Banking – Exchequer Bonds – Unemployment – Cartels

«The Economist», 16 aprile 1932, p. 851

Turin, April 4

Perhaps the only visible reaction of changed monetary conditions has been the reduction by the Bank of Italy of its discount rate from 7 per cent. – to which level it had been raised from 5 1/2 per cent, on September 28th – to 6 per cent, on March 21st. This was a move preliminary to the issue of a milliard 5 per cent, nine-year Treasury bonds, to take place between April 7th and 20th. The bonds will be made attractive by 58 half-yearly premiums ranging from one million to 10,000 lire. The issue is at 97, and, including premiums, the yield works out at about 6 per cent. The proceeds will primarily be used to reimburse the 1924 4.75 per cent Treasury bonds which fall due in November, and of which there are outstanding 905.8 million lire. As subscriptions will probably exceed a milliard, the surplus will be welcomed by the Treasury, which is subjected to the strain of a budgetary deficit amounting for the first eight months of the year to 2,091.2 million lire. Owing to the usual time lag between budgeting and disbursements, the excess of actual expenditure over actual receipts has been in the same period only 633 million lire.

The Exchequer needs, however, to be relieved, particularly in view of the fact that the floating debt amounted on February 28th to 6,130.6 million lire, almost wholly due to the Deposit and Loan State Bank, a public institution to which are entrusted the deposits of postal saving banks and the funds of various social and public insurance bodies. As in France, this Deposit and Loans Bank (Casse Depositi e Prestiti), though little known among the general public, is the biggest bank in Italy, with funds of upwards 17 milliard lire. Of these, roughly 6.6 are advanced to public bodies, provinces, municipalities, public works and other corporations, 4.6 are invested in State securities, and 6 are advanced to the State Exchequer as a current account. Thus the bank, by canalising savings to the State and other public bodies, is a major pillar of public credit.

Trade and industry grow restive from time to time under this wholesale absorption of public savings for State use. At present, however, criticism is disarmed, as it was by means of the large funds in possession of the D. and L. Bank, that the Bank of Italy was able to withstand the monetary storm of last autumn without decreasing advances to trade. As Governor Azzolini observed at the shareholders’ meeting held on March 31st, the Bank of Italy had to suffer a decrease during 1931 in the total gold and gold exchange reserves amounting to 1,827 million lire, in order to satisfy the demands of importers and other debtors. The Bank therefore decreased its note circulation during the same period by 1,385 million lire. Instead of contracting, discounts and advances – inclusive of advances to the Liquidation Institute – increased by 972 million lire, a feat which was possible only by an increase of 603 million lire in the current account of the Exchequer at the Bank. These letters have repeatedly called attention to this interesting policy, akin, in a way, to the open market operations of the Bank of England and the Federal Reserve Board. It works somewhat on the following lines: Private savings are deposited at from 5 to 6 per cent, in the postal banks, who in their turn transfer their deposits to the D. and L. Bank; the D. and L. Bank lends some of it to the State Exchequer, presumably at the same rate of interest, the Exchequer redepositing a part of it at the Bank of Italy in a 1.50 per cent, current account, thus enabling the Bank of Italy to keep the note issue within strict bounds. The system has worked out satisfactorily, partly owing to the crisis, which renders savers shy of direct investments and devout buyers instead of postal bills and of Treasury bonds. The saving public being obdurate against buying of shares and advances to industry, it is made to invest its funds in industry by these devious ways.

An interesting interpretation of the continued increase of unemployment is given in the Press. The net number of emigrants, which was 151,000 in 1930, decreased in 1931 to 58,000 and in the first two months of 1932 to 6,000. This fact does not entirely account for the increase from 642,169 unemployed at the end of 1930 to 982,321 at the end of 1931 and to 1,147,945 at the end of February, 1932, but may have been a contributory cause.

Further regulations enacted by a recent Cabinet council add interesting details to the general outlines already given of compulsory State-regulated cartels (Consorzii). In the industrial field, the consent of 75 per cent, of the firms of a given branch and of 75 per cent, of capital invested, or of 90 per cent, of capital invested only, if the necessary quorum of firms is not forthcoming, is required for the constitution of such compulsory kartels. In the agricultural field a firm’s quorum would not be attainable owing to the great number of farmers, and therefore the consent of 70 per cent, of production will suffice. Government factories or societies, with a 50 per cent. Government capital share, shall be obliged to become members of such cartels, or, at least, to act with them. Minorities shall have a right of appeal to a special board in case of regulations limiting their freedom of action. The State can delegate a public supervisor with a seat on the board of directors of the cartels. Nobody shall start a new business in an already cartellised field without State authorisation, and should the authorisation be granted, he must enter the cartel at once. A jute cartel has been recendy formed, and many others are planned. Whether cartels are going to be an appropriate remedy for the crisis is doubtful. At the meeting held on March 31st of the shareholders of the “Montecatini”, a big concern interested mainly in the field of artificial fertilisers (57 per cent, of the national production of superphosphates), it was stated that the consumption of superphosphates in Italy fell from 1,525,000 tons in 1929 to 1,287,000 tons in 1930 and to 892,500 tons in 1931. Cartels or Consortiums, however State regulated, will be of no avail against the reaction of the consuming public if they are not able to reduce costs and prices.