851.5151/1708: Telegram

The Ambassador in France (Bullitt) to the Secretary of State

176. Marchandeau in the course of a long conversation last night said that he desired to express to me officially for transmission to Secretary Morgenthau his heartiest thanks for the statement issued at the Treasury Department on January 27.11 He added that the statement of the Treasury Department had been admirable in tone and content and had been timed perfectly. It had stopped the flight from the franc. Yesterday for the first time since he had been Minister of Finance he had acquired some gold.

Marchandeau went on to say that he regarded the present Ministry as a Government of transition. It was entirely obvious that if Stalin should desire to destroy the present Ministry he could have the French Communists start a sufficient number of labor troubles to produce another flight of capital. Martssard, Minister of State at the moment, was attempting to arbitrate a dispute in the metal industries of the north which might lead to a general strike in that region and a sympathetic strike in the Paris region.

Marchandeau said he did not believe that the Communists would push matters to this extreme at the moment. There were only two regions in France in which Communist influence was still extremely strong; the northeast and the Paris suburbs. The rest of the country unquestionably was in a mood to work hard and live quietly. If the Communists should take an extreme line at the moment they would [Page 260]have the country against them and a general strike would be crushed by the army with national approval. The present Government would be replaced by a government further to the Right probably headed by Daladier.

On the other hand if the Communists should decide merely to make sufficient trouble to continue to frighten the capitalists of France they could probably produce another flight from the franc and the fall of the present Government because of financial difficulties.

Marchandeau went on to say that he wished to assure me that he personally was opposed absolutely to exchange control; that he would resist it to the end and that he would resign rather than be party to any steps leading toward exchange control.

In his opinion it was a mistake to assume that if the present Government should fall because of financial difficulties it could be succeeded by a national government under Herriot or anyone else. On the contrary it would be succeeded by a Blum government in which the Communists would participate, and the first act of such a government would be to impose exchange control.

Unless a fresh flight of capital should be provoked by Communist action or some other cause he believed the predictions that a financial crisis in France was inevitable in the month of March would [prove?] to be unfounded. In addition to the equalization fund the Treasury had 5 billion francs in gold at the Bank of France at the present time which he would not hesitate to use to defend the position of the franc. He also hoped to launch during the month of February a large financial operation which he hoped would bring in considerable resources. I asked him if he could define for me precisely what operation he envisaged. He said that he had not yet decided whether to issue a large long term loan or a short term loan; but he would much prefer one large operation rather than a series of small ones in the name of the city of Paris, the Crédit National, the Caisse des Amortissements, et cetera. He was confident that he would be able to meet the payments due the first of March without difficulty although in the end he might be obliged to give up his idea of one large operation and put through a series of small ones.

Marchandeau added that of course there was one resource to which his mind inevitably turned; that was the possibility of obtaining some sort of a large loan from the United States. He said that he was familiar with the terms of the Johnson Act; but that he believed it might be possible to float a loan in the United States which would not be in contravention of the terms of the Johnson Act but nevertheless would come finally into the hands of the French Government.

I replied that I was certain that he should put any such thought out of his mind. The Johnson Act had been intended to cover all [Page 261]loans direct or indirect from the United States to the French Government or any subdivision or any agent thereof. If it should become evident that there was a hole in the Johnson Act through which a loan might creep I was certain that the hole would be stopped at once before the loan could be floated. Any additions to the Johnson Act for this purpose would be voted overboard almost unanimously by the Senate and House of Representatives. Since this was the case it was not even worth while to discuss whether or not the American Market would be prepared to absorb a French loan at this time.

Marchandeau replied that he understood this position perfectly and in fact between ourselves, he agreed with it. He had been closely associated with Herriot12 at the moment when France had defaulted on her debt to the United States13 and he considered Johnson Act wholly justified.

In further discussion of the present political situation Marchandeau expressed the opinion that the evolution of the domestic situation would depend on the skill with which Chautemps should maneuver on one side and the Communists on the other. If Chautemps should go too far in action against the Communists the greater portion of the Socialist Party would escape from Blum’s leadership and under the leadership of Pivert would work with the Communists. If on the other hand the Communists should be too unreasonable the greater portion of the Socialist Party would follow Blum and cooperate with the Radical Socialists. He hoped that the present Government could hang on until the month of June and that it might be possible then to form a national government which would include the Blum wing of the Socialists, the Radical Socialists and the groups represented by Reynaud, Pietri and Mandel.

  1. Statement attributed to an official of the Treasury Department, at a press conference on September 27, regarding steps taken to assist France to avoid exchange control.
  2. Édouard Herriot, President of the French Council of Ministers, June 7–December 14, 1932.
  3. See note of December 14, 1932, from the French Ambassador, Foreign Relations, 1932, vol. i, p. 748.