Europe: The Battle for the Franc

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Mitterrand's decision to reappoint Mauroy came as a surprise to many Frenchmen. It was Mauroy, after all, who had announced only in February that he "would not be the man of the third devaluation of the franc," and who, during the municipal election campaign, had blandly assured voters that in the struggle for economic equilibrium, "the worst is behind us." A gifted and genial politician, Mauroy has had day-to-day control over the Socialist experiment since Mitterrand's election in 1981. Wrongly anticipating a worldwide economic upswing and applying economic theories that had by then been discredited in most industrial countries, the Socialists tried to spend their way out of recession. But unemployment continued to rise (from 7.2% when Mitterrand was elected to 8.9% now); French inflation declined only modestly (from 14.3% in mid-1981 to 9.2% now) as inflation in other countries fell sharply; and the trade deficit went from $10.8 billion in 1981 to a record $14 billion last year. As the situation worsened, the government applied ever larger Band-Aids: two devaluations of the franc, wage and price controls and, finally, last week's third devaluation. Thus the main question was why Mauroy was asked to lead the fight against a possible fourth devaluation.

The latest franc crisis had been building up for months, but for political reasons the government chose to wait until after the municipal elections were over before tackling the problem. Meanwhile, the election in West Germany of Christian Democratic Chancellor Helmut Kohl made matters worse. Kohl's reassuring conservatism prompted even more speculators to play the deutsche mark against the failing franc. To the French it was "the deutsche mark problem," and Mitterrand expected Bonn to correct it by simply raising the value of the West German currency. To the West Germans and others it was a "franc problem" caused by France's dismal economic performance. When the finance ministers of the ten European Community nations met in Brussels, the stage was set for a collision.

The battle of Brussels, in fact, was an extension of a struggle that had been going on in Paris between two schools of economic policy within the Socialist Party: the moderate, internationalist "Europeans" and the leftist, often nationalistic "Albanians," as they were nicknamed derisively by their opponents, who accuse them of wanting to cut France off from the rest of the world, like Communist-ruled, isolationist Albania. The moderates argued that France must stay in the European Monetary System (E.M.S.), which requires every member to maintain the value of its currency within a narrow range against the others, even at the cost of domestic sacrifice. The "Albanians" urged Mitterrand to bolt the E.M.S. and resort to protectionism.