Italy’s finances

«The Economist», 3 marzo 1945, p. 282

The condition of Italy’s finances can best be described if the Budget report made by the Secretary to the Treasury, Signor Soleri, on September 29, 1944, is brought up to a later date, December 10, and analysed.

The first section includes ordinary revenue and expenditure. The whole of the revenue is included here, but only that part of the expenditure which can properly be called permanent and excludes those items that result from the state of war. Total ordinary expenditure is thus put at 33,658.2 million lire and total revenue at 12,938.3 million lire, leaving a deficit of 20,719.9 million. This part of the total deficit should not cause concern. Revenue is low because the best part of the revenue-producing territory, the north of Italy, is still in the hands of the enemy. When Italy is wholly liberated it should not be difficult to return, in a couple of years or so, to a Budget balanced at the level of about 40 milliard lire. A few items, for instance defence, will be reduced; others will expand. Social welfare and education will be greatly increased. Eventually the state Budget will rise to 60 milliard and perhaps 80 milliard lire. Whatever the future rate of exchange, there is a big difference between a present-day Budget of 40 milliard lire and the pre-1914 Budget of 2.5 milliard. At the present official rate of exchange of 400 lire to the pound or 100 lire to the dollar, which means 170 1945 lire to one 1914 dollar, the real burden of the 1914 2.5 milliards cannot be valued at less than 80 milliard lire of today – or even more, since if the lira was undervalued when the Allies first landed in Sicily, it is now overvalued. Thanks to the devaluation of the lira and the virtual nullification of the debt charges, it is now easier than in 1914 to make both ends meet in the ordinary Budget.

The real problem concerns the extraordinary war and transition-to-peace Budget. Here there is no revenue, but only expenditure. Nevertheless, a distinction can be made between non-recurrent and permanent extraordinary expenditure.

It is fairly certain that the non-recurrent items will not reappear in the future. For instance, the State Railways’ deficit is estimated at 6,661.6 million lire for the fiscal year 1944-45, with a probable further increase of 4,000 million lire in the same year. This deficit will surely disappear when the railways are rehabilitated and civil traffic substituted for the almost exclusively military traffic of the Allies. The war expenditure of the army, navy and air force is estimated at 32,653 million lire, and this item will likewise disappear. The repatriation of Italian prisoners is estimated to cost 30,000 million lire. The total of such non-recurrent expenditure for the current year is estimated at the grand total of 95,412.6 million. It is probable that the whole of this big sum will not be spent before June 30, 1945. After the war, war expenditure will be replaced by reconstruction expenditure, for which only 4,658.4 millions are budgeted in the current fiscal year. Even if a five-year or, better, ten-year reconstruction plan should require a state expenditure of 50 milliard lire yearly, the burden should not exceed the internal savings plus potential imports of foreign capital.

The total internal savings prior to 1914 were estimated at 2 milliard lire, which at the present official rate of exchange is equivalent to 50 milliard 1945 lire. Will Italian savers be able and willing to lend to the state and to private entrepreneurs 25 milliard lire each? In addition, will foreign bankers and capitalists lend to the Italian state the 25 milliards needed to complete the 50 milliards wanted for the state’s ten-year reconstruction plan? Savers, Italians and foreigners alike, will come to the rescue only if a truly democratic regime can maintain law and order.

THE BREAD SUBSIDY. – From a strictly financial point of view, the first step to be taken is to put a final stop on those recurrent extraordinary expenditures which are the true causes of the permanent gap between revenue and expenditure. The first and foremost of these recurrent extraordinary expenditures is the bread subsidy. The cost of the 1 kg. loaf of bread is 15 lire, against a price of 5 lire. The present loss to the Exchequer is 18 milliard lire yearly and the loss will go up to at least 30 milliards when the north of Italy is liberated. This and this alone is the motor driving the presses printing banknotes. Italian savers are willing to subscribe to Treasury bonds and bills for the sake of the liberation and rehabilitation of Italian territory, but they are afraid to give money which is squandered on a purely demagogic bread subsidy. There is a limit to voluntary loans and taxes; and people feel that the limit has been passed when the state tries vainly to keep down the cost of living by subsidising bread at so huge a cost. Inflation becomes inevitable; general prices in their turn do increase; and wages and salaries are pushed up.

The old and new increases in the wages and salaries of state employees alone are estimated at about 20 milliard lire. The vicious circle will nullify the purchasing power of the lira if the source of inflation is not stopped at once. A generation ago, Signor Giolitti, the Prime Minister, and Signor So-leri, the Minister of Food, persuaded Parliament after a six-months’ fight, to approve the act of February 21, 1921, which abolished the bread subsidy and rescued Italy’s finances. When, on October 28, 1922, the march on Rome put Mussolini and the Fascists in power, the Italian state budget was balanced thanks to the courageous behavior of the last democratic liberal statesmen.