FRENCH DEBTS

Hokitika Guardian, 8 December 1930, Page 7

FRENCH DEBTS

INFLATION TRICKS. RATE OF REPAYMENT. THE MORAL ASPECT. There is a moral aspect to the fato of those British investors who lent their saving during the war to tile French Government, for the loss of tour-filths i of their money is a matter of-some con- ! cern, writes a correspondent of the London “Observer.” But the more practical aspect is the contractual. A loan is a contract. Has the French Government broken, or does it intend to break, | its contract by receiving a loan in sterling or its equivalent and repaying it in the medium of a paper franc which since the making of the contract has been reduced in value; reduced by the deliberate action of the borrower herself to one-fi.-th of what it was at the time of the contract? \ Huge Sum Raised. The broad facts are these. In 1915, 1916, 1917, and 1918, the French Government, raised from British investors a sum of approximately £50,000,000. It was paid in sterling. The French Government received that amount of sterling as a loan, used it for the repayment of its own debts and for other purposes exclusively its own. The prospectus In encli case was widely and repeatedly advertised in the British Press, and each advertisement contained these words: “The Governor and Company of the Bank of England, with the consent and approval of his Majesty’s Government, are authorised by the Government of the French Republic to receive applications for this issue.” An | investor looks first to the security of his capital. This was a French Government loan, issued through the channel and therefore with the reflected halo of the Bank of England and with the expressed approval of the British Government. To the man in the British street it looked gilt-edged.

Wording of Prospectus. . As if to heighten that impression the prospectus further contained this sentence: “Both Capital and Interest, which will be exempt from all French taxes, present or future, will be a charge upon the genera] revenues of the Government of the French Republic.” And again: “For the purpose of providing against , depreciation in the market prices of the National Defence Loans (the official title of the loans in question), the French Government undertakes to set aside monthly, until other-

wise decreed by law, a* sum of F5c.60,000,000 to form a Fund to be used tor the purchase of Bonds of these loans in the market.” The French Government, therefore, as an inducement I to lenders, gave an elaborate guarantee of security, based upon the name of France. The window-dressing of the loan had for its main object the emphasising of its capital security. It was the resultant conviction that induced the British people to lend £50.(100,600 to France. “The Times” of December 1, 1915, for instance, commented thus: “The terms of the ‘London issue’ of the French loan are undoubtedly very attractive as an investment. The security is of the finest.” Contractual Issue. It is true that it was a franc, not a sterling loan, and that the older City men expressed a doubt whether the French franc was as good as the English sterling (cp. “The Times, November 30, 1915: “In some quarters of the City it is doubted whether the temptation to ordinary investors will suffice to remove their usual prejudice against an issue in a foreign currency”); but the point is that the franc was.stabilised by the French Government at a time subsequent to the contract at a level four-fifths below the level at which the contract was made. Tile contractual ’ question, therefore, is: can a borrower of his own sweet will, and without consulting his debtors, divide his liability' by five and then maintain that be is meeting his liability? When the French Government funded its war debt to the British Government Government, it did not “repudiate” five-sixths of it, hut begged in forma pauperis (although France was the second richest nation in the world after the United States) to he relieved, and was with consent relieved, of that amount. But the holders of French Rentes were not consulted when fourfifths of their money was annexed in France by the devaluation of the franc. That is pure repudiation. Russia’s Move Repeated, . When the Russian Government repudiated one . hundred per cent, of its liability, .and the chief holders of Russian bonds happened to be French investors, a cry went up from one end of France to the other that tore the heavens. Yet France proposes to go fourfifths of that same road of repudiation. Technically, France can argue that the bond contained no contractual obligation to repay in sterling; that is merely to argue that France is content with the knowledge that an investor who took France at her face value has reason to regret it. Nor is there much analogy. .between the French and the British holders of the Rentes. The French Government, if it wishes, and if its electors permit, 1 is competent to confiscate French capital; but to confiscate British capital lent in . good faith attd in the expectation of good faith, falls within a different category. At the Lausanne Conference in 1923, Ismet Pasha offered to repay the French Government its loans in paper francs. The French Government refused such •

payment because the franc exchange

was below par. The French Government rejected the ironic compliment pf . being paid in its own currency for a good reason: for the same reason, intensified several times over, the British creditors of that Government now demand, as a point of elementary honesty,; that they he not repaid in tokens that in effect are a sham, having been made a sham through the deliberate ' devaluation made by that Government itself/