ITALY'S COURSE

Evening Post, Volume CXX, Issue 87, 9 October 1935, Page 11

ITALY'S COURSE

WAGING WAR ON CREDIT

BAD FINANCIAL POSITION

HAM) ROAD AHEAD

If Mussolini fails to win a rapid victory in Abyssinia his country will lace one of the greatest financial crises of modem times. Even the most cursory survey of the financial situation of Italy and her credit abroad will reveal lhat she is unable to wage a lengthy campaign. The country is poor in coal resources, it lacks minerals, it cannot" even feed itself. Consequently, despite the Fascist attempts to recreate the economy of Italy to gain independence of foreign coal and wheat, she remains a large customer for each of these commodities. In 1932 her imports of wheat were about one-eighth of her total needs, and were valued at about £10,500,000 (New Zealand currency). Her coal imports represented 95 per cent, of her needs, and were valued at £14,000,000. Her wool imports were £8,000,000, and her cotton imports £13,000,000—80 per cent, and 99 per cent, of her needs respectively. The chief customers for these imports, and for exports as well, were Germany, the United States, Britain, and France. LOST CONFIDENCE. Not only does Italy thus remain de» pendent upon foreign sources of supply for, essential materials in the conduct of any war, such as steel, non-ferrous metals, coal, and oil, but she is facing the present struggle with finances which are so shaky that her foreign customers have lost confidence in her stability. There has been ample evidence of that fact from the quotations of Italian 1947 bonds on the New York market at 67 1-8, with no takers, to the three months rate for Italian bills in London, which has stood at a nominal 5| per cent, equivalent to. 37 per cent, per annum, the dispatch of a Belgiait representative to Italy to collect for shipments of coal, and the fear lor unr collected Suez Canal tolls. 'These things- have inevitably fol* '' lowed the determined approach to waF of a country which had an import surplus in 1932 and 1933 of £30,000,000, art unfavourable visible trade balance of £52,000,000 in 1934, and a further unfavourable balance of £28,000,000 for the first six months of 1935. A simultaneous steady decline of remittances received from Italians resident abroad has reduced this main source of relief to the trade position. Four years ago these remittances had fallen 'to £10,000,000 a year, one-quarter of the figure they used to reach. Tourist expenditures, another principal "export," have also fallen considerably, and a recent tendency to recover has hot ■ been sufficiently large to offset the pronounced trade upset in the last eighteen months. In addition, while the. Fascist regime may have accomplished great things in development, they have been done at a price. In 1922 the State' debt stood at £3.067,000,000. By June 30, 1934, £56,000,000 had been added to this total, and the official estimate of the State assets set against this debt are only £2.324.000.000, which figure included large quantities of war material of ho realisable value. . % ; A GREAT STRAIN. Over the last few years the coun« try's economy has been strained in consequence of the effort to stabilise the ■currency at too high a level. Pro- • longed campaigns, aiming at maintaining a deflationary policy which was begun in 1927 ended in an attempt to reflate without devaluation by means of exchange restriction,.the imposition of import quotas, the prohibition ol export of capital, bartering agreements, the decree of December 10 last making it obligatory for Italian individuals and companies to declare their foreign assets to the Bank of Italy and to sell them if asked to do so, the suspension of the 40 per cent, gold cover for the note issue, and, finally, the Bolzano orders of August 29, which demanded the cession of credits abroad and the conversion of foreign securities into nine-year Treasury bonds at 5 per cent, a restriction on dividends at 6 per cent.. (or the' average of the • past three yeaYs where firms have been doing better than this), and a tax of 10 per cent, on dividends and interest! from all non-nominative bonds. The Italian Budget deficits over this I trying period have totalled about I £300,000,000 in four years. A flight from the overvalued lira'has been in progress,, and the Budget deficits and the cheap money policy of the Government have conspired to undermine con- | fidence at home. At the beginning of last year the deflationary policy, designed to keep the country on gold, gave way to a policy of reflation within the. protection of the import and exchange restriction barrier. This has I had the effect of lowering unemployi merit, giving a greater import surplus, and causing prices to rise. At the end of 1929 the Bank of i Italy's gold reserve stood at 10,331,000,000 lire; by the end of last year that reserve had fallen to 5,760,000,000 lire. The December decree caused the gold reserve to grow somewhat, but it began to fall I again after a few weeks. Further ■drastic restrictions were imposed, and : during June , while the gold stocks tell, ithe bank's foreign holdings increased, ! revealing that the bank had been partiing with gold in order to pay for im- ; ports, and at the same time had been acquiring the foreign balances ol Italian traders. I INFLATION AT WORK. i It has also been clear during recent ; months that some sort of inflationary 'policy has been at work in Italy, lor ; there has been a general rise of prices, ■■ agricultural products increasing by 67 ' points on the basis of the 1913 leveL half-finished products by 29 points, and '■finished products by 33 points. This, then, is the country which is provoking "^ j a foreign war, a country with consis- ! tent Budget deficits, without sufficient ; foreign credits or the means of creating ■them, with an import surplus and its I credits already low. "It is impractictable for Italy to expand her exports in proportion (to her increased war needs)," says "The Economist," when commenting on the situation, "and thus she will be forced back on her reserves 9 t gold and foreign exchanges and upon her ability to borrow in foreign, countries. This raises the question of Italy's credit in every sense of tue word,.and the trend of Italian sterling and dollar bonds in London and New. York is very ominous." ■ . \ ■ Moreover, this campaign' is being. undertaken to win a country which; will need much capital before it carr be exploited, which capital, it is safe ' to say, the Italians will be unable to furnish unaided. Their /existing African colonies have been the source of little save losses, the additional territory gained would need roads and railways before its products would be economically competitive. The simplest needs of life will have to be taken there by the new settlers whom Mussolini has destined for these lands. More heavy loans will therefore be ahead. If the war proves to be on a large scale the production drained from Holy will have to he replaced by imports from , the world markets. That will throw an additional load en a country the des♦iny of ifrhich at the moment it fraught with difficulty and danger.. ~The international cablo news appearing f» this Issue Is published by arrangement \rilH ihe Australian Press Association and the "Sub," "Herald," News Office, Limited.