France's new right-wing government today took its first steps toward fulfilling promises to liberalize the French economy, beginning with a controversial devaluation of the French franc.
The devaluation of the franc, agreed to at a weekend meeting of European finance ministers in the Netherlands, formed part of a package of measures designed to boost confidence in the French economy.
The finance ministers, meeting in the town of Ootmarsum, agreed to a 3 percent devaluation of the franc in addition to an equivalent upward revaluation of the West German mark. This formed part of the first general realignment of the seven currencies within the coordinated European Monetary System in three years.
The devaluation and a package of other measures were the first major economic decisions made by the new government here since the narrow right-wing victory in parliamentary elections March 16. French commentators interpreted the move as a political gesture designed to win the new government freedom for economic maneuvering while it attempts to liberalize the economy. The package included the reduction of exchange controls, cuts in public expenditure and freeing of price restrictions.
The effective devaluation of the franc by 5.8 percent against the mark will make French exports more competitive in their principal European market. It will also have the effect of boosting the subsidies paid to French farmers, who form an important constituency for the conservative government headed by Prime Minister Jacques Chirac.
In a statement, Finance Minister Edouard Balladur said the devaluation was designed as a "precondition" for France's economic recovery.
He said it would be accompanied by a "very important, even severe" package of measures designed to reduce the risk of inflation and promote confidence.
Balladur said that government controls over prices, which have existed since the end of World War II, would soon be removed. Further details are expected in a major policy statement to the National Assembly by Chirac on Wednesday. The immediate freeing of prices, and relaxation of exchange controls, were part of the electoral program agreed on by the neo-Gaullist Rally for the Republic led by Chirac and the center-right Union for French Democracy. The right-wing parties also promised to encourage competition in the economy by relaxing credit restrictions and denationalizing industries taken over by the left in 1981.
The devaluation was criticized by members of the former Socialist government who had sought for three years to protect the value of the franc. The Socialists sought to build up a reputation for financial competence after abandoning a policy of economic expansion that led to forced devaluations of the franc in the years from 1981 to 1983.
Some financial experts questioned the need for a devaluation in view of the fact that the French inflation rate is now down to 1.2 percent a year, the same as West Germany's. Other analysts pointed out that, in the three years since the last realignment within the European Monetary System, French goods have become 13 percent more expensive than German goods.
In other currency moves, the European finance ministers agreed to revalue the Dutch guilder by 3 percent and the Belgian franc and the Danish krone by 1 percent each.
The currency realignment is likely to lead to a modest devaluation of the French franc against the dollar and a slight revaluation of the German mark when currency markets reopen Monday.
Financial experts said the package was likely to be followed by a reduction in short-term interest rates in France, which currently stand at about 8 percent. Share prices on the French stock exchange rose by 2.6 percent Friday in anticipation of the implementation of a new higher-risk, investment-oriented economic strategy.
Balladur said that an effort would be made to hold down public sector salaries in 1986 and to save 15 billion francs (about $2 billion) in public spending. He said that growth in money supply would be held to 5 percent in 1986.