Exchange – Banking – Industrial Consortia – Foreign Trade

«The Economist», 5 marzo 1932, pp. 517-518

Turin, February 16

The outstanding event in February has been the brilliant behaviour of the lira. After the slump of the pound sterling, the lira was marked down in New York from the par of 5.263 cents to about 5.05, where it was kept for several months by a severe restrictionist policy. On Tuedsday, February 2, it touched bottom at 5.003/4; but the same day it rose rapidly and closed at 5.07; on Wednesday it rose further to 5.16, and reached on Friday the pre-slump level of 5.23. This is within the legal gold points, and the feat was hailed by a unanimous Italian Press as a proof of the good impression made on foreign markets, principally New York, by the announcement of a final deficit of only 504 million lire for the fiscal year 1930-31, as against the previous provisional figure of 896 millions, and by the continued decrease of the note circulation of the Bank of Italy. The lira market is very restricted, and there is no great volume of foreign sight deposits in Italy, so that unfortunate sellers, caught short, rushed to cover.

Recently the lira has again fallen below the lower gold point, sagging slightly to 5.19 . Signor Mazzucchelli has pointed out in the daily Sole that the most important figure in the Bank of Italy balance sheet is not the note circulation, but the sum of note circulation and other sight liabilities (public or private deposits and circular cheques) less total reserve, which difference is the sum put by the Bank at the disposal of commerce and finance. This sum increased from 8,712 million lire at January 20, 1928, to 9,449 millions and 10,585 millions at the same date of 1931 and 1932 respectively. The portion of this sum used for discounts and advances was respectively 4,461, 4,883 and 5,350 million lire. As the slump in wholesale prices must have diminished the requirements of the market, the Bank of Italy has vastly increased in the last four years, perhaps from 60 to 80 per cent., the sums offered for the financing of internal industry and trade. The Bank of Italy resembles the Bank of France rather than the other central banks, inasmuch as it carries a direct discount business, and has a great many offices open all over the country. The present increase in active operations is, however, mainly due to rediscounts of commercial and financial paper presented by ordinary banks.

So far, this “encouragement policy” of the Central Bank has failed to infuse new life into the market. The boomlet, which culminated in a rise of the general index number of variable dividend securities from 50.06 at December 31, 1931, to 52.06 at January 31, 1932, has already subsided, the index falling to 51.17 at February 6th. On the announcement of a reduction from 60 to 40 lire of the dividend paid on Banca Commerciale shares, these were marked down from 1,100 lire to 1,085 lire. The Banca Commerciale Triestina is to be absorbed by the Banca Commerciale Italiana, which already owns almost all its shares. The Banca Nazionale del Lavoro, a public bank, will absorb the Banca Popolare di Pavia, taking full responsibility for its deposits.

The Central corporative Committee has reached the following conclusions about compulsory industrial consortia: – 1) A big majority of interested industrialists will be the preliminary condition to their creation; 2) the competent (corporative) authorities ought to approve them from the point of view of national economy; 3) the State should limit and supervise their functions; 4) when a consortium is created, no new industrial establishments can be started or plants in existing establishments can be enlarged, without some sort of State or consortium control; 5) the Government shall have authority to revise or modify the rules of existing consortia.

These far-reaching conclusions have already some precedent in the present corporative system; as no new retail shop can be opened and no new factory in industries concerning national defence (for instance, motor-car factories) can be erected without Government authorisation. The new rules mean the extension to all industrial fields of the scattered tentative rules hitherto adopted. Their importance lies in the fact that free competition is becoming little by little a thing of the past. Newcomers will see the way barred to them, if a sufficient majority of industrialists to create a consortium are already in the field, and if the corporative authorities, who consist of representatives of employers and employees selected from above, with a certain number of public umpires, pronounce the consortium to be useful to national ends. Independent business men will be excluded from industry, as independent political groups are deemed absurd in a unified politico-social system. Experience alone will show how costs of production and competitive aptitude will fare under such centralised organisation of vested interests. Great hope, however, can be based upon the unlimited capacity of Italians to eliminate in practice the evil consequences of apparently inflexible written rules.

The quota system has been extended from live cattle to fresh and frozen meat, the first order, which limited foreign cattle to 15 per cent, of total consumption, failed to sustain its initial beneficial effects on prices, as meat was imported instead of live cattle. The dangers of restrictions in foreign trade are becoming more and more apparent. Negotiations began today at Rome between Italian and French delegates as to the renewal of the commercial conventions, concluded between 1898 and 1928, which were recently denounced by France, as a retaliation against the application by Italy of differential quotas to certain French products, which, in its turn, was a retaliation against similar treatment by France of Italian imports. It is hoped that the negotiations will succeed. As otherwise the present conventions will lapse at the end of February. Italian wine growers are much concerned about the threatened suppressions of the differential tariff of 55 francs per hectolitre for common wines and 84.50 francs per hectolitre for fine wines, and hope that the fear of retaliation on champagne and other high-grade French wines will influence the French in the negotiations.

Meanwhile, international trade is slowing down: imports decreased from 1,025.3 million lire in January, 1931, to 732.3 millions in January, 1932; and exports from 692.2 millions to 526.1 millions. The deficit has also decreased from 333.1 millions to 206.2 millions; but the spectacular slump in imports is a bad omen for industrial activity in the immediate future. The number of unemployed increased from 982,381 at the end of December, 1931, to 1,051,321 at the end of January, 1932, against 722,612 at the end of January, 1931. This constitutes a record for many years.