Saturday, May 31, 2014

Mussolini's Battles: The Battle for Lira

Mussolini (center) in 1922
In 1922, the Europe was still recovering from the horrors and devastation of World War I. The huge casualties caused a huge drain to manpower. It also destroyed a lot of farms and factories. In addition, many countries were in debt which was caused by the huge money needed to wage the war. The pressure to repair the economy and rejuvenate their country fell to the leaders of the post war period. Some governments, however, failed to bring this needed boost and recovery to their people. This failure caused their fall. In Germany, the monarchy under Wilhelm II fell in the hands of Republicans. In Italy, the reins of power came under the hands of a new far right wing party – the fascist. They were led by a World War I veteran and die hard fascist named Benito Mussolini. He would instigate series of economic battles, among this battles was the Battle for the Lira.

In 1922, the Mussolini managed to grab the Premiership of Italy. The government of Luigi Facta failed to stop his rise. King Victor Emmanuel III of Italy invited Mussolini to form his government.  When Mussolini rose to power, he inherited a nation in a terrible situation. Harvest were short of the needs of the Italians. Also, the financial situation was also in a dire situation. Debt accumulated during the war was not yet resolved. In the monetary front, the Italian Lira’s value was falling.

Mussolini did not wasted time to act. With his flair for dramatics, he launch series of economic battles intended to fix the situation of the country. In 1924, Mussolini announced the Battle for Grain to fix the shortage of cereals in the country.

In 1926, Mussolini launched another economic battle, this time it was aimed to the Lira. In 1926, the Lira continued to lose its value. A British Pound Sterling was traded for about 150 Italian Lira. For Mussolini, who was a fascist, everything connected to the nation was important, including its currency. He wanted to create a strong nation with a strong currency. And so, in August of 1926, in a speech in the city of Pesaro he announced the start of the so-called Battle for Lira.

Under the Battle of Lira, the government intended to increase the value of the Lira. As part of the Battle, Mussolini instituted the Quota Novanta or the quota to make the conversion rate of 90 Lira to a British Pound Sterling. To further reach the aim, the government prohibited the Bank of Naples and Bank of Sicily to issue banknotes, which dated back during the unification of the Italian Peninsula. Other monetary policies to reduce the money supply were also launched on December. Wages in industries were cut. Housing rents in cities were also reduced.

Eventually, a year later the Quota Novanta was somewhat reached. In 1927, the exchange rate between the Italian Lira and the British Pound Sterling was being traded in 92.46:1. The aims of the Quota Novanta was achieved.

The rate, however, was not achieved without effects. The lowering of exchange rate resulted into cheap imports. However, it also resulted to the increase of price of Italian exports in the international market. Heavy industries like steel and those who needed imported raw materials celebrated the new exchange rate. However, Exports industries were hit terribly hard. Suddenly, because of the new rates, the price of Italian exports in the international market increased tremendously. With the sluggish export, industries were forced to cut wages and unemployment rose. Finally, with a rising unemployment, national income also decreased.

For conclusion, the Battle for Lira was a pyrrhic victory. Much of the effects of the Battle for the Lira was negative. It hampered the economy. However, the political aims of the Battle for the Lira. The exchange rate, the Quota Novanta was achieved. The political position of Mussolini was also secured. But in returning to the economic effects, the decrease of prices of imported raw materials allowed Italy to rebuild its army. The Battle for Lira helped Italy to attack Abyssinia in 1935 and to fight in World War II.
McGrew, A. & P. Lewis (eds.). Global Politics. Oxford: Blackwell Publishers, 1992. 

Robson, M. Access to History: Italy - The Rise of Fascism, 1915 - 1945. London: Hodder Education, 2006. 

Tortella, G. The Origins of the Twenty-First Century: An Essay on Contemporary Social and Economic History. New York: Routledge, 2010.