France: Relaxing Dirigisme
In the early 1970s, similar to other OECD countries, French financial services firms functioned in a policy environment that emphasized market stability and segmentation, and protection against foreign intrusion. Distinct from other countries was the significant ownership by the state of large commercial banks and the harnessing of banking to the service of industrial policy objectives. Through the 1960s, policy makers had overseen a transition toward a policy framework termed an économie d’endettement or an ‘overdraft economy’. Such an economy is one where borrowers, especially non-financial enterprises, are highly dependent on the allocation of credit by institutional lenders who follow policy signals from the state.1 This dependence encourages firms to act as if their borrowing power is assured, fostering business decisions that may not be conducive to growth in the long run. It also makes it difficult for governments to control the growth of credit, and thus inflation. Finally, such an economy provides little support for the growth and maintenance of money and capital markets.
KeywordsMonetary Policy Central Bank Stock Exchange Financial Service Money Market
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