The Sky's the Limit

In Greece, a landlady who was owed six months' rent did not bother to collect it--it would have bought only half an egg. The Belgium Government sent great wagons, with armed guards, into the countryside to seize food from peasants for sale in the cities. In Paris, Communists scrawled a hammer & sickle on the walls of buildings below slogans pleading for lower bread prices. In all the freed nations of Europe last week the story was the same. Currencies fluctuated wildly, sometimes reaching fantastic figures. U.S. traders, who had hopefully looked forward to trade with Europe, snapped shut their books for months. Even if all the European governmental trade controls were lifted tomorrow, the giddy currencies would prove an insurmountable barrier until they are stabilized.

In Greece currency inflation was the most fantastic. The Nazis had flooded Greece with paper money, had stripped the country of all movable machines, foodstuffs and farm animals. By the time Allied troops entered Greece they found that the drachma, in 1940 worth about 2/3-c-in U.S. money, was worth so little that the money blew about the streets of Athens.

No one bothered to pick it up. A U.S. dollar was worth 100 million drachmas. The daily bread ration cost 600,000,000 drachmas, and few could afford it.

By last week Greek inflation appeared to have passed its peak. One big reason: Finance Minister Alexander Svolos promised that a new drachma will be issued (probably backed to some extent by Greece's slender gold reserve and credits abroad), exchangeable at an unannounced ratio for the old. The value of the drachma rose slightly--at week's end, a dollar was worth a mere 90 million drachmas.

In Belgium under the Nazis currency in circulation tripled to 180 billion francs (prewar rate 36 francs to the dollar, present rate 44 francs). Prices of scarce food & clothing soared till simple dresses sold for $120, shoes for $70. Three weeks ago, Camille Gutt, Minister of Finance in the new Pierlot Government, took harsh measures to take the bulk of this currency out of circulation. Gutt called in bank notes of 100 francs and larger, returned no more than 2,000 francs to anybody, froze the rest in blocked accounts.

By such means, the Pierlot Government hoped not only to curb inflation but to tie up the money of war profiteers where it could be got at, at leisure. Last week Minister Gutt proudly announced that the harsh treatment had cured the disease. Some 90 billion francs had been turned in; currency in circulation was only 50% above prewar figures.

But Finance Minister Gutt was not yet out of the woods. The process of deflation shut off the flow of the limited amount of goods still available. Farmers, used to black-market profits, refused to sell at legal prices, so the Government sent trucks into the country for food. Workers who had managed to live somehow by patronizing the black market found themselves on the verge of starvation. Some thought the cure was worse than the disease.

The Allies promised 4,000 tons of food in the next three weeks. But Minister Gutt was in a nip & tuck race. His Government's ability to get food to the people determined how long it would stand..

In France people, scared by the Belgian experiment, feared that the De Gaulle Government might try the same deflationary trick. Last week they scrambled frantically to buy U.S. dollars, British pounds and gold in the black market. Result: the franc, pegged at 2-c-, sank until a dollar was bringing 315 francs. The franc did not rise till Andre Istel, French delegate at the Bretton Woods conference, announced that France had no intention of following Belgium's plan. The Allies helped by recognizing De Gaulle. This implied releasing to his Government over $1 billion of French gold to put a solider floor under the franc. Actually, most French financiers know that it is now too late for France to do what Belgium did. Black markets have already dissipated much of the currency of war profiteers.

The measure of inflation in France is the difference between the official value of the dollar, 50 francs, and the black-market value. So far the De Gaulle Government has hesitated to take drastic deflationary measures. It could too clearly see what was happening in Belgium.

Too Dangerous. All European nations know that somehow they must stabilize their currency. If Belgium succeeded by the deflationary route, she would have performed this difficult operation in one shocking amputation. Few European countries are likely to follow her example. The hardheaded Dutch next door will have none of it. Said one top Dutch moneyman: "The plan is psychologically dangerous; because you can't force people into virtue. It's technically too difficult to administer." Dr. Johan Beyen, Dutch delegate to Bretton Woods, said Holland plans an orthodox savings drive to sop up inflationary cash, stringent wage & price controls and a retroactive 100% excess-profits tax to grab wartime profits. But most of all Holland stresses what other Governments have ignored--heavy taxes, to bring its budget under control, the step which all European countries must take sooner or later to stabilize their currency. Buying power would thus be brought more in line with available goods for sale.

Above all, the nations must get their industries back into production, step up output by backbreaking work.

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