France Economy Between 1958 and 1961 Part II

France Economy Between 1958 and 1961 2

The strikes, of exceptional magnitude, carried out in the spring of 1968, influenced the Grenelle agreements; these agreements, of a national nature, have led to large wage increases and a reduction in working hours. Wage increases, not having fully passed on to selling prices, have increased consumer demand, allowing industry to use both capital and labor more. What was called the “November crisis” led the government to draw up an “intermediate plan” aimed above all at restricting domestic demand, in order to restore stability to the franc. This policy was accompanied by action aimed at rebalancing the balance of payments, through a more rigorous control of exchange rates and changes in taxation. The psychological climate at the beginning of 1969, as a consequence of the new policy adopted, improved; speculation on the franc disappeared, but there was also a change in real demand trends. Throughout 1969 and also 1970 the growth of domestic demand, especially private consumption, declined and exports, which had already grown at a rapid pace before the devaluation, after the new devaluation of the franc in August 1969 became one of the main engines of industrial activity. By the early 1970s, however, the rise in prices had resumed at a relatively rapid pace, although the consumer price index had not yet surpassed the limits set by the government the previous summer. This is the economic framework in which the 6th economic and social plan is formed (1971-75),

The gross national product in volume had increased, until 1973, at an annual rate of 5.8%, with cyclical fluctuations almost completely canceled out by the continuous increase in investments, especially in the productive sector. For the same period, the balance of payments rebalancing carried out in 1970 had been consolidated. A sharp slowdown in the pace of economic activity took place in 1974-75, in a climate of global recession and after the authorities had committed themselves to crush an inflation of 10%.

In a situation of simultaneous weakening of both domestic and foreign demand, the growth in volume of the gross national product decreased significantly in 1974 (2.8%), to become negative in 1975 (−1.5%). This sharp contraction in activity was accompanied by a notable decrease in employment and an increase in precautionary saving. To this we must add that the rapid increase in unemployment has caused a decrease in consumption such as to deteriorate the financial situation of companies which have been forced to decrease investments.

In the period 1970-75 monetary policy played an important role in regulating domestic demand: from 1970 to 1972 it was relatively flexible, tending to help the expansion of economic activity. A restrictive monetary policy was followed from the end of 1972 to the end of 1974 to curb the development of inflationary tensions and the worsening of the current balance of payments.

Since the beginning of 1975 monetary policy has been gradually modified, to become, during the autumn, clearly expansionist, in order to stimulate economic activity. From the observation of public finance indicators, it can be seen that budgetary policy has had the same trend as monetary policy.

In fact, in parallel with the easing that occurred in monetary policy starting from 1970, the budgetary policy of the state had taken on an expansionist trend, becoming neutral in 1973, the year of monetary restrictions. Together with the monetary revival that took place in the autumn of 1975 to face the economic recession, a significant deficit in the state budget was allocated. The use of these instruments was complemented by specific price measures during the period. A price programming regime, largely based on contractual procedures, has been applied to the different sectors of the economy.

According to Estatelearning, these policies have not succeeded in eliminating the consequences of the severe recession that hit the country since the second half of 1974 and which made the 6th development plan fail. The increase in the gross national product was in fact, on average, 3.6% per year against the 5.9% expected; this increase, in the industrial sector, fell in 1974 to 2.8% from 5.9% in 1973, while in the agricultural sector it fell to 0.8% from 6%. From 1971 to 1975 productive investments averaged 3.6% per year against the 6.8% envisaged by the plan; Again in these five years, the average annual increase in exports was 8.6% instead of 10.3%, while that of imports was 6.1% instead of 9.8%. For 1975, the assets for goods and services amounted to approximately 3.9 billion francs, with a decrease compared to the expected 8 billion. The increase in industrial productivity “was practically nil” in 1975, with an annual average of 4.2% for the period in question, against the 4.5% that the plan was intended.

Household consumption increased by 4.7% per year against 5.4%. Prices and wages, on the other hand, have risen more than double than expected. The average annual increase in consumer prices was in fact 8.6% compared to 3.6% and that of the hourly wage by 14.9% compared to 7%.

This is the economic framework of France at the elaboration of the 7th plan (1976-80). The novelty of this plan, which passed the approval of Parliament in March 1976, lies in the constitution of the “Central Planning Council”, comprising the President of the Republic, the Prime Minister, the Minister of Economy and Finance, the Minister of Labor and the Commissioner of the plan. This constitution has been explained by the government as an attempt to better integrate short-term problems into the decision-making process of the executive power.

By others, however, this has been interpreted as a disengagement of the government; the latter in fact point out that few experts were called to collaborate, compared to the 2000 of the other plans, confirming the lost credibility that planning has taken on in France.

The main objective of the 7th plan is that of full employment, which will have two fundamental consequences: the rate of economic growth during this five-year period must be as high as possible and a new employment policy must be applied.

France Economy Between 1958 and 1961 2