Italy Props Up Weak Lira, Awaits French Vote

ANALYSIS

AS Italy searches for a way to salvage its weak lira, all eyes here are watching the coming French referendum on the Maastricht Treaty.

In the latest bid to shore up its faltering currency, the Italian government raised its discount rate last week to 15 percent. It is the third increase this summer and the highest rate in seven years.

Italy's rate tops the list among the seven most-industrialized nations, followed by Britain at 10 percent.

Government officials here expressed the hope that the increase would be a temporary measure, lasting until the results of the Sept. 20 vote in France on the Maastricht Treaty on European union.

If the French approve the treaty, the active late summer trading in currencies (especially the German mark) should cool and give the lira relief, they reason. If the French vote against the treaty, officials here believe the entire European Monetary System (EMS) will have to be reviewed.

The finance ministers of the 12 European Community nations, meeting in Bath, England, Sept. 5, announced that they would make no adjustments to the EMS. Such adjustments would be one way out of the present currency crisis.

The increase in the discount rate, by 1.75 percent, was taken Sept. 4 after the lira had been touching its lowest allowable trading level under the (EMS) against the mark.

DESPITE the battering from the mark, which has become known here lately as il supermarco, the Italian government has consistently and firmly rejected the idea of devaluing the lira. Instead, in its effort to prop up the lira, the Bank of Italy has chosen in recent weeks to sell off foreign currency reserves.

After the discount rate increase, Prime Minister Giuliano Amato said that Italy faces a difficult moment, which he attributes to worldwide deflation and the risk of recession.

"Therefore in this situation of general difficulty, Italy pays a high price for its Achilles' heel, for its higher inflation, for its higher public deficit, for its enterprises that are more indebted than the others, for its services that are more inefficient than the others," Mr. Amato said.

The mood of the business community was predictably downbeat, since the raising of the discount rate discourages investment.

"Raising the cost of money in this way strangles industry," said Luigi Abete, the president of Confindustria, an industry lobby. He requested an urgent meeting with the government.

After observing that entrepreneurs are expected to speak optimistically, Gianni Agnelli, the president of Fiat and one of Italy's best-known businessmen, added, "I don't want to say anything, because truly today I am very pessimistic."