Italy

«The Economist», 21 aprile 1934, pp. 874-875

OUTBURST OF PESSIMISM: Even before the drastic salary cuts (which we discuss in a Note of the Week on page 866) were announced by Signor Mussolini this week, a wave of pessimism had over-whelmed the Stock Exchange. The dominant feature was the fall in the new  per cent. redeemable conversion loan, which from the high peak of about 98 on the eve of conversion has fallen to 87-88 lire. The weakening of the lira on the exchange market and the reduction of gold reserves below the 7 milliard lire level has contributed to the general pessimism. This feeling is not attributed here to political causes. Apart from the general European situation, and the disarmament crisis, about which Italian public opinion does not seem to be much concerned, satisfaction is felt at news of the reorganisation of the Danubian States under the Italian aegis. The plebiscite had triumphant results and Signor Mussolini and Fascism seem to be more firmly than ever in the saddle.

Stock Exchange pessimism is attributed here to more superficial reasons. The only one which is mentioned in the financial circles is the technical situation of the markets. Many big and small operators bought 5 per cent. consols freely on the assumption that the price ought to rise above 120 before There is evidence, however, that profits were better in 1933 than in the previous year. A preliminary investigation conducted by the Borsa of Milan on the basis of the yearly accounts of 261 joint stock companies, with a total capital of 14.2 milliard lire, or 30 per cent. of the total 47.9 milliard joint stock company capital, gives the following results:

Viscosa capital, the bottom of the depression, as measured by profits, was reached in 1932. In 1933, out of 261 companies 110 increased profits, 17 decreased losses, and 17 coverted a loss into profit; and three were level on the year. A few companies, such as Fiat and Snia, are big creditors on their banking accounts; and a few, while not distributing profits, have increased capital in excess of working needs.

LIQUIDITY OF THE BANKS: Thus the ordinary banks may claim that their liquidity is greater than ever. This means greater liquidity at the Central Bank. In the current number (April) of La Riforma Sociale (Turin) some figures are given of the main variations in the end-of-year accounts of the Central Bank. We reproduce a few of them for December 31, 1927 (stabilisation of the lira), for 1929 (beginning of the world crisis), for 1932 (assistance to banks with frozen assets), and for 1933:

Signor Mazzucchelli rightly concludes that the worst point of the crisis was reached at the end of 1932, when there was a maximum excess of liabilities over gold reserves and a maximum amount of resources was devoted to aid embarassed ordinary banks by taking over their frozen investments. At the end of 1933 the situation was wholly changed: the excess of liabilities over reserves had been reduced to a minimum and frozen assets had been halved. This result was achieved mainly through the transference of investment business to special semi-public bodies, the Istituto Mobiliare Italiano and the I.R.I., to which must be added the three Public Credit Institute (for Public Works, for Public Utilities, and for Naval Credit) presided over by the president of the I.R.I., Signor Beneduce. The joint stock company and other business capital put under the management of the I.R.I. is something like 10 to 12 milliard lire.

The Bank of Italy’s report by Governor Azzolini fur I.R.I. issued 1,400 million lire bonds to banks with liquid resources. From Decemeber 31, 1922, to December 31, 1933, the total amount of bonds circulating in Italy increased from 3.5 to 19 milliard lire, which includes 6 milliards issued by the three above-mentioned Public Credit Institutes, 5.6 milliards issued by the older Credit Foncier Institutes, and 4 milliards by joint stock companies. This is a sound development, and, apart from Credit Foncier bonds, practically new for Italy.