851.5151/6–1947: Telegram

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

2438. It is now apparent that there is developing in France a recurrence of both the inflationary trends and lack of public confidence in the future of its currency, so noticeable last autumn. Government emphasis in economic policy has gradually been shifting from financial [Page 717] “stabilization” under the Blum experiment to one of “retard the inflation”. Symptomatic of these developments are the following:

Continuous decline in quotations for government securities to a level so low that plans for a reconstruction flotation have been abandoned for the present.
On the other hand, there has been an active demand for investments of the inflation “pegging” type. Common shares on the Paris Bourse advanced last week by 9 per cent. The franc on the black market has fallen in the past week from 225 to 268 per dollar.

The proximate causes of the foregoing appear to be:

Government retreat on the wage stabilization front. Although it is not yet possible to measure precisely the impact on wage payments and labor costs, it appears that the government is prepared to permit increases in the neighborhood of 13–15 per cent and that it may be forced by labor organization pressures to even larger concessions.
Continued large scale treasury deficit most of which has to be covered by additional note issue which has expanded by 66 billion francs since the end of 1946.
Failure of agricultural output and food imports to meet minimum needs at reasonable prices in relation to current wages, especially in the cities.

Although it is hoped that the severe financial measures now under consideration by the Cabinet may prevent a runaway inflation, it is difficult to see how wage and price stabilization can be achieved in France until such time as the effective supply of essential consumers goods is adequate to meet the minimum needs of France’s laboring and small salaried groups.