Italy's Debt

Chancellor Churchill of the British Exchequer struck hands with Finance Minister Count Volpi of Italy last week; signed and sealed an agreement with him that Italy is to pay the following sums to Great Britain in liquidating her debt:

Fiscal Years..........Annual Payment Last half of 1926*.....-L-2,000,000 1927 and 1928...........4,000,000 1929 through 1932.......4,250,000 1933 through 1987.......4,500,000 First half of fiscal year 1988....2,250,000 Total over 62 years....-L-272,250,000

Special Clauses. 1) After Sept., 1928, Italy may exercise the option of postponing the payment of that part of any half yearly installment which exceeds -L-1,000,000, for not more than two years. Until such postponed installments are paid up they will accumulate interest at 5%. 2) Beginning Sept., 1928, Great Britain agrees to return to Italy in half yearly installments the -L-22,000,000 deposit in gold bullion which was shipped from Rome to London during the War, as an earnest of Italy's fiscal good faith. At first the gold will be shipped back in eight equal installments totaling -L-1,000,000 over four years. After that the remaining -L-21,000,000 in gold will be shipped back in equal installments terminating Sept. 1987. 3) In the event that the total payments received by Great Britain from her former Allies and Germany shall exceed the sums which Great Britain is repaying to the U. S., then this excess will be, in part, returned to Italy under elaborate restrictions.

The Significance. Secretary Mellon felt called upon to release a mimeographed bulletin from the U. S. Treasury Department which stated: "The present value of the British-Italian settlement represents about 16% of the indebtedness funded, and the present value of the Italian-American settlement represents about 26% of the indebtedness funded." (See TIME, Nov. 23.)

Meanwhile Chancellor Churchill issued a statement:

"If everything works out in strict accordance with all arrangements for the next two and a half generations, there is no doubt that our agreement with Italy is considerably less favorable to us than the one which Italy made with the U. S.

"On the other hand, it is more favorable to us. . . as we interpret it, for the next 22 years, and much more favorable during the early years."**

Dispassionate observers could find little to add to these two pronouncements. Taken together, however, they provided much solid food for thought, and an excellent opportunity for congratulating Count Volpi upon his success in apparently pleasing both his major creditors fairly well. The New York Times might scoff: "Both Great Britain and the U. S. gravely assume that our grandchildren will be collecting on the Italian debt. . . . Who lives will see, but it is extremely unlikely that he will see that." And the London Times might grumble: "Reduced to simple mathematical terms, the agreement represents the cancellation of approximately six-sevenths of the Italian war debt to this country." But basically these two newspapers and a majority of the international press concurred in declaring the Volpi-Churchill dicker sound.

Variables. Ultra-conservative financiers noted two factors which practically nullify the validity of comparisons between the Italian-U. S. and Italian-British settlements:

1) The amount of the Italian-British debt was itself a matter of negotiation. The indebtedness was contracted partly in kind, and when in cash at different rates of interest, and was originally partly contingent upon "the amount of aid supplied to British troops by Italy" and other intangible factors. Two weeks ago, honest Italians considered the alleged original Italian total offer of 380 million pounds too high; and honest Britons felt the alleged initial British demand of 580 million pounds too low. As Count Volpi put it, in his now famous "favorite English sentence": "It all depends on how you look at it." 2) The Churchill-Volpi fiscal deal was persistently rumored last week to be only the visible cement of a British-Italian "understanding" with respect to mutual interests in the Near East. Diplomats opined that without a single pen's scratching upon a treaty it was quite possible for Britain to have got her "money's worth" from Italy.

*"The British Fiscal year 1926" ends March 31, 1926.

**Expressed in dollars, the total Italian payments to Britain add up to $1,323,000,000; whereas Italy has agreed to pay the U. S. a total of $2,407,000,000. Yet next year Britain is to receive $19,440,000 and the U. S. only $5,000.000. Thus "proportionately" Great Britain will receive over seven times as much from Italy next year, as will the U.S.