In 2005 the National Bank of Belgium published a detailed account of its history during World War II, written by Herman Van der Wee, one of the leading economic historians in the Low Countries, and Monique Verbreyt. The present book is a condensed English version of the Dutch original.
Politicians, like generals, tend to prepare for the previous war. War preparations in Belgium in the late1930s are a case in point. Believing that there would be time for an orderly retreat, the government ordered that all key public services should withdraw before any enemy advance and continue to exercise full authority, even if removed from the national territory. This strategy was nullified by the swift defeat of the Allied armies in May/June 1940. While King Leopold III chose to remain in occupied Belgium, his government and many senior civil servants – among them the management of the National Bank – fled, in disarray, to the south of France, where, after the French surrender on 22 June, they were left wondering what to do next. Amidst this confusion, the governor of the National Bank, Albert-Edouard Janssen, decided to return to Brussels. The government, on the other hand, after much dithering, left for London, to continue the war on the Allied side. This split of authority between London and Brussels provided the dramatic backdrop to four years of vacillation, misunderstandings, tensions and outright conflict over how best to influence monetary and economic policymaking in occupied Belgium.
As the legal seat of the National Bank had followed the government to France and since all banknotes and printing presses had been removed from the Brussels head office, the Germans quickly resolved to create a new bank of issue. The Emission Bank was set up in Brussels in June 1940. This solution was also favoured by the Belgian private banks who were faced with a shortage of hard cash. In return for putting up the capital, the private bankers obtained agreement that the Emission Bank would be created as a Belgian limited company, in the management of which they had a say, thus avoiding having an institution under full German control imposed on them. Shortly after the establishment of the Emission Bank, governor Janssen returned to Brussels and the National Bank resumed operations. The Germans resolved the apparent dichotomy by appointing Janssen chairman of both institutions. A new threat arose with the untimely death of Janssen in June 1941. His replacement became the occasion for a showdown between Brussels and London. The Belgian government refused to recognise the appointment in Brussels of Albert Goffin as Janssen's successor, and promptly appointed Georges Theunis, Belgian ambassador in New York. From that moment onward the National Bank of Belgium had two governors.
A central theme of the book is the continuous struggle of the board and the management of the National Bank and the Emission Bank in Brussels to reconcile the increasingly burdensome German demands with the protection of Belgium's basic interests. Rising occupation costs were just one aspect. All of Belgium's external trade was forced into the straitjacket of bilateral clearing, with the Verrechnungskasse in Berlin acting as the central clearing house. It was vital for Belgium that its industrial exports should be compensated with food imports, but as the war dragged on this strategic goal proved ever more elusive. Increasingly, the Germans forced the Belgians to execute blanket payment orders for war-related purchases in Belgium. The only compensation was a growing Belgian credit balance, which for all practical purposes remained blocked in inconvertible Reichsmarks at the Verrechnungskasse in Berlin. By the end of the war, this credit balance amounted to over BEF 60 billion.
With time, the initial strategic choice to resume economic activity and to cooperate with the German military government in order to safeguard Belgian interests – the so-called ‘policy of the lesser evil’ – increasingly backfired. As the food situation deteriorated, the hope that economic cooperation would at least guarantee that Belgian workers could continue to work in Belgium was betrayed when compulsory labour recruitment for the German war industry began in 1942. Economic cooperation turned into collaboration. But, the authors ask, was there a credible alternative? Open resistance would surely have led to Belgian operators being replaced by others more pliant or by Germans themselves. Was not the Belgian set-up preferable to the situation in the Netherlands, where a more ruthless German civil administration was put in place, with a New Order central bank governor? The authors seem to subscribe to this view, indicating that the military government in Brussels was to a certain extent sensitive to Belgian interests, taking them into account as much as they could or dared in the face of the imperative demands from Berlin.
Planning for peacetime started early in London and (clandestinely) in Brussels. Quickly two plans crystallised, one championed by former prime minister Paul Van Zeeland and one by the minister of finance in London, Camille Gutt (later the first managing director of the IMF). Both plans aimed to achieve a quick resumption of economic activity through decisive monetary reform and the elimination of pent-up inflation. But, while Van Zeeland favoured a sharp devaluation of the Belgian franc, Gutt insisted on keeping the exchange rate close to its pre-war level by rigorously eliminating the surplus money in circulation. Gutt prevailed. The so-called Gutt operation started in October 1944, shortly after the liberation of Belgium. It consisted of fixing a new exchange rate, the introduction of new banknotes, a partial freeze on bank deposits and strict controls on bank lending. The immediate result was more hardship for an already suffering population. However, the operation also laid the foundation for economic and financial stability, and thereby for the Belgian miracle of rapid postwar reconstruction. This miracle was shortlived. By 1950, Belgium's economic performance had fallen behind that of its European neighbours. In the analysis of the authors this was mainly because the Gutt operation had neglected structural reform. By now, the mixed economy, characterised by a higher level of government planning and intervention, was in full swing in much of Western Europe, contributing to a golden era of high growth, low inflation and full employment. Belgium's relative stagnation in the 1950s is thus, at least in part, attributed to the lack of foresight of the wartime Belgian government in London.
Van der Wee and Verbreyt offer a well-researched and well-written account of a fascinating episode in the history of the National Bank of Belgium. True, the title of the book is somewhat misleading, as it suggests an all-encompassing history of Belgium during the war, not just of its central bank. Even so, there are good reasons why this book should appeal to a broader audience than only students of Belgian central banking history. The authors take a broad perspective that goes far beyond the central bank itself to include its interactions with the economy, and the political and social dimensions of the way in which the currency is managed. This story vividly illustrates that monetary policy is never neutral: ultimately it is all about making political choices. Because the book deals with central banking under extreme conditions – i.e. war – these very themes stand out all the more starkly. Importantly, the book avoids expressing obvious moral judgements, and yet does not shy away from the grave moral issues inherent in trying to safeguard national interests by fulfilling an active economic and political role in a country that has lost its independence to an oppressive occupier. This is a universal theme. Van der Wee and Verbreyt go to great lengths to explain and understand the behaviour of the main protagonists in this drama – paying close attention to the complex context and highlighting the often incomplete information on the basis of which people had to make their decisions – and then they leave it to the reader to judge. This is one of the great strengths of this book.
