France Public Finance

By | January 21, 2022

As early as 1914, inadequate taxation, budget deficits and fluctuating debt worries would have required drastic measures, despite the country’s financial strength. The war came with its many economic needs, which the normal budget revenues (significantly reduced following the invasion and the diminished revenue of the land tax, which was one of the main sources of income for the pre-war budget) could certainly not front, despite the introduction of new taxes and the aggravation of existing ones. The huge deficit, which in the period 1914-1919 is valued at a total of 188 billion, was covered with advances from the Bank of France to the state; by taking out long-term loans at home and abroad, and largely with the proceeds of the Bons de la défence nationale which were issued in September 1914 and whose circulation, at the end of the war, reached 60 billion. Nor could the balance of the budget be re-established in the following years, in which huge expenses were imposed on the reconstruction of the invaded lands; indeed, the establishment, in 1920, of a special budget des dépenses recouvrables (in which the expenses themselves and the war pensions were ideally compensated with the reparations that Germany would have to pay) delayed the adoption of measures to deal with the situation, and was not the least cause of the financial crisis.

According to, the requests for credit to the Bank of France and to private individuals by the state could not therefore decrease, the situation of the treasury at maturity was increasingly embarrassing, and the volume of circulation increased day by day together with the increase in prices and you change. It was only in March 1924, following the first serious exchange rate crisis, that the balance of the budget began to be prepared, and the recoverable expenditure budget was merged (which in the years 1920-25 had reached the total figure of about 75 billion) with the general state budget (which since 1922 had returned to being unique, following the reunion of the ordinary, extraordinary war and Alsace and Lorraine budgets), the limit on reconstruction loans was reduced to three billion,

However, the continuous devaluation of the franc soon neutralized the effect of these reforms, and the government was forced, also following the prolonged shortage of Germany, to borrow even more from the Bank of France and to increase the notes in circulation to in the face of maturities and current needs (circulation, from 43 billion in 1925 in fact passed to 54 in June 1926, and advances to the state correspondingly from 32 to 36 billion). A second exchange rate crisis occurred in July 1926, much more serious than in 1924, due to the combined action against the franc by foreign speculation and above all by domestic speculation. First of all, trust had to be restored and R. Poincaré’s cabinet began by not resorting to new advances from the Issuing institution to meet the deadlines of 31 July. To assure the holders of francs of his firm intention not to use them any more, it was necessary, however, to balance the balance sheet and ease the burdensome short-term commitments of the treasury (the floating debt then exceeded 90 billion). One was therefore voted on 3 August Loi de salut that it created new fiscal resources, direct and indirect, and authorized the government to provide by decree, within three years, to all the economies compatible with the good performance of public services; a series of political, judicial and administrative reforms followed, from which the economy of France was consolidated and rejuvenated. On 10 August, an autonomous fund for the management of national defense bonds and for the amortization of public debt was established (which came into operation on 10 October), with significant revenues, valued at six billion per year (net product of the tobacco monopoly, income from the new supplementary tax on the first transfers of property, goods and goodwill, fixed annuities and any budget surpluses, etc., in addition to the credit balance of the previous amortization fund), with the main function of preparing the gradual reduction of the floating debt. At the same time, with the law of 7 August, a legal status was given to the intervention of the Bank of France on the foreign exchange market, and the Bank was authorized to purchase gold and foreign currencies, and to issue in consideration notes not included in the official total of circulation. so the legal limit of circulation was essentially abolished. On 27 September the Bank was then authorized to purchase national gold and silver coins at a premium, and on 18 October it organized a real exchange service. In short, its availability of gold and foreign currencies payable on sight both inside and outside the country was such as to give it absolute command of the market,

Confidence was gradually restored, tax revenues increased and circulation decreased, due to the repayment to the Bank of part of its advances, requests for redemption of short-term bonds were overtaken by new subscriptions, the tension in exchange rates eased, and at the capital flight was followed by an accelerated repatriation and also an influx of foreign capital. The reversal of the situation, however, entailed the danger of a too rapid and strong rise in the franc and the Bank took steps to keep it within normal limits; moreover, in order to prevent the abundance of credit from producing the same effect as real inflation, attempts were made to reabsorb this potential inflation with more or less long-term investments; the loans opened by the Bank to the sellers of foreign exchange, went to the deposit banks, whose increased funds flowed in turn, in the form of short-term deposits, to the treasury, which used them to partially extinguish its debt to the Bank. With a wise financial operation, the de facto stabilization of the franc was thus achieved, which on 24 June 1928 then obtained its legal sanction. The consolidation work completed in such a short time, was then tenaciously continued, with regard to both the balance sheet and the monetary circulation, and the policy of consolidation, conversion and amortization of the public debt constantly followed, helped to strengthen the credit of the country.. However, the situation in France has undergone profound changes since 1930, in connection with the world crisis. The exodus of foreign capital and the slowdown in trade with the deficit of over 4.7 billion; nor can better forecasts be made for the financial year from April 1 to December 31, 1932. The adoption of rigorous reorganization measures is however underway, and various tax increases have already been voted on by parliament (July 16, 1932). At the same time, in order to face the critical situation of the treasury, the availability of which at the bank is very limited and which had almost reached the limit set for the issue of bonds, the government obtained, among other things, the authorization for a new issue. for 2 billion.

Budgets and public debt. – The budgets voted for the last few years (due to the particular functioning of the French financial system the final balances are approved with enormous delay) give in millions of francs:

Revenue comes almost exclusively from both indirect and direct fiscal resources; the latter, which were of minimal importance in the pre-war period, on the other hand show particular development in recent years, mainly following the introduction (1916) of the general income tax; among the former, the business tax, instituted in 1920, customs revenue and stamp duty or registration taxes are of particular importance. The largest expenditure items are those for public debt service and national defense.

The internal public debt, as of March 31, 1931, amounted to 283 billion francs, of which 228 long-term, 15.9 short-term and 39.1 floating debt. The external public debt consists of war debts with the United States and Great Britain (consolidated respectively in June 1925 and July 1926 at 4025 million dollars and 600 million pounds, to be repaid in 62 progressive annuities, which, discounted at 5%, represent on average a present value of 1681 million dollars and 227 million pounds), which as of March 31, 1931 were 3865 million dollars and 759 million pounds; and trade payables with the United States and Argentina which, on the same date, amounted to 182.6 million dollars and 5.7 million pesos.

Money and banks. – According to the law of June 1928, which stabilized the franc and brought it back on a gold basis, the monetary unit is 65.5 milligrams of gold at 900/1000 fine and its ratio with the pound is fixed at 124.2. According to the same law, the Bank of France, which has had a monopoly on the issue since 1848 (a privilege extended on 20 December 1918 for 25 years), is obliged to convert its notes into gold upon request and to hold a gold reserve. at least 35% of the total number of tickets in circulation and sight credits. As of February 12, 1932, notes in circulation amounted to 83,289 million francs and the reserve was 73,034 million.

The main banks are the Crédit foncier de France (founded in 1852), the Crédit Lyonnais (founded in 1863), the Société Générale (founded in 1864), the Comptoir National d’Escompte de Paris, the Banque de Paris et des Pays Bas, the Banque Nationale de Crédit.

France Public Finance