Italy

«The Economist», 26 maggio 1934, p. 1141

Budget deficit and the gold reserve – The principal features of the speech from the Throne at the opening of the new Parliament were the announcement of the long-awaited constitutional reforms and the declaration of the Government’s intention to balance the State Budget. The conversion of the 5 per cent. Consols to 3 1/2 per cent., the reductions of from 6 to 12 per cent. in public servants’ salaries, and the increase of taxation on bachelors will save the Treasury about 1,200 to 1,300 million lire, thus reducing the deficit from 4,000 to 2,700 millions. As prices of supplies to the army, navy and civil services are falling, the deficit should be further reduced to about 2,000 million lire.

The publication of the Bank of Italy’s last return has been well received, since the gold export movement has been checked. The gold reserve diminished from 7,397 million lire on December 31, 1933, to 6,878 million lire on April 20, 1934. By April 30th the total reserve had increased to 6,879 million lire. Various reasons have been suggested to explain the decrease of 518 million lire in the first quarter of the year: the increase of 83 million lire in imports and the reduction of 215 millions in exports; the repatriation of a certain amount of 5 per cent. Consols sold by Italians living abroad under the combined pressure of the fall of the dollar and the decrease in the net yield of Consols; the strict enforcement of regulations forbidding sales of foreign exchange at prices different from official quotations, which made the market wholly dependent for a time on the Bank of Italy’s reserves. All these factors new seem to have ceased operating. The security markets are also less pessimistic than in the first weeks of April. The pivotal security at present in the new (conversion) 3 1/2 per cent. Consols, which rose from a closing April price of 79.50 to 82.40 last week. Not only fixed-interest, but also variable interest stocks are reflecting the fluctuations of 3 1/2 Consols. Operators seem to believe that the fortunes of industry are strictly dependent on the State’s fortunes, and the higher capitalisation of Consols, being the index of a stronger public Exchequer, is bound to react favourably on the price of industrial shares.

Reducing the cost of living

Tha daily Press devotes much space to the campaign for the reduction of retail prices, which is supposed to offset the recently enacted reduction in public salaries and of house rents. Retailers are in some cases being expelled from the Fascist Party. Evasions through changes in the quality of goods sold are also denounced. The cost-of-living index of the Central Statistical Institute (June, 1927=100) was 73.78 in March, 1934, a decrease of 26.22 per cent. since the last pre-stabilisation year (1927). According to a careful study by Signor Lenti in Industria Lombarda, the cost of living decreased between 1927 and 1933 by 26.77 per cent. for food, 47.50 per cent. for clothing, 34.18 per cent. for fuel and lighting, 14.82 per cent. for miscellaneous items; while there was an increase of 10.99 per cent. for rent. The total cost of living decreased by 23.43 per cent. It thus appears that the cost of living was already down by 25 per cent. before the recent decree had reduced public salaries (adding the present scaled reduction to the previous uniform 12 per cent. one of 1930) by from 12 to 24 per cent. The national index of wages for 1933 is 85.5 (July, 1928-June, 1929=100), or a decrease of 14.5 per cent., which is somewhat less than the simultaneous reduction of 20 per cent. in the cost of living.

How far reductions in wages in private industry would enable reductions in price to meet competition from Great Britain, Japan and other countries with depreciated currencies is topic much discussed in the employers’ and employees’ technical Press. On the whole, wages are not thought a major issue. It is true that according to Professor Bachìs index – the Milan indices give identical results on a 1913=100 basis – raw material prices stood in March 1934, at 235.7, and finished products, which are more heavily weighted with wages, at 358.9. But exports do not seem to have been adversely affected, the index for import prices being 302.8, for home-trade prices 275.5 and for export prices 209.5. In 1927, the stabilisation year, indices were, respectively, 492, 505.7 and 462.5. Export prices have therefore been more drastically reduced than import prices.