Chapter X The Moratorium in France

CHAPTER X The Moratorium in France In an earlier chapter dealing with the outbreak of the war we have seen how rigorous a moratorium was established in France and have seen something of the difficulties occasioned thereby. A distinguished French financial authority expresses the opinion that in the absence of a moratorium on the bourse the general moratorium would have been unnecessary. Tying up the bourse made the position of the banks very difficult in view of the large amount of loans they had on stock exchange securities. Tihis compelled the banks in his opinion to have recourse to a mora torium on deposits and thus made it necessary for the general public to have a relief from the pressure of creditors. The weakness of the bourse was thus the crux of the whole matter. The magnitude of the loans involved in the bourse settlement immediately preceding the outbreak of the war was about as follows: On the Parquet Fr. 600,000,000 On the Coulisse (curb) 150,000,000to 200,000,000 with an additional 800,000,000 francs on extra-bourse collateral loans confined to the banks and credit houses, presumably also (( reports JJ or it contangoes JJ supposed to be liquidated at the same time that the bourse settlement was made. The Parquet was in even worse positiqn than the Coulisse, since many of the Coulisse securities were still negotiable at London and Petro grad. 1 It is interesting to contrast the position of Paris and London, where the fortnightly stock exchange settlement prevails, with that of New York, where daily settlements are made. The daily settlement in New York gives rise to a much greater volume of 1 London Economist, November 14, 1914, page 883; November 21, 1914, page 921; Laughlin, Ope cit., pages 157-158.

122 FRANCE 123 bank clearings, of shifting of loans and of checks between brokers and brokers or between bankers and brokers. There are times when it may be characterized almost as a nuisance in the sheer physical magnitude of the mechanical operations which bank clerks, stock exchange clearing house clerks, and brokers have to go through with, but it has the supreme merit of giving a clean slate at the end of each day. The problems· in New York following the closing of the stock exchange at the outbreak of the war were much simpler as a result of the daily settlement than were the problems of Paris and London, where the fortnightly accumulation of operations hung over. It is of course not true that the advantage in favor of the New York method is 14 to 1. The actual magnitude of loan's on the Paris bourse would in any case have been great, but daily settlements would have had the advantage in the first place of discovering the weak points earlier and would moreover have substantially reduced the magnitude of the loans hanging over.

Early in November, 1914, cautious plans were made and agreed to by the Banque de France for the relief of the Parquet, the official bourse. The plan involved an advance by the Banque of 40 per cent of the reports or loans on securities for the fort nightly settlement, to be made on deposit of the securities with the Banque, at 5 per cent. The Banque requires three names on all loans made .by it and these loans had only two names, that of the lender and that of the borrower. To give the third name required, it was arranged that the Parquet itself, the Syndicat des Agents de Change, should guarantee these loans made by the Banque. Forty per cent of the interest should go to the Banque and 60, per cent to the original lenders.! Comparatively little use seems to have been made of this arrangement owing to difficulties made by the Syndicat itself, and Ribot resisted pres sure to have the Banque de France' liquidate the bourse on other terms. 2 The Coulisse later in November tried to get relief from the Banque by a similar plan, proposing to organize a limited liability company with a capital of 44,000,000 francs (one1 London Economist, November 14, 1914, page 883; November 21, 1914, pafe 921.

Ibid., December 19, 1914, page 1069; July 24, 1915, page 133.

124 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING quarter paid in), which should supply the third signature for reports. Nothing seems to have come of this. By July, 1915, the difficulties had become greater through the decline of the rente} which had dropped to 69.95, and of the Russian 5's of 1906, which were down to 86.75. Interest of course continued to accumulate. But there had been a great deal of private and voluntary liquidation on the bourse. Of the 600,000,000 francs on the Parquet, all but 180,000,000 had been settled. By August only 25 per cent of the Coulisse reports remained unsettled. In August a plan was arranged by the Par quet for the issue of 75,000,000 francs of 20-50 year points at 6 per cent to be issued at 980 francs per thousand, to be tax exempt, guaranteed by the members of the bourse as a whole, with ~he interest secured by a levy on their commissions,l to pro vide funds for the settlement. This high rate of interest on a loan of such length is striking evidence of the weakened credit of the bourse.

In October, 1915,2 the bourse settlement, which had hung over from the outbreak of the war, finally went through with very little trouble and the bourse moratorium lapsed. The general moratorium lasted much longer. On October 27, 1914, Ribot announced a modification 3 in the moratorium. For the general moratorium, a distinction was made betwe~n those called to the colors and those remaining at home. For the first class the moratorium continued absolute; for the second class a modified regime was set up to D'ecember 31. During November they could not be pressed by legal process, but after December 1 the question of whether the debtor was maliciously taking advantage of the moratorium could be raised by the civil tribunals. The decree also made a modification in the bank mora torium. The decree of August 9 had limited sums withdrawn by aepositors to 250 francs plus 5 per cent of the surplus; on 1 Ibid., July 3, 1915, page 16; July 24, 1915, page 133; August 28, 1915, page 327.

- Professor Laughlin, Ope cit., page 169, dates this apparently as October, 1914. which would seem to be an error. Ct. London Economist, October 9, 1915, page 541. a Econol1l.iste Fran,ais, October 31, 1914; London Economist, November 7, 1914, page 842.

.FRANCE 125 August 29, this was raised to 250 francs plus 20 per cent of the surplus; on September 27, to 250 fr~ncs plus 25 per cent of the surplus. By Ribot's new statement, it was raised to 1,000 francs plus 40 per cent for November, and 1,000 francs plus 50 per cent for December. This decree represented, of course, a very considerable though cautious modification of the moratorium, but it led to a fright ened reaction. A new decree issued November 24 continued the moratorium in full rigor to the end of December, suspending the previous modification relating to nonmobilized debtors. 1 One difficulty arose from the fact that the distinction between those mobilized and those not with the colors was hard to draw, since a man might himself be with the army while his firm continued in business. Certain of the great banks, however, ceased to take advan tage of the moratorium on deposits on the first of January, 1915, as we have seen in our chapter on the private banks. But the general moratorium continued with many renewals and partial modifications for a long, long time. In the last statement of the Banque de France of August, 1918, there still appear over a billion francs of the premoratorium bills, a substantial reduc tion from the nearly four billion francs of the fall of 1914, to be sure, but still a large holdover.

The moratorium on rents has remained a vexed question into 1918. A measure was passed by the Chamber of Deputies in June, 1917, dealing with the matter, but the Senate refused to concur, and in March, 1918, the Chamber was still debating the question. 2 The exact status of the moratorium at the present time is not clear. A very large body of prewar debts have been voluntarily liquidated. Modifications of the moratorium which have put much discretion in the hands of the civil tribunals have led to further liquidations. No doubt many premoratorium debts can never be paid as the debtors are dead or ruined. There will probably remain, however, at the end of the war a substantial number of unpaid debts which will then be liquidated. 1 London Economist, December 5, 1914, page 997. 2 Ibid., June 28, 1917, page 119; March 2, 1918, page 387.

126 EFFECTS OF THE WAR ON MONEY, CREDIT AND BANKING In our section dealing with the outbreak of the war, the opinion was expressed that at every stage the moratorium legis lation went too far, that, even granting the necessity of extraor dinary remedies, no such rigid restrictions were called for. Cer tain it is that the moratorium hung as a millstone about the neck . of France, hampering her recovery for a long time. The one doubt that must be expressed as to the validity of this verdict hinges on the weakness of the private banks; had they been strong enough and courageous enough they could have made such rigorous measures unnecessary. With their ability' to redis count on the Banque de France and to receive from the Banque its notes circulating under the cours force} it is not easy to see why they could not have expanded their credits to any neces sary extent to enable solvent debtors to meet their obligations.

But with the weak, selfish and timid course which the great private banks took, it may be that a moratorium was unavoid able. It is not to be forgotten in contrasting France with Great Britain and the United States in this matter, that virtually the whole man power of France was suddenly mobilized, that her whole industry and commerce were thrown violently out of gear by the necessities of the case, that her richest provinces were seized and that her capital city itself was in imminent danger.