One more devaluation nearer to sanity
In the nineteen-fifties the French learned the hard way that there were two types of devaluation: the panic-striken, forced devaluation a chaud, carried out in the wake of a wave of anticipatory and costly (speculative fever, and the care- fully executed devaluation a froid, planned as a deliberate act of policy, carried out at a time of the government's own choosing and accompanied by the ancillary measures needed to make the most of it. Last weekend President Pom- pidou showed that he, at least. had not forgotten the lesson of the 'fifties. Choos- ing his moment when the foreign ex- change markets were in a state of torpor, half the world on holiday, and (still more important) before the impending Ger- man election had begun to recharge the magnetism of the Deutschemark, the ex- banker gave a classic demonstration of a dt%valuation a froid.
Whether he will be able to provide the necessary follow through (to borrow a phrase) remains to be seen. At least, however, his resolve and that of his ministers will have been strengthened by the object lesson so helpfully provided by the Wilson government in how not to do it. The contrast between the surgical operation of last weekend and the British djvaluation it chaud of November 1967 is so obvious that it would he unkind to labour the point, and we shall not do so. It is, nevertheless, curious that in spite of this there are those who now condemn the French for rocking the international monetary boat by devaluing when they could have borrowed from the IMF and the international bankers (through the so- called recycling mechanism) to their hearts' content. If a nation cannot decide for itself whether it wishes to borrow abroad or to pay its own way it has abdicated all control over its own affairs. However, what is not clear is whether these critics are piqued simply because France evidently does not intend to saddle herself with the economic and political burden of international indebtedness a l'anglaise, or whether they are enunciat- ing as a new moral principle that a nation has a duty to get into debt whenever it possibly can.
That France has, to a mild degree. rocked the international monetary boat— in that it has sparked off a new flurry of currency movements, with sterling, as usual, everybody's 'best sell'—is plain enough. But this is unimportant. In the first place the boat '+.: (and is) bound to get rocked much more seriously next month, when the German elections will renew speculation on a revaluation of the Deutschemark. whose continuing under- valuation (against virtually all other cur- rencies—not just the franc) is the proxi- mate cause of most of the financial in- stability in the world today. And. secondly, there is no evidence that the pound is overvalued at its present ex- change rate (except against the Deutsche- mark); and despite the popular demono- logy that holds the wicked 'speculators' responsible for all financial hardship. the fact remains that no major currency has been devalued in modern times without sound economic justification. This was certainly the case with sterling in 1%7- indeed the move was long overdue —and it was equally the case with the franc ever since the French government was forced last year to buy off the revolution that threatened it at an inflationary price.
France has also been accused of great sinfulness in failing to consult its Com- mon Market partners before changing its parity. Technically, the charge is a valid one; in practice it is absurd. So long as national currencies continue and fixed rates are the rule. the determination of a currency's parity must inevitably remain the sovereign act of a national government: and the need for absolute security makes advance international warning unwise, to say the least. It was for precisely the same reason that Ger- many, equally justifiably. omitted to con- sult het fellow-members of the HI- when she revalued the Deutschemark in 1%1.
But the Common Market's great weak- ness in the monetary field is that its whole philosophy is based on the tacit assumption of a common, single Euro- pean currency—an assumption that hears no relation either to the present or to the forseeable future—and on the belief that this can be achieved by melding the various national currencies together in a solid lump with no variation between the component parts possible. In fact. of course, economic realities mean that variations cannot he avoided, and, ironic- ally. the freer the trade in goods and capital between member states (the foundation on which the Common Market is built) the more such variations are needed.
And this failure is nowhere more apparent than in the Six's Common Agri- cultural Policy., where a system that insists on common prices through the Community has not only led to growing overproduction. but means that any change in internal exchange rates has a dramatic effect on farm output. 'thus the French devaluation would have led to a vast increase in French farmer's profits (since 1,1u prices are used in dollars) and hence in their output. had the Community not decided to impose an export tax on French agricultural produce (and a corre- sponding import subsidy) -strictly con- trary to the Common Market's own rules; while the present German government resists revaluation of the Deutschemark because this would by the same token hurt the German farmer.
Paradoxically. it is in this absurdity that the greatest prospective benefit to Britain from the franc devaluation lies. Already. before the event. the situation had become intolerable with France. for example. spending more mime\ on sup- porting its dairy industry alone than on the Algerian war at its height -- and the decision to modify it had become inevit- able. For France. the high food prices designed to protect the inefficient German farmers were imposing an impossible inflationary strain. For Germany. the financial regulations which forced the German taxpayer to finance the mount- ing food surpluses produced in the fertile plains of France were a nonsense. Mean- while. for Britain. contemplating mem- bership, the high prices threatened poli- tical odium and inflation and the financial regulations a balance of payments drain.
By throwing a further spanner in the works the French government has both increased the need for a thorough over- haul of the Common Agricultural Policy and given the Six plenty to do in achieving it before they get round to the delicate issue of talks with Britain. All that remains now is for Mr Heath to join Mr Wilson in praying for a Social Demo- crat victory in next month's German elections - -not simply because the social- ists are the party that can be counted on to revalue the Deutschemark and bring a semblance of sanity hack into the world trade and payments system, but also because as the one major party not dependent on the farmers' vote they are best placed to bring sanity to European agriculture, on which the prospects for further European unity so curiously yet so intimately depend.
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