France Public Finance

The financial aspects of the French economy during the last decade can be indicated in four alternating phases which have had a double physiognomy: of relative monetary stability from 1949 to the first half of 1950 and from 1952 to 1955; of open inflation from the mid-1950s (Korean War) to the first half of 1952 and from the end of 1955 to the last months of 1958. The pauses in the inflationary process coincided with a slowdown in production and therefore with a attenuated development of demand. But even then the fear of new inflationary outbreaks continued to dominate the French monetary scene and conditioned the initiatives underway.

Initially, massive American aid in the form of grants and credits largely ensured the financing of the plans drawn up by the government authorities, especially the Monnet plan (1947-51), which, like the subsequent Hirsch plan (1954- 57), aimed at increasing production capacities and modernizing industrial structures. With the decline of these means, from 1952 onwards, the development of production could only be maintained at the price of a high deficit in the external balance of payments, which strongly affected the country’s foreign exchange reserves. In this second phase, the contribution of goods and services from abroad made it possible to carry out the planned investment programs, despite the insufficient formation of national savings.

According to zipcodesexplorer, the French experience of the decade 1948-58 presents causal analogies with that of other countries. However, it had its own characteristics that distinguish it. In the case of France, particular circumstances corroborated the expansionary trends that lasted for almost the entire year of 1958, when the other countries had already entered a new phase of economic slowdown. Among these, there are elements of a psychological nature and political and prestigious commitments, which have led the country to costly war campaigns. Furthermore, political instability has undermined the administrative efficiency of the public authorities and the possibilities of action and control of the monetary authorities. The good success of the French financial policy was finally compromised by the multiplicity of objectives proposed from time to time.

The inflationary nature of the financial means mobilized to cover public expenditure has been a driving force for which the inflationary process has been able to intensify and continue. The raising of funds on the capital market by the state and public bodies was carried out on particularly onerous terms; the particular contingencies of the market have led to the issue of special securities (indexés) anchored to the price of gold and the cost of living index. In emergencies, more than once, the central bank has had to intervene to restore the Treasury’s cash resources. Direct financing from the Bank of France with the discount of public bills and medium-term mobilizable portfolios represented a conspicuous channel for ticket outflows. The money supply (monetary circulation and sight deposits with banks) rose by approximately 3.1 times in the decade 1949-1959. At the same time, liquidity savings in the system of credit companies (banks and savings banks) increased by almost 6 times.

The most striking effects of the imbalance between supply and demand for goods and services first manifested themselves in relation to prices, but even more so, wages, which continually rose to a level equal to 2.9 times the initial one. While the rise in domestic costs has weakened the competitive capacity of French export industries, excessive domestic demand has led to serious imbalances in the balance of payments with foreign countries in recent years. These, in the most critical moment of 1957, could be faced by means of the extension of payment terms and the use of foreign credit lines (in particular from the International Monetary Fund and the European Union of payments) and this after the reserves existing currencies had already been deeply affected. In the end, the crisis in the balance of payments was overcome by drastic quantitative and qualitative control measures and by the repeated adjustment of exchange rates. This result is also linked to the change in the internal political climate, after the establishment of the Fifth Republic, and to the favorable international situation.

In the most acute phase of monetary tension, the mobilization of previously accumulated foreign exchange reserves has exercised a calming action on the prices of imported products. This effect was reinforced by the decline in commodity prices from 1956 onwards. In the period from 1954 to 1958, the deflationary influence associated with the deficit in the balance of payments moderated the pace of the inflation process and thus contributed to leaving a wider margin for real development. of production. The increase in production was therefore reflected in an increase in national income at constant prices which was greater than that achieved in the previous period. In this second period, the pace of real investment expansion has grown continuously.

With the formation of the De Gaulle government, numerous measures were adopted in the financial field in application of the exceptional powers granted by parliament. The effects of these measures were immediate and notable due to popular support for the new government and the coincidence of the depressive movement that affected the French economy from the end of 1958 to the first months of 1959. Towards the end of 1958, therefore, various measures were taken to achieve price stability and restore confidence in the franc. They concerned the reduction of the state budget deficit through an increase in tax revenues and a curtailment of social security expenses, veterans’ pensions and state subsidies for a large number of products.

As of December 29, 1958, the gold content of the franc was fixed at 0.0018 grams of fine gold, with an official parity of 493.706 francs to one US dollar. Before that date the official exchange rate had been fixed, after a series of devaluations immediately after the war, at 350 francs per dollar from September 1949 to August 1957. At this date the exchange rate was practically changed to 420 francs, except for some types of imports and exports. In October 1957 the new exchange rate was extended to all kinds of transactions, and remained in force until the time of the new devaluation at the end of 1958. According to the provisions already approved a year earlier, the franc was replaced, starting from 1 January 1960, from a new monetary unit (new franc, which is also commonly called heavy franc) which has a value corresponding to 100 old-type francs withdrawn from circulation.

France Public Finance