France Restored: Cold War Diplomacy and the Quest for Leadership in Europe, 1944-1954 (14 page)

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Authors: William I. Hitchcock

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prospect of future negotiations on the Ruhr meant that France must retain as many bargaining chips as possible. To agree to zonal fusion now, without the certainty of concessions in return, would only allow the Anglo-Americans to create the central institutions that France had opposed all along. Moreover, zonal fusion risked antagonizing the Soviets and left Bidault open to further criticisms from the PCF and the Socialists that he was contributing to the American policy of dividing Europe. Bidault, who had enjoyed some success in playing a double game between the Americans and the Soviets, accepted the argument that France could exert more influence on occupation policy by keeping the French zone independent of the bizone than if the three zones were fused. This line of reasoning, though not without critics, prevailed in the Quai d'Orsay and was reflected in instructions to General Koenig, the zonal commander, to abstain from any but the most limited administrative and economic arrangements with the bizone.
⁵⁴

Bidault's policy, so reminiscent of de Gaulle's, vexed officials in Washington. In early September, Secretary Byrnes, speaking in Stuttgart, reiterated the American desire to treat Germany as an economic unit, called for German economic revival, and specifically voiced opposition to France's long-standing demand for the detachment of the Ruhr and Rhineland from Germany. The United States was determined to avoid further partition of Germany, regardless of France's wishes, and to go forward in rebuilding German economic infrastructure in the bizone. The Quai d'Orsay, by sticking to its position that an independent French zone was a greater asset to France than membership in a tripartite occupation, still hoped to exact concessions from the Anglo-Americans with regard to the Ruhr.
⁵⁵The conflict over Germany among the occupying powers was no closer to resolution in the fall of 1946 than it had been at the time of the liberation of France two years earlier. But how long could France remain intransigent in light of its suddenly deteriorating economic position?

The French Economy and the Moscow Conference

Historians have paid considerable attention to the debilitating economic crisis in Europe during the winter of 194647.
⁵⁶The harsh weather, the poor harvests, and the endemic balance of payments problems placed Europe's still fragile postwar recovery in jeopardy. In the French case, it is usually assumed that, by the time of the Moscow Conference of Foreign Ministers in March 1947, the economic crisis

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had compelled French leaders to compromise on their goals in Germany in exchange for American financial aid.
⁵⁷Yet the link between economic weakness and a purported shift in France's German policy is not so clear as some have suggested, for the economic crisis constrained but did not undermine France's ability to pursue long-standing objectives in Germany. At Moscow, Georges Bidault, though under growing pressure both from the Anglo-Americans and his own coalition partners, remained unwilling to trade French demands in Germany for further American coal imports and loans. Even so, the Moscow Conference did reveal the depths to which U.S.-Soviet relations had sunk. Increasingly, Bidault began to see that France had very little room for maneuver between the superpowers. Obliged by Cold War politics to align itself with the West, France had to find a new way one acceptable to Washington to pursue the German policy deemed so vital to the national interest.

During 1946, Bidault had been able to challenge Anglo-American positions in Germany partly because the postwar economic recovery had seemed to be progressing rather well. Europe sprang back to life in the eighteen months following the war, staging what the United Nations' postwar survey of Europe called "a remarkable industrial recovery." By the end of 1946, the prewar level of industrial production in Europe had been regained.
⁵⁸But growing imbalances in the world economy placed this recovery in jeopardy. The failure of the Bretton Woods institutions to address the international crisis of trade and payments became evident during 1946 and early 1947. The very speed with which Europe's recovery was moving, spurred on by high-growth policies and ambitious investment programs of which Jean Monnet's would serve as a model, had led by the end of 1946 to an enormous deficit in Europe's balance of current account with the United States. The sharp decline in exports, and the loss of earnings from services and investments abroad that Europe had always used to balance merchandise deficits with the world, left the continent nearly bankrupt by early 1947. Despite the flood of over $ 10 billion of aid into Europe between June 1945 and June 1947 (from the United Nations Relief and Recovery Agency, Government Aid and Relief in Occupied Areas grants, and foreign loans and credits), the trade and payments deficits could not be narrowed. Western Europe lost about $ 2.5 billion in gold and dollar holdings in 1947 alone, about onethird of its total holdings at the start of the year.

To be sure, the heavy demand for American imports in Europe signaled that the recovery process was underway and going forward very

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rapidly.
⁵⁹Indeed, the widening trade gap was caused by European governments that had committed themselves to broad social and industrial programs without securing the wherewithal for such plans beforehand. These governments, France's in particular, could not back out of the bold promises about economic reconstruction on which much of the social and political consensus rested. The domestic imperative of highinvestment and high-employment policies demanded that the recovery continue at full speed and that the resources to finance this recovery be found.

The two problems that afflicted most European countries in this period, high inflation and large trade deficits, were particularly acute in France. Although these problems grew out of the debilitating effects of the war, they were also the result of nearly fifteen years of economic crisis in Europe as a whole that had left the French economy underdeveloped, anemic, and dependent on external aid. In 1938, French industrial production was 25 percent below the interwar high of 1929, and during the whole period from 1929 to 1938, there was no new net investment in French industry. The economy that French planners had to rebuild was one that had come to a halt not in 1939, with the advent of war, but a decade earlier at the onset of the world economic crisis.
⁶⁰

The inflation from which France suffered was caused by various factors: the swollen money supply (about which Mendes France had alerted the government), the cost of reconstruction, and the explosion of pentup demand that the war had stifled. Further, production remained low, and those sectors that recovered the fastest were the capital goods sectors into which government investments were flowing, not the consumer goods sectors. Prices of consumer goods thus remained high due to scarcity. This inflation was particularly damaging to an economy trying to recover from a decade and a half of lethargy: high prices led to curtailed demand at home and also raised the prices of French exports while making the demand for foreign goods greater. Thus, inflation only aggravated the already chronic trade deficit. Postwar governments tried to mop up excess currency through government-floated loans, and tried to institute wage and price controls. But in the crisis-ridden political environment of the early postwar years, governments were unable to resist pressure from either wage earners or producers, and granted frequent price and wage adjustments, leading to a much decried wage-andprice spiral.
⁶¹

Expenditures on reconstruction further aggravated inflation. Capital expenditures, which in 1945 were only 10 percent of the budget, had by

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Table 1.
France's Balance of Payments, 19441949 (in millions of current dollars)

1945

1946

1947

1948

1949

Exports