27 December 2011

European exchange rates – now and 70 years ago

The BBC website has recently posted a helpful guide, What really caused the eurozone crisis? Although not attributed to a particular author, reading it one starts to hear the unmistakable tones of Robert Peston, the BBC’s Business editor, though surely Stephanie Flanders, the Economics editor was involved. One of the most interesting graphics in the guide shows the trends in the trade balances of the major eurozone economies since the currency union was established in 1999. Germany’s is now nearly 6% of GDP in surplus. After investing huge sums in the modernisation of the former East Germany in the 1990s, Germany seems to have ensured it could put that investment to work. The initial Deutchsmark/euro rate was set at a level low enough to favour the pricing of German exports to the rest of Europe and the world.

Seventy years ago, exchange rates were set in Europe to favour Germany, but in the opposite direction. In 1979 Len Deighton published one of his non-fiction military histories, Blitzkrieg: From the Rise of Hitler to the Fall of Dunkirk. In the concluding section he provided this description of the economic consequences for the French of their defeat in 1940:
German soldiers were provided with occupation marks. The French and Belgian francs and the Dutch florin were pegged artificially low - the French currency about 20 per cent below its true value - and issue banks were forbidden to devalue.
This not only had the effect of draining everything - from champagne to real estate - into German hands at bargain prices, but it prevented German goods leaving Germany, except at bonanza prices. It was a subtle form of plunder …
In addition, each defeated country was made to pay for the maintenance of the German occupation forces. In the summer of 1940 France began paying 400 million francs per day as a 'contribution to her defence against Britain'. …
(p361 Triad/Granada edition 1981)
From 1940 to 1944 the economies of both Vichy France under Pétain and occupied France were ruthlessly exploited so that resources of all kinds could be directed to the Nazi war effort. Insufficient rationed goods of all kinds were available to meet the French domestic demand with inevitable results. For example, the government-set price of butter in 1942 was 43 francs a kilo. On the marché amical (relatives and friends) it sold for 69 francs, and on the black market for 107 francs.

Eventually about 2/3 of the population could not afford to buy the minimum ration diet (1400 calories a day) due to a combination of declining wages and steadily increasing prices. People who had assets like small antiques, porcelain, pictures and so on sold them for what they could get, ultimately to finish up in the occupiers’ hands and be taken back to Germany. Presumably what wasn’t blown to smithereens during the Allied bombing offensive, or sold to the occupying forces in Germany after 1945 is still there. There always seems to me to be a paucity of antiques, antique dealers and so forth in France by comparison with the UK, which avoided Nazi occupation (apart from the Channel Islands). The inadequate nutrition of children, adolescents and women of child-bearing age during the Second World War might explain why, at 6 feet (1.8m), I seem so much taller than most Frenchmen over 50, markedly less so with the under 30s.

The wartime statistics above are taken from The Civilian Experience in German Occupied France, 1940-1944, Meredith Smith , Connecticut College, January 2010; see pages 17 and 24 for the supporting references.

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