Debt Mission to America – Hopes of Financial Circles -The Italian Lira and French Franc

«The Economist», 7 novembre 1925, p. 758

Turin, October 29

On October 22nd the Italian Mission for the settlement of the debt with the United States sailed from Naples. Among the members of the Mission are some of the very best names in the financial world, Signor Volpi, the Finance Minister, and the able organiser of great electrical enterprises and director of banks; Signor Pirelli, the son and partner of the founder of a world-renowned rubber manufacturing firm; Signor Alberti, a student of economic questions and a responsible banker; and as technical experts Professors Gini and Cantelli, both distinguished University professors. A well-digested mass of statistical evidence on the economic and financial situation of Italy has been prepared, so that the case for Italy will be fully laid before the American Commission.

Financial circles and stock exchanges (which, by the way, have recovered from the extreme depression of the end of September and the first days of October) are welcoming the attempt at a settlement, and set on it great hopes. They see that the payment of big sums on the score of interallied debts will be a source of recurrent difficulties; but, in the characteristic mental attitude of men of affairs, they say, better a bad certain bargain than a perpetual uncertainty hanging over us. Until uncertainty is dispelled, no real progress can be made. Financial circles, moreover, hope that the settlement will mean the lifting of the embargo on issues by Italian public corporations and joint-stock companies in the United States. As one of the greatest obstacles to payments is difficulty of remittance, it is hoped that Americans will re-invest the sums received from the Italian Treasury in Italian industrial concerns, becoming interested as shareholders, partners, or creditors in the property of Italian agriculture and industry.

That is one side of the problem; on the other hand it is observed that there is not the slightest probability that Italy can export anything for the sake of debt payment. Even supposing that taxpayers can be taxed up to a certain sum, say 20 million dollars eventually for payment to the U.S. and 20 millions for payment to Great Britain, how could such a sum, corresponding, at the present rate of exchange, to 1,000 million lire yearly, be transmitted? The balance of exports and imports worked out as follows in the first eight months of the present year (in millions of lire):

It seems that in 1925 the excess of imports over exports, which in 1924 totalled 5,070.1 million lire, will be over 8,000 million lire. No one thinks that the invisible net credits can offset more than a part of the unfavourable commercial balance; so that in the present year Italy will be obliged to resort to foreign credits under various forms.

How that situation could be so thoroughly reversed as to create an excess of credits and the possibly of remittances to foreign countries is very difficult to say. Moreover, it will not be easy to extract from the overtaxed Italian the sums which presumably are claimed by foreign creditors. How a hard-living people can pay huge sums to rich, well-fed and well-housed Americans strikes Italians as a problem somewhat difficult of a common-sense solution. However, on these problems differences of opinion do not coincide with political parties. All parties support the Government in the attempt to reach a solution which Italy can fulfil without too crushing a burden on her future development.

An interesting feature of the end of October has been the rupture of the chain which seemed to bind together the Italian lira and the French franc. Until recently whenever the French franc sank, the Italian lira followed it. Our experts attributed the synchronism of the two movements to arbitrage operations of French banks, and to the opinion, widely held in foreign circles, that Italian and French finances were involved in the same good or bad plight. Last summer, for the first time, the synchronism was not operative, and the last slump of the franc did not extend to the lira, which remains today at about 25 lire per dollar, or 122 per pound sterling. There is, indeed, a fundamental difference between France and Italy. We have balanced the budget, so that the Treasury is not bound to come to the market continually in search of money. We have indeed 17,954 millions lire of 3 to 12 months Exchequer bills, but they are easily renewed when they come to maturity, and cannot, therefore, be considered as a latent paper circulation. We have not, as France has, a Treasury problem. The only visible element of disquiet in our financial situation is today the interallied debt problem. Public opinion is growing persuaded that Great Britain and United States will not willingly take upon themselves the responsibility of up-setting an equilibrium which cost us so great a sacrifice to reach.