1938: France

In 1938, increasing financial difficulties, slackening of business activity and labor troubles were again the rule in France, and the French still appeared incapable of composing their internal dissensions, even under the shadow of war.

Political Situation.

Chautemps Cabinet. The year opened with a ministerial crisis. Premier Chautemps, in power since June 1937, had succeeded in having the 1938 budget voted in time, but he was confronted with numerous strikes in and around Paris. The whole transportation system of the capital threatened to be tied up. This showed that the measures devised to cope with labor troubles were inoperative. Strikes disturbed public opinion, and alarmed capital making it difficult for the Government, hard-pressed by the financial situation, to borrow money. On Jan. 14, as Parliament reopened, Chautemps made an appeal in the Chamber of Deputies for social peace and asked the members to help him carry out his program for the 'defense of the franc.' When the spokesman for the Communists rose to criticize the Government's policy and declared that his friends would abstain from voting on the question of confidence, the Premier retorted that he could do without their votes and wanted them to feel free to vote as they chose. This meant in fact the breaking up of the Popular Front majority (made up of Radical-Socialists, Socialists and Communists) which since the June 1936 election had consistently voted together in support of Leftist cabinets.

The reason for the attitude of the Radical-Socialist Prime Minister probably was that he was only too happy to give up the increasingly embarrassing support of the Communists who voted for the Government while criticising its policies, in meetings as well as in their newspaper Humanité.

However, the Socialist ministers in the cabinet did not approve Chautemps's attitude, and decided to resign. The Premier then tendered the resignation of the whole ministry, (Jan. 14). His finance Minister Georges Bonnet (the ex-ambassador to Washington) failed in his effort to form a new cabinet, the Socialists. still the largest party in the Chamber, objecting to him personally for his well-known conservative tendencies. The Socialist leader Léon Blum then tried to form a ministry of national union which would include Communists as well as Centrists like Deputy Paul Reynaud, but the latter's refusal forced Blum to abandon the attempt. Finally, Chautemps was asked to head a new cabinet, but he had to form it without the Socialists who refused to accept portfolios. They promised however to support the Government as long as its policies were in harmony with the Popular Front program. They were thus adopting the same comfortable position used by the Communists who had consistently, since the Popular Front's victory, refused to share the responsibilities of power. (See also SOCIALISM.)

Chautemps's new cabinet was, therefore, a purely Radical-Socialist one, with a few members from small Leftist groups. Daladier kept his post as War Minister; the new Finance Minister was Marchandeau. Bonnet was retained as adviser to coordinate the economic and financial policy of the Government. In his ministerial declaration, Chautemps promised not to touch 'the privileges and advantages legitimately acquired by the working classes,' and to prepare important legislation regarding the relations between employers and workers. He would endeavor to stimulate national production, stop the increasing cost of living and reduce the deficit in the trade balance. He also offered a new plan for the organization of national defense establishing closer liaison between the War, Navy and Air ministries which would be coordinated under the authority of Minister of National Defense Daladier. On a motion of confidence, the new Cabinet received a vote of 501 to 1, an unexpectedly large majority, but without any real significance. It merely indicated that the Left parties were supporting Chautemps, at least for the time being, while the Conservatives expressed their approbation of a ministry which, for the first time in eighteen months, included no Socialists.

Chautemps immediately introduced a series of bills establishing the so-called 'modern Charter of Labor' in an effort to end the ever-recurring labor conflicts. One bill was meant to regulate the problem of hiring and discharging workers; another one to define and limit the rights and duties of the 'factory delegate' representing the workers in labor disputes; yet another, to simplify the rules set up in 1936 for the arbitration of labor disputes which involved excessive delays. It was provided that in the future all strikes would have to be decided by a free, secret and compulsory ballot of the workers.

The debate over this document lasted more than two weeks. It was finally adopted on March 4 after much wrangling by both Houses.

Meanwhile Finance Minister Marchandeau had difficulty in finding the money which was badly needed, especially for armaments; it was rumored that some of the funds obtained from a previous loan for national defense had been diverted for other uses. In order to reassure French investors Marchandeau, on March 3, introduced a bill providing for the creation of an 'Autonomous National Defense Fund.' On March 8 Chautemps announced that, in view of the country's pressing financial needs and the extreme slowness of parliamentary machinery, the Government would soon ask for extensive powers to restore finances by decree.

The Socialists, however, expressed their disapproval of this method which, they contended, was undemocratic. Then something unprecedented happened. On March 10, Chautemps read before the Deputies a declaration of policy, and, to everyone's astonishment and before any discussion or vote could follow, he walked out of the Chamber and tendered to President Lebrun the resignation of his Cabinet. It was the next day that German troops entered Vienna, and Austria became part of Germany. (See AUSTRIA.)

Blum Cabinet. All political observers agreed that whoever headed the next Government must be granted power to take financial measures by decree. Such powers had been given in the past to Poincaré and Laval, and the present financial situation, with business failing to improve and heavy rearmament expenditures, was extremely serious. But the question arose: who should be given such powers? The Socialists and Communists would not trust a bourgeois premier with them, while the Conservative Senate was reluctant to grant them to a Socialist.

Léon Blum was called on to form a Cabinet. He tried again to have a ministry of National Union which would include representatives of the Right and Center parties, but they refused to serve under a Marxist friendly with the Communists. Blum, therefore, had no other alternative but to form another Popular Front ministry made up of Radicals and Socialists, which the Communists would support. Blum himself took the Finance portfolio: Daladier was still War Minister: Paul-Boncour replaced Delbos at the Foreign Office. The Blum cabinet received a vote of confidence (369 to 196) in the Chamber, but in the Senate the ministerial declaration was received with very little enthusiasm.

On March 22, Blum submitted two financial projects. He asked permission (1) to increase from 15 to 20 billion francs the legal amount which the Treasury could borrow from the Bank of France (2) to apply the profits of the Exchange Stabilization Fund to the Autonomous National Defense Fund. These proposals were adopted by the Deputies but they were violently attacked in the Senate. The Senators termed the first proposal an inflationary measure, and contended that the stabilization profits existed only on paper. They called both projects mere expedients, and voted only the first one, with the understanding that Blam would soon present a real financial program.

The Cabinet was embarrassed by a new wave of strikes, especially in automobile and aircraft factories. While the workers struck for higher wages made necessary by the rising cost of living, the strikes had also political import as in their parades strikers shouted 'Guns for Spain!' and 'Down with the Senate!'

On April 4, Blum was ready with a complete financial program, and he asked Parliament for full monetary and economic powers to apply it. The chief measures contemplated were: a graduated capital levy, ranging from 4 per cent to 17 per cent on fortunes from 150,000 to 50,000,000 francs; — a 7-per cent tax on incomes derived from government securities; — a two-year suspension on the amortization of the national debt; — a revaluation of the gold reserve of the Bank of France; and finally 'centralization' of all foreign exchange transactions. (The latter measure was interpreted by the opposition as establishing in fact foreign exchange control.)

The Chamber granted Blum full powers by a small majority (311 to 250), but everybody knew that the Senate would not follow the Lower House. Blum's paper Populaire attacked the higher assembly while his own Socialist party organized street manifestations against it. On April 8, the Senate refused to give Blum extraordinary powers by a vote of 223 to 49, and the Prime Minister was forced to resign.

Daladier Government. President Lebrun asked Edouard Daladier, leader of the Radical-Socialist party and War Minister in several successive Cabinets, to form a Government. He invited the Socialists to accept portfolios, but they declined. The new ministry, therefore, was composed mainly of Radicals; Chautemps was Vice-Premier, Bonnet took the Foreign Affairs, Marchandeau the Finances. Two prominent members of the Centre however entered the Government; Georges Mandel (Colonies) and Paul Reynaud (Justice).

In a speech before the Chamber on April 4, Blum had declared that the Treasury had spent 40,000,000,000 francs in the year 1937, and he estimated that an equivalent amount would be necessary in 1938, whereas Bonnet's estimate at the beginning of the year was only 28,000,000,000 francs. The difference was due partly to the deficit of the railroads, partly to the ever-mounting military expenditures. Like his predecessors, Daladier declared that he needed full powers in order to 'face the necessities of national defense and straighten up the financial and economic life of the nation.' The Chamber of Deputies gave him the powers demanded on April 12 by a 514 to 8 vote, and the next day the Senate unanimously did the same. This confirmed, if further proof was necessary, that it was on personal grounds that they had objected to granting the same powers to Léon Blum.

On April 14, there were still 157,000 workers on strike, but after a few days of negotiations Daladier succeeded in persuading them to return to work. The Cabinet was warmly received in the world of finance; stocks and rentes went up in the Bourse. Marchandeau was authorized to borrow 10,000,000,000 francs above the legal limit from the Bank to meet the immediate needs of the Treasury. But the economic outlook still was very dark, and business awaited anxiously the financial decrees the Cabinet was to issue.

Financial and Economic Decrees.

A first series of decrees was published on May 3. One of them increased all taxes, direct and indirect, by 8 per cent for a period of two years. Separate budgets, such as that for war pensions for which no revenue was provided and which had to be financed by borrowing, were incorporated into the general budget. In spite of the new measures a deficit of 4,000,000 francs still remained, in the Finance Minister's estimation, but it was hoped that business recovery would yield greater tax-returns. A 'tourist-card' giving foreign visitors special advantages was instituted, as well as other measures intended to boost the building-trades, ease the granting of credit, etc.

On May 4, Daladier announced in a radio broadcast that he had decided to further devaluate the franc, and to stabilize it at the new rate to stop speculation (179 fr. to the pound sterling). This decision, and also the 8 per cent tax-increase, raised many protests in the country. Those Frenchmen who had bought foreign money shortly before made a profit by converting it into devalued francs. It was estimated that some 20,000,000,000 francs were thus repatriated. Daladier also announced the emission of a 5,000,000,000-franc loan for national defense: it was oversubscribed the day it was floated (May 16). All this considerably eased the monetary situation of the Treasury.

A second series of decrees — 57 in all — intended to improve the economic situation were published on May 24. They provided for an important program of public works (improvement of roads and harbors, slum clearance, electrification of country districts, building of schools and hospitals, etc.) to be continued over a period of two years and a half. It would involve the spending of 11,000,000,000 francs. Other decrees extended credit facilities, particularly to enterprises planning to modernize their equipment. Finally special decrees were issued providing greater flexibility in the application of the 1936 labor laws which were blamed for the falling off of production, especially in armament factories. A new principle was established, that of the 2,000-hour year instead of the 40-hour week, which would allow the recuperation of hours lost through 'collective interruption of work' (holidays; seasonal lay-offs of employees). Extra hours would also be authorized in industries working for national defense.

Critics of the Daladier decrees pointed out that an 11,000,000,000-franc program of public works was a 'luxury' in a country with a huge budget deficit and was unnecessary in France where there was comparatively little unemployment. The decrees concerning working-hours were attacked as totally inadequate; figures were quoted showing that the French steel production in April 1938 was 503,000 tons as against 684,000 tons in April 1937 (1,700,000 tons in Germany).

Other decrees appeared on June 14 and June 28. Again the Treasury was allowed to raise the legal amount it could borrow from the Bank of France and the Bank was authorized to practice the 'open market policy' within certain limits, a faculty long denied that French institution.

Political Lineup.

The Parliamentary session came to an end after Marchandeau had rejected a demand from the Communists and Socialists for old-age pensions and an increase in civil servants' salaries. Daladier also refused to hold an open debate over the question of non-intervention in Spain and asked that Parliament adjourn until the fall (June 17). A motion to that effect was carried by a vote of 357 to 241, the Radical-Socialists voting in favor, the Socialists and Communists, against. The Popular Front majority was split once more, and it became more and more evident that the alliance concluded between the three great Left parties in 1936 for electoral purposes was now ended. Even within the parties themselves there was a great deal of dissension. When the Socialists held their Congress in Royan during the first part of June, there developed a rift in the party; Blum and the moderate wing were still in favor supporting Daladier while the Left wing with Marceau Pivert wanted a return to revolutionary doctrine and seceded from the rest. There was no unanimity on foreign policy questions: many delegates to the Congress wanted peace at any price, others preferred to risk war in the defense of democracies against the totalitarian countries.

The Radical-Socialists also were divided, and this division manifested itself in the vote to grant Blum the financial powers he demanded: 59 Radical deputies voted for, 24 against, while 24 abstained from voting, and the second Blum cabinet was defeated by the Senate which was overwhelmingly Radical. The Communists still proved by far the most disciplined party of the Left: but their demagogic attitude, the part they played in fomenting strikes, and their refusal to accept governmental responsibility antagonized both the Radicals and the Socialists to whom they proved extremely embarrassing allies.

Economic Interim Situation.

The Daladier government was now free to rule until the Fall without parliamentary interference. Everyone hoped that during that time the long-awaited business revival would materialize, but while the trade balance for the first seven months of the year showed a slight improvement over the corresponding period of 1937 and the tourist trade attracted by the depreciated franc boomed in the summer weeks there was no real amelioration in the general situation. The conservative industrialists and many others blamed it on the 40-hour week which brought about a decrease in production while increasing operating expenses. Higher production costs meant a rising cost of living which nullified salary increases and irritated workers who called strikes of protest, thus further strangling production. The uncertainty of the European situation made matters still worse; huge expenditures for armament increased the mounting deficit while the threat of war frightened investors, encouraged hoarding and throttled business. War-time financing methods were adopted when Finance Minister Marchandeau, after promising in a radio-broadcast 'a strict revision of all government expenditures' launched an issue of National Defense Bonds redeemable in 18 months carrying a 3,50-per cent interest payable in advance.

Strike Difficulties.

Difficulties were temporarily forgotten at the time of the widely acclaimed visit of the British sovereigns in Paris on July 19, but the situation remained precarious. During July and August there was a fresh outburst of strikes in the building trades, in textile factories and in some of the coal mines of Northern France. The most serious was in Marseilles where striking dockers tied up the activity of that important harbor for weeks. Public opinion was aroused, and there was a great deal of irritation in Algeria over the loss of perishable products from North Africa due to the dockers' refusal to work Sundays or extra hours. The Government was finally obliged to have soldiers unload the ships, and the harbor was placed under the control of military authorities after the strikers refused to obey the decision of a mediator, appointed according to law by the Minister of Labor, to arbitrate the conflict.

Financial Outlook.

The financial outlook early in August was darker than ever. There were rumors, in connection with the visit to Paris of Secretary Morgenthau, that the United States. England and France were preparing a devaluation of their money. The pound fell in relation to the dollar, and the franc correspondingly reached a new low (30,72 to the dollar on Aug. 12). The French Government was said, also, to be contemplating the establishment of foreign exchange control. A new outflow of gold and flight of capital began. Meanwhile the international tension became more and more acute, making it extremely difficult for Daladier to execute his program of economic recovery. On Aug. 9, two more decrees were issued authorizing 'exceptional derogations' to the 40-hour law in industries working for national defense, making it evident that the measures taken so far to increase production had been inoperative. The adversaries of the Popular Front concentrated their attacks on the labor laws which, they said, were more responsible than anything else for the general stagnancy of affairs. On their side, the Communists demanded that Parliament be summoned to discuss the situation.

Labor Situation.

On Aug. 21. Daladier made a radio-broadcast to the nation which was to have important consequences. He explained in his address that whereas expenditures were on the increase, and they were necessary as long as the international outlook required huge armaments, the national revenue kept decreasing. Salvation, the Premier claimed, did not lie in adopting new financial measures such as foreign exchange control. The remedy was work: the French must work increasingly. With neighboring countries arming feverishly and preparing for war, it was impossible that French factories should continue to remain idle two days every week. Therefore, while the principle of the 40-hour week would remain in the labor statute, it was necessary to allow industry to have at its disposal all the work hours it needed.

By thus putting the blame for the ills of the country squarely on the labor legislation favorable to Labor the Premier aligned himself with the adversaries of the Popular Front. Immediately two of his fellow cabinet members resigned: Frossard, Minister of Public Works, and Ramadier, Minister of Labor. They said they wished to protest against 'the new orientation in the social policy of the Government.' But no ministerial crisis followed, as Daladier simply replaced them by two other members from the same group. The Socialists, the Communists and the General Confederation of Labor raised a strong protest, reproaching the Premier for failing to censure employers and speculators. The bulk of public opinion however seemed to be on the side of the Government, and the grave international crisis of September came to relegate internal questions to the background. During those critical days, the working classes and their leaders refrained from doing anything which might embarrass the Cabinet which was conducting difficult negotiations.

Effect of Munich Settlement.

Curiously enough, during those tense days of September, the franc remained comparatively stable until the morning of the 28th when war seemed inevitable. That day the franc sank to a rate of more than 38 to the dollar. Immediately after the Munich accord, it was back at less than 37, but the effects of the international crisis on the economic and financial situation of France were disastrous. For a few days business had been practically at a standstill; people withdrew their money from banks and savings banks; subscriptions to Government bonds practically stopped, and the Treasury had, on the one hand, to finance the heavy expenditures of mobilization and on the other, to advance money to those banks threatened with a general withdrawal of funds. The Bank of France statement at the end of the month showed that in September the Government had borrowed another 10,000,000,000 francs and that more than 22,000,000,000 banknotes had been printed. On September 25 and 26 expenses amounted to 1,200,000,000 francs.

Besides, it was soon obvious to all that the 'peace' of Munich did not mean a reduction of armament expenditure in the near future; quite the contrary. The Treasury estimated that it would need 10,000,000,000 francs until the end of 1938. A new financial effort had to be asked of the country, but the powers granted Daladier to issue decrees had expired at the end of July. He had, therefore, to ask Parliament for further powers. A two-day extraordinary session was called (Oct. 4-5), and, after obtaining a quick vote of confidence on his foreign policy, he requested the Chamber to give him again the power to rule by decree. The Finance Committee agreed, but, on a motion from the Socialists, they limited to Nov. 15 the period during which he could enjoy full liberty to govern. This was ratified by a 331 to 78 vote in the Chamber; the Communists voted against it, while the Socialists abstained from voting. Once again Daladier had to depend for his majority on his own Radicals and on the Conservatives of the Right and Center.

Fall Elections.

On Oct. 23, elections to renew one third of the Senate members were held throughout France; they changed the political complexion of the Higher Chamber very little, although the Moderates gained half a dozen seats at the expense of the Radical. Socialists. At the end of the same month, the Radicals met in Marseilles for their annual Congress where Daladier was expected to deliver an important speech (one of the meetings was interrupted by a huge fire which destroyed the largest department store in Marseilles as well as the Hotel de Noailles where Daladier and most of the Radical delegates were staying). There was nothing new or startling in the Premier's address on Oct. 27; he justified once more his Munich foreign policy and attacked the Communists for opposing it; he indicated that France's future foreign policy would be devoted to the protection and development of her colonial empire; he added that France must first balance her budget, effect strict economies, and increase her production, all of which could be achieved only if strikes stopped and working hours were longer. No split developed in the party, as some people had expected. In his speech, Daladier gave no hint of the nature of the measures he would take before Nov. 15. He merely said that his new financial and economic program was ready. The country, therefore, was startled when, the following week (Nov. 1), it learned that the composition of the Cabinet had been modified. Reynaud, the Minister of Justice and a Centrist member of the Government, became Finance Minister in place of Marchandeau who received the post of Minister of Justice instead. Evidently, Marchandeau's financial plan had proved unacceptable to some of his fellow ministers, and perhaps to the Premier himself. There were rumors that it included the establishment of exchange control.

Reynaud as Finance Minister.

At last, France had a new Finance Minister. Paul Reynaud was known as a lucid, capable and courageous man who had been practically alone in his opposition to the fiscal policy pursued by the successive Cabinets since 1934. He had urged a devaluation of the franc as early as 1935 when it was very unpopular to do so. He belonged to no political party and was considered a champion of orthodox finances; he was therefore well received in the Bourse, but his appointment displeased the Left parties who feared his conservative tendencies. However, at a meeting of the National Council of the Socialist party a motion criticising the Daladier government as 'threatening the workers and democracy' was easily defeated. The Socialist leaders were reluctant to place themselves in opposition to Daladier whose popularity with the middle classes was in creasing, and they knew that his downfall might bring to power a still more conservative Cabinet.

On Nov. 12, in a radio address, Reynaud drew a frank picture of the country's situation and analyzed its causes. The directness of some phrases in his speech irritated many of his listeners, especially among the working classes whom he accused of 'loafing' two days a week. He promised that he would not have recourse to foreign exchange control, and that the Government would not float new loans for a period of six months, so as to make capital available for private enterprise.

His decree-laws were published the next day. Their main provisions were: (1) The gold stock of the Bank of France would be revaluated at a rate of 170 francs to the British pound, and the profit thus obtained would be used to amortize the debt of the Treasury to the Bank. (2) While the principle of the 40-hour week was retained, employers were authorized to require work from their employees up to 48 hours per week with higher pay for extra-hours. A 10-per cent tax would be levied on the extra profits made by employers. (3) A special emergency tax of 2 per cent would be imposed on all professional incomes, and the basic rate of the income tax would also be raised. (See also INTERNATIONAL BANKING.)

Other decrees ordered the abolition of the National Lottery as of Jan. 1, 1939; increases in postal rates and indirect taxes on coffee, sugar, etc.; special taxes on foreign residents and workers, and increases in transportation fares. Forty thousand railroad employees whose hiring had been made necessary by the 40-hour week would be dismissed and made available for industry.

The decrees were immediately attacked on all sides, but chiefly from the Left. They were represented as hitting the working and middle classes more severely than the rich. The General Confederation of Labor at its National Congress held in Nantes (Nov. 15) adopted a motion 'rejecting the decree-laws as constituting a suppression of the social reforms voted by Parliament.' The Veterans Association protested against cuts in war pensions, while tax increases displeased many more. There were demonstrations by workers in Paris. Strikes of protest were called in various industries, rubber and chemicals among them, although some of the new decrees provided stiff penalties for strikers.

General Strike Fails.

On Nov. 22 the Executive Council of the General Confederation of Labor and the Confederation of Government Employees decided to call for a 24-hour nation-wide strike against the Reynaud decrees. The strike movement was already spreading to many industries. At the great Renault automobile factories in the suburbs of Paris the police had to use tear-gas bombs to evict sit-down strikers. The Bourse soon reflected the general uneasiness and the franc sank to a new low level. The Socialists demanded that Parliament be convoked, and threatened to hold a 'rump' session of all the deputies opposed to the Government's policy.

Labor leaders asked Daladier to modify some of the decrees. On his refusal, the Confederation ordered the general strike for Nov. 30. The Premier accepted the challenge and in a radio address asked the support of the public in what he called 'a test between republican democracy and the dictatorship of a proletarian minority.' He threatened dismissal for all public servants who did not appear for work on the day of the strike, he requisitioned all railways and other means of transportation, and placed mail, telegraph, telephone, electricity and gas services under military control. These stern measures had their effect. There were indeed several thousand strikers, especially in the provinces, but on the whole the strike was a failure, which Reynaud called 'a referendum of the French people in favor of work, order and discipline' while Léon Blum termed it 'a victory of reaction.'

Labor leaders were thought to have committed a grave tactical error and to have played into the hands of the Government and of the enemies of the workers. They knew that the idea of a general strike was unpopular with the majority of the people, and that many of the workers themselves were tired of the ever-growing labor conflicts which disrupted production and weakened France's position in the councils of Europe. Daladier emerged stronger from the strike, and promised to summon Parliament on Dec. 8. He made efforts he heal the breach between employers and employees, advising the former to be lenient and to hire back strikers. Labor leaders contended however that many of those who had laid down their tools were severely punished; that workers were rehired individually as a means of purging their ranks of their leaders. There were still a few isolated strikes, notably at Le Havre where several ships of the French Line could not sail. The Minister of the Merchant Marine called navy men to some of the liners. Gradually, the whole movement subsided and on Dec. 8 the Central Strike Committee, admitting defeat, ordered the remaining strikers to go back to work.

Parliamentary Session.

The Parliamentary session opened on Dec. 8 to discuss the general policy of the Government. After a stormy sitting, Daladier, who again concentrated his attack on the Communists, obtained a vote of confidence of 315 to 221. This time the Socialists voted against him, and again the Premier's majority was obtained by Rightist and Centrist votes. The Popular Front appeared definitely a thing of the past.

Parliament met again on Dec. 21, this time to examine Reynaud's budget for 1939 and discuss ways and means to meet expenditures amounting, in the Minister's estimation, to 66,000,000,000 francs. He was optimistic in his expose and pointed to a boom in French securities and a substantial repatriation of capital. As usual, the debate on various budget items was extremely vehement and Premier Daladier time and again had to come personally to the support of his hard-pressed finance minister. Three times he put the question of confidence; on the 23rd of December, on one of the points at issue, he received a lean majority of seven votes only. The budget was finally accepted by a 137 majority, and its discussion was then taken up by the Senate which wanted to remove a measure establishing control over private bank accounts. After much wrangling, the Chamber accepted the Senate's offer to postpone action for a year on that particular point. In the final vote on the Senate's proposal, which Daladier made a question of confidence, he received a majority of 353 to 229. The budget figures were established at 66,388,000,000 francs in estimated receipts against 66,364,000,000 francs in expenditures, a surplus of 24,000,000 francs. About 40 per cent of the budget was to cover World War obligations and armament expenses. To this should be added a special budget of some 25,000,000,000 francs for rearmament, to be financed by National Defense bonds and the National Defense Autonomous Fund.

On Dec. 27, Minister Reynaud announced over the radio that the French Government had concluded, with a group of Dutch and Swiss banks, a 4-per cent loan of 175,000,000 florins, amortizable in 30 years, destined to reimburse various loans amounting to 3,500,000,000 francs issued abroad for the French railroads at between 4 and 6 per cent. The minister called it 'the most important loan conversion ever realized' and hailed it as marking 'a very great improvement in French credit abroad.' He asked his compatriots to show the same confidence in the credit of their country.

Foreign Relations.

France's foreign policy during the post-War period has been to limit Germany's expansion in Central Europe and, more recently, to protect her own position in the Western Mediterranean. During the year 1938, the whole system of security built against Germany collapsed, while the threat to French communications with Northern Africa became more and more dangerous.

The resignation of British Foreign Secretary Eden on Feb. 20 was viewed with alarm by the French Foreign Office, as Captain Eden was considered the champion of collective security. On Feb. 25-26, a long debate on the European situation was held in the Chamber of Deputies. Foreign Minister Delbos reiterated France's determination to maintain her entente with Great Britain and to be loyal to her treaties with Czechoslovakia and Soviet Russia. On a vote of confidence, he received an overwhelming majority of 439 to 2, the Deputies indignantly repudiating a suggestion from ex-Premier Flandin that France should disinterest herself from her Central European commitments and concentrate her attention on her colonial empire.

Austrian Anschluss.

French public opinion watched with concern the German-Austrian negotiations early in the spring, but France was without a Cabinet when Hitler and the German troops entered Austria (March 12). France joined England in forwarding a note of protest to Germany which Hitler dismissed with a warning that the Anschluss was a purely German affair. France formally recognized the Nazi conquest on April 2, even before the plebiscite on the annexation had taken place.

The Anschluss which almost completed the encirclement of Czechoslovakia encouraged, at the same time, the Sudeten-German minority in that country in their attitude of opposition to Prague. Paul-Boncour, the Foreign Minister in the second Blum cabinet, called a conference of the French ambassadors to Moscow, Warsaw, Prague and Bucharest, in an effort to ascertain what the attitude of these capitals would be, should a crisis arise. The Quai d'Orsay was also anxious to obtain from England a definite promise of help in case of a German aggression against the Czechs. Prime Minister Chamberlain, however, refused to promise military action on the side of France 'in any forcible interference with the independence of Czechoslovakia,' contenting himself with a general warning to Germany that a war in Central Europe might involve other powers.

Non-intervention in Spain.

In Spain, the victorious offensive of the Rebel troops in Aragon and Catalonia which succeeded in cutting Loyalist Spain in half, seemed to presage an early victory for the forces of General Franco and his Fascist allies. France, however, refused to heed a plea for help from the Barcelona Government (April 5) and announced her determination to adhere strictly to her non-intervention policy.

British-French Accord.

At the end of the same month (April 28-29). Premier Daladier and Foreign Minister Bonnet went to London to confer with Chamberlain and Halifax to try and obtain a decision on Great Britain's attitude in case of a Central European conflict. As a result of the conference, a program of coordination of the armed forces of both countries, in the event of a war, was established; they agreed on the other hand, to conjugate their efforts to bring about a satisfactory solution of the Czech problem by urging Prague to make concessions to her German minority. At the same time, the British ambassador in Berlin would counsel moderation to the Germans and their Sudeten protégés, and reiterate that Great Britain could not guarantee to remain neutral should a conflict arise in which France would find herself involved in order to protect her Czech allies. The French Government was apparently satisfied with this vague pronouncement, and the Paris Press presented the results of the conference as a victory for the French point of view.

Franco-Italian Relations.

Immediately after Hitler's visit of friendship to Rome (May 1-9), both France and Great Britain, at a meeting of the League of Nations Council at Geneva, tried vainly to obtain permission from the council to recognize de jure the Italian conquest of Ethiopia. At that same meeting, the French representatives fought a motion of the Spanish delegate Del Vayo for ending non-intervention in Spain.

France had been watching with interest the efforts of Chamberlain to arrive at an understanding with Mussolini on Mediterranean questions. When an agreement was signed (April 16), Foreign Minister Bonnet, through his chargé d'affaires in Rome, approached Italy, declaring his readiness to conclude a like accord in order to solve Franco-Italian difficulties. Mussolini, however, was lukewarm to the suggestion and, on May 14, reviewing in a speech at Genoa his own foreign policy, he declared that an understanding with France was hardly possible as long as in the Spanish War France and Italy were 'on opposite sides of the barricades,' and France desired the victory of the Republicans while Italy wanted Franco to win. Further negotiations were thus discouraged, at least for the time being.

Czechoslovakian Situation Threatening.

Meanwhile the Czechoslovakian situation was taking first place in the preoccupation of Europe's foreign offices. On May 21-22, Germany and Prague seemed on the brink of war when, during the tension produced by the Czech municipal elections, two Sudeten Germans were shot on the border. The Czech Government, fearing sudden armed intervention from Germany, called a partial mobilization of its forces. Both sides protested against frontier violations by the other party's airplanes. As an armed conflict threatened. France declared that she would fulfill the obligations imposed on her by the 1925 treaty with Czechoslovakia. She left to Great Britain the task of advising caution to Berlin, while the French envoy in Prague urged on the Czech Government the necessity of meeting to the largest extent possible the demands of the Sudetens. Peace was finally preserved, but all observers were agreed that the situation would remain precarious until the Czechoslovakian problem received a satisfactory solution. How this could be achieved without war, or without loss of prestige for some of the interested parties it was difficult to discern.

Evacuation of Foreign Troops in Spain Planned.

During the summer months, the attention of France was again directed toward the Spanish war. She worked with Great Britain in the London Non-Intervention Committee to hasten the withdrawal of foreign troops and volunteers whose presence in Spain was considered a constant menace to European peace. On July 5, she accepted the evacuation plan drawn by the Committee, and decided to shut her Pyrenean frontier for forty days, with the understanding that, at the end of that period, it would be reopened, unless the withdrawal of alien fighters had actually begun. Such concessions were evidently made with an eye to the eventual rapprochement with Italy, which the Quai d'Orsay apparently still hoped to detach from the Rome-Berlin axis.

Sanjak of Alexandretta.

Other problems in faraway lands necessitated the attention of France. First, there were difficulties in the Near-East with Turkey about the Sanjak of Alexandretta, a coastal district in Northwestern Syria on the Turkish frontier where, at the end of May, a census was being taken by a League of Nations commission preparatory to electing a governing assembly for the region. The census was showing that, contrary to Turkish claims, the Turkish element constituted only about 42 per cent of the population. The Ankara Government claimed that the census was being conducted unfairly, and blamed France as the mandatory power in Syria. There were riots in Alexandretta, martial law was decreed, and the census operations were interrupted. Turkey, realizing that France, busy in Western Europe, would not let herself be involved in a Near East quarrel, demanded the recall of the League commission which she accused of partiality. On June 21 France undertook negotiations with Ankara, and permitted Turkish troops to enter the Sanjak to maintain order in cooperation with the French. A Franco-Turkish pact of friendship, by which both countries agreed not to aid any country attacking the other, was signed on July 3. It was feared that this conciliation of the Turks had been bought at the expense of the Syrian Arabs. An agreement signed at Geneva in the fall excluded Syria from the Sanjak which, under its Turkish name. Hatay, was to have an autonomous government and parliament, and be separated by a customs barrier from Syria. This raised protests from the Arabs but France and Turkey rejected a proposal from Iraq tending to divide the Alexandretta district into two regions, one Turkish and the other Arab. At the end of the year, there were indications that France would reconsider at least the military clauses in her September 1936 treaty with Syria, now deemed inadequate in view of the new developments in the Mediterranean situation.

Far-East Situation.

The Far-East situation also worried the hard-pressed Quai d'Orsay. It was feared that Japan, in order to gain better control of traffic with China, might occupy the Hainan island situated between British Hong Kong and French Indo-China, and in June France and England warned Japan against it. On July 4, as a precautionary measure, a small French force occupied the Paracel Islands, southeast of Hainan, after it had been rumored that Japanese 'fishermen' had landed there. In answer to Chinese and Japanese protests. France said that she meant only to protect a lighthouse she had built on one of the islands. Again and again, during the year, Tokyo threatened to intervene unless traffic in arms from Indo-China to the Chinese armies through the Yunnan railway stopped. This traffic practically came to an end, probably as part of a bargain by which Japan would keep off Hainan.

Cession of Sudetenland to Germany.

The British sovereigns were in Paris on a state visit from July 20 to 24 which was intended to proclaim Franco-British solidarity. Chamberlain and Foreign Minister Halifax also went to Paris and held many conferences with Daladier and Bonnet who agreed to the sending of Lord Runciman to Prague on a special 'unofficial' mission in a last effort to find a compromise acceptable both to the Czech Government and the leaders of the Sudeten minority. France, however, declined to assign a French partner to the British mediator. In spite of Lord Runciman's mission, the anti-Czech campaign continued with increasing violence in the German press. On the Rhine frontier, more than 300,000 German workers were busy constructing the new fortifications to match the French Maginot Line. Hundreds of thousands of reservists were to be called for maneuvers scheduled in September, and Germany was expected to have more than 1,000,000, men under arms by that time. The French found a measure of encouragement, however slight, in a speech of Sir John Simon on Aug. 27, in which the Chancellor of the Exchequer went no farther than to remind Germany that a conflict about Czechoslovakia might turn into a general European conflagration.

Everyone anxiously awaited the Congress of the Nazi Party which was to meet in Nuremberg on Sept. 5. France, meanwhile, was slowly taking precautions in case of a conflict, which appeared more and more likely as every concession from Prague only encouraged the Sudetens to make greater demands. French reservists were called to the colors, and the War Ministry announced that the Maginot line forces were on a war footing.

Events moved fast during September. On the 12th, Hitler declared at Nuremberg that the might of Germany was behind the Sudetens, who organized uprisings which the Czech authorities promptly quelled. Germans claimed that their brothers in Czech territory were being terrorized. War seemed imminent when, on Sept. 14, Chamberlain decided to fly to Berchtes-gaden for a personal interview with Hitler. It was said later that Premier Daladier had himself suggested the trip in a telephone conversation with the British Premier. On Chamberlain's return, Daladier and Bonnet flew to London to hear Hitler's offer, and the next day (Sept. 19) presented the plan to their colleagues in the Cabinet. As it involved the cession of the Sudeten districts to Germany, some ministers expressed their opposition to it, but it was finally approved unanimously. The Socialist and Communist parties raised strong protests and asked that Parliament be summoned; but they could not gather enough signatures to force an extraordinary session, as most deputies were quite willing to let the Cabinet assume the whole responsibility during the negotiations.

The Czechs naturally did not want to accept the German conditions, but France exerted considerable pressure at Prague, threatening to leave her unaided should her refusal bring about a German invasion of her territory. Czechoslovakia finally yielded and, on Sept. 22, Chamberlain went again to confer with Hitler at Godesberg, where he found himself confronted with new and more drastic demands. However, he took the new German memorandum back to London where Daladier and Bonnet, accompanied by the French Chief of Staff, General Gamelin, went again on Sept. 25. Immediately before their departure, the French Cabinet, at a special sitting, had pronounced the new Hitler proposals unacceptable.

In the following days, Sept. 26-29, Europe was probably nearer war than at any time since 1918. England mobilized her fleet, while mobilization in France practically affected the totality of her armed forces. In Paris precautions were taken against air raids. There was no panic or hysteria, however, as the country seemed resigned to the impending conflict. But public opinion was as sharply divided on the Czech issue as on the question of intervention in Spain, and the press reflected this lack of unanimity. Of all political parties, only the Communists urged outright rejection of Germany's demands. The Socialists and the Radical-Socialists were divided, as were the Conservatives. Powerful syndicates of civil servants and labor unions invited Daladier to try every possible means of preserving peace.

Pact of Munich.

It was with a deep sense of relief that France heard that the German Fuehrer had agreed to meet the French and British Prime Minister as well as Mussolini at a conference in Munich (Sept. 28) for a final settlement of the Czech question. Although the Munich agreement granted practically all the German demands, left Czechoslovakia a mutilated country destined soon to become a mere German dependency, and convinced all impartial observers that if war had been postponed, it was only temporarily, the news that peace was preserved seemed the only thing that mattered for the French people. Daladier's return from Munich was greeted by huge manifestations of grateful joy by the Parisian population.

On Oct. 4, the Premier read a declaration in the Chamber of Deputies to justify his policy, basing his justification on the Runciman report which concluded that Sudetens and Czechs could not live together. The Chamber upheld the Government by a 535 to 75 vote, only the Communists voting against it. Daladier promised that the Munich accord marked the dawn of an era of peace, and added that France should concentrate her attention on her far-flung colonial empire rather than on Central or Eastern Europe.

Advances to Mussolini.

The next step in the direction of peace was to try to come to an agreement with Italy. On Oct. 5, Paris announced her decision to appoint an Ambassador to Rome, accredited to the 'King of Italy, Emperor of Ethiopia,' thus recognizing the annexation of Haile Selassie's empire. François-Poncet, the ambassador to Germany, was designated for the new post. These advances of France met with extreme coolness in Rome. On Nov. 16, the Anglo-Italian treaty of April was ratified, but Mussolini seemed in no hurry to conclude a like agreement with France. The new ambassador was not asked to present his credentials until Nov. 19.

On Nov. 23-24, Chamberlain and Halifax were again in Paris to confer with Daladier and Bonnet on the policy to be pursued by England and France after the peace of Munich. An official communiqué said that there was 'complete agreement' between the two countries. It transpired that the French had tried to extract from their visitors the promise of greater military effort, including conscription, while Chamberlain had urged France to step up her aircraft production.

Franco-German Peace Pact.

At a Cabinet meeting on Nov. 23, Bonnet announced that the French and German Governments had decided to sign a joint declaration of peace. The German Foreign Minister Von Ribbentrop went to Paris, (Dec. 6) for the formal signing of the declaration by which the two countries agreed (1) to work for peace; (2) to consider as final the present Franco-German frontier; (3) to consult together in case of international difficulties. The German Minister was received rather coldly by the Parisians. The declaration itself was considered of doubtful value, and seemed to have little effect on the Italian partner of the Rome-Berlin axis.

Italian Demand for French Territorial Concessions.

Mussolini granted his first audience to the French ambassador on Nov. 29. The next day, in the Italian Chamber of Deputies, François-Poncet heard a speech of Foreign Minister Ciano in which he alluded to the 'natural aspirations of the Italian people.' All the deputies immediately rose shouting: 'Tunisia! Corsica!' The Italian press took up the cry and claimed Nice and Savoy besides. There were manifestations against France in many Italian cities, while manifestations of protest were organized in Tunisia and Corsica. In answer to official inquiries from the Quai d'Orsay, Ciano declined responsibility for manifestations 'which did not express the policy of the Fascist Government.' The same answer was made to a démarche by the British ambassador (Dec. 3). On Dec. 5, Daladier declared that France would never yield one inch of her territories and announced that he would visit Corsica and Tunisia early in January 1939. Two weeks later (Dec. 17) Italy sent a note to Paris saying that she regarded the Laval. Mussolini agreement of January 1935 as no longer valid 'because of changed circumstances which have developed in the interval.' Acknowledging receipt of the note, France answered that she was ready to consider new Italian proposals, but rejected any idea of territorial concessions beyond those of the 1935 accord. Meanwhile she took strong measures to protect her Tunisian frontier on the Libyan side.

News of a vigorous offensive of the Franco forces against Catalonia in the last days of 1938 came to remind the French that Mussolini might soon be in a better strategic position to press his claims for new advantages in the Mediterranean. See also CZECHOSLOVAKIA; ITALY; WORLD ECONOMICS.