Reception of British News – Monetary Situation -Reaction on Industry

«The Economist», 3 ottobre 1931, pp. 615-616

Turin, September 23

The first repercussion of the suspension of the gold standard by Great Britain was in Italy one of bewilderment. The shock was keenly felt, especially in Milan, Turin and Genoa. Importers who had covered their future sterling requirements and exporters who had not already sold their sterling bills, felt anxious about their prospective losses. The official quotation of the pound sterling was suspended and banks refused on Monday and Tuesday to quote prices across the counter. The bourses were not closed, however, and business went on as usual. Prices of securities, especially speculative ones, were marked down, but falls were not spectacular. Bourse editors observed in their notes that the volume of transactions had already in the course of a long-dated depression been so much reduced, and the prices were so low, that there was not much room for further reductions. Press comments were singularly sober. A few debated in an historical mood on the passing of the sterling myth and on the transference of the leadership of the world money market from the sterling to the dollar; others, like ex-minister Alberto De Stefani, spoke only of a provisional act of foresight and insisted on the fundamental sanity and strength of Great Britain, which are a guarantee that the pound will be restored to free convertibility into gold. Even in the modest headlines, newspapers reveal a unanimous tendency not to stress the importance of the event. Some even hint that, had the British Press and the British politicians not made such a fuss about the dangers surrounding sterling, foreigners would not have been seized with panic, and things would not have drifted to the present impasse.

As to repercussions on the Italian economic and monetary situation, there do not appear on the surface symptoms akin to those which bred havoc in London. The gold reserve of the Bank of Italy has increased between December, 1927 (first balance sheet after stabilisation) and August 10, 1931, from 4,547.1 to 5,372 million lire; the bill and securities gold exchange reserve has decreased from 7,558.8 to 3,495 million lire; the total gold reserves decreasing thus by 3,238.9 million lire. But the notes issued decreased also by 3,399.3 millions (from 17,992.2 to 14,592.9). The other items do not reveal any really dangerous tendencies. Frozen credits of the Bank of Italy toward the Institute of Liquidations, after having diminished from 1,433.8 milion lire at December 31, 1927, to 626.2 millions at December 31, 1930, are again increasing, but the latest figure of 1,207.6 millions at August 1, 1931, is yet of manageable dimensions. Nor has Italy big foreign deposits, liable to be called in for an emergency. No figures are published; but there is quoted in banking circles the figure of 2,000 million lire as representing the amount of foreign deposits held at call or short notice in Italian banks; but against it there can be set a much higher figure, of from 6,000 to 9,000 millions of deposits or securities held by Italian residents in foreign countries. It is a widespread impression that the majority of Italian securities issued in New York or other markets are in the possession of Italians; so that they are not liable to be suddenly thrown on the market as if they were held by foreigners.

The apprehensions which are felt as a consequence of the British suspension are on the commercial and industrial side. Italy and England are direct competitors in some lines, such as textile goods, in the Levant, India and the Far East. In other places also the decline in English exports has been made good by Italian goods. The fall of sterling will no doubt give a temporary fillip to British exports and perhaps damage Italian trade. Italy, like many other countries, is suffering from some of the ills under which England is labouring. Professor Mortara, in his well-known “Prospettive Economiche” for 1931, has calculated that the increase in State and local taxation, had, in present lire, increased in 1930-31 by 145 per cent, over 1913-14, and by 51 per cent, over 1925-26. The increase in terms of lire of constant-purchasing power was, respectively, 140 and 98 per cent. This is a crushing burden; and equally high is the burden of fixed interest of debts on industry and agriculture. As the (Bachi) wholesale prices index number decreased between 1927 and June, 1931, by 33.8 per cent, and the national total cost of living index number (Central Statistical Institute) between June 1, 1927, and June 1, 1931, by only 17.3 per cent., the comparatively low purchasing power of wages is an obstacle to complete readjustments between wholesale prices and wages. It is feared that if the British suspension were followed by other weak countries, the menace to our exporting industries and to our balance of trade, much improved in later months, may become very strong and react on the Bank of Italy gold reserves.