At the same time, in late 1935 to early 1936 France was gripped by a financial crisis, with the French Treasury informing the government that sufficient cash reserves to maintain the value of the franc as currently pegged by the
gold standard in regard to the US dollar and the British pound no longer existed, and only a huge foreign loan on the money markets of London and New York could prevent the value of the franc from experiencing a disastrous downfall.
[131] Because France was on the verge of elections scheduled for the spring of 1936, devaluation of the franc, which was viewed as abhorrent by large sections of French public opinion, was rejected by the caretaker government of Prime Minister
Albert Sarraut as politically unacceptable.
[131] Investors' fears of a war with Germany were not conducive to raising the necessary loans to stabilize the franc, and the German remilitarization of the Rhineland, by sparking fears of war, worsened the French economic crisis by causing a massive cash flow out of France, with worried investors shifting their savings towards what were felt to be safer foreign markets.
[132] The fact that France had defaulted on its World War I debts in 1932 understandably led most investors to conclude that the same would occur if France was involved in another war with Germany,. On March 18, 1936, Wilfrid Baumgartner, the director of the
Mouvement général des fonds (the French equivalent of a permanent under-secretary) reported to the government that France, for all intents and purposes, was bankrupt.
[133] Only by desperate arm-twisting from the major French financial institutions could Baumgartner manage to obtain enough in the way of short-term loans to prevent France from defaulting on its debts and to keeping the value of the franc from sliding too far, in March 1936.
[133] Given the financial crisis, the French government feared that there were insufficient funds to cover the costs of mobilization and that a full-blown war scare caused by mobilization would only exacerbate the financial crisis.
[133] The American historian Zach Shore wrote, "It was not lack of French will to fight in 1936 which permitted Hitler's coup, but rather France's lack of funds, military might, and therefore operational plans to counter German remilitarization".
[134]
