Couve and the avalanche
FRANCE MARC ULLMANN
Paris, Wednesday-:--General de Gaulle has found it easier to retain the votes of his fellow countrymen than their banknotes. Since the May 'troubles' around $3,000 million of French capital has left the country; an all-time record for a six-month period. This represents about half the total central reserves (including the automatic drawing rights on the a4 F). By Friday of last week the flight had become a panic. At the German frontier one single foreign exchange bureau did more than half a million dollars' business in the morning alone. The wildest stories gained credence on the Bourse, where people were prepared to give chapter and verse concerning the companies which had shipped off the whole of their liquid assets. The net loss in four days is put at $500 million.
At first sight it is all rather surprising. For the economy has recovered from the May crisis with far less trouble than even the most optimistic pundits forecast. Notwithstanding the loss of 730 million working hours the national product is now expected to be 3+ per cent up on 1967. Order books have never been longer, or stocks lower. The overseas trade returns have been far from catastrophic, with the October figures showing only a marginal real deficit.
Admittedly once the seasonal corrections have been made, and proper allowance given to the forthcoming winter import boom, there is no doubt France is heading into the red. But the deficit in a full year is not going to add up to more than $500 million : a drop in the ocean compared with what has been going out in recent weeks. So the problem comes down to a matter of confidence.
Last Friday General de Gaulle received some of the deputies. 'The bill for the month of May,' he told them, 'is bigger than we thought.' In other words he ascribes the flight of capital to uncertainties about the possibility of future conflict in the factories and in industry. He may be right: but this is not the whole story. There is also a frightening series of ministerial bungles to allow for.
The first of these was the appointment of M Ortoli as Minister of Finance. M Ortoli at forty-three is by universal consent one of the outstanding civil servants of his generation. When he was appointed Minister of Supply in 1966 he proved he was also capable of running a department. But that was a job for a technician : the Ministry of Finance requires psychology.
One may say what one likes about politicians, but they have one special qualification. Each weekend they have to visit their constituencies. When M Antoine Pinay was Finance Minister he made it a golden rule to defer vital decisions until Mondays. On Sundays he was always busy making the rounds in Saint Chamond, the small town he represented in western France, talking to the bank manager, the post- man, the butcher. M Ortoli has no such obliga- tions. Worse still, neither has M Couve de Murville. In splendid isolation behind their filing cabinets, Prime Minister and Finance Minister did not realise what was happening in the country. They failed to understand that the small savers were more alarmed than the workers: that the franc was threatened, not from the left, but from the right. They started an investigation into the case for a capital le% y. It did not get very far: but the news that it was under consideration leaked out. They in- creased the progressive nature of direct taxation. Fair enough, perhaps: but hardly calculated to appeal to all sorts and conditions of men. They increased death duties : a modest measure, but it created an uproar. A recent public opinion poll shows that even the com- munist voters believe in inheritance.
Then, last month, M Couve de Mund Ile decided to lift exchange controls once more. It was bad luck, no doubt, that this happened to coincide with an intensification of specula- tion about the revaluation of the mark. But the result was that the flight of capital, instead of being reversed, gathered momentum. By 12 November things were sufficiently alarming for the Prime Minister, the Finance Minister and the Governor of the Bank of France to receive an urgent call to the Elysee Palace. This meet- ing resulted in a I per cent rise in Bank rate, to 6 per cent. Once again, a classical psycho- logical error. The small investor, who up to then had stood aside from the general stampede, immediately decided the time had come to join in. The weekly rate of capital exports quin- tupled.
Nobody quite understood why the decision to raise Bank rate was taken in such a hurry. One minister—and by no means the least di- rectly concerned—was first informed by a journalist in the course of a parliamentary sitting. Perhaps M Couve de Murville was counting on a change in the Deutschemark parity over the weekend. Or perhaps he simply lost his head.
But the result was wholly predictable. M Brunet of the Bank of France, like Sir Leslie O'Brien before him, had to take the penitent's road to Basle. France, like Britain, is to endure a touch of the hair shirt.
M Couve de Murville's broadcast on Tues- day evening hardly improved matters. He sounded bored and boring, yet at the same time the reaction of the small investor tended to be 'things must be bad if he makes a face like that.' So once again conviction was lacking.
Now one thing is sure. Neither the Prime Minister nor the Minister of Finance has any wish to see a devaluation of the franc. For them at least it is not a question of Gaullist pride or prestige. It is, quite simply, the con- viction that at the present time a devaluation would fail. The budgetary deficit exceeds £1,000 million, retail prices are going up by 0.7 per cent per month, and the unions are in no mood for wage discipline. As to the capital- ists, their anxieties are political rather than economic in origin, and they will not be assuaged by a change in the parity. So the government has decided to put its back to the wall and fight. Fight until either confidence returns or until a general realignment of exchange rates becomes a practical possi- bility. The feeling in Paris at the time of writing was that the Germans might be ready to up- value the mark in the spring as part of a political bargain with Mr Nixon (possibly involving new commitments regarding the stationing of American troops in Germany); but that they would resolutely refuse to do so before then. So the French government wants to have piece of the action when that time comes. But whether events will wait until the spring is another matter. The finance ministers met in Bon° on Wednesday amidst growing rumours that the eventual outcome of their talks would be a devaluation of the franc, the pound and most other currencies against gold, the Deutschemark, and— it is assumed—the dollar.
Meanwhile the government will have its work cut out. The Gaullist parliamentary party is itself deeply divided and shaken. The Foreign Minister, M Debre, continues to preach détente with the East, while the secretary-general of the Gaullists, M Jacques Baumel, is calling for a return to Atlantic solidarity. M Edgar Faure, the Education Minister, wants to turn the other cheek to rebellious students, while M Marcellin, the Minister of the Interior, preaches law and order to the National Assembly. By all accounts last week's cabinet meeting was more than turbulent, with the General seething and Couve de Murville watching in icy detach- ment.
Such is the drama of M Couve de Murville's daily existence. He believed that expansion would heal the wounds of May. He failed to allow for a flight of capital. He believed that his personal style as one who was 'above politics' would be a trump card. Instead he has found that the Gaullists in Parliament, in spite —or perhaps because—of the scale of their electoral triumph, need a leader. He thought he could charm the unions with legislation designed to bring industrial democracy, and the employers with demonstrations of his liberal orthodoxy : but unfortunately each focused on the wrong side of the medal. He hoped to calm the students with university reform while re- assuring the ordinary electors with warnings about the maintenance of order. He overlooked the traditional instability of his countrymen, who are always ready to criticise and rarely willing to rally round.
Now he faces his hours of trial. De Gaulle finally brought the May explosion under control. It is up to Couve de Murville to shore up the November landslip.
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