British and French Finances

February 29, 1924

Report Outline
Special Focus

The Double Budget System

By the Treaty of Versailles, Germany agreed to pay for the reconstruction of the devastated regions in France. On this basis, the French Government in 1919 adopted the system of a double budget-one for ordinary expenditures offset by ordinary revenues and a second for extraordinary expenditures., the so-called “Budget of Recoverable Expenses”, offset by eventual payments from Germany on account of reparations. Between 1919 and 1924, France raised by internal loans more than 118,000,000,000 francs for reconstruction and indemnification. During this period the ordinary Budget balanced but this result was only achieved by piling up this debit balance on the special Budget. As all sums hitherto paid by Germany to France have been applied to the maintenance of the Army of Occupation; no receipts have been coming in to offset these extraordinary expenses. The interest on this sum alone exceeds the entire French revenue before the war and it is estimated that 40,000,000,000 francs more must be raised and spent during the next three years to complete the present reconstruction programmer. In addition to these two major Budgets there are certain special Treasury accounts in which deficits of various Government monopolies are placed. General and special budgets are also subject to additions, which can be voted each month during the year and for the six months of the following year to take care of additional expenses.

The French National Debt

The beat estimates of the French National Debt indicate that it is well in excess of 400,000,000,000 francs, but this does not take into consideration the great increase in the external debt due to the recent fall of the franc and to the continually increasing accrued interest. Of the total National Debt, about 280,000,000,000 francs is internally held by French investors of all classes, the French people having shown, during and since the war, a remarkable capacity for absorbing Government loans. Since 1919 the foreign debt has remained in the accounts unchanged at 126,000,000,000 francs.

The Fall of the Franc

The sudden fall of the franc to nearly one fifth of its par value has caused deep concern to the French people and grave embarrassment to the French. Government. Although France has hitherto paid no interest on her debts to Great Britain and the United States and does therefore need to establish large Government credits abroad, the Government apparently realizes that it will no longer be able to raise the large sums necessary to meet extraordinary expenditures With the same ease as before. The confidence of the French people in their Government has been especially shaken by three things (1) The failure to fulfill the promises made by Monsieur Poincare' before entering the Ruhr that he could thereby force Germany to pay. (2) The recent rapid decline of the French franc and its failure to react quickly (3) The revelations in the Chamber of Deputies of the large scale graft which has been going on since the Armistice in the expenditure of money for the reconstruction of the devastated regions and for the indemnification of their inhabitants. The fall of the franc is variously attributed to the acknowledgment of the failure of the Ruhr policy as a practical measure, to the revelations in the Chamber of Deputies of the actual state of the finances, to speculation, and to the gradual realization by the French people and the world in general that the double budget system has presented a false picture.

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