The Atlantic and Its Enemies

by Norman Stone

  The November elections of 1958 proceeded in a two-stage form that greatly damaged the Left — though even now a problem emerged, that there were two conservative or right-of-centre parties, de Gaulle’s UNR with almost 200 seats, and a second group with 132. They had won under two fifths of the vote, but had two thirds of the new assembly, and were therefore not forced into unity of action. In time, this was to become a problem. The French Right was given to splitting, as some would-be stalwart, feeling slighted, would round up the out-ins against the loyalists, and even launch a new party which, by making a nuisance of itself, could menace the government’s existence. Such was the basis of the career of Valéry Giscard d’Estaing and of several others since. However, de Gaulle commanded by his presence, and there was also a distinct strategy: in effect, the old résistants stepped into the shoes of the unlovely Vichy technocrats. The first prime minister, Michel Debré, was an old résistant who in the end could not follow de Gaulle’s policy in Algeria, but who loyally carried through the first measures. It had been obvious since 1945 that inflation and protectionism went together with institutional trade union power, itself heavily under Communist influence, and the new government, installed in the summer of 1958, had a priority to change matters radically. Georges Pompidou, who had started life as a French teacher, had moved into banking and was now Debré’s chief of staff, had as much in mind, and the new finance minister was the rigid Antoine Pinay (de Gaulle did not much care for him but he did have the confidence of the financial world). His chief idea was to make the franc stable, and to dismantle the protectionism that allowed such inefficiency in French industry.

  De Gaulle had little time for economics, and saw it in terms of national confidence. Pinay was dry and prudent (he even objected to the plan being launched in his name, but was overruled by the General); the real architect of the reform was the perennially right-but-repulsive Jacques Rueff, and his priority was to stop inflation. An immediate loan was launched, successfully, and a team of experts set about the problem of the franc, recognizing that no country with self-respect could tolerate more than two zeroes on the notes. But that meant far deeper changes: the Bank of France (and the nationalized banks in general) must not go on giving preferential medium-term credit at low interest rates for industry and housing; the Treasury should just take money from the market, now that one existed. The Rueff reform took a line in financial stabilization that has been familiar since 1923, when Dr Hjalmar Schacht took it in Germany; budget decreases, tax increases, a liberalization of foreign trade and a devaluation of 15.45 per cent. It is political arithmetic, dressed up, and is currently called the ‘Washington consensus’. But the whole was accompanied by a measure that caught the world’s attention — introduction of the ‘heavy franc’, at 100 to one. Now, with a money that could be converted at will, producers were to be stimulated by competition, and this indeed was to happen: France created some world-class industrial concerns in a short time. The five socialists wanted to resign, but de Gaulle browbeat Guy Mollet into staying on patriotic grounds. The General was by now a master of television performance: he understood that ham acting was his stock-in-trade but he ‘sold’ the plans: without them, he said, ‘we would remain a backward country, perpetually between crisis and second-rateness’.

  In a descant on similar German debates as to Marshall and Erhard, the economic recovery of France divides opinion. Was it caused by the Monnet Plan, and the devastating omniscience of the great and good? Certainly, there were institutions to give a strategy to the new self-confidence. In 1962 the reputation of the Plan stood high. Intelligent technocrats had, it appeared, waved a wand, and French backwardness was no more; nuclear energy heated and lit, where coal had once been too poor in quantity and quality to do anything of the kind; there was a French bomb as well. The specialist ‘great schools’ took the best and the brightest, and trained them for the job of managing the State — the Polytechnic, a military institution, to produce engineers; the National School of Administration to produce civil servants who understood town planning or transport or energy, whereas in England their equivalents behaved with terrible obtuseness. The standards of education were still extremely high, and French technocrats of that generation were clever, sure of themselves and their mission. In 1960 they got rid of many of the clogging obstacles that dated back to the post-war experiments in socialism: France was set for a boom, for the creation of modern industries in automobiles or chemicals or food-processing. Anti-Americans might scoff at the space programme and claim that it only resulted in an unforeseen spin-off in the shape of ‘Teflon’, a new plastic used to make frying-pans ‘non-stick’. This had in fact been invented by DuPont in 1938 but was picked up by a French company, Tefal (‘aluminium’) in 1956; by 1961 that company was selling a million frying pans per month in the USA alone. There were many other such French successes: motor cars, aircraft, nuclear energy and even, at last, steel. There is an imponderable in such things: how far did the sheer matter of national morale play its part in the business recovery? To be French in de Gaulle’s early years was no longer to be part of a picturesquely backward country, and French businessmen could travel the world with a certain pride. Even the French peasants ceased to be the figures of grim fun, ‘Robespierre with twenty million heads’, as Balzac had said, a remark echoed in their own ways by Zola and Flaubert (whose parody of a minister of agriculture’s speech at a rural fete in Madame Bovary is timelessly exact).

  ‘Europe’ helped, was even ruthlessly exploited in the interests of French agriculture. The spirit of the Treaty of Rome was one thing; but from lofty considerations to economic arrangements meant months and months of detailed haggling over tariff rates on various goods. The presiding spirit was not that of Napoleon or Bismarck, who, anyway, when asked as to Europe’s identity, just said, ‘Many great nations.’ Rather, it was that of a Baron von Itzenplitz who, in the 1830s and 1840s, had led the customs union in Germany, the Zollverein , which had allowed the industry of the northern and north-western, Prussian, parts of the country to dominate the rest. Especially, agriculture was very difficult to handle. Some regions were go-ahead and mechanized, not needing anything more than a sensibly run bank with credit to offer. Others were very backward, their inhabitants only needing to go away. A policy was not agreed until 1962. A Dutchman led negotiations that produced the principles, and two further years were needed to work out the details for ‘commodity regimes’ governing grain, cattle, milk and the rest. For over three weeks at the very end, there was ‘non-stop haggling’, with two heart attacks and one nervous breakdown, until finally a crenellated machinery whirred and flailed its way off the ground, in 1962. It was called the Common Agricultural Policy (CAP), and was designed to meet the problems of the 1930s, preventing food prices from collapsing: the CAP, with most of the European Economic Community’s budget, would buy up ‘surplus’ stocks at an agreed price above the world level, and store them somewhere. There were complicated arrangements to subsidize exports and to hinder imports of cheaper food and wine.

  Critics pointed out that this would impoverish would-be sellers in poor countries with nothing else to offer. They were answered by the Lomé Convention of 1963, which offered the governments of these poor countries — essentially the old French empire — development aid. These arrangements turned out fairly badly, the development money being mainly wasted or stolen (or, on a later occasion, presented to a successor of de Gaulle’s, Giscard d’Estaing, in the form of diamonds, by a beneficiary of the Lomé loot named Jean-Bédel Bokassa, by now emperor of Central Africa). Still, the Common Agricultural Policy became one of the wheels and levers by which France, in weight second class, became a great power again. Europe was pouring money into French agriculture, and if there were protests, de Gaulle just had his people boycott European Economic Community affairs until (by the ‘Luxemburg Compromise’ of 1966) a national veto as to important matters was built into Community dealings, in place of the compromises that had been the rule up to that poin
t. For many years, little progress was made towards unity, ever closer and closer, as the makers of the Treaty of Rome had intended, and even the attempt to put the Economic Community together with the two obsolete other communities, defence and nuclear, took years of negotiation (until 1967, when the EEC became the EC).

  De Gaulle had not originally been at all enthusiastic about the Common Market, and preferred a ‘Europe of the states’. In his time the ‘construction of Europe’ was a painfully slow business, which took the absurd form of setting standards for each and every product marketed across borders (cucumbers, for instance, had to be straight so that you could fit an identical number of them into identical packages, and such matters were solemnly passed from in-tray to out-tray in Brussels). But France could not go alone. If she had seriously to offer a way forward between the world powers, she had to have allies, and Germany was the obvious candidate. This was not just a matter of political strategy. Over the Common Agricultural Policy de Gaulle had Chancellor Adenauer’s support. The German peasant also grasped. He had been an even more baneful figure in the country’s modern history: he had even torpedoed democracy. To buy his support, politicians of the Centre and Right had agreed upon tariffs that would keep out cheap foreign food, and agreed such devices as making whale-oil margarine so repulsive in colour — that of the Reichstag skirting board — that it would deter buyers and cause them to choose dearer peasant-made butter instead.

  Gaullist France profited hugely from the new partnership with West Germany. The outstanding feature of post-war Europe was of course the ‘German economic miracle’: the moonscape of 1945 had been utterly transformed. As the Treaty of Rome took effect on 1 January 1958, the various restrictions on money exchange were dismantled, and the dollar could invade any market that its owners chose. Now, the institutions that had been thought up towards the end of the war came into their own: ‘Bretton Woods’ to run world trade and foreign exchange, through the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (GATT), which regularly assembled to discuss the liberation of commercial exchange. The European Payments Union lost its function, though the Bank for International Settlements at Basle in Switzerland carried on as a sort of catch-all institution.

  Here was an enormous and essential difference with the post-war of 1919. Then, the American banking system was simply not up to a world role. But all other advanced countries had been wrecked by the Great War, and the British — with huge debts — were in no position to finance world trade as they had done in the previous century. The United States’ banking system did not even include a central bank with much power: the ‘Fed’ — or ‘Federal Reserve System’ — had been set up only in 1913, did not spread to more than a dozen of the states, and was not by any means under government control. American lending was essential but irresponsible — huge outflows one year, huge inflows another — and foreign countries had no way of responding short of putting up the barriers, as happened in the early 1930s, when world trade shrank by two thirds and strict exchange controls were brought in. But that same waywardness in the American system had also provoked a great slump in the United States, where thousands of banks went bankrupt (the trigger for the entire Depression had come when marshland in Florida, with alligators, had collapsed in price). A further pernicious element had been the exposure of Congress to lobbies, often corrupt. In 1930 these had insisted on a new tariff to make it difficult for foreign goods to enter the American market and thus be used to pay off debts. All of the then noteworthy economists had protested. They were waved aside by the Congress majority. That majority, what with the ensuing Slump and the disasters of 1945, had learned: as the Turkish proverb has it, ‘One disaster is better than a thousand pieces of advice.’ In the later 1940s, US intervention was very positive and largely logical. The golden fifties resulted.

  In 1958 the ending of exchange controls went with an extraordinary European boom; for this, the Americans could take credit. West Germany was in the lead. At the time, it was called the ‘German economic miracle’, and that was how it struck contemporaries, although the expression itself went back to a Swedish book published in 1936 about the success of Hitler’s reduction of mass unemployment in Germany. Then, too, the success was symbolized by motorways and motor cars. The ‘people’s car’, Volkswagen, had been designed then by Dr Ferdinand Porsche, who had made his reputation with a four-wheel drive that had carried artillery across mountain passes, in snow, on the Italian front. It was a small and serviceable family car, which Germans would have bought on credit if the war had not broken out. Porsche’s factories were still in existence in 1945, though the buildings had been damaged. Quite soon, they were put into service again, with the help of a British officer who expected them to turn out cars for British use. Instead, two thirds of the personnel were lengthily de-Nazified, and, when British automobile firms were asked whether they could use the design, they replied that no-one with any dignity would be seen dead in a car that looked like a large bug on wheels (an early model had been captured intact in North Africa and sent back home for comment). The British equivalent, the Morris Minor, attempted the sort of truncated grandness that characterized much of British doing in that era and cost twice as much; when they realized their mistake, in the 1960s, the designers attempted to be cute instead and were none too brilliant at that, either. They could not compete with the VW. Already in 1956 the Germans were making more cars than the British, and exporting more. The VW symbolized Germany’s recovery, with growth rates of 8 per cent and sometimes twice that figure, right into the 1960s. The Marshall Plan was widely given the credit, and certainly the atmosphere it generated — the United States to the rescue — was important in giving the Germans hope for the future (though the contribution now seems quite small: Germany had less than France or Britain, and the amount received was less than had flowed in in the early 1920s, when American bankers speculated in the then wildly inflationary Mark). The presence of energetic American businessmen backed by generals who understood something of engineering was no doubt also important, but the essential was their insistence upon intra-European trade. Already in 1952 the great German firms were back on the European scene — Mannesmann, Krupp, BASF, Hoechst, BMW, Siemens-Schuckert, their chemicals and engineered goods popular worldwide. The German recovery then rolled on, with hardly a break, for the next quarter-century, but it was only the most striking example of an overall phenomenon in Europe. France, then Italy, experienced similar ‘miracles’. With the USA and Japan, western European countries became the richest on the globe.

  The growth in foreign trade — at 6 per cent after 1948 — went faster than that of the GDP. Later on, foreign direct investment and capital mobility also rose faster. In Germany, for instance, the economy grew by two thirds between 1950 and 1958, but foreign trade nearly tripled, and exports rose from a quarter to two fifths of total output. What caused this boom in trade? Financial security mattered, of course, because the pound and the dollar had fixed parities. So did technology — much cheaper and more efficient (and uglier) ships. A sales team could travel by aircraft, and petrol was very cheap, at not even one dollar per barrel. But an important factor was the willingness to trade, to get rid of the tariffs that got in the way. The GATT was another of the post-war institutions, and in 1947 its first and most important meeting was held at Geneva. In the context of the Marshall Plan the Americans recognized that they must not stop Europe from selling in their market, and reduced their own tariffs by 35 per cent, though the previous heights had been absurd and the tariffs still remained strangely high by other standards. Overall, there were 123 agreements between trading countries, covering 45,000 different items, which corresponded to about half of world trade. There were two further GATT ‘rounds’ up to 1951, but they were less important, and mainly just confirmed what had been done. The central institution of the Marshall Plan, the OEEC, was now adapted to follow this, and changed its name to the Organization for Economic Co-operation and Devel
opment (OECD, with us still). When the European Payments Union (EPU) started, it too was an engine for liberalization. At the time, currencies were quite strictly controlled — the British could take only £25 if they went abroad, the sum being marked in their passports — and the EPU existed to convert the one into the other in a closed system. The Marshall Plan provided a loan of $350m for the basic capital, and otherwise member countries contributed according to their resources and requirements. In the fifties it was a more than qualified success and the Code of Liberalization (for trade and investment) was the enduring monument to the Marshall Plan. It was proclaimed in September 1949, after the devaluations had set up manageable exchange rates. Overall OEEC countries’ exports increased by 1.7 times between 1948 and 1955, and trade within the OEEC bloc by 2.3 times. Countries were now competing, instead of sheltering themselves from more efficient producers, and the result was, apart from other benefits, low inflation.

  West Germany was the locomotive. She became the largest market for the exports of all her western neighbours, and Italy. An export surplus might have led to inflation, as the profits returned to a domestic market, and the answer to that was to import so that domestic producers trying to increase their prices would face competition from abroad. Under Ludwig Erhard, Germany had a director pledged to liberalization there as well, even if in the short term it might harm some local producers. Erhard, like other prominent economists of that period, had learned from the Nazi era, when protection had been the rule, and Joseph Schumpeter (a brilliant economist who had once been Austrian finance minister before proceeding to a Chair at Harvard) even said that Germany in 1931 had ceased to be a capitalist country because so much was regulated by the State. An ex-NCO, thumbing through your underwear on a border, in search of paper money, said it all.