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September 21, 2020
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Euro – a colossus on clay legs. Part 4 |

In the previous section – available at this link – we discussed the policies pursued in Europe by the President of France and the country’s national hero Charles DeGaulle. What happened next?

Earthquake and voltage surge

DeGaulle tried to suppress Germany in the first half of the the 1960s. When the latter remained unmoved, he raised the stakes. He decided to shake the entire Bretton Woods system. In 1965, he ordered 25.9 gold bars (about 350 tons) to be taken from the Fed’s treasury and transferred to Paris. In other words, it used a simple Bretton Woods mechanism. In exchange for dollars (paper) you could get gold (that is, real metal).

It was not long before the market reacted. Some European companies and central banks chose to go in the same direction: they demanded gold in exchange for dollars. However, this is still nothing. Speculators sensed the blood and the yellow metal in circulation began to cost $ 70 per ounce. Except the US, under a financial system it designed itself, had to sell 1 ounce for $ 35.

DeGaulle was like Alfred Hitchcock, and although he started out with an earthquake, it wasn’t long before he decided to further increase the tension. He withdrew the French troops from NATO and demanded the liquidation of the NATO bases located in France. To understand the scale of this decision, suffice it to add that we are talking about half of the the 1960s, which is actually almost the height of the Cold War. Until a few years ago, the world was trembling that the cold conflict would turn into a hot one, and now the removal of NATO bases from France meant a weakening of US influence in Europe, and thus an increase in the threat from the USSR.

Things did not get any better in Germany (West Germany). The country’s central bank was reluctant to continue to support the Bretton Woods system. What did that mean in practice? Printing more and more brands as absorbers of dollars and francs that speculators borrowed from banks to buy German currency. As a result, currency changes were simply speculated and played on. By the time the Bundesbank was printing a mass of marks, it was defeating the speculators’ strategy, but as soon as the printing press slowed down, the values ​​of the currencies of France and the US were no longer sustainable when it comes to Bretton Woods figures.

A coup d’état

There was a conflict between the German government and the central bank. Chancellor Ludwig Erhard was a supporter of cooperation with the United States and thus the support of Bretton Woods. So the central bankers decided to… get rid of him.

The Bundesbank has restricted the ability of private banks to grant loans to businesses and individuals. Effect? Recession. Only the voters did not blame the bankers, but the politicians for the economic collapse. The then president of the German central bank, Karl Blessing, admitted years later:

“We had to use violence to restore order.”

As a result, Erhard lost his position as chancellor and Kurt Kiesinger assumed power. He has already pursued a policy in line with the expectations of central bankers.

The politicians also concluded a Stability and Growth Pact. As a result, wages were cut, thus keeping inflation lower than in France and the USA, and stimulating exports.

Revolt west of the Rhine

There was also no peace in France. De Gaulle unfortunately lost. He failed to restore the gold standard, and Bretton Woods was still on his feet despite the blows he had dealt. In addition, high inflation appeared in the country, which was accompanied by high social dissatisfaction. Ultimately, the president pressured the monetary authorities to tighten their monetary policy to strengthen the franc.

The effect of De Gaulle’s idea, which was admittedly a brilliant military man, but probably less familiar with the economy, was an increase in unemployment, a further jump in prices, further manipulations of currency speculators and a deterioration of the trade balance with Germany.

In 1968, French students took to the streets. There were sharp riots, and De Gaulle had to take refuge in… Germany for a short time. It is true that he maintained power – mainly thanks to the army – but he resigned the following year. George Pompidou took over. He started his office with a threat. In one of the interviews he said that it was true “Germany has its brand, but we have our Christmas ornament”, obviously referring to the nuclear bomb …


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