parity with gold. The Americans would only go so far as to accept a de facto stabilization of the three currencies. On September 19 Roosevelt agreed to the joint statement on that basis. Chamberlain also agreed after a call from Blum at midnight of the 23rd.
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It was made public on the 25th at 8 p.m. It took two days to set up the technical requirements: a French devaluation between 24 and 32 percent and a British-American commitment of an exchange rate of 5 dollars to one pound sterling. Measures were to be established to defend the exchange rates. “It’s not an exaggeration to say that the September 25 statement was the first step toward European economic reconstruction…wasn’t the inclusion of the United States in an inter-European debate the guarantee of a return to the mid-1930s coordination between the United States and Europe?”
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The currency law of October 1, 1936, put an end to the Poincaré franc. The franc was no longer measured as being 65.6 milligrams of gold but was now between 43 and 49 milligrams. Private negotiations on gold transactions were forbidden unless specifically authorized by the Bank of France. This meant the end of convertibility. Any private citizen owning more than 200 grams of gold had to declare them to the Bank. Finally, a stabilization fund of 10 billion francs for foreign exchange was created (partly from the excess created by the reevaluation of the gold entries held by the Bank of France).
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Public opinion, used to viewing devaluation as bankruptcy, was extremely critical of that law.

Devaluation came very late and followed a whole series of statements by Vincent Auriol asserting it would not take place. It paved the way for “extraordinary business activity.”
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The index of industrial production climbed from 81 in September to 91 in December—12 percent in just three months. In December 1936 the real unemployment rate was the lowest since 1934 but, as Sauvy noted, there were seasonal adjustments correcting that number. “In point of fact not a single cabinet member, nor any decision maker was aware of that crucial index.” The fact that unemployment was being reduced was not publicized. What impressed the public were the uncorrected raw numbers and the gold losses of 449 tons or 7 billion in September, 2 billion in October, 17 billion in November, and 144 billion again in December. Price increases—12 percent from September to December—were also troubling to the public. What was not being measured was the fact that French prices, for the first time since 1931, were dropping below British prices, leading Sauvy to conclude: “Some excellent prospects were opening up for the French economy now that it had jumped over the gold fence holding it down… The only negative aspect was that no one knew what was going on; the ship had a rudder but no lookout.” Léon Blum was about to reap an extraordinary “political victory.”
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The absence of a “national accountancy” and the brutal introduction of the forty-hour law were to quickly tear the situation asunder. Industrial production reached 94 in March 1937, reversing its course after that. By June the index was back at 89. Some of these facts led Léon Blum to announce in a radio broadcast speech on February 13, 1937, that a “pause” was required.

Some top officials, Jacques Rueff in particular, were not as optimistic in retrospect as Alfred Sauvy. Rueff felt that neither exchange controls
nor another devaluation could solve the recurring crisis. He met with Léon Blum at his private residence at the Quai de Bourbon on February 6 at the request of Vincent Auriol himself. According to Rueff, capital flight was the most worrisome of all the issues that could threaten the new franc. Blum talked about the “wall of money” and was thinking about a “national union” government similar to that of Poincaré in July 1926 in order to reestablish “trust,” even though this clashed with his social beliefs. Jacques Rueff offered a much simpler explanation: the “roots of our problems are due to the huge treasury deficit.”
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The “pause” meant a return to a savings policy.

Several measures were taken to instill confidence in those holding capital funds. A statement was issued regarding the “pause” on March 5 following consultations among Léon Blum, Vincent Auriol, and Economics Minister Charles Spinasse announcing more flexible measures and savings. Regulations of private trading in gold were no longer being enforced. On March 12 a large bond for national defense was issued with a guaranteed redemption. Finally, on March 8 a management commission, “including not only competent officials but those whose prior duties and positions would be reassuring,”
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for the stabilization fund of foreign exchange was set up. Its members included the economist Charles Rist, very much a part of the business world, Paul Baudoin, the director of the Banque d’Indochine, and a top official, Jacques Rueff himself. The commission would meet every morning at the Bank of France to stem the flight of gold as best it could, stopping it temporarily at the beginning of March. But the three “commissioners” pointed out that “some easy habits of largesse going back several years had to be shed further.” On June 7 the commissioners noted that “a new and deeper depreciation of the currency” was about to take place. Rist and Baudoin resigned on June 14 and Rueff, who was a civil servant, stated that he shared his colleagues’ views. He was ready to leave the
Mouvement général des fonds
because a major disagreement with Vincent Auriol left no room for a close working relationship.
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Instead, the government fell during the night of June 20–21, 1937, when the Senate refused to vote in favor of the full financial powers it had requested to fight the crisis.

This serious episode would be discussed for a long time to come. As far as Léon Jouhaux, the secretary general of the CGT was concerned, it was “part of the criminal attempts by the underground forces of big capitalism.”
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Jacques Rueff felt this was all due to the fundamental weakness of the treasury stemming from the failure to “clean up.” On June 28 he made a proposal to the new finance minister Georges Bonnet (who returned from Washington only on the 28th where he had been ambassador) to reduce the borrowing requirements of the treasury. “In order to reach this goal there were two requirements: a truly balanced budget and the elimination from the treasury of all expenses not related to national defense.”
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Alfred Sauvy felt that the problem related entirely to production, which, while evenly spread, was being strangled by the forty-hour law. “Underground orchestra conductor,” “economic production,” “financial cleaning-up”—each one played a role. The result was the dramatic end of a great experiment.

The new cabinet headed by Chautemps was not the one to lead France out of the crisis. Georges Bonnet was a good technician but realized that the 10 billion in the foreign currency stabilization fund had evaporated and that the Bank could count on 40 billion Poincaré francs in June 1936. One of his first decisions in July 1937 was to unilaterally let the franc float on the market. This was yet another devaluation. The pound sterling went from 110.8 francs at the beginning of 1937 to 147.20 by December. Contrary to the previous devaluation, the reason it took place was not because French prices were too high. “It’s no longer the specific reviving cure but the shot in the arm giving artificial vigor for a limited time.”
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In 1937 the economy did pick up when production went from an index of 89 in June to 91.7 in December. Foreign trade provided the stimulus, but was not to be a lasting one.

The franc was devalued a third time by a decree of May 4, 1938, at the beginning of the Daladier government. As in July 1937 the French government announced “this measure in no way changes the determination of the French government to abide by the tripartite agreement.” The pound sterling reached 175 francs. “The French government assures that its policy is intended to take the franc to a level commensurate with the economic situation and not to secure any commercial advantages. The current depreciation of the French currency would be the final one.” The chancellor of the exchequer replied: “Following the agreement with the American government, the British government has concluded that France’s initiative is not incompatible with the Tripartite Agreement. That agreement therefore is valid and in force and effect.”
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One may wonder how this could be.

4.

A W
ESTERN
G
RAND
D
ESIGN
?

René Girault felt he could conclude the important article we have cited as follows:

An organic plan appears to have been set up by Anglo-American strategists in the fall of 1936; its main points were to be that the western powers were still rich and dynamic enough to “buy off the peace” from the fascist countries by offering them credits or advance payments in exchange for political and economic commitments… Was Popular Front France ready to join in? The September 1936 Tripartite Agreement was the first commitment… Once again the top financial and diplomatic officials in the bureaucracy would channel ministerial decision-making.”
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My feeling is that the real story was rather modest, shabby and far more scattered. Emmanuel Mönick may certainly have thought up such a grand design. The key position he held in London and his closeness to Washington, which he knew well, led him to conclude that it was possible for Europe to draw closer to a completely isolationist United States politically (the second Neutrality Act was passed on August 31, 1936, and the one regarding the Spanish civil war would be passed in January 1937) and economically because the huge tariffs of the Hawley-Smoot Act of 1930 and the 1934 Johnson Act denied any credit to debtors in default. A plan that would include the possible reimbursement of war debts likely to meet with American approval was an idea Mönick had consistently supported since 1932.

At first he took action unofficially and gave U.S. Ambassador William Bullitt a memo entitled “President Roosevelt and War Debts” that came to the following conclusion:

The need to take the initiative very soon in the area of the economy and finance in order to save the peace—The need for tight Anglo-Franco-American cooperation for initiative to succeed…—The need to think through the economic and financial action…that in any case must lead to negotiations and results.

Mönick informed the French government of the move and the initial reactions it prompted on December 22.
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He annotated the document, adding, “The government is well aware of the personal friendship between myself and Mr. W.C. Bullitt.”

What he did not know was that on November 24 Bullitt had sent Roosevelt a report of his conversation with some very unpleasant comments. He found there existed in Paris “a violent, nervous desire to get us involved in the next war.” This included Blum, the British ambassador, Herriot, Claudel, Geneviève Tabouis, and the French cabinet ministers. All of them “play the same phonograph record on the tune: war is unavoidable and Europe is doomed to destruction if President Roosevelt doesn’t get involved.” And Bullitt’s recommendation was to reject any “proposal based on principle.” Mönick wanted to pay Roosevelt a visit while he was at the Inter-American Conference in Buenos Aires but Bullitt discouraged him from doing so.
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On December 20 Bullitt wrote another letter to Roosevelt. He wrote that he took it upon himself to tell Delbos, Bonnet and Mönick that Roosevelt would never agree to make commitments in Europe. The only solution for peace was Franco-German reconciliation—Bullitt’s great idea since he came to France. But “for different reasons the British, Italians and Russians are all against a Franco-German rapprochement.” Enclosed with the letter was Mönick’s memorandum on the issue of debt resolution. Bullitt’s recommendation to Roosevelt was to view it with the greatest caution.
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Mönick was very optimistic in his note to the French government: “Bullitt answered me right away that he agreed with me as to the need and probability of some action for peace by President Roosevelt.” Bullitt told him that a “European peace plan implied a preliminary discussion between France and Germany.” On December 18 Bullitt stated that “Roosevelt will not address…European issues during his inaugural speech to Congress on January 2” and that “the issue of war debts was not the most important one right now.”
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To speak of a grand western plan originating with the Anglo-Saxon countries, therefore, appears to be very tenuous. Besides, the men in charge of American foreign policy, like Cordell Hull, did not even mention it. Hull believed that a “crusade for economic health”
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was required, meaning a series of multilateral agreements lowering trade barriers. Roosevelt’s great idea, which took shape in 1937 when he appointed Sumner Welles undersecretary of state, was to draw the fascists away from aggression by
offering them access to raw materials. However, the British were to reject that plan—the French were not consulted—as early as January 1938. Roosevelt himself was not too favorable to Cordell Hull’s plan.