Italy off Gold

Press, Volume LXXI, Issue 21534, 25 July 1935, Page 12

Italy off Gold

Any intelligent discussion of the immediate causes which have led to the Italian Government'? suspension of the gold" standard is made impossible by the stringency of the Italian press censorship. Since March of this year four foreign correspondents have been expelled from Rome; and the list of papers the circulation of which is forbidden in Italy includes the "Manchester "Guardian" and the "New York "Times." Air David Darrah, of the " Chicago Tribune," the latest of the foreign correspondents to be expelled, began his last dispatch thus: " Premier Mussolini is drawing the " curtains of secrecy closer about "what he fears to be the collapsing "fortunes of Italy's Fascist dictatorship." The "Manchester Guard- " ian " celebrated its exclusion from Italy with an even more extreme statement: —

During the last few months therehas been an abundance of arrests in half-a-dozen Italian cities, and monstrous sentences have been passed. Helpless to relieve discontent, thd dictatorship tries to enclose it in prison walls or banish it to the islands. But discontent and disillusionment grow with grov/ing poverty and oppression. There is no popular enthusiasm for the -Abyssinian campaign, and even officers of the Italian army are critical. Recruits join the colours with reluctance.

The worst of censorships is that they leave the newspaper reader a choice between this sort of stuff and the official "hand-out" That all is not well with finance and industry is apparent from the figures for exports and imports and even from the official statistics for production and business activity; but the suspension of the gold standard does not show, and there is no reason to believe, that things have grown much worse in the last six months, indeed, there is some indication that they have improved slightly. In March of this year the general index of production (1928=100) stood at 97, compared with an average of 88 in 1934, of 80 in 1933, and of 73 in 1932. In the same month the index of security prices (1925=100) was 70.4 compared with an average of about 58 in 1933. The suspension of the gold standard has not been precipitated, then, by any worsening of the economic situation. Probably it is due to the financial strain of the Abyssinian venture on an already weak credit structure. Between 1927 and the beginning of this year the Bank of Italy lost half its gold reserve?. In part this was due to an unfavourable balance of trade; but to a much greater extent it was due, on the bank's own admission., to the flight of Italian capital abroad. The official explanation is that the flight has been caused by the higher interest rates prevailing abroad. Actually, it is as good an indication as there could be of the investing public's estimate of the strength o? the Fascist economic system. While the budget was balanced there wais perhaps little reason to be alarmed by tones of gold; but in 1934 Italy entarea a period of heavy deficit

financing. The estimated budget j deficit for the present financial year j is about £23,000,000 (sterling), aj ; figure which lakes no account of; the expenditure on the Abyssinian expedition, which was more than £ 12,000.000 at the end oil April, and ; is row probably double that amount, j It may be surmised. therefore, that 1 the Italian Government was faced . with the alternatives of enforcing strict economy, which would have involved the adoption of a less belligerent poiicy in Abyssinia, or of going off gold. If this is so, it means that trift abandonment of gold maltc-s war in Abyssinia more ;:ather than | less probable. The effects of the decision cn the gold bloc countries and on thf- world monetary situation generally are not likely to be very serious. For at least two years Italy has been only nominally on the gold | standard. Since the be ginning of j this year foreign exchange has been rationed and imports controlled; and in February the private holdings of Italian citizens in foreign; securities were commandeered, the: : owner--; being paid in lire at the cur-; ;rent exchange rate. Moreover, it; ; has bes.n recognised since the begin-: |ning of the Abyssinian crisis that a ;campaign of any magnitude would [drive Italy oif gold.