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Abstract
In 1982 Italy issued ecu-denominated Treasury bonds: the first of a series of issues—followed by Spain, Greece, and France only in the second half of the 1980s—officially aiming at contributing to reduce inflation and ease trading agents with foreign payments. In fact, it was much more than this. It was a small but significant signal that an economic elite was committed to curbing ever-demanding and opaque political pressures to increase public spending and trade-unions to raise wages, both deemed as crucial flaws to be fixed before international competitiveness could be restored. It represented one building block of a wider strategy concerning the use of the external constraint in domestic policymaking and in the attempt to increase the role of Italy in the making of European integration. The paper aims to reconstruct the interconnections between the events that accompanied such choice and the theoretical and intellectual background of the group of key economists that implemented this strategy.
Acknowledgement
The paper was entirely jointly discussed and agreed upon. Introduction and sections 1 and 3 were drafted by Masini; section 2 and Concluding Remarks by Nania. We would like to thank the referees of this journal for invaluable remarks. We would also like to acknowledge the useful comments by Ivo Maes, Pier Francesco Asso, and the participants to our sessions in three international conferences (EUI Florence in April, ESHET Liege in June, and AISPE Palermo in October 2023) for their comments on previous drafts of this paper. The usual caveats apply.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 As we can read in the official publication of Italian legislation, called Gazzetta Ufficiale, nr. 50, 20.02.1982.
2 There had been in 1977 a “State bond” of 8bn French francs with a coupon linked to the European Unit of Account, the predecessor of the ecu; and in July 1981 a “special bond” issued by the Belgian Government linked to—but not denominated in—the ecu, for an amount of 67bn Belgian francs; see Ecu Newsletter, n° 1, February 1982.
3 Eurostat data from 1990.
4 We should say mainly foreign, being the ecu a basket currency also including a share of Italian liras.
5 This poses the problem of whether the so-called vincolo esterno, the external constraint, was a jointly shared constraint, to which also Italy contributed, or a German constraint. An issue that would surface much later in European public debates, especially when the re-unification of Germany would be pursued through increases in the interest rate to allow for foreign capitals inflows, rather than via a decrease in interest rates to provide incentives for domestic investment, thus imposing costly adjustments on all European partners.
6 Culminated in a famous (and, for his electoral base, absolutely puzzling and misunderstood) speech that Enrico Berlinguer (Secretary General of the Communist Party) gave on 15 January 1977, and followed by an article published in the newspaper La Repubblica on 24 January 1978, where Luciano Lama (Secretary General of the Italian General Confederation of Labor, the most important Left-wing trade union, that at that time counted around eight million members) anticipated the notorious and shocking Svolta dell’EUR speech of February 1978, suggesting the time had come for wage moderation.
7 Providing trust is key to reducing inflation (our translation).
8 The above-mentioned Pandolfi and Andreatta, but also Romano Prodi, Minister of Industry since 25 November 1978, and Rinaldo Ossola, General Director of the Bank of Italy then Minister of Foreign Trade.
9 Instead of the European Monetary Fund, the EMCF (European Monetary Cooperation Fund, established already in 1973) was strengthened, managed by the Bank for International Settlements in Basel, to provide technical assistance and a clearing among the currencies of the system.
10 Chaired by Roberto Calvi (an Italian banker with very close and opaque connections to the Vatican Bank IOR) who was found hanging under the Blackfriers Bridge in London in June 1982.
11 The Us inflation rate collapsed from the peak of 14.8% in March 1980 to 3% in 1983.
12 Around 50% from 1980 to 1985 against the DM, more than 100% against the Italian Lira.
13 According to Piluso (Citation2022), also Rainer Stefano Masera (between 1975 and 1988 Head of the Research Department of the Bank of Italy, in the mid 1990s Minister for Budget and Economic Planning) should be included in the group. We basically agree, but Masera played a minor role in those early 1980s.
14 The Bank of Italy was committed to buy all T-bonds unsold on the market at the price set by the Italian Treasury.
15 Ciampi (Citation2010, 139) even claimed that, during that period, the Bank of Italy “was considered ‘imperialist’; as if the Treasury were subject to the Bank”.
16 The main actor of this new instrument, which was negotiated with representatives of the consortium of banks that floated T-bonds, was Maria Teresa Salvemini Ristuccia, Cabinet Chief at the Treasury, who would later help design the ecu-denominated T-bonds too.
17 One month earlier, in a note of the Banking Federation (of commercial banks) sent to each Central Bank, financial institutions had asked for coordinated action by monetary authorities to make operations in ecu “as operations in domestic currencies” (Historical Archive of the Bank of Italy, hence ASBI, fund 7, sub-fund 2, Baffi Honorary Governor, folder 96.5, The Use of the ECU in Banking Transactions, page 9).
18 Alfonso Iozzo Interview, October 16, 2012: https://www.cvce.eu/en/education/unit-content/-/unit/32211249-e856-4268-b787-3e816f0764db/e900134f-f97e-4a1f-b0b5-c9b120e5a0c0/Resources#58befa59-13d3-433b-a34a-9d4877f01969_en&overlay.
19 V Permanent Commission, December 2, 1980, 10.
20 Elected as independent Deputy of the Left.
21 V Permanent Commission, December 4, 1980, 20.
22 With 14 votes in favour and 4 abstentions.
23 Art. 38, paragraph c) of what would become the Law 30 March 1981, n° 119, published in Gazzetta Ufficiale on 8 April 1981, n° 97.
24 And Vice-Secretary of the European Federalist Movement in Italy.
25 Hired from the Bank of Italy in 1976 at the Milan branch, we had been moved to the Bank research division (Servizio Studi) in Rome since 1979. In recent years he would become Deputy General Director under Saccomanni (with Visco as Governor), and later his substitute when Saccomanni became Minister of the Economy in 2013.
26 ASBI, fund 7, sub-fund 2, Baffi Honorary Governor, folder 96.5, Note for the Ministry of Treasury.
27 Its proceedings were published as Quaderni dell’Istituto per gli Studi Assicurativi, n°34, 53(2).
28 See ASBI, fund 7, sub-fund 2 (Baffi, Honorary Governor), folder 96.5, Note for the Ministry of Treasury, see pages 4ff.
29 Ibid., page 6.
30 ASBI, fund 7, sub-fund 2 (Baffi, Honorary Governor), folder 96.5, Note for Dr. Sarcinelli, dated March 19, 1981.
31 Baffi, who had become honorary President of the Bank of Italy in October 1979, after his indictment and subsequent resignation, had been invited by the European Federalist Movement in Italy (MFE), the organizer of the conference, to mend up the tear dating back to the end of 1978, when Mario Albertini, charismatic Chair of the MFE with several links to the government, had publicly asked for the dismissal of Baffi from Governor of the Bank of Italy for his reluctance in the negotiations and debates on the birth of the European Monetary System. This is a story that would require – and probably deserve – to be narrated in an ad-hoc paper.
32 See ASBI, fund 7, sub-fund 2 (Baffi, Honorary Governor), folder 96.5, see page 4.
33 As we already underlined in section 1 of this paper, the debate in the Seventies had seen a division between the so-called economists, those who advocated for convergence first, and monetarists, those that were in favour of money integration as a prerequisite for further economic convergence.
34 “If in the immediate term, the European shield, as an instrument of preservation of values, holds up poorly against the national currencies of this highly integrated area, its reliability in the medium term is further challenged by the political reason. [… The basket is…] bound to undergo revisions that, through reductions of the amounts of strong currencies and increases of those of weak currencies included in it, will restore it to the pristine degree of weakness, avoiding the long-term hardening of a constant basket” (Baffi Citation1981, 73, our translation).
35 Baffi: lo SME deve essere cambiato. Triffin: “No, va solo potenziato”, Corriere della Sera, March 22, 1981. Indeed, Baffi himself often refers to Triffin, as if he wanted to make sure his distance from Triffin was framed in the right context.
36 Gianni Ruta, financial manager of STET, was a key figure behind this choice. Ruta was the Secretary General of MFE in Rome and a close friend of Alfonso Iozzo. On an undated piece of paper at the archives at the Bank of Italy, Baffi (hand)noted (our translation from the Italian): “Iozzo at San Paolo – Ruta at STET (both MFE)”: ASBI, fund 7, sub-fund 2 (Baffi, Honorary Governor), folder 96.5.
37 SOFTE is the Luxemburgish Societé Financiére pour les Telecomunications et l’Electronique s.a.
38 The final decision came when the Belgian Kredietbank (a Belgian-based bank that had pioneered since 1971 a network of European financial institutions in joining forces for research and strategies for cooperation through the creation of the Inter-Alpha Group, of which the San Paolo of Turin was also a member) guaranteed that it would subscribe the whole tranche of 50mn destined to the foreign market (while the remaining 450 mn were stampigliati—stamped—which meant that they were only destined to the domestic market). Again, behind such choice, there was Robert Triffin, Director of the Kredietbank Luxembourg from 1961 to 1988.
39 The further issue of 700mn ecu also established 50mn for only international investors, see E.M. “Minore nervosismo sui BOT. Domani via agli Euroscudi,” Corriere della Sera, 21 November 1982. The interest rate was set at 13% with an exchange rate that had become 1.343,68 Lit.
40 “In vista forte ribasso dei tassi. Bot trimestrali al 18.65 per cento”, Corriere della Sera, 19 February 1982. The article was accompanied by a box in which practical details were provided, together with the list of ten banks that floated them: Banca Nazionale del Lavoro, Istituto Bancario San Paolo di Torino, Monte dei Paschi di Siena, Banca Commerciale Italiana, Credito Italiano, Banco di Roma, Banco di Napoli, Banca Nazionale dell’Agricoltura, Banca Popolare di Novara and Cassa di Risparmio delle Province Lombarde.
41 A choice (preceded in 1981 by two devaluations on March 22 (6%) and October 4 (−3%) that made expectations for further devaluations of the Lira in 1982 growing stronger among economic agents, see Atti Parlamentari, VIII Legislatura, Camera dei Deputati, doc. XIX, n° 3-bis, page 11) that Andreatta would later (in 1988) regret (Andreatta Citation2017, 126). The Italian lira would be forced to further depreciate (5.75%) in June 1982.
42 Senato della Repubblica. Giunte e Commissioni Parlamentari. 244° resoconto, 18 March 1981, p. 19. Andreatta replied on May 19, 1981, that Stammati’s warning “should induce caution in taking such initiative, not discourage it”, Senato della Repubblica. Giunte e Commissioni Parlamentari. 245° resoconto, 9.
43 See Triffin’s speech at the March 23, 1981, conference held in Louvain-la-Neuve within a session chaired by Paul Henri Spaak; ASBI, fund 7, sub-fund 2, Baffi Honorary Governor, folder 96.5, Le système monétaire européen dans le cadre du system monétaire mondial.
44 According to Flor (Citation2019, 38–39) the shifting from the parallel to the single currency approach took place under the auspices of a Report drafted for the Committee for the European Monetary Union by the former Governor of the Banque de France Renaud de la Geniére.
45 We suspect that the reason was different, depending on a firm political will by European leaders to support the ecu and its evolution into the euro, while the SDRs were hindered by the hegemonic interests of the USA. But this is once again a topic for another paper.
46 As a demonstration of this, the following data (whose validity we were not able to confirm, though) were provided: “instead of borrowing six-months lira at nearly 14%, Italian companies borrow ecus at just under 10% and convert them into dollars. When they get paid for the imports, they use the resulting lira to repay the ecu loan. The interest differential more than compensates for any risk that the lira will be devalued in the interim. As much as 60% of Italy’s imports are now said to be financed this way” (Ibidem).
47 Let us observe that 1988 is the same year when Giavazzi and Pagano (Citation1988) published their largely celebrated paper on The Advantage of Tying Ones Hands. EMS Discipline and Central Bank Credibility, where they laid the theoretical foundations of the expansionary consolidation thesis that would repeatedly emerge in Italian policymaking debate, until recently.