The Great Depression in France started in about 1931 and lasted through the remainder of the decade. The crisis started in France a bit later than other countries. The 1920s economy had grown at the very strong rate of 4.43% per year, the 1930s rate fell to only 0.63%. The depression was relatively mild compared to other countries since unemployment peaked under 5%, the fall in production was at most 20% below the 1929 output and there was no banking crisis.
The banking crisis in France was driven by a flight-to-safety away from banks, which led to a severe and persistent credit crunch. However, the depression had some effects on the local economy, which can partly explain the 6 February 1934 crisis and, even more so, the formation of the Popular Front, led by the socialist SFIO and its leader, Léon Blum, who won the 1936 elections.
1920s economic crisis
Like the United Kingdom, France initially struggled to recover from the devastation of World War I and tried, without much success, to recover war reparations from Germany. However France had a more self-sufficient economy than Britain. In 1929, France seemed an island of prosperity for three reasons. One was that the country was traditionally wary of trusts and big companies. The French economy was especially founded in small and medium-sized businesses that were not financed by shares. Also, unlike the English-speaking world, particularly the United States, the French invested little on the stock exchange and put their confidence into gold, which was a currency of refuge during the crisis of 1929. Gold had played the same role in the First World War, one reason that explained the great French attachment to it. Finally, France had had a positive balance of payments for some years thanks mainly to invisible exports such as tourism. French investments abroad were numerous.
The German reparations decided by the Treaty of Versailles in 1919 brought in large amounts of money which served principally to repay war loans to the United States. Reparations payments ended in 1923. In January of that year, Germany defaulted on its payments and the French prime minister, Raymond Poincaré, invoked a clause of the Versailles Treaty and sent troops to occupy the Ruhr valley in the hope of enforcing payment. Germany responded by flooding the area with inflated money, ruining its currency and denying France any hope of full reparations. Poincaré accepted an agreement mediated by the United States in which it received smaller payments, but Poincaré's government fell soon afterward.
While the United States experienced a sharp rise in unemployment, France had almost none. Much of that was due to a simple lack of manpower; at the end of the war, France had 1,322,000 dead and three million wounded, almost 4,000,000 casualties. One in four of the dead was younger than 24. That in turn lowered the birth rate, so that by 1938 France still had only half the number of 19- to 21-year-olds it would have had had the war not happened. But whatever the causes of full employment, confidence in the government was high. The French economy was stronger than those of its neighbors, notably because of the solidarity of the franc. The introduction of the US economic model, inspired particularly by Ford, ended suddenly and, with it, the modernization of French businesses. Everything seemed to favour the French; production didn't weaken before 1930, particularly in primary materials, and the country was the world's leading producer of iron in 1930. France felt confident in its systems and proud of its vertu budgétaire, in other words the balancing of the budget, which France had managed more or less for nearly a decade.
In 1927, France gained from the world crisis in becoming the world's largest holder of gold, its reserves growing from 18 billion francs in 1927 to 80 billion in 1930.
Le Figaro said: "For our part let us rejoice in our timid yet prosperous economy as opposed to the presumptuousness and decadent economy of the Anglo-Saxon races."
Problems of financial policy
There was a further contrast in the way France and Anglo-Saxon nations viewed their economies. The Anglo-Saxon model encouraged growth of the money stock, but France saw the Depression as a necessary evil that "purged" the excess liquidity in the world economy and pushed indebted companies into failure.
Successive governments maintained restrictive policies until 1934, and interest rates were kept high to maintain the attractiveness of the franc. The absence of contracyclical policies kept the state budget in balance.