The Battle for the Lira Flashcards
What was it?
The years between 1922-5 were when economics were in the hands of De Stefani. This was a period of economic well-being where unemployment fell and there was a recovery in trade
By 1927 this period was decidedly coming to an end, and as the lira came under pressure, its value dropped to 150 lira to the pound
M’s response was predictably defiant, and instead of going through the normal economic process of devaluing the lira, in a characteristic outburst he told the Italian people ‘I shall defend the Italian lira to my last breath – to my last drop of blood’
He revalued the lira at 90 lira to the pound and restored the lira to the gold standard
M protected industry from foreign competition by increasing tariffs on imports by 12%
The Battle was launched in 1926 and was M’s attempt to bring about an upward revaluation of the lira
Launched the Battle at a big open-air speech at Pesaro
Mussolini decided to peg the lira at Quato Novanta (Quota 90). This was higher than Italian business wanted or could cope with – big business and the Finance Minister, Count Volpi, wanted an exchange rate of 120 lira to the pound
What were the motivations behind it?
Decisions were based more on national prestige than sound economics
His intention was to reduce inflation and prove to the Italians that the regime could provide economic stability
Price inflation had been a long-term issue for Italy and had begun to increase again from 1925. This was what caused the lira to fall in value compared to other currencies. There were fears that this might cause Italy to suffer a complete economic collapse
There was a rather simplistic belief that a strong lira would lead to a strong economy
M wanted to make Italy more economically independent in relation to other countries, especially the US
Supposed to play well as propaganda, demonstrating M’s ability to make bold and decisive decisions
Prestige over practicality
There was a general agreement that the government should act to stop the fall in value of the lira. The big debate was what it should be revalued to, with M selecting 90 lira to the pound because this was the value of the lira when he became PM in October 1922
Reduce inflation, which was harming sections of the middle class
Show Italians that the lira, and therefore Italy, was a might power
M thought a strong, vibrant country should have a strong, vibrant currency
The revaluation of the currency should have hepled the Italian consumer since the import of food and other consumer goods should have become cheaper
Aligned with the regime’s policy of promoting heavy industries at the expense of export industries
M began to take less interest in what business wanted from 1925
Dismissal of de Stefani brought in the end of sound economics in Italy
‘The Fascist regime is ready to make the sacrifices needed, so that our lira, which is itself a symbol of our nation, our wealth, our efforts, our strength, our sacrifices, our tears, our blood, is and will be defended’ (M)
How did they do it?
Banks instituted tight controls on the money supply
Economy deflated to drive up the value of the lira
Quota 90 achieved in 1927 when Italy returned to the gold standard and the exchange rate was fixed
List the successes of this policy
Industries dependent on imported raw materials benefitted from lower prices
Benefitted sections of industry such as steel, chemicals and armaments, due to cheaper Imports
Showed the authority of the regime and boosted Italy’s prestige
Increased Italy’s prestige with foreign bankers, who saw the policy as a way of restricting government spending
M achieved the propaganda victory he desired
List the failures of this policy
Made Italian exports far more expensive on the world stage and damaged Italian tourism
Negatively impacted the balance of payments situation and brought the country closer to recession
Italian firms dependent on exporters suffered
M started a trade war by increasing tariffs which meant that exporters suffered even more
Between 1925-38, Italian exports fell in total value by 49%
At Quota Novanta, exports were hit because they cost more to foreign buyers
Big cuts to prices and therefore wages – negatively impacting industrial workers standard of living
This caused many mergers between 1928-9, with bigger firms taking over smaller ones
Caused economic issues that lasted long after the revaluation
Put the Italian economy in an even worse position to deal with the Great Depression
Caused serious deflation
Governments imposed 20% wage cuts
The government was forced to devalue the lira in 1936 anyway
Foreign buyers immediately found Italian goods nearly twice as expensive, caused Italian export industries, particularly textiles, to go into depression
Unemployment trebled between 1926-8
Fiat, the huge Turin-based vehicle maker, was exporting fewer cars in the early 1930s than it was in the early 1920s
The Duce stopped the revaluation bringing about the benefit of cheaper imported consumer goods by placing high tariffs on foreign goods
