Paul Reynaud - Return To Government

Return To Government

Reynaud returned to the cabinet in 1938 as Minister of Finance under Édouard Daladier. The Sudeten Crisis, which began not long after Reynaud was named Minister of Justice, again revealed the divide between Reynaud and the rest of the Alliance Démocratique; Reynaud adamantly opposed abandoning the Czechs to the Germans, while Flandin felt that allowing Germany to expand eastward would inevitably lead to a conflict with the Soviets that would weaken both. Reynaud publicly made his case, and in response Flandin pamphleted Paris in order to pressure the government to agree to Hitler's demands. Reynaud subsequently left his party to become an independent. Reynaud still had Daladier's support, however, whose politique de fermeté was very similar to Reynaud's notion of deterrence.

Reynaud, however, had always wanted the Finance ministry. He endorsed radically liberal economic policies in order to draw France's economy out of stagnation, centered on a massive program of deregulation, including the elimination of the forty-hour work week. The notion of deregulation was very popular among France's businessmen, and Reynaud believed that it was the best way for France to regain investors' confidence again and escape the stagnation its economy had fallen into. The collapse of Léon Blum's government in 1938 was a response to Blum's attempt to expand the regulatory powers of the French government; there was therefore considerable support in the French government for an alternative approach like Reynaud's.

Paul Marchandeau, Daladier's first choice for finance minister, offered a limited program of economic reform that was not to Daladier's satisfaction; Reynaud and Marchandeau swapped portfolios, and Reynaud went ahead with his radical liberalization reforms. Reynaud's reforms were successfully implemented, and the government stood down a one-day strike in opposition. Reynaud addressed France's business community, arguing that "We live in a capitalist system. For it to function we must obey its laws. These are the laws of profits, individual risk, free markets, and growth by competition."

Reynaud's reforms proved remarkably successful; a massive austerity program was implemented (although armament measures were not cut) and France's coffers expanded from 37 billion francs in September 1938 to 48 billion francs at the outbreak of war a year later. More importantly, France's industrial productivity jumped from 76 to 100 (base=1929) from October 1938 to May 1939. At the outbreak of war, however, Reynaud was not bullish on France's economy; he felt that the massive increase in spending that a war entailed would stamp out France's recovery.

The French Right was ambivalent about the war in late 1939 and early 1940, feeling that the greater threat was from the Soviets. The Winter War put these problems into stark relief; Daladier refused to send aid to the Finns while war with Germany continued. News of the Soviet-Finnish armistice in March 1940 prompted Flandin and Pierre Laval to hold secret sessions of the legislature that denounced Daladier's actions; the government fell on 19 March. The government named Reynaud Prime Minister of France two days later.