The American Settlement – The Dollar Subscription -Total of the Public Debt – Stabilisation of the Lira Policy -Loans on the U. S. Market – Money Scarcity

«The Economist», 19 dicembre 1925, pp. 1049-1050

Turin, November 30

On the news of the American settlement unanimous praises were bestowed in Italy on Signor Volpi and his colleagues, who carried through the negotiations. As your comments on the transaction were considered in Italy a balanced judgment on the great issue, I need not further dwell on it. Public opinion thinks that a settlement will also be reached between Great Britain and Italy on a basis not much different – more favourable, however, to Italy in view of the Bonar Law offer, of the noble tradition of the British Treasury on these matters, and of the heavy charge that the service of both American and British debts will lay on the Italian taxpayer. I think, also, that the solid determination of the Italian people to honour faithfully the signature of their Government should make our remaining great creditor ready to settle the matter at a bearable basis.

When the settlement terms were published in Italy a subscription was raised in the Genoa Coal Merchants’ Association, all members offering a dollar toward the payment of the American annuity. Signor Mussolini took the hint, and called for a million dollars by December 1st. There was at once an outburst of emulation cities and villages, all sections and classes, with the King at their head, offered the dollar (25 lire); people of small means united themselves in groups so as to reach $1. Newspapers are full of names of subscribers. At the moment of writing Turin, which comes easily first in the list, has reached the figure of 15 V3 million lire, so that the called for 1 million dollars (25 million lire) will surely be reached and surpassed by December 1^st.

As a consequence of the American settlement, we can for the first time measure the total of our public debt without adding together items not comparable between themselves. The only uncertain item is the British debt, and I will therefore suppose, for the sake of easy calculation, that its present value is not higher than the American debt viz., 435 million dollars. I hope that in the end it will be a less sum. I will suppose, also – only for the sake of comparison – that the stabilisation of the lira, which Signor Volpi said at New York is the purpose of the 100 million dollars loan issued in the U.S., will be carried through at about the present rate – i.e., 24 lire to the dollar and 120 lire to the pound sterling. On that basis the total of the debt at October 31, 1925, works out as follows. (See table at p. 361).

At New York Signor Volpi said that only the 100 million dollars loan will be utilised for continuing the present policy of stabilisation. The first step will probably be that the Bank of Italy, by skilful management of the loan fund, will maintain the rate of foreign exchanges at the selected level. The second step will be the adoption of a sort of gold exchange system. Experience will tell at what precise point stable equilibrium can be reached, without laying on the Bank of Italy’s shoulders an impossible task. Eventually, gold reserves could be revalued at the new rate, and, after the Belgian fashion, the increase of valuation could be utilised to wipe out from the State debt-book the figures of notes issued by banks of issue for State account.

It may be said, therefore, that the public debt, internal and external, is about £ 900 millions sterling, a great sum for Italy, but one which the State Budget, at the present level of foreign exchanges, internal prices, and national income, can bear. The American settlement, and the issue of the State loan of 100 million dollars in New York, has been received in financial circles as a promise of growing financial relations between the American money market and Italian industry. The promise is already being fulfilled, a loan of 30 millions having been raised in New York by the Public Utilities and Works Institute, while several minor loans have been negotiated on behalf of prominent groups, as the Turing Gas and Sip concerns. Shares of the Snia Company, of the Sip, and other great companies have been issued in London and New York markets. It is hoped in industrial quarters that the flow of foreign capital into Italy will have the effect of lowering the cost and scarcity of capital, which is being increasingly felt. The official rate of discount was raised from 5.50 to 6 per cent, in February, to 7 per cent, at June 18th. The average rate of interest paid by banks on saving deposits from 3.50-4 per cent, in January, 1924, was raised to 4-4.50 in July, 1925; the prolongation rates or interest paid on advances guaranteed by State securities increased from 5.75-6 per cent, during 1924 to 6 per cent, in May, 1925, and to 7 per cent, in September last; on advances on industrial securities from 7 per cent, in the first half of 1924 interest charged increased to 7.50-7.75 in the last month of 1924 to 8 per cent, in March, 1925, to 8.75 per cent, in June, and to 9 per cent, in September. It is increasingly difficult to obtain accommodation at a rate less than 9 per cent. Everybody complains of the scarcity of money.