865.515/40: Telegram

The Ambassador in Italy ( Phillips ) to the Secretary of State

401. My 400.21 The following is a summary of the communiqué issued after the meeting of the Council of Ministers this morning: [Page 348] After reporting on the international monetary situation resulting from the depreciation in countries hitherto composing the gold group and the alignment that had already taken place in many other European countries, the Duce recommended and the Council approved unanimously and without discussion the devaluation of the lira to the 1927 level of stabilization. Mussolini then described the possible repercussions of this measure. As regards foreign trade, it improves the situation especially by stimulating exports and tourist traffic. Only a rise in prices at home would offset these advantages but it was decided to peg certain prices and to supervise rigorously fluctuations in others when they correspond to world price levels. In addition to this and other measures against speculation the Council authorized the Under Secretary for Foreign Trade and Exchange to vary the volume of import quotas for widely consumed commodities and to eliminate without delay the system of private clearings. The purchasing power of the lira will thus be energetically and systematically safeguarded at every point.

Mussolini then examined the Anglo-Franco-American declaration which preceded the alignment of the franc and declared that he agreed with the idea that world economic readjustment was one of the necessary conditions for international cooperation for the purpose of peace. Temporary expedients must however be abandoned for something permanent.

The Council then most categorically reaffirmed that the policy of achieving a maximum of economic autonomy would be continued, this being essential to the military defense of the nation.

The following measures were then approved:

1. In order to adjust the lira to the value of the leading world currencies its gold content is being changed. Since in 1927 the ratio of the lira to the dollar and pound was stabilized at 19 and 92.46 respectively, in order to restore that ratio the gold content of the lira has been reduced proportionately to the reduction in the gold content of the dollar, which was 40.93 percent. The lira is thus reduced to 4.677 grams of fine gold for every one hundred lire of nominal value in comparison with the 7.919 grams established in 1927.

Since the American stabilization law authorizes further variations within a 10% limit and since other important countries such as France and Switzerland have reserved similar powers the Italian law envisages the possibility of further adjustments within a 10 percent limit.

No change is made as regards the circulation and value as legal tender of State notes and of coins which will continue to circulate as at present in Italy and her colonies and possessions and must be accepted as payment by the State and private individuals at their present value. The gold reserves of the Bank of Italy are revaluated on the basis of the present parity of the lira and the profit thus realized is placed at the disposal of the State Treasury.

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Special powers are granted the Chief of Government and Minister of Finance to suspend when appropriate all or part of the restrictions now in effect regarding the movement of capital and foreign trade as well as to issue executive and supplementary regulations.

2. In order to avoid disturbances on the domestic market and an increase in the cost of living it is forbidden to sell commodities at prices higher than those registered during September last by the Provincial Councils of Corporative Economy and the Provincial Inter-syndical Committees. Commodities the prices of which are not registered by the above mentioned organizations may not be sold at prices higher than those current on the market at the date the law goes into effect. For 2 years there may be no increase in rents, in prices of electric current and gasoline, or in public transport rates. The law also contains regulations regarding hotel rates and establishes penalties for contraventions.

3. The ad valorem tax on imports established on September 24th, 1931 is abolished and the Chief of Government is authorized further to revise import duties on the basis of the new monetary and price situation.

4. A 5 percent redeemable loan will be issued to cover requirements of colonial development and national defense and all real estate owners must subscribe thereto an amount equivalent to 5% of the net capital value of their property. This loan which will be exempt from all present and future taxes will be paid back in 25 years, amortization to begin the first year of issue. To guarantee payment of interest and capital a small extraordinary tax will be assessed on real estate. Whenever property owners lack liquid funds for subscription special measures provide these funds under conditions whereby interest charges cancel each other. The tax may also be paid in a lump sum with the bonds themselves under favorable conditions which should also improve the market for the bonds.

5. The decree law of September 5, 1935 restricting payment of dividends by commercial companies is repealed but a progressive tax is applied to dividends of over 6 percent or over the average distribution during the past 3 years. This tax applies only to dividends paid, not to profits set aside as reserves. All profits from activities in the colonies and possessions are exempt from this tax in view of the greater risks involved and the benefits deriving therefrom to the economic development of the Empire.

A further official announcement adds: Clearing agreements which were suspended last week owing to the impossibility of determining exchange rates will be immediately resumed on the basis of the new quotations as they are fixed. Private compensation transactions outside the clearings which were also suspended will on the other hand be abolished altogether since with the new value of the lira there is no longer any need for form of payment on the basis of actual as opposed to official exchange quotations. For the same reason the premiums applied to trade with countries with which new clearings were concluded after July 15th are abolished. With the abolishment of private [Page 350] compensation transactions, the immediate advantage of which to Italian exports is now absorbed in the general advantages of today’s measures, exports will go forward more rapidly and surely and with less disturbance to price trends thus solving notable difficulties which had arisen in importing countries. At the same time certain Italian imports formerly subjected to private compensation transactions will become easier and very often much cheaper to the advantage of both producer and consumer in Italy.

Inform Commerce.

  1. Not printed.