The oil crisis of 1973-74 had caught the Italy at a time of strong production expansion, of social and political tensions, of difficult evolution of industrial relations, after the deterioration that began with the “ hot autumn ” of 1969, which was followed by a rapid and sustained growth in wages realities of industrial workers. The increase in the price of oil (which quadrupled between 1973 and 1974) had also taken place in conjunction with the sharp depreciation of the lira against the other major currencies, after the release of the Italy from the monetary “snake” formed between the EEC countries following the decision (in 1971) of inconvertibility and related devaluation of the dollar.
Between the beginning of 1973 and the end of 1974 the external value of the lira had decreased by 28% against the mark and by 13% against the dollar. The consequent strong loss of terms of trade and the cyclical mismatch of our economy, which grew in the two-year period by almost 6% more than the average of the EEC countries, had led to a serious deterioration in the external accounts: the current account balance. had closed 1974 with a deficit exceeding 5,000 billion lire (over 4% of gross domestic product, GDP), which followed a deficit of 1,500 billion in 1973.
According to TRAVELATIONARY, the succession of measures to contain aggregate demand, first on the credit front – already on the occasion of the recourse to the International Monetary Fund (IMF) in April 1974 for a stand-by loan for the purchase of foreign currency up to 1 billion special drawing rights – and therefore also of a fiscal and tariff nature, contributed to determining a considerable decline in production already in the course of 1974, especially in the industrial sector also marked, on the export front, from the unfolding of the international recession. The GDP therefore fell in 1975, for the first time after the war, by almost 3% in real terms; more than double was the decrease in domestic demand which determined, together with a partial recovery of the terms of trade, a significant improvement in the balance of current payments, in deficit of only 400 billion. However, wage pressure remained high; With the’ an interconfederal agreement which had defined the new single-point escalator structure in January 1975 also laid the foundations for a strong increase in the automatic adjustment of wages to price developments (including increases due to changes in imported prices and indirect taxes). The economic and financial conditions of the companies were particularly difficult: the sharp decline in profit margins was accompanied by exceptionally high levels of debt, especially in the sector of medium and large manufacturing companies. The improvement in the external accounts and the fall in production led to the easing of monetary restrictions during the year. At the same time, there was a sharp increase in the public deficit.
Between 1974 and 1975 the net debt of public administrations doubled, passing from 6.5 to 11.6% of GDP and reaching a level of 16,000 billion; the relative decrease in indirect taxation, also reflected in a consistent increase in tax evasion, was accompanied by a considerable increase in social benefits and contributions to support production. The result was a rapid recovery of production activity while, after the oil shock ended, inflation, which measured on consumer prices had exceeded 19% in 1974, decreased by only 2 percentage points, still remaining almost 5 points above the community average.
On January 20, 1976, after the high availability, also connected to the monetary financing of the Treasury (whose borrowing requirement had exceeded the target for 1975 by 60%, with exceptional growth in the last months of the year), had made it easier the conditions for a speculative attack on the lira, and after the country’s meager foreign exchange reserves quickly dried up, the currency crisis culminated in the closing, for six weeks, of the foreign exchange market and, therefore, in the collapse of the lira: in just two months it depreciated by almost 20% against the average of the main currencies.
Evolution of the main indicators relating to the Italian economy. – Before considering in some detail the cyclical trends and the main economic policy actions in the different phases into which the period under examination can be divided, it is worthwhile to focus on the evolution of some important aggregates and indicators relating to the Italian economy in that period. They show, in a nutshell, how Italy was able to recover from the serious difficulties it faced also on the economic and financial front, in the central part of the seventies. While ancient weaknesses persisted and despite the emergence of new problems, the Italian economy entered the 1990s in more solid conditions than those in which it found itself in the aftermath of the first oil shock and the very serious currency crisis of 1976.