Suppression of Consortium – Consolidation of Treasury Bills -New National Loan – Business Men’s Manifesto – Bourse Decline

«The Economist», 13 novembre 1926, pp. 822-823

Turin, November 7

Two events of far-reaching importance have just taken place. The first is the suppression of the “autonomous” section of the Consortium for industrial securities. The Consortium, as I have explained in previous letters, was created, as far as the “ordinary” section is concerned, in 1914 for the purpose of making advances to joint-stock companies and industrial firms. But in 1922 an “autonomous” section was started with the purpose of the salvage first of the Banca Italiana di Sconto, and then of the Banco di Roma. After the advances of the Consortium had reached a maximum of 4,120 millions lire, a decree of January 1, 1924, put an end to new operations. But the liquidation was slower than was deemed in accordance with the new deflationist policy; therefore, by a decision taken at the Cabinet session of November 5th the section has been dissolved. The remaining assets are to be sold gradually by a new institute, wholly separate from the Bank of Italy. The Bank of Issue will be no more encumbered by this legacy of past times, and its note issue will be thenceforth counterbalanced only by normal assets-gold reserves, normal trade discount, and advances to the Treasury, these last to be gradually eliminated.

The second event is the consolidation of the Treasury bills. The brightest feature of the monetary situation has been the gradual decrease of Treasury bills, which, as the Finance Minister, Count Volpi, aptly remarked, were a continuous menace to the circulation, for they could always, when due, be exchanged for cash and force the Treasury to increase the note circulation. To the Treasury bills called “ordinary”, which amounted at October 31st to 15,540 millions lire, we must add 1,029 millions 5-years bills, 4,000 millions 7-years bills, and 6,991 millions 9-years bills – total 27,560 millions. It appears from statements made by Count Volpi and the Corriere delta Sera that, following upon the restriction of credit policy, bearers of Treasury bills claimed, when due, the repayment of an unusual proportion of them. The Cabinet Council in their session of yesterday sanctioned a decree of consolidation. The Italian plan follows the Belgian precedent, but with important points of difference. All ordinary, 5-years, and 7-years Treasury bills are forcibly consolidated – i.e., exchanged for 5 per cent. Consols at different rates of exchange, from 116.50 lire nominal 5 per cent. Consols for every 100 lire ordinary bills, to 115.50, 113, and 112 lire 5 per cent. Consols for every 100 lire 5 and 7-years bills, according to the date when they will become due. Nine-years 5 per cent, bills can be voluntarily exchanged for the new 5 per cent. Consols issue at the rate of 107.50 lire; if they are 4.75 per cent, bills the rate of exchange in 100 against 100. Special rules will be enacted so as to preserve the right of 7 and 9-years bills to premiums.

The new 5 per cent. Consols will be also offered for public subscription at the price of 87.50. A banking syndicate consisting of the Bank of Italy, the State Deposits and Loans Bank, the National Social Insurance Institute, and several other semi-public financial bodies, saving banks, &c, will manage the market for the new security. Those public bodies and others which by law or by their rules are obliged to invest in public State securities will subscribe to the new 5 per cent. Consols. The proceeds of the subscription will be deposited at the Bank of Italy, and, with other special deposits of the above-mentioned bodies, will be utilised in advances to industry with the new security as collateral. The market will, therefore, not suffer on account of the forced consolidation, as the bearers of Treasury bills will have the right of obtaining advances on deposit of the new 5 per cent. Consols as collateral. If the necessity should arise for removing, in consequence of these advances, the 7-billions lire limit to the commercial circulation, the excess over 7 billions up to 8 billions will not be subject to the extraordinary tax.

In financial circles rumours were current that the consolidation is the first step, as in Belgium, to currency stabilisation; but this conclusion is at least premature. Minister Volpi authoritatively stated that consolidation is a logical sequence to the Pesaro speech of Premier Mussolini, and that it is a further step in the policy of defence and revaluation of the lira.

The manifesto of business men for international freedom of commerce did not have an enthusiastic reception in Italy. Perhaps the only public endorsement of the manifesto’s policy was a resolution of the executive committee of the Italian Liberal party; but, given the present low fortunes of the Liberal Opposition, the support is somewhat platonic. In the Press only the Turin Stampa published a favourable comment. The rest of the Press was unanimous in publishing very adverse criticism of the manifesto, describing it as an endeavour of rich countries – very well supplied with mines and raw materials and possessing old industries – to capture world trade at the expense of industrially new and poor countries, like Italy, who are labouring under two great handicaps – the increase of population, to which foreign oudets are vetoed by restrictions against immigration, and the lack of iron, coal, oil, cotton, wool, wool-pulp, phosphates, and most other raw materials of industry. How a European zollverein would prejudice the just claims of Italy for the abolition or mitigation of foreign restrictions against our emigrants no critics explained. As to raw materials, it is probable that the signatories of the manifesto, such as Signori Agnelli, Gualino, Conti, Pirelli, who are perhaps the greatest captains of industry in Italy, would not feel embarrassed at all by the zollverein’s existence in acquiring the best raw materials at the lowest prices in the best markets. There are some presumptions that Italian industrialists are meeting successfully foreign competition, precisely owing to their ability in purchasing raw materials at the best moment. In the Lavoro d’ltalia, the official daily paper of the Fascist employees’ corporations, a Fascist M.P., Signor Lanzillo, published an article in which, while resisting the temptation to inquire into the selfish motives of the British manifesto, recognised that the idea of a European zollverein was bound to be discussed more and more attentively, owing to the impotence of the present small and divided industrial countries in Europe against the growing competition of the gigantic unified American industrial complex. The probable outcome of the lively discussion, or, more exactly, criticism, of the manifesto will be that the Italian delegation at the next Economic Conference of Geneva will declare their willingness to adhere to an enlarged freedom of trade, and will quote in support of their attitude the numerous treaties of commerce concluded by the present Government, all of them with the most-favoured-nation clause; but will insist in connecting the problem of the lowering of Customs with the discussion of other restrictive measures and mainly of restriction of emigration.

The most sensitive market in October was the securities market. If I reproduced and brought up to date the table I gave in the issue of October 2^nd new spectacular collapses in prices would be apparent. For instance, Fiat shares, which closed in August at 534 and had dropped by September 28^th to 378, were at one time as low as 290. Afterwards they rallied to 346. Snia Viscosa shares, from an August closing price of 276, fell to 189 on September 28 , and in October reached bottom at 110, from which level it has since substantially recovered. I have only quoted two securities of large companies well known in Great Britain, but the tale of collapse is general. Several failures of Bourse brokers were reported after the end of September, and the settlement was very difficult. In the last ten days of October Stock Exchange seas were less stormy, and hopes are entertained that the public and operators will get tired of throwing out of the windows good securities at prices, on the average, less than half of those ruling at the beginning of 1925.