The history of the Banque de Paris et des Pays-Bas in the Baltic countries – a missed opportunity (1/2)

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Vilnius Old Town By Augustas Didzgalvis Aspect Ratio 570 325

France began to turn its eyes towards Eastern Europe in the early 1920s. The countries of Central and Eastern Europe were considered a new Eldorado for French companies and the State sought to consolidate their status as new allies. The Banque de Paris et des Pays-Bas naturally played a leading role in this movement. But the three Baltic states – Lithuania, Latvia and Estonia – positioned somewhat on the sidelines geographically, also found themselves sidelined in terms of the bank’s and France’s interests. Why?

The policy of France and the Banque de Paris et des Pays-Bas

This eastward movement by French policy finds its roots in the First World War and its conclusion. Eastern Europe emerged from the first global conflict transformed: new states appeared from the ruins of great empires. The dismantling of the German Empire, Austria-Hungary and the Russian Empire following the European conflagration redrew Europe’s borders. It is from this upheaval that countries such as Czechoslovakia, Poland and the three Baltic States were born. Others, such as Romania and Serbia, extended their borders through annexation.

France immediately began working on closer relations with these new states, in order to counterbalance German and Austrian influence in the region and which they continued to exercise after the war. A French military mission was therefore dispatched to Poland. French officers played an important role there in defeating the Red Army in Warsaw in 1920, helping to preserve Polish independence and consolidating the Franco-Polish alliance.

For the Banque de Paris et des Pays-Bas (Paribas) – which had emerged weakened from the war, like all French banks – this pivot towards Eastern Europe seemed vital. Eastern European economies had turned away from the Austro-German companies and banks that had held a dominant position there. This made Eastern Europe a real Eldorado, capable of revitalising Paribas after that difficult period. And the impetus for this ambitious policy came right from the top of the bank.

The expansion of Paribas in Eastern Europe

The bank owed this strategy to Horace Finally, Chief Executive Officer of Paribas. This energetic man, an intellectual and friend of Proust, was the project’s main driving force. To boost Paribas’s representation in the region, he drew on dynamic, former military men, selected for their prior knowledge of the region. In Romania, the bank’s policy was steered by Ernest Mercier, who had served in the country during the First World War. In Poland, Jean Gallaud, former military attaché at the French Embassy in Saint Petersburg, represented Paribas in Warsaw.

Paribas therefore also projected its influence in the area, in alignment with French national interests. The case of Romania is a prime example of this synergy and Paribas’s establishment in Eastern Europe: Paribas was the first French bank to invest in the Romanian oil sector after the war, taking control of Steava Romana, the largest oil company in Romania. It played a leading role in French projects, paving the way for French investments in the oil sector: over 10 years, 250 million francs were invested in it, helping France to secure a strategic sector.

Horace Finaly, BNP Paribas Historical Archives

The bank stepped up its investments in the region: in Poland, an ambitious project aimed at vertical concentration of the paper production chain was set up in 1920. These projects saw the bank partner with major French industrial groups to better project its power. In the case of the Polish project, Paribas joined forces with the Hachette group, and in the Romanian oil wells, the bank received help from the metallurgy group Champin and the Mercier group, a specialist in electricity.

The bank was also obviously extremely active in the banking sector. In Austria, Paribas took control of the important Länderbank in Vienna in 1919, while it became a shareholder in Romania of the Banca de Credit Roman in 1920 and the same year founded the Banque Franco-Polonaise in Poland. This ambitious banking strategy gave Paribas the means to carry out its projects in the region, benefiting from those banks clients and cash reserves.

The Baltic countries

Lithuania, Latvia and Estonia were new states, created after the end of the First World War. They had to go through a complex war of independence, with multiple participants, to assert themselves as recognised and legitimate independent entities. Between 1917 and 1920, the Baltic governments were in turn confronted by the Freikorps from Germany, the White Russians opposed to Baltic independence, the Polish army seeking to extend the borders of Poland and the Red Army, which wanted to turn the three countries into Soviet republics.

Map Baltic And Baltic Countries 1930 Touring Club Italiano Cart Trc 08 1
Baltic states and the Baltic sea region in 1930, Wikimedia Commons.

Support from Entente countries played a decisive role in the Baltic States’ eventual victory. France, and especially Great Britain, provided these young countries with diplomatic and military support. The two countries deployed a squadron of warships off the Baltic coast in 1919, sent military missions to the region, delivered weapons and, on several occasions,  used their diplomatic influence on their White Russian allies and defeated Germany to extract the Baltic armies from difficult situations.

The Baltic economies emerged ruined from this series of conflicts and occupations. Riga and Tallinn, which had been major industrial centres of the Russian Empire, were emptied from their workers, who had been evacuated to Russia with their factories during the war, died in fighting or epidemics, sentenced to unemployment or fled to the countryside. The industrial apparatus had been dismantled. Factories and infrastructure were devastated by fighting or had been taken back to Russia by the retreating Russian army. This is the catastrophic context in which the new Baltic States called for external investment to rebuild their economies.

“Everywhere ruins, empty buildings, often even four scorched walls, no machines in the factories. Many specialist workers are in Soviet Russia or have disappeared. No horses or livestock, no tools on farms. Very precarious means of transport and only wood and peat as fuel. ”
Lieutenant-Colonel Duparquet, Head of the French Military Mission to Latvia, in a report dated 5 February 1920

Foreign trade

France did not manage to gain a foothold in the three Baltic States until after the war however.  Paribas did not commit, although the BNP Paribas Group archives show the bank’s continued interest in the region and contain a large number of documents concerning Lithuania, Latvia and Estonia in the wake of their recent independence. These documents come from a variety of sources: some are articles extracted from newspapers, while others are notes and publications by the French Office of Trade for Russia and neighbouring countries (dependent on the government), as well as reports written by people who had visited those countries. 

These documents are unanimous in their observation that the Germans and British were advancing into the Baltic region, while the French were still unable to compete. Yet an embryonic French infrastructure existed. French officers were present in the region as members of military missions and went on to act as representatives of the French Office of Trade. These officers, such as Colonel Reboul in Lithuania and Lieutenant Deloque-Fourcaud in Latvia, actively championed the interests of French traders and companies. There was therefore a body of representatives of French interests locally, similar to the bank representatives that existed in other Eastern European countries. Paribas did not seize these opportunities however.

Joseph Noulens, French Ambassador to Poland and Russia, noted in a letter dated 5 August 1920: “We will have to be active and decisive unless we want to be completely overwhelmed on the shores of the Baltic.” Despite the efforts by representatives of the Office of Trade, neither Paribas nor other French banks and companies took advantage of the opportunities available.

British action

French rivals in the Baltic were quick to seize the opportunity however. Britain and Germany, in particular, manoeuvred to seize Baltic markets, flooding the region with their products and becoming the preferred destinations for Baltic exports. This situation naturally did not go unnoticed by Paribas’s informants in the region. As early as 12 February 1920, 10 days after the Treaty of Tartu was signed between Soviet Russia and Estonia, Mr Jouan, a French merchant looking for partners, lamented in a letter the absence of French activity in the newly independent country and, above all, the “fierce rivalry” of English, Danish, Swedish, Dutch and German traders. They all gained a head start on France.

Spinning Flax 2
Production de lin par une paysanne lituanienne en 1920. Dans l’entre-deux-guerres, c’est encore de cette manière artisanale que le lin était produit dans les Etats baltes. Library of Congress/American National Red Cross.

British entrepreneurs did particularly well. Through careful manoeuvring, a consortium of British investors managed to gain control over the trade in certain strategic Latvian products. These British investors used an intermediary established for the purpose, the National Metal & Chemical Bank, led by an English businessman named Fortington, to sign a series of agreements with the Latvian government. A Latvian state bank was established, with financing from the National Metal & Chemical Bank. A timber contract handed the bank exploitation of Latvian forests, with the right to cut, saw and export 100,000 standards of timber per year from Latvia for 15 years, at fixed prices. Finally, a third contract for production of the state monopoly of Latvian linen guaranteed delivery of all Latvian flax production to the National Metal & Chemical Bank. The Fortington Group was therefore able to capture two of Latvia’s key sectors, in addition to controlling the country’s State Bank.

The futile efforts by France and Paribas to counteract this British plan to monopolise the Latvian market were typical of the French inability to act in the region. A mountain of paper amassed from exchanges between the French Ministry of Foreign Affairs, the French consulate in Riga, and potential financial partners. These frenzied efforts were personally overseen by Joseph Noulens, a specialist in Russian affairs at the French foreign ministry, who aimed to connect a group of French banks (including Paribas) with the National City Bank of New York in order to make a counter-offer to the Latvian government. But the project never succeeded. The US bank pulled out and the attempt was eventually aborted.

The history of the Banque de Paris et des Pays-Bas in the Baltic countries – an aborted attempt (2/2)

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