Falling Foreign Exchanges and Securities German Indemnity and Foreign Debt

«The Economist», 12 giugno 1920, pp. 1296-1297

Turin, June 4

Price movements in the Italian Stock Exchanges – of which there are five, Milan, Turin, Genoa, Roma, and Florence, quoted in their order of importance – are viewed by the public with mixed feelings. People rejoice when they see the foreign exchanges crumble. The £, instead of 100-105 lire at April 10^th , is today quoted 66-67 lire, the dollar 17 lire instead of 25 lire, Swiss franc 3.10 instead of 4.70, French franc 1.33 instead of 1.60. The fall in imports and the rise in exports has contributed to this result. The banks, also, had persuaded their customers to buy foreign bills needed to pay for imports; and this counsel of wisdom, if it sent up the exchanges in April, when all importers were covering themselves for the fulfilment of old and new engagements, has eventually modified the course of foreign exchanges in our favour.

But, together with foreign exchanges, the prices of bonds and shares are crumbling also; for instance, the shares of the Bank of Italy, which were quoted 1,525 on April 10th, are today at 1,440; the Banca Commerciale shares have fallen from 1,300 to 1,175, the Credito Italiano from 860 to 745, the Banca Italiana di Sconto from 620 to 580, the Navigazione Generale Italiana from, 850 to 835 after touching 950, Acciaierie Terni (Steelworks) from 1,160 to 950, Fiat (motorcar) from 390 to 340, Ansaldo from 210 to 185, Beni Stabili (house proprietary company of Rome) from 375 to 310, Fondi Rustici (land company) from 295 to 275. The reaction has several causes. The rise of the official rate of discount from 5 to 6 per cent., followed by a rise from 5 to 7 and 8 per cent, for bourse prolongations, has compelled many bulls to realise. The fall of the foreign exchanges, it is hoped, will bring at last a fall in prices and of profits, so that the present market valuation of shares of joint-stock companies may prove too high. Not a few people are realising stocks and shares, so that they may not include them in the affidavit for capital tax, which should have been made at May 31st, 1920, which date has been at the last moment changed to June 10th . Many fear that the Government may abolish all bearer certificates for bonds and shares, and oblige all possessors to inscribe them with their names; and for this reason they are selling securities for cash, which may be hidden from the tax gatherers.

There has been much talk in newspapers and financial circles on the fixing of the German indemnity discussed at Hythe between the British and French Premiers. The news that 55 per cent, of the indemnity will go to France and 25 per cent, to Great Britain, leaving only 20 per cent, to Italy, Belgium, and Serbia together, has come as a surprise, if not to a few insiders, to the great mass of public opinion.

The old pro-German party are raising their heads, and, with the assent of many sincere patriots, they point: 1) to territorial aims of Italy which have not been fulfilled. On which point I will remark only that the greatest need of Italy at the present moment is a true peace, with territorial boundaries precisely defined; 2) to the crushing load of internal (perhaps 60 billions lire) and external (21 billions lire at the par of exchange) debts. Leaving out of account the internal debt which we may manage to solve ourselves, there remain the external debts towards Great Britain and United States. As you have so truly remarked, and as Mr. Keynes has admirably put in his book [Economic Consequences of the Peace], the external debt will be a source of great embarrassment for the Italian Budget, for our foreign balance of payment, and a source of lasting friction between Italy and her allies. Italians are an honorable people, and they will honour their signature, if obliged to do so. But many hoped in Italy that our allies would have accepted a cession of our right to German indemnity in payment of their claims. The news that Italy will have the right only to a part of 20 per cent, of the indemnity has meant a sheer disappointment to all who worked for a lasting alliance between Italy and the Anglo-Saxon world; and has given a new life to pro-Germans and Bolshevists, who point to the “Anglo-American-French octopus” in possession of Gibraltar, Suez, Constantinople, of coal and iron and wheat, and cotton and wool, and in a position to strangle Italy if she cannot pay the interest of 21 billions of foreign debt. Of what use has been the victory if victory has left us crushed by a charge greater than the worst indemnity that would have been exacted from us by a victorious Germany? Many who have steadfastly worked for the permanent cooperation of Western nations had hoped that a pool would have been made of all expenditure incurred during the war for a common cause, and the strongest nations (United States and United Kingdom) would have assisted the weakest (France and Italy) in supporting the common load. If their hopes are shattered, they will have a difficult task when trying to persuade an angry public opinion to abide by the cause which Italy had so courageously espoused in 1915.