France Public Finance Part II

France Public Finance 2

According to, the foundations of the new economic organization of the country were laid in the first two years after liberation: the nationalization of industrial activities was followed by that of the Bank of France and four large banks; welfare activities and social insurance were centralized in the Sécurité sociale; the credit control system was reorganized, with the establishment of the National Credit Council and with the extension of the functions of the Bank of France, which is now capable of exercising direct and effective control over the entire banking system. Finally, a “plan for modernization and equipment” (Monuet plan) was elaborated, in which the program for the economic reconstruction of the country was established, and a series of bodies were created for its implementation.

However, it cannot be said that in 1945 and 1946 something was done to concretely solve the immediate problems of the French economy and the result was that at the beginning of 1947 the economic and financial imbalance had worsened; prices (particularly agricultural and black market prices) continued to rise and the franc to devalue. Sources of productive savings threatened to wither as hoarding and unproductive investment in real goods spread. This made it imperative to halt the course of inflation and stabilize the purchasing power of the franc. The partial attempts made in this direction by L. Blum (January 1947) and by R. Schuman (June 1947), a plan for an organic solution to the basic problems of the French economy, substantially failed, aggravated by the political and social crisis that the country was going through, it only took place in the winter of 1947-48 with the approval of the Mayer plan which provided for simultaneous action in several directions. In fact, an increase in industrial prices was decided with the aim of re-establishing the equilibrium with agricultural prices and production costs and, consequently, also reducing the subsidies of the Treasury to public and nationalized enterprises, while at the same time the prices were freed. of numerous products, in order to allow a natural rearrangement of the system. In order to reduce the inflation gap, an “exceptional tax deduction” was approved, from which the taxpayer could free himself by subscribing to an alternative compulsory loan; with this the aim was to reduce the demand on the consumer market by absorbing the excess purchasing power; to achieve the balance between supply and demand of capital for investments, by law allocating the proceeds of the loan for reconstruction and equipment; and, finally, to reduce the state’s investment burdens. These effects, however, were largely neutralized by the granting of new wage increases. The state budget was also reorganized by establishing that ordinary expenses should have been fully covered with ordinary income, while extraordinary ones would have to be met with loans, exceptional withdrawals and self-financing without resorting to inflation. The official overvaluation of the franc has now become evident, on 27 January it was decided to devalue it (by 44%: 214 francs = 1 dollar), also establishing that for certain currencies (US dollar, Portuguese escudo, Swiss franc) different exchange rates would be applied depending on the operations to be carried out and that at the official exchange rate there was a free exchange rate (which has so far recorded higher prices than the official one: the free exchange rate with the dollar has fluctuated, for example, around 306 francs) and an average exchange rate. The opening of this partially free market, the first step towards the re-establishment of exchange rates normality, should have both favored the detestation and repatriation of French assets abroad and exports to hard currency countries, as well as allowing the formation of a expressing exchange, better than the official one and the black market one, changes in the external purchasing power of the franc. The re-establishment of the freedom of internal trade in gold served similar purposes. Finally, the exchange of 5,000 franc notes was arranged and the volume of circulation, given that the reimbursement was staggered over time according to the amount of the sums paid, contracted considerably; the amounts temporarily blocked could meanwhile be used by the Treasury to meet its most urgent needs.

This complex of measures made it possible to easily overcome the first half of 1948, during which the Treasury presented a situation of great liquidity, the advances of the Bank of France to the state contracted, circulation remained at levels significantly lower than those of principle d During the year, there was a clear trend towards stability in prices, bank deposits and underwriting of public securities resumed their upward movement. With industrial production on the rise (in 1948 the level of 1938 was exceeded) and good forecasts for the harvest, the stabilization of the French economy seemed imminent. In reality, however, the plan still lacked some essential elements: state spending had only been formally stabilized, the tax reform was postponed, the social and political situation remained unstable, nor had due emphasis been placed on the need to develop production. These deficiencies, cumulating with the natural effects of the measures envisaged in the plan (price increases resulting from the external devaluation of the franc, distrust in the currency following the exchange of 5,000 bills, etc.) and with other circumstances (growing trade balance deficits, repatriation and de-denomination of currencies to a lesser extent than expected, speculation, etc.) led to the breakdown of the balance temporarily achieved. The crisis that led to the fall of three governments has therefore opened up on questions of economic policy. In September, the new prime minister, Queuille, formulated a reorganization plan for state finances. At the same time, wage increases were granted and the credit control and restriction system was further strengthened. Finally, on October 18, the franc was aligned against currencies not admitted on the free market, for which variable exchange rates in depending on the average rate of the dollar itself (around 264 francs in October).

The state budget has thus varied since 1939.

Some statistical data of greatest interest are set out below:

The wholesale price index (1938 = 100) went from 264 in 1944 to 1791 in September 1948. Deposits with the banking system amounted to 621 billion francs as of 31 December 1947.

For the year 1948-49, ERP aid to France was fixed at 989 million dollars in direct aid and 323 million in aid under the inter-European agreements. France participates in the Monetary Fund and the International Bank with a share of $ 525 million for each of the two institutions.

France Public Finance 2