Word: franc
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Still, the Socialist government faced a continuing erosion of its authority because of a growing lack of conviction that its harsh economic medicine will work. Faced with a weak franc, record trade deficits and about 10% inflation, Finance Minister Jacques Delors last March imposed an austerity plan that was harsher than anything his conservative predecessors ever proposed. He chopped $7 billion in current spending, imposed a 1% personal income surtax and required each taxpayer to make a loan to the state equal to 10% of last year's income tax. The measures would diminish the purchasing power of virtually...
...gone right for the government. The French were deeply irritated by a strict $285-a-year ceiling on the amount of money they could spend on vacations abroad. The new tax burdens were considered "too heavy" for workers. Then came the unexpectedly sharp rise of the dollar against the franc (7% since mid-March), which bowled over the goals that Delors had set for his plan. Even the official National Institute of Statistics and Economic Studies concluded that inflation could not be reduced to 8% by the end of the year and that the trade deficit would be closer...
...With the franc under pressure again, disagreement within the Socialist Party over economic policy is bubbling up publicly, adding to a general perception of governmental disarray. Disaffection is strongest among left-wing Socialists and some Communists. They argue that instead of meekly accepting painful austerity, the government should 1) withdraw from the European Monetary System, which links seven major European currencies; 2) correct the trade imbalance through protectionist import restrictions; and 3) concentrate on creating jobs. Jean Poperen, the party's deputy leader, last month charged that the government was losing its "popular support" and called for a return...
Nonetheless, profound disagreements remain, most notably on how to deal with gyrating currency values that have disrupted trade and investment patterns. In a speech at the Elysee Palace, French President François Mitterrand, whose government has been shaken for two years by the falling franc, argued for an overhaul of the international monetary system to bring about more stable exchange rates. Nothing so ambitious has been tried since 1944, when representatives of 44 nations met in Bretton Woods, N.H., and established a worldwide system of fixed exchange rates that endured for nearly 30 years (see box). Said Mitterrand...
Delors' threat now seems hypothetical in a world increasinglycolored by European economic interdependence. The question follows: Why the pluck, the French brinkmanship? German displeasure with France's economic direction had been the initial bone of contention. France's 1982 trade deficit with the German Republic--some $5.5 billion dollars--caused more than a little irritation on the German with side and spurred a late March demand that the French clean up their act. That demand was enough to get the French goat. A third devaluation of the franc in 17 months, as called for, could only embarass the Mitterrand government...