29 NOVEMBER 1935, Page 34

, Finance.

Currency and Politics in Franc

I SHOULD fancy that the occasions have been few when political and financial crises haVe not been closely inter- twined. During the past- week the attention of the City has been closely concentrated upon the political and financial crisis in France. I say the attention of the CITY because it is probable that the community as a whole scarcely realises the important 'forces at work- in this particular crisis and their possible repercussions upon other countries. It may, for example, seem to be a matter of small interest to the man in the street whether France does or does not immediately devalue the franc, but by business men it is recognised, of course, that a devaluation of the franc would probably mean a depreciation in French currency in terms of those of other countries, and to that extent, would increase French • commercial competition with us. Nor is the political and-financial crisis in France even without • its effect upon the problem of Sanctions. It is generally 'adthitted that the application of Sanctions against Italy is only possible with the, whole-hearted co-operation of all members 'of the League. of Nations, and especially..of France. Yet M. Laval ipjist find that any course tending to estrange relations between France and Italy is difficult to pursue at a moment when he has so many domestic problems to deal with.

DEVALUATION ?

So far as the gold position of the Bank of France is concerned, there should be -no immediate need for a devaluation of the franc. It is true that gold is going out in large amounts' to the' United States, but the French holding of gold is still well in excess of the equivalent of over £900,000,000, while the proportion of gold' to the Bank's liabilities is over 74 per cent., whereas the propor- tion of the Bank of England Is more like 39 per cent. What, however, is seriously threatening the French situation,is the lack of confidence on the part of French r 4 .tseit • peop which is 6 IOW ing -1 • -in a-flight from .the franc, and it is to be feared that this lack of confidence cannot be restored merely by the recent rise in the French Bank

DEEP-ROOTED FORCES.

Moreover, there, are certain fundamental causes of the present crisis in France to which I want to refer, because they indicate the seriousness of the position, while a recognition of some' of the causes operating is useful, if only by way of warning to other countries. For years now France has suffered from Budgetaiy deficits which she seems powerless to prevent, and the problem is the more serious because the deficits, so far as may be judged at this distance, do not arise so much from inability on the parr of the French people to meet the takes and so balance the Budget, but from' consistent arid long-Continued evasion by many of those well able to meet them. This has been a problem with which successive French Govern- ments have had to contend for many years, and it would seem to arise from something inherent in the character of a large section of the Fr, eneh peopk. In the matter of loyalty to France, as represented by activities of army and navy, nothing is lacking, and, indeed, .the French people must be described, in every- thing pertaining to the defence of their. country, as intensely patriotic. • When, however, it comes to meeting the demand of the taX -gatherer, loyalty and patriotism seem to dis- appear, while it is also probable that the machinery of the French Government for the ingathering of the taxes is far less efficient than in this country. , At home we all object to high taxation and successive Governments are adjured to practise such economies as shall reduce rather than increase taxation. When once, however, the taxes have been imposed by Parliament, there are very few British citizens who would desire to evade the impost, to say nothing of the difficulty of evasion if such were desired. In France, however, the matter is apparently regarded differently, with the result that the finances of France are seriously affected and Budget equilibriums become almost impossible.

A TANGLED SITUATION.

Then, of course, the position becomes aggravated by the fact that the unsatisfactory condition of the Budget strikes a blow at the confidence of the French public, and this' loss' of confidence takes. the form of accentuating hoarding by •the French people, and I say " accentuating " because even under normal conditions hoarding is a lifelong habit of the French peasantry. Row far this hoarding and distrust may have been stimulated during recent years by certain financial and political scandals it would be difficult to say, . but, to sum uP, the serious nature of the present crisis in France'. would seem to be due to the extent to Which long-suStalned financial difficulties arising out of the causes I have „mentioned are now coinciding with acute controversies in domestic politics, thus producing all atinOsphOr&I wholly unfavourable to the 'necessary refornas which require to be introduced by the French Government if Budgets are to be balanced and confidence on the part of ,the French public is to be restored. • Failing such restoration, the City cannot but be imbued with the belief that a devaluation of the franc sooner' or later Rate to 6 per cent. •