JPRS ID: 9875 WEST EUROPE REPORT

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• Collection: JPRS
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00850R000400030056-3
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• Document Page Count: 57
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• Sequence Number: 56
• Content Type: REPORTS

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- JPRS L/9875
29 July 1981
_ ~1/~st Euro e Re ort
p p
CFOUO 35/81)
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JPRS L/9875
29 July 1.981
WEST EUROPE REPORT
(FOUO 35/81)
CONTEHTS
ECONOMIC
BELGIUM _
Economics Mini~ter on Structural Problems, Third World Relations
(Willy Claes Interview; JEUNE AFRIQUE, 3 Jun 81) 1
ITALY
� Development of Italy~s Relations With Arabs r~evi.ewed
(AL-WATAN AL-'AR.ABI, 29 May-1t Jun 81) 5
Increased Contact
Growth in Trade Relations
- Ciampi~s Annual Report to Bank of Italy
- (Carlo Azeglio Ciampi; II, MONDO, 12 Jun dl) 15
MIZITARY
FRANCE
New Short-Range Ground-to-Air Missile Presented '
(Pierre Langereux; AIR & COSMOS, 27 Jun 81) 47
First Military Telecorrununications Satellites Described
(Pierre I,angereux; AIR & COSMOS, 27 Jun 81) 49
Briefs
SEP 17isplays Antitank Missile 54
-
- a - [III - WE - 150 FOUO]
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ECONOMIC . BELGIUM
ECONOMICS MINISTER ON STRUCTURAL PROBLEMS, TIiIRD WORLD RELATIONS
_ Paris JEUNE AFRIQUE in French 3 Jun 81 pp 88-90
LInterview with Willy Claes, Vice-Premier and Minister of Economics by JEUNE AFRIQUE;
date and place not specified/ ~
~ext7 Willy Claes: A north-south dialogue must become the instrument of a new but
� equitably shared growth.
What is the situation of present day Belgium? Vice-Premier and Minister of Economics,
Willy Claes gives a frank discussion of the realities af the situation. But the
internal difficulties are not a pretext to shirk the obligations of the Western
countries towards the developing countries. In this regard, his proposals cannot
fail to attract attention.
JEUNE AFRIQUE: Mr. Vice-Premier, what is the position of the Belgian economy in
- regard to econamic cycles and structure?
ti'illy Claes: First let me say this: for an international journal. as prestigious as
JEUNE AFRIQUE to open wide its columns to a developed country, while its bent is to
treat the problems of developing countries, shows emphatically the w*.11 and the
necessity to reinforce the dialogue between the industralize~] count es and those of
- the Third World. You are to be thanked for this.
The central location of Belgium at the heart of the EEC has a favorable effect on its
foreign trade: with a population representing about .25 percent of the earth's
inhabitants, Belgium has 3 percent of world trade. Except for coal, sand, and clay
our country possesses hardly any raw m3terials; we must therefore buy abroad the raw
materials necessary for our industries. Consequently, its exp~rts are v~tal but, at
the same time, make it dependent on worldwide economic cycles c~d st�-uctural move-
ments. About two-thirds of Belgium's foreign trade is realized with EEC countries and,
among those, essentially West Germany (22 percent of the total), France (19 percent),
the Netherlands (15 percent). The portion attributable to the developing countries
in the total of Belgium's exports remains too small, especially in comparison to the
share they have of our imports (about 16 gercent). Nearly half of the GNP is exported.
The areas of activity which are the most oriented towards overseas trade are areas
such as mineral products, metal and electronic products, chemicals, and certain
other industries such as the gold jewelry trade. With the goal in mind of consoli-
dating its exterior position, Belgium actively particnpates in the endeavors of
international organizations such as the UN--notably the United Nations Conference
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on Commerce and Develepment--GATT and OCDE. In addition, the Belgium-Luxembourg
Economic Union (BLEU), founded in 1921 and recently renewed for 10 years, Benelux,
created in 1948 and reinforced thereafter, and the EEC make possible a more har-
monious development of the constituent parts which these economically oriente3
entities comprise.
Since the beginning of the worldwide econanic crisis, growth of the GNP has slowed
down. After experiencing an average annual growth rate of 4 to 6 percent from 1969
to 1974, the GNP fell back in 1975 (-1.8 percent) and except in 1976 when it
recovered a part of its slowdown, it has grown only feebly since (2.1 percent in
1980 according to certain estimates). The results for 1979 show that the rise of
2.1 percent of the GNP in constant prices is due to the branches of the following
- activities: chemical and allied industries, iron, steel and non-ferrous metals,
financial services and insurance, transport and communications, and the textile
industry. Other branches, like the extractive industries, clothing and shoes,
pottery, ceramics, and glass, as well as construction are declining.
JEUNE AFRIQUE: What is true the situation af the economy in the present climate of
international crisis?
Willy Claes: In 1980, the Belgian econo,~iy was influenced by two factors: the high
level of interest rates in the United States on the one hand, and the ever more
significant depletion brought about through the gasoline prices in the importing
countries on the other hand. Market conditions in Belgium have shared in the depressed
international economic climate which has continued all this past year. Largely
positive in the first quarter of 1980, the growth rate of the industrial production
index, without including the building industry, (in seasonally adjusted and polished
data) later became negative. The intervening deterioration appeared _r,iincipally in
such sectors as the chemical and rubber industry, the basic metal industry, and the
construction industries. Ultimately, demand remained weak throughout 1980. Private
consumption as well as exports registered lower growth rates. Only investments were
able to keep up, but this evolution touches only certain branches such as energy and
metal fabrication.
JEUNE AFRIQUE: And the effect of unemployment?
Willy Claes: In that area we were confronted with difficulties of a wide nature. ~
On the one hand, the ever increasing mass of unemployed weighs directly on the
weakening of private consumption; the growing weight of unemployment is a direct
result not only of demographic change, but also of industrial stagnati.on as well as
a rationalization process in production which has speeded up in recent years. On
the one hand, the disequilibrium of the current balance of trade--due in large
measure to the primitive structure of exports--and that of public finances restricts
the margin of action of the authorities. The most favorable element remains the
evolution of prices: their rise is largely below that which exists in many countries,
all of which offers important competitive advantages. The present situation thus
- appears difficult and the short term prospects appear ~omber and almost inescapable.
Industrial policy is, more than ever, at the center of government deliberations.
All the more so as the secondary sector is, and will remain in the future, confronted
with profound mutations, among which are the progress of newly-industrialized
countries and the very considerable transfer of buying power to the oil-producing
countries. That is why what has come to be called the "new industrial policy," as
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well as the agreement which founded the current government, are oriented tok~ards
~ industrial reconversioc, and renovation of inethods, procedures,. materials, and pro-
ducts in arder to guarantee a lasting economic ~ecovery by the ir.cJispensahle adap-
~ tation of industrial structures.
JEUNE AFRIQUE: What are the major options in this new industrial policy?
Willy Claes: They are five in number..
1. Restructure and .~odernize the traditional branches of activity while taking into
account ,vorldwide economic reorganization;
2. Diversify production; manufacture more productis of a high added value and of tiiyh
technology;
3. Reach a degree of sufficient specialization in these types of products, and here
also;
_ 4. Limit dependence on foreign decision centers. Tha~ implies therefore a net
growth, at the heart o~ industrial activity, of national, private, and public
' initiative.
5. Enlarge exterior outlets, without at the same time neglecting the necessary
favorable working of the domestic market.
To all that can be added two factors which st:ould be kept in mir.d: the promotion and
reorientation of industrial research as well as the interest shown in labor intensive
activities.
.7EUNE P.FRIQUE: What are the goals of this policy?
Willy Claes: Firstly, restructuring aims at branches such as textiles, the iron and
steel industry, construction materials, food products, lumber, hides, paper, maritime
construction, and certain sub-branches of the chemical and metal industries. These
areas must increase their competitiveness by increasing productivity ant~ ameliorating
the commercialization of products; they must direct thzir production towards high
level goods and integrate even more the different stages of production. Moreover, the
social effects of rationalizatior?s must be supported by everyone.
The strategy of specialization must lead industry towards the benefits detailed abo.ve
which incorporate a high added value and a great effort at research. The market for
these products is that of the industrialized countries and of the Third World countries
which are industrializing rapidly. With the goal in mind of reducing the risks
connected with too strong a dependence on investors and foreign decision centers, at
the same time preserving their positive aspects, it seems necessary to addres~ oneself
preferably to European enterprises, to give more attention to medium-sized businesses
and to promote the formula of "joint venture," an association of foreign and Belgian
businesses, at the heart of which the partners are equal.
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What's more~ we must preserve and enlarge the acquired experience formed by foreign
investments, which have been factors in the industrial renovation, by means of the
new technologies they have introduced. Finally,. enlarging our foreign outlets implies
an accompanying growth in the size of a certain number of businesses in order to
allow them to better withstand the competition, to look after the marketing of their
prcducts and the canvassing of foreign markets, as well as augmenting the share which
equipment holds in the total of Belgian goods ex_~orted.
JEUNE AFRIQUE: What are the basic fundamentals of your policy concerning north-south
relations?
_ Willy Claes: Our new industrial policy is directed equally at the questions raised
by the current weakness of development of certain Third World countries. Today, one
fourth of the world's popula~ion con~umes 80 percent of its essential manufactured
goods while the other three quarters, living in tt~,e developing countries, must be
� satisfied with 20 percent. This relationship must change, and it will change, what-
ever the eventual will of t~e industrialized countries might be to oppose it. Thus,
if one wishes to avoid any serious tensions of a worldwide nature, it is necessary to
_ see to it that there is a balanced development between the north anc7 the south, from
which will result a new international dis~ribution of work. The industrialized
_ countries, by reason of their experience, will be called upon to act in favor of the
general infrastructures (transportation, energy, housing, etc.) as well as to be
responsible for the engineering and realization of industrial projects. Belgium
intends to be even more of a presence on the supposed battlefield of large exports,
but this process must be brought about by stimulating the complementarities and
appropriate forms of collaboration, notably by sub-contracting, between Belgium com-
panies and those of the developing coun~ries. If Belgium wishes to carve out a more
importai~t place in world markets for industrial equipment, we are, at the same time,
aware ttiat we must guarantee imports, on a permanent basis, of indvstrial products
originating from the Third World countries. ,
In the same vein, the Belgian government proposes, conjointly with the other
industrialized countries, to set forth a broad program whose goal will be to obtain
capital for the "poor" nations among the developing countries. It is a matter, there-
fore, of a"marshall plan" for development Lin boldface7. In effect, more and more
numerous are those who, in Belgium as in other European countries, are aware that the
current economic crisis will be overcome only if a more narrow collaboration is
created between the developed and the developing countries, in order to confront
present-day difficulties. Then,the north-south dialogue, so often demanded by the
Third World, will become the instrument of a new growth, but one that is shared more
equitably than that of the sixties.
COPYRIGHT: Jeune Afrique GRUPJIA 1981
9803 ~
CSO: 3100/780
~
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ECONOMIC ~ IT~L'Y..
DEVELOPI~NT OF ITALY'S RELATIONS WITS ARABS REVIEWED
Iacreased Contact ~
Paris AL-WATAN AL-'ARABI in Arabic No 224, 29 May-4 Jua 81 pp 65, 66
[Article: "Historical aad Geographic Facts ia ltaliaa-Arab Relatioas; European
Italy Pos:ttively Inclined Toward Arabs"]
~ [Text] The recent qears have witnessed coasiderable developmeat in relationa betweea
Italy and the Arab w~orld. This develop~meat has i~;~cluded the political, economic
and cultural spheres. Until receat times, the 1950's aad 1960's for exam;~Ie, the
relationship binding these two sides was aa unclear and incomprehensible foggy re-
lationship or, Iet ue say, a relationship with ao clearcut dimensions aad features.
This despite the fact tn~c Italq, next to Greece, is conaidered the closest Europeaa
countrq to the Arab w~orld aad therA is a rich history of the relations with this
couatry which shares with the Arab couatries its lo^..ation in the Mediterranesa
Basin. Moreover, there is a strong similarity between many of the austoms aa.d tradi-
tions of the Italiaa people, especiallq the sov~he~,a Italians, and the peoples of
the Arab Mediterranean couatries, i.e. the couatri~:s located on the Mediterranean
coast. Despite ~].1 these common denominators, the relations tyiag Italy to the
Arabs were not, r~s we have already poiated out, compatible with the facts, especial-
ly the political relations, coneidering that Italy has beea one of the last Euro-
_ peaa countries to show tmderstanding toward the Arab-Zionist conflict. This may
have been due to the strong relations established by the successive Italian govern-
meats with the IInited States, especially ia the aphere of foreign policy where there
was evideat coordination betweea the Italian aad II.S. goveraments on manq of the
' positians tak.en by the two gover~meats vis-a-vis interaatioaal events, especiallq
the Middle East issue. ~
Diseagagement With America
Aowever, this fact begaa to dieappear ia ltalian foreiga policy, in the late 1970's
and with the onset of the 1980's specifiically. The Uaited States can ao longer use
Italy as a lauaching point for ite activfties aga3aet the Mideastern countries. Oae
- of the distinguishing marks iadicating the exteat of the transformatian ia the
Italian policy aad this policy's liberation from the shaclcles of ~he II.S. policy ia
the area is fouad ia ltaly's condemnation of the Uaited States ia the wak.e of the
~ failure of tfie latter's attampt to free the~II.S. hostages in Tehraa [By military
- force~. It has also becoiae evideat in Italy now that there has beer~ a more positive
inclination in the interest of the Arab countries, especially when Francisco Coseiga
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was prime miaister and Emilio Colombo miaister of foreiga affaire. There has been
a large increase in the number of viaita made by Italian officials to the varioua
Arab couatries in recent years aad certaialy the Italian po?iticians have begua t~ .
realize that Italy, with its geographic Iocation and oa the basis of hiatorical aad
cultural reality, must interact to a greater extent aad more positively with the
hot political eveats aad the influentiaZ economic developments that tatce place [in
the Arab world]. Moreover, Italy is, by virtue of all of the abwe~meationed,
among tihe Westera countries moat atrongly affected by the Middle East crisis. Italy
relies on Arab c+il to meet 68 perceat of its energy needs. Local [oil] production
is very meager and can be disregarded, cona~dering that it doesn't exceed 1.5
millioa tons annually whereas the countrq needa more than 100 million toas a year.
Look for Oil
Ia addition to the oil which represents an important factor ~i th~e consideratioa of
Italian foreiga policy, there is aaother factor which has influeaced modify3ag the
course of Italian policy vi.s-a-vis the Middle East generally and the Arab countries
ia particular. This inclination appeared in the first half of 1980 wilea it was
Italy's turn to head the EEC Council in the first 6 montihs of 1980. Therefore,
- Rome took the leadership uf maaaging the EEC affairs in an importaat period during
which the EEC member statea were finaliz~ng their views and preparing themselves '
for a role in the M3ddle East--to be apecific, for a role ia settling the Arab-
Zionist conflict geaerally. Coasequeatlq, Italy fouad itaelf iaterested, perhaps
for the first time in this caacerted masiner, with whatever was happeaing in the Middle
East politically, economically aad culturally. We even notice that this interest
did not ead or terminate with the tesminatioa of Italy's chairmanship of the EEC
Council in the secaad half of 1980. Therefore, this period witnessed aumerous
visits by Italian officials to the Arab couatries and the conclusion of b ilateral
agreemeats betweea Italy and many of the Arab covatries. However, the impact of
tlzis positive turn in Italian policq dim.inished quickly. An official. of the Italiaa
Ministry of Foreign Affairs attributes this chaage to the eruption of the Traqi-
Iraniaa war ~ad the reaigaatiaa of Cosaiga's cabinet at the end of September 1980.
Cossiga was the maa whn headed the EEC meeting wh3.ch was held in Vienna on 13 June
1980 and ia which the nine EEC member statea issued their joint declaratioa oa
peace in the Middle East. In this declaratioa, theae states eapressed their readi-
nesa to participate in the efforts to briag about a compreheasine settlement ac-
lmowledging the Palestinian people's legitimate rights to their land and their right
to self-determinat ion. While recogniziag Israel's right to survival and securitq,
the EEC member states coademaed the Israeli settlemmt palicq ia the occupied ter-
ritories. They also declared their rej ection of the Israeli attempts to change the
status of Jerusalem unilaterally. For the f irst time, the EEC member atates also
stressed that the PLO ahould have a part 3a aay peaceful settlemeat.
This may not include a11 that the ma~o~ity of the Arab countries want fram Europe.
However, the Italian Miaistrq of Forelga Affairs considered this declaration by
the EEC member states to be conaiderable progreas, the credit for which goes to
Italian diplomacq which plaqed an effective role in changing the political direction
conceraing the Middle East in the Netherlaads and Denmark both of which had been
- lmown for their positions of full supporx for Israel. For the first time ever,
we saw the Weat European countries not [only] biading themselvea to the declaration
issued but [also] laying down the foundations for an active diplamary embodied in
the mission which toured the Arab countries and Tsrael to familiarize itaelf with
the points of agreement aad disagreement between the parties to the conflict. Th~s
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miss3~on was lmowa as the (Thora) mission, Thorn being the chairman of the EEC Council
for the second he?f of 1980. Oae of the most i~nportant results of the tours, con-
tacts aad talks of the mission was the declaration by the European. couatries of
their readiaess to offer int~rnational guarantees biadiag to bath side~ in the area
with3a the framew~ork of a comprehensive peaceful settlemeat. Ia July 1980, whea
_ Ita].q haaded over chairmanship of the EEC Cc~uacil to the Luxembourg, Italian Miuister
of Foreign Affaira Colambo was planaing to underliae the bilateral relations be-
tweea Italy aad the Arab couatries. ge pr,id aa official visit to Tuaisi.a during which
he held talks with Chedli Rlibi, the Ara~o League secretary geaeral. Shortly after-
war3, "Izzat Ibrahim, the Iraqi vice presideat, vlsited Rome with 3 Iraqi ministers
3a response to aa official invitatioa from ~he Italian Government. Meaawhile,
active preparations were uaderway to receive Pr~uce Saud al Faysal, the Saudi miaister
of foreign affairs. But suddenly the Iraqi-Iraaian war erupted aad the ICaliaa
cabinet fell. Accordiag to an Italiaa diplomat, Italy had attached big importance to
the Saudi minister's visit and was lcoking forward to restoring Italiaa-Saudi rela-
t3ons to the conditions that prevailed before the baa on the eaportation of S~udi
oil to Italy. In aay case, this problem has receatly beea solved satisfactorily to
both sides.
Generally, it can be said that the relations between Italq aad the Arab homeland
are coastantly developiag in a posi~ive direction at the various palitical, economic
and cultural levels. Inaofar as each individual Arab country is concerned, it is
evident so far that Italy is trying aot to interfere in the political axes that
emerge between some countries of the Arab ha~eland. Italy's interest lies, accord-
ing to the statemeats of more tFian oae Italian official on more thaa one occasion,
in the disappearaace of the petty conflicts among the Arab states so that Europe,
including Italy, may be able to deal with an Arab world that has unified positions
on both the foreiga and the damestic policies.
_ Growth in Trade Relations
- Paris AL-WATAN AL-'AxABI in Arabic No 224, 29 May-4 Jun 81 pp 69-72
_ [Article: "Italy: Economic Artery Between Europe and Africa; Italiaa Exports to
Arab World Triple in 4 Years"]
[Text] There is the following faaoous statemeat by a prominent Ital3aa busiaessman
in which he describes the necessar.q guarantees for the survival, growth and de-
velopment of the Italian economy and iaduatry: The only soluti,on before Italy is
to develop its econamic relatioas with the Arab world, especiallq with the Arab .
oil couatries, to the utmost degree gossible. From them we acquire oil, which is
the energy aecessary to run the factories, and to them we eaport the largest volume
possible of the production of these factories at prices and on conditions uamatched
in other couatries.
It seems that the Italian busiaessmen aad the Italiaa Government have fully realized
this fact or takea this advice, as they describe it in Italy. A single glance
at the developmeat of the Italian exports to the Arab coun.tries ahows us the estent
of the stunnjag growth in the econamic relatioas between the two aides in a short
period not over 4 qears. Whereas the value of the Italiaa exports to the entire
Arab world did not eacceed $3,746,831 ia 1976, we f~nd that the figure rase to
$5,237,347 in. 1977 and to $6,219,446 in 1978. In 1979, the f igure reached $8,668,837.
~ All sigas indicate ~hat the 1980 f igures will exceed all the preced3sig f igures aad
all the e~pectations follow3~ig them. [All figures as published]
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- Italq is the biggest industrf.al state in the Mediterranean Basin. Lil~e all the
industrial countri~.s that lack local energp resources, Itsly has beea strongly
affectedby,-the rise of oil prices ia recent years, especial~v whea we learn that it
depeads on oil to meet 68 percent of its eaergy needs. Deapite the efforts it is
exerCing to increase its imports from other sources, such as Nigeria, Venezuela gnd
M~ico, Lhe largest part of Italy's oil imports comea fro~ the Middle East. Thus,
crude oil repreaeats the burdea that saddles its balance of paymeiits. This burden
grew heavier in 1979 in particular wisea the deficit ia ltaly's baYaace of payments
_ amounted in the first 8 maaths of 1979 to 11,182,000,000,000 liras--$12,912,000,000.
_ Eaergy Problems and Their ?~ocal Causeg .
Thus, the Italian economy, like the economies of the other industrial couritries, has
_to_shoulder the_wei~ht of the zis3ag prices of crude oil and of the interruption of
some oil supplies because of the Iraqi-Iraaian war. The quaatity of oil supplied
bq Iran to Italy has dropped by a large amount since the Iraaiaa revolutioa whereas
uuder the shah, Iran wae the second largest supplier of ail to Italy after Saudi
Arabia. Iraq then replaced Iraa as tihe second largest supplier and this eituatioa
cantinued until the outbreak of the ?*_'aa3-Iraaian war.
How~ever, maay political observers aud economic aaalysts believe that the blame for
the interruption of oil supplies fram some sources falls on the shoulder of Italy
itself. The government-controlled Italian Sydrocarboas OrgaaizatiAn, imown as
ENI, has failed to implement the dir~ct importation deal for 12.4 million tons of
oil concluded with the Saudi Petramin Orgaaization becauc+e the Saudis stopped
delivery of the oil whea the political scaadal concerniag the $114 million agreed
- upon as "cmumission" spread in Rcme. The goverameatal and parliamentary iavestiga-
tions have reached no concluaive result and have found no evideace of aay payments
to certaia ltaliaas. How~ever, this has aot preveated Italp from importing Saudi
oil via the interaat ional oil campaniese
There is aaother story with Ruwait, the gist of it being that Ruwait has stopped
delivering oi1 to two Italian importers who have aot beea able to pay what they
owe it, namely the SIR Compaay and the Atilio-Italiana Group. Ruwait was also
aanoyed whea the Pont OiI. Company, headquartered in Geaoa; sold a ahipa~eat of Ru-
wa~.ti oil on the high seas aad this shipmeat was ualoaded in South Africa. The
situation has also beea affected by the finaacial difficulties faced by the Italian
conaultiag aad contracting firms. The major shareho'lder of the (Itaaat) Compaay,
a company which had an eacellent reputation in the Third World, liquidated the
compaay. However, the labor uaions and the campany emploqees protested very strongly
aad so the governmeat appoiuted a represeatative to take charge of n~n~ting the
~ compaay. Exactlq the same thing was repeated ia the case of the group o� construc-
tion companies supervised by Mariro (Giagini) which had important coatracts in Saudi
Argbia aad Iraq. The courts ara still look3ag iato the affair of these campanies
and no decision has beea made qet.
It is evideat from the above-a~entioaed examples that the curtailmeat of the oi].
relationship betweea Italy aad the world's o il couatries, especially the Arab
countries, is due fuadameatally to some domestic Italiaa actions which have nothing
to do with the other side, meaning the oil source.
Arabs and Economy
As for Italy's economic relationship with the Arab couatries, it is, as we have
already mentioned, generally good aad developing, especially with the countries
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- close to Italy, such as Libya, Tunisia and Egqpt. Ytaly [presumably meaaing Libya]
is considered among the best markets for the Italian exports. Perhaps this is due
- to the old historical relations binding the two couatries, in. add~tion to the geo-
graphic proximity. Nea~ly 15,000 Italian.s wurk in Libya at preseat. As for Saudi
Arabia and the Arab Gulf States, Italy is exertiag usgent efforts to develop the
� relations with them. It has aow become �amiliar to see Italiaa fixms implemeating
large, mediu~ and small pro~ects 3n the Arab countries. Perhaps one of th~e most
important pro3 ects eatrueted to an Ital3an f irm to imple~ment in the Arab world is
the pipeline which will carry Algerian methane gas to Italy via the Strait of Sicily.
TEie first_real aad peraaneat liak between Afri~a and Europe was completed in 1980.
- This link or this pipeliae will go into operatioa by the and of I981 to carry gas
to Italq, and maybe to other European countries. The length of this pipeline which
crosses the Mediterraaeaa is 2,498 l~s aad its costs amouats to $3.5 billion. It
will transport gas from (Hasi Ram].) in the Greater Sahara to the European pipeliae
network which exteads to (Akoaisk) in the North Sea, the gasf ields in the Soviet
Uaion aad the ~,tlaatic coast of F~aace~
The observers likea this ambitious project, which is a record �igure in laying
pipeline in deep water, to a aecret rope l~uking North Africa with Europe. The
Italiaa fisms taking part ia layiag dowa the pipeliae prefer to call it the artery
pipeline becauae aa artery is a living thing that etaada as a symbol and as a testi-
mony to t~e two-waq cooperation aad co~unication across the Mediterranean. In
aaq case, this pipel3ne is capable of turning Algeria iato the biggest exporter of
~ the gas to Italy because the pipeline will carrq 30 percent of Italy's needs in
- 1985. The other suppliers, besides the local Italian production, are the Soviet
Union, the Netherlaads aad Libya.
Special Relat{.oas With Gulf States
This covers Italy's efforts in the biggeat pro~ect of its kixid being implemented in
oae of the Arab couatries is conceiued. If we contiaue to review the activities of
the Italiaa firms in the Arab world, we will find that the Italiaa (Acoli Marilli}
Firm, along with an Italian conaortivm, is implementiag a contract valued at 400
million dinars to supply power production equipment aad plaats for waste treatmeat,
air conditioniag aad power distribution.
In Kuwait, the Italiaa (Techait) group of compaaies has won a contract to design a
system for load3ng oil truck tankers capable of controlliag weight, flow and delivery,
of recordiag the value [of deliveries] and of prepariag the bills. This pro3ect
will cost in its eatirety $115 million aad Work on it started� �ia 1981.
These are ~ust esamples of the projects the Italian f irms are implement~ng in a
number of Arab couatries. It is worth aotiag here that the economic aad industrial
relations between Italy and the Arab hameland are not conf ined to such pro~ ects
but go beqond to other spheres, such as the ezportation of consimmer goods. There
is, for eaample, the ICE [Foreiga Trade Inatitute] which has braaches ia nearly a11
parts of the world, iacludiag 12 branches in the Middle East. Thep all work to
enha.nce trade betweea Italy ~d the Arab homelaad. At present, these off ices are
_ engaged in campa~gas to improve the sales of Ita].ian home appliaaces in Saudi Arabia,
the UAE aad Kuwait. There is also the Italia.n Industrq and Com~nerce Fair which is
held in Sharjah enery year and whiah displays Itali~n foodstuffs, cookiag ware,
light machiaery and construction materials, in addition to kitchen uteasils and
s inka .
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- F`uture...
We thus find that the Italian.firms have a broad market in the Arab world. If wA
continue citing examples, we find that an Italian firm is curreatly busy implement-
ing a$20 million contract to jmprove Benghazi's sewers. But one of the things for
which Italy is best laiowa is its production of ma.rble, porcelain and granite. From
Italy or by way of Italy come three quarters of the world's marble aad granite p~o-
duction and 82 percent of the machinery used ia cutting and polishing rock. There
was a stuaning increase ia ltaly'a marble aad granite exports from 1975-77 due to
flourishing construczivn activity in the Arab countries. Saudi Arabia became the
fourth largest importer of Italiaa marble whereas it had previously occupied 14th
place. The value of the exports to Kuwait has risen bp 500 percent. In 1978,
Saudi Arabia occupied second poaition among importers of Italian marble even though
there are similar good-quality materiala in same Mideastern couatries. But the
Itali,an pr~oducts are different ia quantity aad quality from the similar materials
found in Iraq and the UAE, far example. In Saudi Arabia, the locally available
marble is suitable for limited purposes, such as f loors. Thus, Italian u~rble finds
a broad market ia the Arab covntries, especially ~n Saudi Arabia and the Gulf states
where huge construction pro~ects have beea going on for years and will continue for
many years to come. This fact is taken into consideration bq the Italiaa fiYms and
, governmeat which seek to take part in these pro~ects that open broad spheres before
the Italian ecoaomy, iadustries aad labor.
Italy's Heavq Equipmeat and Machiaery Expor~:s
to the Arab Countries
(In millions of Italian Liras)
Name of Country 1977 1978 1979
Saudi Arabia 12.8 I2.8 12.4
U~ 4.6 2.6 0.3
Jordan 0.8 0.8 1.3 '
Ruwai:c 6. 8 4.1 2. 7
Gran~l Total 25.00 20.30 16.70
Ita1y's Arab Oil Imports in 1918
~~a Millions of Tons)
Name of Country Volume in Million Tons Percentage
Abu Dhabi 1.979 1�$~
Algeria 4.052 3.8X
- Dubai 0.876 0.8%
Egypt 6.348 6�8%
Iraq 18.950 17.5%
Kuwait 9.577 $�9~
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Libya 14.899 13.89:
Qatar 0.854 0.8%
Saudi Arabia 22.394 20.79~
5yria 2.123 2.OX
Tuaisia 0.912 0.7~
Italy's Marble Exports to the World
1978 1979
Value Value
Volume In Million Volume In Million
Country In Tans Italian Liras In Tons Ita'tian Liras
West Germany 691,151 169,38I 590,759 122,073
Saudi Arabia 258,900 70,310 171,433 45,920
Fraace 185,235 42,919 212,409 38,059
IIaited States 130,798 42,344 106,202 32,484
Kuwait 126,828 1~,676 92,994 ".12,025
Japan 42,962 15,101 35,122 8,810
Libya 72,648 14,163 77,070 8,294
_ Switzerland 139,026 14,017 122,760 9,656
Spaia 68, 378 !.13; 57.1 58, 963 9, 023
' Belgium 59,420 13,521 58,452 10,192
Britain 155,499 13,405 256,824 10,496
Austria (79,670) 13,325 67,839 9,723
Netherlands '46,877 11,826 46,412 9,035
_ Graad Total 2,056,825 499,559 1,897,239 325,790
Italy's Exports to the Arab Countries (In Million Italiaa Liras)
Couatrp 1976 1977 1978 1979
Algeria 354,180 579,168 804,155 892,567
Bahraia 15,324 26,493 26,007 28,904
D~ ibout i - - - 8, 081
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Egypt 243,692 300,181 345,590 431,338
Iraq 206,297 202,315 274,035 558,050
Jordaa 49,376 60,407 75,854 101~,667
Kuwati 151,888 229,756 243,896 270,237
Lebannin 27,332 176,751 197,424 294,788
_ Libya 835,280 1,810,035 1,106,860 1,597,869
Mauritania 4,120 5,972 5,560 9,350
Morocco 117,880 185,945 181,925 216,861
pmaa 9,808 16,248 16,643 22,921
Qatar 22,288 37,132 56,566 50,238
Saudi Arabia 55,635 953,612 1,242,889 1,563,153
Somalia 26,279 64,722 79,565 112,351
Sudaa 56,612 63,823 50,662 37,384
- gy=~ 189,950 192,102 201,275 376,004
109,572 163,858 1ffi7;655~~ 281,356
U~ 1I5,446 170,240 213,148 280,402
yemen (A,den) 9,803 16,349 15,157 21,135
Yemea (San'a') 16,601 34,621 37,638 57,816
Grand Total 3,117,363 4,561,730 5,342,504 1,212,472
(In Liras)
Graad Total 3,746,831 5,237,347 6,219,446 8,668,837
(In Dollars) -
[Box on page 71] Constaat Growth ia ltalian Exports
Italian exports to the OPEC co~mtries, ar?d also to the Arab countries, registered
coasiderable progresa in 1979 aad 1980~. The increase rate ia the 1980 exports to
the OPEC couatries, which ia.clude Aral~ coumtriea, amouated to 31.3 percent over
1979.
The increase rate realized by the Italiaa exports to the Arab couatries amouated
to 10.84 perceat in 1979 and I2.76 perceat in 1980.
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[Box on page 71] ITaliaa Trade Represeatation Offices in Middle East
- Offices of the Italiaa ICE ia the Middle East:
Algeria
Office Italiex~ pour le Commerce F~terieur, 8 Rue Hamaai, Algiers, te1 635889/
635896, telex 52148.
Egppt
Italian Trade Ceatere, Shari Tahrir, A1-Dokki, Cairo, tel 705631, telex 92676.
Ethiopia
. Italiaa Iastitute for Foreiga Trade, Eresco Building, PO Box 3185, A,ddis Ababa,
teI 444043, teles 21233.
Iraa
Italian Trade Commissioner, 145 Shah Abbas Rabir, Tehran, tel [phone], telex
213300.
Iraq
_ Trade Promotioa Section (ICE), 2/B/3/3 Zuqaq 4, Mahala 601, Maasur, PO Box 13006,
- Baghdad.
Ruwait
Italiaa Trade Commissioner, A1-Salhia Ca~ercial Co~plex, 1/3rd flo~r, Ituwait, tel
447582, te.~.ea 3483.
Lebaaoa
Tnstitut Italien pour le Com~erce Esterieur, Ceatre Sabbagh, Bureau 406, 4th floor,
_ Hamra, Beirut, tel [phone]. '
Libya
Italian Institute for Foreiga Trade, Maidaa Dahara, Palazzo Saghezzi, CP 12368,
Tripoli, tel 48207, telea 20~91.
Morocco
Off ice Ttalian du C,omQaerce Exterieur, 291 Boulevard Mohamed~V, Casablaaca, tel
278182, telex 22850.
Saudi Arabia
Italian Trade Commissioner, Shari ~ha].id ibn Walid, Sharafia, PO Box 1193, Jeddah,
tel 665~167/6659913, teles 44439.
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~aisia
Institut Italien pour le Commerce Fxterieur, Immieuble Africa, 50 Aveaue S Bourguiba,
PO Box 1222, Tunis, tel 255107, telex 40934.
UAE
Italian Trade Commissioner; Shaikh Hgmdan Building, PO Box 6752, Abu Dhabi, tel
- 21808, telex 3487.
COPYRIGHT: AL-WATAN AL-'ARABI, 1981
8494
- CSO: 4304/33
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ECONOMIC ITALY
CIAMPI'S ANNUAL RFPORT TO BANK OF ITALY
Milan IL MONDO in Italian 12 Jun 81 pp ~0-120
[Verbatim transcript of concluding remarks by Carlo Azeglio Ciampi,
Governor of the Bank of Italy on 30 May 1981, published by the Bank
of Rome as an insert to IL MONDO for its 12 June 1981 edition]
/Text~ Honored Guests,
_ Going back to recount events that, even though they are as recent as
those of 19~0, tend to be driven from one's mind by subsequent occur-;,.
rences,_is always necessary not only out of respect for the Bank~s
traditional duty to this annual assembly, but out of the conviction
that a detailed knowledge of those events stimulates and sustains the
act of will that leads to action.
I should like first of all to emphasize the long-standing continuity
of the Bank~s determination to pursue efficiency, through innovations
in its internal arrangements, the contribution of a thoroughly renovated
and skilled staff through advances in training processes, and our aware-
ness of the essential bond between the institution and the interest o�
the puaiic to be served.
Interaction between our activity as central bank and guardia~ and eco-
nomic and juridical research has intensified. Getting down deeper into
everyday activities, research'is beginning to come up with more helpful
suggestions as to procedures and insights which are its specialty, and
in return getting some very fruitful and stimulating feedback.
Over the course of the current fiscal year our budget machinery has been
improved, and we have gone ahead with our review and revision of operat-
ing procedures, particularly for the provisioncial treasuries and for
the monetary and financial markets; now nearing completion is the pro-
ject which will give the bank new and more complex electronic systems;
further innovations are in the advanced planning stages which will im-
prove cashier services and speed decentralization of responsibilit~.es
to branches.
Improvements have also been sought in staff organization. Partly as a
followup to the agreements reached last year with union representatives,
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we have worked out a complete format for union and publ olicies tions,
and some changes have been made in career advancement P ~ so as
to upgrade relevant skill level~ for individual positions and esta-
blish closer correlation between rank, responsibility, and salary.
Developments in these management aspects have suggested alter.ations in
the central office tables of organization,making due allowances for the
growing importance of planning and training procedures.
To the Bank~s staff, to whom I am bound by working relationships deve-
loped over all my professional career, I express my deep and affection-
ate thanks for the commitment and dedication they have displayed. That
comraitment expresses a style that is part of the heritage of the Bank
and of our nation, which tells us that the soundness of what we do in
our governance of the currency draws much of its strength from discre-
tion.
~he International Economy
In the course of 1980 the international economy at first showed very
slight gains, followed by a modest decline. Everywhere the recession-
ary effects of the second oil shock were compounded by the impact of
restrictive economie policies.
Growth in the gross domestic productin the OECD countries dropped from
3.6 percent in 1979 to 1.3 percent. Unemployment, which affected $.1
percent of the labor force in the final quarter of 1979~ topped 6 per-
cent at the close of last year to hit 23 million, and that figure has
risen still higher in the first part of 1981.
The crude oil price explosion of 1973-1974 Was followed by sharp rises
in base pay and an increase in personal savings rates. Business re-
acted to the squeeze on profits and conswnption with sharp reductions
in inventories and in fixed investments. Expansive tax measures were
taken to cushion the negative impact on production of the rise in oil
prices.
In this second crisis, the wage response was moderate; it was accom-
panied by a decline in savings rates, while economic policies concen-
trated their efforts on containing the secondary repercussions on costs
and prices.
Helping to keep wage gains modest was the conviction gaining ground in
business and labor circles of the need for accepting the real transfer
connected with the mounting cost of oil, refraining from asking for
higher prices to offset the mounting costs of energy� In some countries
where there are escalator mechanisms available, income controls par-
tially neutralized their operation.
Containment of domestic costs made it possible, throughout the OECD
area, despite the impact of oil prices, to get the decline in consump-
tion, after reaching a peak of 12 percent in the first half of 1980,
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_ back down to 10.5 percent in the second half. Before the latest oil
' crisis the average wage per employee was growing by 9 percent per year
and the decline in buying by ~ percent; in the second half of 1980,
wages rose 11 percent, as did consumer prices.
Costs in terms of unemployment and inflation were lower in those coun-
tries where policies designed to slow the growth of the money and cre-
dit supplies worked in harmony with positions taken in concert by labQr
_ and management and with more centralized collec~ive bargaining.
The steadiness of consumption and productive investment, along with the
_ fact that the inventory cycle was not nearly so spread-out as it was
during the first oil crisis, made the production slump less acute than
it was in 19~4 and 19~5, despite the lesser degree of economic phase
- slippage among the several countries.
As early as the opening months of 1980 the United Kingdom, Canada, and
the United States were moving toward recession; in the United States,
- however, the cyclical change came almost a year later� than the majo-
rity of forecasters had predicted. In Japan, Italy, France, and Fede-
ral Germany expansion continued through the first half of the year. In
the second half, all the decline affected all the principal countries,
with the exception of Japan and Canada. In the opening mon~:hs of this
year the world economy has shown some growth recovery, felt mainly in
the United States and Japan.
Equally uncertain is the short-term impact of American economic policy.
The new administration has laid down short-term guidelines on the basis
of which a diminished role for the public sector should stimulate pri-
vate in~+iative and savings and cut ba~k existing patterns of regula-
tion. This was designed to encourage profitable accumulation and de-
velopment, simultaneously reducing the urgency of public intervention
to rescue troubled sectors of the economy. On the monetary front, the
_ slowdown in aggregate demand would insure a steady decline in infla-
tion.
In the short term, the burden of stabilization falls primarily on mone-
tary policy. Since the demand for credit is hardly slowing at all, the
quantitative goals of the Federal Reserve System continue to require
high and still climbing interest rates. This is forcing the European
countries into the unattractive choice between accepting higher inf la-
tion rates via the exchange rates, and pursuing monetary policies more
restrictive than required for domestic purposes.
Even if economic policies prove to be aware of the ne~d to avoid any
further decline in production, the outlook reveals, even more than in
recent years, very slender margins for growth in domestic demand and
employment in heavily energy-dependent countries. Those constraints
will become far more stringent upon those economies that delay their
quest for greater efficiency, higher productivity, and expansion and
upgrading of their productive capacities.
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International trade in 1980 shifted into lower gear, rather than act-
ing to expand the cycle. The deceleration from 6.5 to 1.$ percent, in
the volume of goods traded can be imputed in large measure to the drop
of 10 percent or so in oil exports, which had increased 3�5 in 1979�
Most significantly, crude oil imports by the industrial countries shrank
by 14 percent on the average, with a peak of 20 percent in the U.S.
Declines in volume of overall imports running between $ and 8 percent
were recorded in the United States, Japan, Canada, and the United King-
dom. The United States and Japan, as a result of earlier depreciation
in their own currencies, also showed remarkably energetic growth in
exports, with increases of 8 and 18 percent, respectively. The United
Kingdom, while suffer�ing losses in exports of manufactured goods, de-
rived some advantage from its increased oil production. Principally in
the wake of these developments, the UK and US recovered to a position
of current surpluses; Canada climbed back to parity, while the growth
of the deficit balance in Japan proved to be relatively moderate.
Deterioration in the trade balances of the major industrial countries
was concentrated in Federal Germany, in France, and most of all in
Italy, where it hit $~.5 billion, triple what it was in 1979� In France
the deficit was $7 billion by comparison with 41 billion in 1g79�
These shifts occurred although the most painful increases in overall
energy spending were recorded in the United States and Japan, where the
deficit swelled .by $1$ and $20 billion respectively, and in both cases
reach totals of around $'70 million. The growth in the energy deficit
was on the order of $10 billion in Federal Germany and France, and about
$8 billion in our country.
The worsening of the German deficit, the continuation of a surplus in
the United States and the United Kingdom, and the new direction in mo-
netary policy in the latter two countries have had some impact on the
standings of the principal currencies, on recycling patterns, and on
the channels for creation and absorption of international liquidity.
The upward spiral in interest rates began in 1g79 in Federal Germany:
in 1980 and thus f ar in the current year the Federal Reserve Board's
rigid controls over the money supply has led to unheard-of and giddily
variable prime rates for all credit operations in dollars. Along with
this went high real interest rates as well; the latter ran even higher ~
on transactions in marks than on those in dollars, despite a steadily
softening economy.
In short-term international capital movements, operators were keeping
a sharp eye on exchange rate differentials and their variation~, keenly
mindful of the behavior of exchange rates over the period of fund wit~
holding. Iri 1980 the relative positions, current and projected, of mo-
ney supplies in the United States and Federal Germany lent scant pl~aus-
ibility to the notion of a depreciation of the dollar vis-a-vis the
Deutschmark. The finance market therefore chose to f avor investments in
dollars, thus pushing up their value abroad. The general approval
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greeting the new President~s economic policies has further accent.ua-
ted the rise of the dollar.
The decline of the mark vis-a-vis the U.S. dollar, but also against the
Canadian dollar, the pound, and the yen, may have been perceived by the
Federal German authorities, at least to some degree, as a price to b~
paid for regaining its competitive margin; in relation to these four
currencies, as of the start of 1980 up to the present, the variation
has run from 2$ to 30 percent, and most inevitably have very marked
impact on current balances.
Last February, the urgency of combating this imported inflation moved
the German monetary authorit ies to assign priority to defense of the
value of the mark abroad over support for productive activities. A spread-
ing dearth of spot money triggered noticeable increases in interest
rates, and the exchange rate between the mark and the dollar settled
down temporarily. With the rise of the German rates similar trends
set in in all the principal industrial countries with the exception of
Japan. Over the most recent period, despite some slowing in the rise
of inflation, tahich today stands at around 10 percent measured by the
consumer price index, rates in the United States have begun to rise
again: the prime rate has hit 20.5 percent. This has brought sti11
further strengthening of the dollar, and a stiffening of restrictive
attitudes in the other countries.
Rocketing interest rates cannot but delay recovery and render it sti11
more fragile: even from this angle the present preeminent reliance on
monetary policies to whip inflation is showing its heavy costs.
Notwithstanding the huge OPEC surplus, up from $65 to $120 billion, the
recycling process has moved along without any serious tensions, partly
following the distribution of deficits among the industrial countries.
Specifically, recourse to forms of direct financing by OPEC countries.
for a total equivalent of more than $10 billion, on the part of Federal
Germany, Japan, and to a le sser extent Switzerland has eased the pres-
sure on private internation al markets, simultaneous~y hardening the
trend toward a system with more reserve currencies, which includes as
well such composite units as the DSP and ECU. This new stance is not
necessarily unstable. The management problems it entails, however, will
be more demanding and will c all for a more complex process of coordina-
- tion among the monetary galicies of the major countries.
Net financing of balance of payments deficits by official agencies has
swollen from the 1979 level of $13 billion to $20-billion in 1980, mainly
because of the International Monetary Fund~s action on behalf of tre
developing countries. The total net credit flow through the marKets,
though, stayed substantially unchanged at arnund $1$0 billion.
The developing countries c:ontinued to increase their indebtedness, even
thr~ugh recourse to the market; h~wever, they have had to resort in-
creasingly to direct relations with single lending institutes, rather
than with consortia of banks, and to accept price hikes and increases
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in commissions; some have agreed to a contraction in gross reserves
heid in the European markets. All of these are clear signals of ten-
sion, and they counsel closer surveillance over international banking
operations so as to forestall excessive concentration of risks.
The difficulties loom formislable particularly when we 1oo~k ahead: the
the troubles due to rising oil prices c~me on top of those deriving from
the strength of the dollar itself and from the prohibitive interest rates.
In 1979 and 1980 the twelve major developing countries saw their total
oil bills rise frotn $14 to $39 billion and their interest payments from
to $18 billion. In some major economies interest on indebtedness
vis-a-vis exports have reached levels ranging from 20 to 35 percent.
It is vital to keep the costs of financing from becoming unbearable.
It is up to the less prosperous countries themselves, first of all,
to set about putting their own houses in order, partly through assur-
ing more attractive conditions for direct investments. A basic role
must perforce go to the OPEC countries, which are, for that matter,
greatly expanding their aid and financial relief to countries with far
lower incomes. That same responsibility is incumbent, albeit with some i
time-lag, upon the industrial countries themselves, specifically through
maintaining an adequate volume of aid d~signed to spesd up the process ;
of st rengthening economic structures, either directly or through the
multilateral institutions.
The international agencies have already struck out along the road that
leads to more trenchant, more lasting support, better attuned to the
evolution of supply capacity, particularly in the energy field, while
deepening their commitment to cling to their primary calling, which in
the case of the IMF is that of keeping watch over the economic policie s
and outsidE imbalances of all its member nations, as well as on the
processes by which international liquidity is generated. '
While occasional resort to the market on the part of the Fund must not
be ruled out, it is wise to keep it within proportions that will not
distort the structure of its quota-based resources. It is preferable
to take the road of direct Fund financing by the member nations: the
recent agreement with the Saudi monetary authorities and with a group
of central banks in the industrial countries are a significant step in
the right direction.
In the second year of the EMS the currencies bound by the intervention
machinery have shown remarkable consistency, encouraged by the mark~s
weakening trend vis-a-vis the dollar. Furthermore, the effect of con-
vergence on price advances has been suppressed by the disparate propen-
sities toward inflation in the individual countries and shifts in com-
petitive standings tiave been significant. Changes such as these have
- been accentuated by the equally disparate content in foreign currencies
in the exchanges of individual countries.
The pound sterling, which is part of the EMS but is not bound by the
exchange agreement, buoyed up by the differential in interest rates
i
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and the current surplus, appreciated by 30 percent between the end of
1979 and Janu~ry 1981 by comparison with the other Community curren-
cies; subsequently, with the reversal in the rate differential, it
declined, although reta~ning a 30-percent edge over the end of 1979�
Since inflation, although slowing, is still above the average for the
other industrial countries, the United Kingdom~s loss of competitive
standing proved too serious to be offset by the appreciation of the
pound.
Among the currencies bound by the exchange agreement, the lira showed
the sharpest alterations, in terms of nominal exchange rates, in a
- direction opposite to that of the pound.
- ~ -
Beginning on 20 February, on the heels of the DBB~s decisive move to
t i~hten its restrictions, the mark began gaining strength, floating
back up to the top strata of the system, and in so doing pushed the
lira beyond the bottom threshold of divergence, thereby whittling its
bilateral margins available vis-a-vis the mark and the French franc
down to around 1.$ percent. Our currency thus became vulnerable to
speculative onslaught. Since the perfbrmance of the basic variables
did not lend credence to its uouncing back from the divergence thresh-
old, the necessary elbow room was restored by reducing the central ex-
charige rates within the EMS by 6 percent. The lira's depreciation on
the market, foll.owed by the adjustment to parity, was thus contained
with respect to the currencies bound by the exchange agreement: as of
yesterday, it stood at less than 2 percent.
All the other currencies in the system showed modest bilateral fluctua-
tions and improvements, albeit diversified, in competit~ive standings.
Until spring of this year, the French f ranc stayed comfortably within
~ the upper portion of the oscillation range, while the Bel~ian franc
stayed stubbornly in its lower reaches: frequently the two currencies
touched the opposite bilateral limits, giving rise to massive interven-
tion. The German mark reacted spectacularly to the shows of strength
by the dollar: heavy support, buying ensured both against the dollar
_ and against other Community currencies. In the past few weeks, concom-
itantly with the elections in France, the franc has been under heavy
pressure, which led to stringent currency and monetary restrictions:
short-term interest rates, for instance, soared to 22 percent. The mark,
- while weak against the dollar, is still the only currency in the exchange
machinery that is steadily running out in front of the field.
On the whole, over the first $ months of this year, the cumulative ef-
fect of outside pressures plus troubles at home has brought strong ten-
sions within the EMS.
Above and beyond the need for closer coordination among the economic po-
licies of inember nations and for more effica'~i.ous support both for the
budget and for the Communities' other financing machinery, which wou~ld
be expanded in both role and dimension, the systemts cohesion suffers
from the lack of a common policy toward the dollar ans of agreed-upon
approaches toward the United States monetary authorities. They have,
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as a matter of f act, just recently manifested a willingness to refrain,
as part of the new orientation of U.S. economic policy, from interven-
tion in the ~xchange markets, save"ir1 truly exceptional circumstances.
The European Council resolution establishing the EMS posited the neces-
sity, subsequently reaffirmed by the heads of state and government, for
- consolidating the initial designs on the basis of a specific institu-
tional stance, via the creation of a European Monetary Fund capable of
sustaining the process of monetary stabilization.
Holding the EMS together and strengthening it can hardly be done with-
- out establishment of a fund capable of upgrading the ECU as a medium
for reserves and regulation, for assuring its existence in some less
precarious form, and for providing it with an endowment tailored to
~ oi~r actual liquidity requirements. All this implies a qualitative leap
which will be possible only with the support of a determined political
will. That political will must be directed not only, nor so much, at
the solution of institutional problems as primarily at evoking behavior
consonant with the commitments made when the System was launched. Our
primary need is for greater determi.nation in reining in domestic infla-
tionary thrusts on the part of countries, like our own, that are fur-
thest away from stability.
The Situation in Italy
The moderate expansion of the It alian economy folldwing the 1977 reces-
sion erupted between June 1979 and April 1980 into an explosion in do-
mestic demand the like of which had not been seen in the last 20 years.
~ The subsequent turnabout ushered in a brief phase of decline in pro-
_ duction toward levels higher than those before the expansion phase.
Inflation, too, showed a spurt in the 6 months prior to the peak of
the cy~le; helping to fuel it were rising costa (particularly energy
costs), demand pressures, azid th~ tightening bottlenecks in sector
supply. Upon the slowdown in the middle quarters of 1980 followed yet
another hot spell, with a rate of increase of more than 20 percent per
year.
- The reversal of our country's economic situation came about several
~ months later than expected, la~ging behind that in the other major in-
- dustrial economies; the vigor of domest�ic demand was far greater. In
a very short time we had gone from a fat surplus to an even f atter de-
f icit in our current balance of payments.
What got us out of the recession during 1978 was, f irst of a11, our
exports, and second consumer demand. Consumer demand continued to grow
through the first half of 1979, buoyed up by the rise in discretionary
income, which later topped the growth rate. The twin performances of
exports and consumer buying triggered a stsong ugswing in investments
in the secQnd I~alf of 1979, mainly in machinery and eqixipment. In
first-quarter 1980, the rate of ut3.lization of plant capacity was
pointing to a widespread condition of excess demand. For 9 months from
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the start of the acceleration into the expansive phase, the gross in-
ternal product went on rising at an annual rate of 10 percent. Inter-
nal demand was still at its peak during the second quarter: the in-
crease over the preceding year came to 10 percent i:~ all 6 percent
in private cohsumption and 26 percent in investment in plant machinery
and equipment.
The first signs of an inversion of the cycle came with the first-quar-
ter decline in export volwne. By reason of the delays with which the
relative price adjustments ac~ed on the flow of trade, the effects of
the loss of competitive standing that had been uninterrupted since the
middle of 1979 were particularly intense during the expansion phase
and, beyond it, right into the summer. Our reduced success at pushing
into foreign markets was reflected in the decl~ning share of Italian
- goods in world trade in manuf actured goods, which had itself been on
the downswing since spring. On top of the initial recessionary push
from the foreign. f actor came the slowdown in consumer buying caused
by the automatic tax siphoning and the deterioration in the terms of
trade. Fixed investments held relatively steady, until a mild 3-per-
cent decline shawed up in the third quarter. Accumulation of inven-
tories of fnished products underwent an interruption that summer: the
decline of production over that period might betoken greater readiness
on the part of indus~ry to take advantage of the chance to extend the
summer vacation period to pare dawn their production plans to match the
slackening in demand, probably feeling an additional nudge in that
direction f rom the shrinking availability of credit and its rising real
cost.
During the second and third quarters, despi�te some easing of pressure
on producti've capacity and the momentary plateau in the international
spiral of price increase~ for raw materials, inflation and the trade
- deficit persisted at high levels, though they did taper off slightly.
The intention to correct the demand structure and encourage the emer-
- gence of a trend toward stabilization suggested the measures taken on
3 July, which increased the tax bite on consumption, reduced the fringe-
benefit burden on corporations, and exempted interest on new l~ond is-
sues from taxation. Those measures had to be withdrawn and submitted
anew, with some modifications, in August; they lapsed at the end of
September; they were submitted once more and finally won passage in
the 3 months that followed.
In June and August, the Bank of Italy fought off assaults on the lira's
value abroad. At the end of September restrictive monetary and cur-
rency measures warded off the chance that destabilizing expectations
might take root in the current budget deficit and in a government cri-
sis precipitated over the issue of the way the economy was being run.
Inflation began to heat up again. The last quarter thus brou~ht full
awareness, thanks to the performance of the economy, of the.abrupt
~a1.t in the wake of the reversing cycle: we were moving into a phase
of stagnation with renewed inflation.
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Also helping to keep prices from turning onto the desired path was the
autumn rise of the dollar. Above a11, the new wave of government
spending and the mounting budget def icit, above and beyond their direct
effects, projected a permissive image that aroused expectations of yet
another round of price increases and an uxirestrained rise in income~.
However, measures designed to put the lid on any increase in the bud-
get deficit and to contain the areas of waste and leakage, such as
increases in utility rates, controlled prices, and indirect taxes
also concentrated their immediate inflationary impact in those same
months.
So ended a 2-year period during which the growth of the gross int~rnal
product and in private consumption, in~ real terms, touched 10 percent,
investments in machinery and plant equipment hit 30 percent, and domes-
tic demand rose by 13 percent: these rates are twice or three times
those reported within the OECD area. The Italian~economy out distanced
- the other countries in the rate of income growth and even in employ-
ment growth, but it paid the price in terms of the balance of tr ade
deficit and of inflation.
The hike in imported oi1 prices 175 percent by December i98o over
the November 19~8 level, did not blunt the tip of the cycle, though
it did have umtoward effects on inf lation and on the balance of trade.
To both the initial shock effect and the indirect impact of the in-
- creased oil costs we can attribute about a third of the intensified
decline ix~ industrial value added and about ~ quarter of that in pri-
vate consumption, which, in mid-1980, were running at 18 and20 per-
_ cent, respectively. '
The deterioration in the current balance of payments, begun in third-
quarter 1979, amounted within 2 years to 5 percent of the gross pro-
duct; about two thirds of it can be written down to the rise in the
oil deficit, which in turn is totally due to prices, since the quanti-
ties imported actually declined. On top of the higher cost of crude,
and more generally the unfavorable development of the terms of trade,
1g80 brought a 5-Percent 3rop in quantities exported and a 7-percent
climb in those imported. Both processes were generated primarily by
the persistent exuberance of domestic demand by comparison both with
external demand and with available production capacity, and the loss
of competitive standing; that last figure was 2 percent in 1979 and
4 percent in 1980.
~
Even before the close of last year, the rela~ively sustained level of
internal demand, the recessionary trend in the world economy, the rise
of the dollar and the continuing deterioration in the terms of trade
had, in the absence of significant support to keep prices competitive,
effectively prevented any easing of the trade deficit. Demand for
credit had risen again and had been met, albeit at rising costs, by
s~retching the elasticity of the ceilings and above all, among the
exemptions,~that of commitments in foreign currencies. In response to
such factors, the Bank announced at the end of January 1981 the res-
toration of the ceiling in advance and with more restrictive conditions.
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In the opening mon~hs of this year the situation g:ave no signs of im-
provement. The spiral that had been fed during 1980 by price policies
in many cases concerned only with short-term profit margine, by index-
ation mechanisms that transmit and amplify the inf lationary push, and
by expanding government spending, gave every indicat~.on of a tailspin
into the proliferation of sectorial demands for more income, of specu-
lative behavior on the exchange, sec~zrities, and commodity markets.
The lira's position in the EMS was sinking close to the divergence
threshold.
This dismal picture, ~iepressing as it was and ominous for the future, ~
was enough to call for a carefully crafted body of stabilizing mea-
sures that would work in three directions: on current government
spending, on the soaring monetary return rates, and on the credit sup-
ply.
. And so the 22 March decisions were reached. The government declared
its commitment to cut the deficit, suspended wage negotiations with
civil servants for a cooling-off time, and called for moderation in
incomes in the private sector. The discount rate was boosted from 16.5
to 19 percent, and the mandator+y marginal reserve from 1$.7$ to 20
percent. The lira's parity in ~he EMS was modified to protect our
currency against speculation, and lowering it to a position around
- the middle of the fluctuation strata. '
The translation of avowed intent into action was delayed, thereby eat-
ing up the margin of time gained with the emergency currency and mone-
tary measures, which implied speedy follow-up with a broader and more
decisive economic maneuver. It was not until the latest government
crisis that provisions to reduce the deficit were approved in a decree
law. We had to resort to yet another emergency measure: we imposed
a 30-percent, non-interest-bearing, 90-day deposit in advance of a11
payments to foreign countries.
The trade balance, already showing a deficit of 19,000 billion lire in
1980, and weighted down in 1981 by the additional load of some $4 bi1-
lion for increases already made in oi1 prices alone, cannot trigger
the requisite compensation process. Overall imports show a decline
in quantity, but that modest improvement is more than wiped out by the
rise in the strength of the dollar. Exports can hardly be expected to
expand in an international atmosphere of flagging demand. The trade
deficit for the first quarter was about 5,000 billion, as compared
- with 3,800 billion for the same period last year. In the first 4 months
hard currency payments reached a deficit more than half -~hat chalked
up for the whole of 1980. '
These fi~ures give some rough idea of the scope of the change in the
_ ratio of internal and external demand it will take to start a process
of restoration of equilibrium through net exports of resources to
make up for the loss, already incurred and now taking place, in the
terms of trade. ~
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At the internal demand 1eve1 we find continuing inf luence f rom the Trea-
sury's cash requirements, which for months has hovered at around 4,000
billion, thwarting the ~ffects and the expectations placed in the mone-
tary maneuver and forcing it into unremitting efforts to mop up the ex-
cessive liquidity. The survey conducted among corporations at the be-
ginning of April shows some recovery in the flow figures along with ex-
pectations that production will not slow down, while demand for bank
loans sho~s mosign of easing. Inflation is still with us at around 20
percent, widening the gap between us and the other countries. In manu-
f acturing, growth in unit prices on product is tending to exceed that
in prices to end consumer.
This alarming development is partially attributable to a worsening in
external causes; this observation alone, howe~rer, ought to make us
keenly aware of the stringent necessity for more decisive behavior in-
sofar as concerns those economic variables which the nation has the
power to control.
The speed with which expanding demand bumped against the ceiling on pro-
duction in the early months of 1980; the sustained levels of economic
activity that prevailed even past that point in .spite of credit restric- ~
tions; the persistently high deficit in foreign accounts, even after the
peak of the cycle: all of this becomes easier to understand if we
stop concentrating on temporary glitches and ~xt.~�.rnally begotten dom-
estic and international f actors, we begin looking at a few of the basic
conditions of our productive apparatus.
Growth and modernization of plant capacity had been suffering since 1974
from the slump in fixed investments, which delayed the structural al-
terations required in response to sweeping changes in related costs and
in the distribution of earnings and wealth. Given such a situation,
the expansive phase of investraent, when it came, was very intense in-
deed: companies soon ran into the ceiling on full utilization of avail-
able plant capacity and, along with the pressure to increase capacity,
came the need to adopt techniques more consistent with the new price
- and cost structure.
When investments began to stir again, they awoke to financial structures
that had seriously deteriorated. Over the 1969-1978 decade, indebted-
ness had risen to almost 60 percent of funds managed, and the short-
term debt service costs had risen f rom 37 to 44 percent of the total.
The share of return earmarked for financing cost payments, which was
3 percent in 1973, had doubled by 1978, with peaks as high as 12 per-
cent in some areas.
- Starting from a position like this, the requirements for accumulation
could be met only by turning the worsening trend in the financial buclget
relationship around. Superimposed upon the normal and prevalent ratio,
which tied profits into investments according to a causal bond running
from profits toward investments was a different relationship dictated
by necessity, for companies feeling the urgent need for restructuring,
to win back sufficient profit margin to contain the financial risk.
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It is quite likely that anticipation of a declining exchange rate had
dulled the alertness of companies exposed to the dangers of a~loss of
market shares, and working on the assumption that they could swiftly
compensate for their lowered corapetitive positions.
In the manufacturing industries gross profits be~iefited both by expand-
ing sales and by a 19-percent rate of increase in production prices,
only a hair above those of combined unit costs. Within the combined
unit cost figure, the labor cost per unit of product rose in mid-year
by 14 percent, allowing for the effects of additional financing for the
debt burden: the cost per employee had risen by 21 percent, while
labor productivity had risen by only 6 percent.
The compelling urgency of restructuring investments already put off far
too long, coupled with the greater proportion of in-house financing re-
quired to make them, dulled corporate sensitivity to the high cost of
credit imposed by the government's monetary policy.
The intensifying flow of investments coincided with the emergence of
ominous consumerist phenomena antipathetical to chances of somehow
breaking f ree of current difficulties. The prolonged decline in the
purchasing power of the lira at home, accompanied by what was in many
ways a distorted structure of relative prices for products and of fixed
assets and by a recovery in the lagging replacement of durable consumer
goods, was ref lected in the growing readiness of f amilies to spend: con-
sumer purchases climbed 4.$ percent from 19~8 to 1980. The spurt in
value of the real component of wealth may have more than made up fo~
the devaluation of the financial component, thus providing an incentive
to consumption. Most significantly, the traditional times requir~ea.for
the processes of cor..sumer education and reaction, when confronted with
steadily rising inf lation, were markedly shortened. As inflatior_� set-
tles in for a prolonged stay, it may well undermine the hitherto high
average propensity for savings on the part of the Italian f amily.
The intimate interrelationship between the short-term behavior of the
economy and ~built-in shortfalls was apparent not on1.y in the accumula-
tion process, but also in foreign trade in manuf actured goods.
Zmports' share of spending on investment goods, traditionally high in our
country, was a~ccentuated by the slowing growth in productive potential
- in the 19~$-1978 period, and it had involved primarily the capital goods
sector. Furthermore, demand worldwide was shifting in the direction of
investment goods, rather than consumer goods and, among the latter, to-
ward products other than the so-called mature sort such as textiles and
apparel, the traditional fiefdom of Italian exporters. Then, too, in
these last sectors, there was mounting competition from the developing
countries, particularly in the Far East.
The trend data show that, unlike other industrial countries, Italy in-
creased its specialization in the mature sectors, precisely where compe-
titive pricing is most important. This attitude gives rise to the
peril of sliding back into the ranks of second-rate economies, few of
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which are to be found in the vanguard sectors, and most of which are
among the newly industrialized countries which can exploit a cheap
labor pool not protected by extensive social legislation.
The intensive capit,~l accumulation that marked the expanding cycle vf
the past 2 years is its greatest heritage as well as the sine qua non
far recovery of our competitive potential, whose emergence is tied in
with greater flexibility in the utilization of such f actors as the
fruit of improvements in industrial relations anai in economic policy
intervention.
Managing the Money Supply and Exchange Rates
In a situation where both the spontaneous development of the interna-
tional cycle and the economic policies of the principal countries com-
bined to generate a decline in trade, containment of domestic demand
and maintaining substantial stability in the value of the lira abroad
became the mandatory path for resisting the upiward thrust on prices.
The determination to roll back inflation; the awareness that it would
become harder to hold the line on the exchange rate, while the running
balance of trade deficit was taking on frightening dimensions; the in-
tention to deal summarily with short-term difficulties so as to concen-
trate the nation~s resources on strengthening the productive structures:
these were the coordinates from which economic policy took its bearings.
The goals of containing aggregate demand, protecting investments and ex-
ports, should by rights have suggested measures to trim the de�icit in
the public sector, thereby compounding the automatic effects of the con-
tinuing growth in nominal income, and should have bridled the growth in
the cost of doing business and in the discretionary portion of family
incomes.
Contrariwise, as increased yields tended to offset the deficit, what
came were decisions to increase spending and cut revenues, which to
a great degree cancelled out the effect of automatic stabilization. In
December 1g79 the quarterly cost-of-living increase for civil servants
went into effect; in February 1980 pension.payments were increased; in
April deductions for ~amily income tax[IRPEF] and family allocations
were increased; approved was a concentration over the year of payments
of arrears and advances connected with the newly negotiated contracts
for government workers. Over the entire year spending rose by 26 per-
cent and the overall requirements of the expanded public sector, as
against its gross product, stayed at 1979 levels.
The fiscal maneuver mounted in early July was moving in the right direc-
- tion, but the events that accompanied it partially vitiated its aims,
- with untoward impact on prices.
The provisions planned in 1980 were beginning to take effect on the bud-
get, bringing the net load to around 6,000 billion in the second half-
= year, while the public-sector deficit-to-product ratio touched the high-
est levels in the last 5 years. By yearts end and in the opening months
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of 1981, in addition to completion of the government workers' contract
for 1979-1981, decisions were taken or reached with the labor organi-
zations on further actions whose impact was expansionary: among them,
the shift to quarterly revision of pension cost-of-living changes, new
deductions and quotas for IRPEF, and a renewal of the contract with
health workers. The problems of the balance of payment and inflation
thereby grew still more acute, partly in response to the negative ef-
f ect s of the announcement .
Monetary policy had already taken on restrictive features as early as
fourth-quarter 19~9 with the 4.5-percent increase in the discount rate
and the reimposition of the ceiling, which put a lid of 11 percent on
annual-basis growth in bank loans subject to control as of July 1980.
Snterest rates were rising, and rising very briskly indeed in the short-
term market. Bank rates rose from l~.$ to 22 percent between the be-
ginning of October 1979 and April 1980. Any swifter rise might very
well have provoked imbalances in the financial system, particularly in
its corporate section, the main features of which were high indebted-
ness and highly diversified credit sources.
Removal~of the ceilings on loan expansion in the fall of 1g79 and the
early months of 1980, and letting them float as high as 4,000 billion
in January, encouraged both production and investments, but it also
helped fuel inflation and fed the balance of payments deficit. Mean-
while the indirect control exercised through bank reserves and rising
interest rates was adopted as a backup to direct controls with the in-
troduction in March of the non-interest-bearing deposit prior to appro-
val of payments abroad beyond the ceiling.
Around midyear the troubles on the exchange market made the task of
stabilizing harder to do via monetary policy. At the end of May the
lira went all the way through the restricted EMS bundle. In June came
the first attack on our currency: the breadth of the margin for ups
and downs was enough to absorb part of the pressure throu~h a further
di op of almusL 2 perceni; in tne exchange rate against othet� Community
currencies. The wave of speculation was turned aside by the signal
of firmness sent to the market with the early renewal of the credit
ceiling and the tightening of the measures implementing it. The flow
of short-term credit abated in July, allowing us to regain some re-
serves. In August, though, new rumors of impending devaluation called
for massive support, which continued, albeit in reduced proportions,
well into September. ~
Once the crisis had passed, and faced with the conflicting needs to
- finance the foreign deficit and keep the lid on credit, we felt it in-
cumbent upon us to reduce the alarming dimensions of the foreign defi-
cit and so, in December, the currency restriction$ imposed in late Sep-
tember were lifted.
Partly because of the way these restraints worked, bank foreign indeb-
tedness rose by 4,000 billion lire in the final quarter, making it pos-
sible to finance the total deficit in the balance of payments (1,900
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li~~a), and to increase our reserves. The banking system's net indebted-
ness to foreign creditors hit 1$,000 billion lire, more than double what
it had been at the close of 1979�
For the year as a whole, a reading of the combined data on aggregate
loans and interest rates in relatiun to the picture in incomes and pri-
- ces reveals the pervalence of restricted liquidity conditions in the
system and on the credit markets, particularly in the second and third
quarters.
The growth rate in the monetary base was 13.6 percent, just about what
it was in the pr�evious year despite the pressure from the Treasury's
~ requirements. The better than 3-point increase in the mean interest
rate on Treasury Bills helped modify the public's portfolio preferences
in f avor of short-term paper and reduced the banks~ basic'demands f or
currency.
In midyear the economy's financial activity, as against gross product,
fell off by $ percent from the 1979 level; corporate liquidity declined
by about the same amount; interest rates on bank loans rose by more
than 4 po~nts, and by year's end they had reached 23�5 percent.
- The ratio between the growth in total internal credit and gross product,
which had dropped in 1978 and 1979 f rom 22.2 to 19�6 percent, fell still
further to 18.8. Containment was particu'larly intense until the third
quarter: over the 12 months ending in September the ratio had dropped
to 16.2 percent. In the final quarter the growth in the public deficit,
which at that time was equal to half the total revenues for the entire
- year, and in hard-currency financing almost doubled the credit growth
rate over the pace set ifl the 9 previous months.
Even when we adopt a broader concept of financing, which will include
Medium-term loans from abroad, bank acceptances, and stocks, we still
see the shrinkage in the ratio right up through September, although
it was almost entirely soaked up by the speedup of overall credit in
the fourth quarter.
The New Year dawned upon still greater difficulties; as early as the
fa11 of 1980, while the statistics reported the worsening of the fo-
reign trade balance and the renewed intensity of the price push, we saw
the need for~ tightening credit restrictions. To regulate bank reserves
we made massive use of temporary bond auctions and short-term offers of
new issues. �
At the end of January the reimposition of ceilings on loans was annaun-
ced, with a freeze on hard-currency f inancing for imports and extension
of the Gonstraints on exposures below 130 million lire. Exemptions were
allowed in proportions greater than predicted, permitting an increase
in bank loans to include medium-large companies; this had come about
through a spread in the practice of granting multiple loans f ar beyond
- healthy levels, which threatened to strip the banks of responsibility
for the selection and screening of l~ans.
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In the first 3 months of 1981 government requirem~nts reached 12,000
billion lire, and meanwhile t~e variation in total internal credit topped
17,000 billion; over the same period of the previous year the deficit
had been 4,000 billion, and overall credit expansion just a little over
~,000 billion. The state requirement remained very high even in the
last 2 months.
To deal with the expansive effect on liquid~.ty and confront the diffi-
culties that had arisen on the exchange raarket, partly in response to
international tensions, it became necessary in March to increase the
discount rate and raise the mandatory reserve coefficient, and, on 27
May, to introduce the non-interest-bearing deposit on payments abroad.
Greater control over the creation of the monetary base and more rigorous
pursuit of the quantitative targets for that variable, and for bank re-
serves in particular, might be gained through adjustments in the Trea-
sury's financing system. With that, the Bank of Italy will stop buy-
ing back all the Treasury Bills not sold at auctions, but it will go
on buying them only in amounts consistent with the objectives of mone-
- tary policy. Thereupon the Treasury will try by every means, including
more frequent auctions, to find counterpart financing on the market.
We are aware of the problems posed by the coexistence of direct and in-
direct methods of control: we have made changes in both over the past
yeaY~ designed to protect the efficacity of their combined operation in
this phase. Administrative constraints yield maximum results when they
are introduced or when they are modified; subsequently they tend to be
undermined by various evasive procedures which are costly to those
involved, tend to distort the economic system, and are hard for the
authorities to counter.
Even so, the present state of the economy and particularly the persis-
tent expectation of continued high and unpredictable inflation, the ina-
dequacy of monetary policies, and the wisdom of containing the rise in
interest rates do not point, for the time being, in the direction of a
Iightening of administrative controls.
The modest rise in interest rates on bank deposits, partly connected
with the ceiling on loans, has contributed greatly to the squeeze on
nominal return on financial operations, driving it well below the rate
of inflatiion: the shift in the composition of wealth toward acquisi-
tion of commodity interests has been only partially offset by the level
of interest rates. One encouraging development has been the return of
savings to direct financing on the part of corporationsm and in parti-
cular into risk capital, but the volume of spending and the demancl for
shelter assets have mounted.
A more clear-cut differentiation among categories of deposit as a func-
tion of stability and duration might mitigate the penalization of finan-
cial savings and assure greater market clarity. Encouragement wi11 be
provided for changes in bank policy of a sort to achieve these aims.
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The experience gained in 1980 has proved that, when there is great un-
certainty in the market as to the future behavior of interest rates,
it is difficult and may actually prove unwise to try to stem the flow
into short-term paper. By offering it, the public debt may be covered
wliile containing expansion of the money base, even though the degree
of liquidity in financial activity remains high. Whereas a repetition
of periods of instability heightens investors' aversion to very long-
term obligations, the range of short-term options broadens, expanding
the opportunity to replace one kind of investment with another and re-
ducing the significance of the growth in means for payment as an indi-
cator of availability of funds.
Under circumstances of thi5 kind policies calling for non-monetary fi-
nancing of public requirements and extension in the term of indebted-
ness take on particular importance.
The changes in the features of CCTs offered in 1981, including higher
rates of return for short-term money, are designed to foster this pro-
J cess, and also to reduce the cost of debt service during the price
slowdown period. It is advisable to move on in this direction, parti-
cularly in view of being able to count on a broad and elastic money
market: f inancial indexing can satisfy the demands of lenders and bor-
rowers alike in today~s state of uncertainty in the markets as to when
inflation will be tamed., witness the growth in variable-rate returns in
the special credit institutes in 1980.
Clearly it would be unwise for the state to resort to the traditional
technique of fixed-rate issues beyond the medium term. The very high
yield that would have to be offered to overcome public reluctance
could have untoward effects on expectations of any lasting reduction in
inflation. And then, when such a decline finally did appear, service
on the debt at retirement would prove excessively burdensome.
Furthermore, generalized indexation of the public debt to prices might
look like a surrender to the deterioration of the currency and like
a confession of our inability to eliminate or at least attenuate within
our system the mechanisms that perpetuate and intensify the inflation-
ary thrusts. In the case of capital value indexing, there would arise
the fear that the government, by further immediate easing of the ceil-
ing of the current budget, risked encountering still greater difficulty
_ in resisting pressures for more spending.
In the ~past we have spoken out in favor of bond issues by the financial
� institutions, tied to the ECU in capital value, consistent with hopes
for monetary convergence in Europe and for consolidation of the lira as
a component of the EMS. But should it be the state that moves.to do it,
full cognizance must be taken of the risk that this would look like ab-
dication of its determination to seek stability for its own currency.
Not even utilizing the auction technique on indexed issues of this sort
could avoid distorting the domestic financial market, unless the bonds
were conf ined to clearly specified buyers.
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It would be a different story if the introduction of public securities
tied to the ECU came about along with economic policy measures agreed
upon by government, labor, and management and designed to deal with
the structural roots of inflation. The link with the ECU could put the
seal on a challenge by the nation and the government to inflation, and
on our commitment to b ehave in ways fully consistent with membership in
the EMS.
In this same context we also come upon the matter of rationalizing the
disparate modes of taxation to be levied on financial transactions.
With inflation that eats away at them, their nominal return often pro-
vides no real compensation, but rather represents an early repayment
of capital. Changes in the tax system, sound though they be under sta-
ble conditions, would undermine investor confidence, which we ne~ed in-
stead to restore.
For 1981, expansion in the total internal credit is programmed at 64,500
billion lire; in relation to product it should drop to 16.5 percent.
Financing for the economy, too, including funds recevied from the public
~ sector and from abroad, should dro~ by 2 percentage points in relation
to product. These t ar gets are based on the commitment, cited in recent
- government documents, that the internal requirements of the expanded
public sector will not exceed 37,500 billion: in other words, it
means, in view of the record for the first 5 months, a very strong sub-
sequent cutback.
Pursuit of these credit objectives is vital to the restor~ation of price
stability; but, if it is to succeed, it must be written into a whole
body of government act iori on the public budget, on resource allocations,
and on incomes.
- The monetary and credit maneuver can stem and slow inf lation, but it
cannot cut it off at t he root without the help of f ar-reaching changes
in collective behavior patterns. If it is to have a meaningful effect,
it will not be that of dispensing with such alterations, but of hasten-
ing them in a soci_ety that is at last aware and convinced of their ne-
cessity.
The complement to this restrictive monetary conduct is action aimed at
bringing down imported inf lation via the exchange strategy, which for
that matter encounters limitations in phases, like the present one, in
which the dollar is very strong.
Our having withstood t he downward pressures on the lira in the EMS in
the climate which surrounded their onset in 1980, in addition to contri-
buting directly to the containment of inflation, triggered reactions
and behavior within the system which were themselves conducive to grea-
ter price stability. With the easy road of devaluation barred, in many
- companies, with participation by labor and management, there was improve-
ment in production organization to stand up to the cost push.
This does not mean that we ought to rule out, under any and all condi-
tions, formal procedures to alter parity within the EMS. Resort to such
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remedies is consistent with the regulations and the spirit of the sys-
tem. It is what happened t~~is last 22 Marcli. It was a necessary act,
thrust upon us by reality; but it is the bitter reality of a failure,
which an efficient economy and an efficient society could have spared
itself; we regained some room for maneuver thereby, but it was late
in coming. Devaluation day was a day of realism; it was certainly
not a lucky day, nor a time for rejoicing.
Aspects of Public Intervention in the Economy
The last decade witnessed still further growth in the mass of social de-
mands addressed to government. A point of tension was reached in the
movement that began with the Depression of the Thirties, and which led
in every couritry to assigning to economic and social policy a central
and permanent role in the pursuit of development and prosperity. Lost
sight af was the intent, albeit implicit in that movement, to reinforce
and stabilize the system's accumulative capacities, and the mission it
was to perform often declined into mere passive support. In a great
many cases family allocations took on the nature of permanent subsidies
rather than temporary replacement of income cut off; s.i.bsidies to cor-
porations redistributed value added rather than channeling investments
and directing them to where they were needed; the increase in employ-
ment in government was used to absorb labor forces rather than to ex-
pand the capacity to produce services.
The rapidity with which the ratio between public spending and revenue
- rose and the very high levels in some countries close to 50 percent
which it reached, are evidence of the stresses to which government
agencies were subjected, giving ris~ to expectations which, given the
rising tide of demands, could not but prove excessive.
Awareness of the critical importance which resource reallocation t akes
on amid the current crisis has made hardly any headway at all. It has
made some impact recently, though, along with the conviction that today
the primary task of economic policy is to hasten the unfolding of that
process, through action that will not make the presence of the st ate
still more pervasive in the economy. The wisdom of getting citizens to
shun voluntarily, or of deterring them by positive measures from expect-
ing the state to be the first court of appeal for any and every need;
the need to prevent hypertrophy in government operations, beyond expan-
sion necessary to the functioning of society; f avoring measures that
point okt solutions to the private sphere, with respect for a~alanced
relationship to the public one: these are the bricks and straw for an
approach designed to attack the crisis at its roots rather than t rying
to soften the impact of its consequences.
In our country, public spending has grown with extreme rapidity, along
lines dictated by the process of layering often disparate and even con-
f licting measures one atop the other. The scope of interventions ne-
- cessary to foster indispensable changes in the production structure and
- in the makeup of demand calls for immediate choices as to the commitment
of the public portion of our national resources, wr~ich are finite and
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already stretched to their limits. The fact that sometinles such inter-
vention must perforce take on a direct character imposes moderation in
the other demands society places upan the state, as well as real effort
aimed at augmenting the performance of the structures and the effica-
city of public action.
Pursuit of this last aim will call for both an organizational review
of the public stewardship in its function as a purveyor of services to
the community, and for higher capital endowments. The investment ~hare
of overall public spending in Italy is one of the lowest, and it is ut-
terly inadequate to fuel technical advance within the public agencies
or to support accumulation in the other sectors, thereby raising their
productivity.
Bigger investments, though, would not be enough, unless accompanied by
a binding commitment to minimize costs and improve performance.
From the strictly economic aspect, the basic criterion remains that of
heightening competitive incentives outside the public sector and find-
ing ways to provide the same ,ort of incentives within the sector. One
essential condition if this is to come about is that the budget con-
straint be made to work again as a disciplinary factor, both at the re-
gulatory level and as a matter of moral and ethical obligation. There
is a long tradition that had made such discipline the linchpin that
held a heterogeneous society together and stiffened the resolve of an
economy chronically tempted to take refuge in subsidy.
Clear-cut priorities among open options are necessary not only for the
efficiency of government in providing essential services, but even more
so for its capacity to channel the flow of resources into the rest of
- the system.
The interrelatedness of all economic activities as well as the nature
and peculiar urgency of the problems combine to assi~n the top rung on
the priority ladder to energy and to food and agriculture. It is mainly
in these two sectors that we have flagging.supply, which helps slow
development and weight down the balance of payments. This has been a
fact of life all through the seventies; over the past decade the con-
straints have emerged in levels steadily more distant from full utili-
zation of the economy's productive potential.
Our country cannot, unless it is willing to slide down the ramp of pro-
tectionism, go on tolerating deficits in these two portions of its ba-
lance of payments. In agriculture, the problems demonstrably have very
grave social implications, when you remember that a good tenth of the
Italian population makes its living by f arming, as well as highly com-
plex social interrelations: from relations within an expanded EEC to
those with the processing industries; from product distribution and
marketing to the dimensions of the basic production unit ar.~d the spread
of technical advances. It will take a concerted and well-coordinated
attack on all thes~ fronts to make even a start at remedying the prob-
lems that beset the sector.
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In the energy f ield the policies to be adopted are mapped out by the
technologies and cost structures of the various sources. Despite the
declining elasticity in energy consumption as a function of income over
r~cent years, there is still considerable room for substantial economy.
Some saving can still be achieved without cost; other economies wi11
call for very large investments, along with sweeping reconversion in
both production practices and in consumer patterns. Both kinds of con-
servation must be encouraged and supported by means of specific incen-
tives, proper regulation, adjustments in rates where appropriate, and
better consumer information.
The outlook for increases in per capita consumption, now relatively low,
and the need to reduce our dependency on foreign sources allow of no
lag or limits ~n our conservation efforts, but call upon us to expand
~hem to include a broadening of domestic supplies. The road we must
follow is pointed out by our need to diversify our energy sources,
among which crude oil sti11 covers two thirds of the overall require-
ment, and by the prcosttofnenergy~f romec~lffiredlplantsdandamore thanh
is half again the
twice that of power from nuclear plants.
In other basic sectors, including chemicals and steel, an international
recession complicates the specific problems besetting the big ~orpora-
tions in Italy: problems of management, of industrial relations, of
finance, and of their role as dictated by their public or private na-
- ture.
In chemicals these factors have brought disruptive effects, including
the breakup of several major conglomerates. Regrouping instal~lations
according to their specialties assumes a rigorous assessment of the like-
lihood that they will be managed economically. The new arrangement may
be rendered sounder by the emergence of a more clearcut distinction in
~ relation to the nature public or private of the two major produc-
tion complexes. Internal problems have rendered the Italian steel in-
dustry, particularly the portion of it which is partially state-owned,
more vulnerable to the current market crisis, despite the essential
soundness of a good share of its plant.
For both sectors f inancial measures which would absorb huge resources
and divert them to other uses, must be intimately t ied in with rigorous
streamlining of the productive apparatus and with renovation of their
working conditions which will make it possible to get rid of the rigi-
dity in their utilization of labor and to subject their economic eff i-
ciency to severe scrutiny.
More generally, the whole question of troubled corporations, which has
for years been the subject of keen concern among political parties, la-
bor unions, management, and financial circles, has seen little progress
toward solution thus far, by comparison with the money that has been
spent on it, partly because of the unconscionable time it takes to shake
off paralyzing preconceptions, such as the one that automatically equates
the rescue of an enterprise with its nationalization.
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Government interven.tion on behalf of an enterprise which the market
would doom to failure can be justified on the basis of general inte-
rests and is something in common use even in strongly market-oriented
economies. Transition into public ownership is not the necessary con-
~omitant of such an operation. That is not the only way to ward off
the scattering of resources which are deemed worth holding together,
while respecting the principle that the inept or dishonest entrepre-
neur leave the company, and that the owner and creditor~,. according to
their respective positions, be left to suffer the consequences of the
risks they freely undertook to run. Public money is there to rescue
neither the owner nor his creditors, but whatever can be saved of the
company~s good will and its plant. Government intervention can be li-
mited to restoring the conditions necessary to attract a buyer ready
to shoulder a new risk. If none is forthcoming, that will mean that
more decisive action is required to restore the company to health, or
else a decision to cut back its capacity. �
These remarks sprir~g from an attitude stemmirig from two assumptions:
' one is that our productive system~s outstanding feature is a public
' presence unequaled in the ranks of Western nations and w~ich brings us
right up to the threshold beyond which it would cease to be a market
system; the other is that there is a growing need for collective de-
cisions which will affect the behavior of individuals and corporations.
Italy's own experience, and that of other countries, drive us to the
conclusion that, once the essential priorities are in place, the effi-
ciency of our intervention is generally greater if it is designed to
affect the supply structure indirectly, rather than by direct means.
_ Rather than using administrative command and control apparatus to co-
, erce managers into making desired decisions, it is better to concen-
trate on information flows, on institutional attitudes, and on the
deterrent/incentive system that governs them.
Upgrading the inner efficiency of government administration, setting
clearcut priorities in allocation policy, and perfecting the instru-
mentalities through which it operates are all lines we should pursue,
keeping ever-present before us the fact th3t, alone among the major
industrial nations, Italy stil.l has, for a substantial portion of its
own territory, a crying need for development. The issue of the Mezzo-
giorno is still the central problem for Italian society. The 23 Novem-
ber earthquake restated the problem for us in tragic terms. Reconstruc-
tion and economic development of the stricken areas of Campania and the
Basilicata may we11 trigger a new trend, in which government action
will not be confined to further expansion of the welf are rolls. By
standing f ast against the wholly understandable pressures from econo-
mic and municipal interests, the financial requirement must be calcula-
ted with extreme rigor, drawing a clear distinction between what is
needed for compensation for material damages and what is needed for
development. Reconstruction, furthermore, must be coordinated with ~
industrial siting strategy, in relation to existing infrastructures,
and must be able to rely on a Iiealthy entrepreneurial community, which
is to be protected.
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The ideas and principles cited here have not been sufficiently imple-
mented over the past year, considering the urgency of the problems
still unsolved. The 3-year plan specifically states a d~termination
to turn the situation around. In a macroeconomic/structural coritext
wl~ich from the procedural point of view leaves the cyclical evolution
of demand out of consideration, it reasserts the need for reevaluation
of the public budget, aimed at reducing the burden of the present de-
f icit and at increasing the quotas for capital expenditures. Both
these objectives are intermediate goals to be pursued separately, within
a prese-t budget ceiling, excluding any and all compensation. These re-
quirements coincide fairly well with the other one for modifyirag the
very institutional and decision-making machinery which, inside the
government, generate the least essential or least productive expendi- '
tures. Changes of this sort imply a policy of resource allocation
consonant in its clear definition of priorities and in direct, first-
hand v~rification of the suitability of individual programs for achiev-
ing the objectives they are designed to meet.
_ Better Deployrnent for the Credit System
~ In the makeup of the overall financial debit and credit picture, 1980
saw an intensification of pressures toward reduction of the quota en-
t ered in the budgets of the lending agencies, particularly the banks,
_ and toward an increase in i;he portion consisting of direct relations
between the end users of funds and the depositors.
In a financial system that has historically been t ypefied by a marked
leaning toward the lending agencies rather than toward the capital mar-
kets in the strict sense of the term, a growth trend in the relative
importanc~ of the latter can help make our entire eredit stance per-,
manently better balanced, more efficient, and sounder averall. The re-
duction in the share of the lending institutions, particularly the sav-
ings and loan agencies, must be made gradually so that their overall
volume of business, their managem~nt performance, and their capit aliza-
tion levels all benefit thereby, so that the process can take place in
conditions of complete stability.
During the year just ended and in the opening months of 1981 the pheno-
menor~ at times moved too fast, under the spur of factors which where
partly transitory and, in some respects, cause for concern. From what
might be called the unsuitable dealings of the public sector pr~essures
cor~tinued to build toward a takeover of the whole business of the lend-
ing agencies, often with untoward cor:sequences to the allocation of re-
sources. The growth of special credit institutions ran up against the
obstacles which high and unpredictable inflation raised a~aiii against
issues of inedium- and long-term bonds, from the delicate phase of reor-
ganization and management shifts, and from expectations of clarifica-
tion in their institutional and legal status. Partly in response to
the greater opportunities for profit which marked a year in which the
peak of the economic cycle coincided with restrictive monetary policy,
- the lending ager~cies' interest rates started to rise again after 4
years, thus contributing to their oueter from the loan market.
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There was a consequent flareup of the bitter argument over the so-
called bank revenues, fueled by diametrically opposite opinions. While
the Italian banking system is not particularly concentrated~ in the
various divisions of its activity and from one area of the country to
another, there are conditions of competition which are by no means uni-
form, as indicated by service prices and samplings of disparate profits.
On the other hand, bank interest margins are affected by the makeup of
their budget surpluses, frozen into rigidity by administrative red tape
which the monetary authorities are still required to maintain: lower-
- ing the ceiling on investments combined with the portfolio constraint
and with the low and unvarying yield on mandatory reserves. This last
requirement, particularly when the rate structure is risin.g, gives rise,
through the banks, to a transfer of family and corporate savings into
the coffers of the state. Even the dynamics of operating costs, in a
sector which although still highly labor-intensive, cannot help reacting
to an inf lationary phenomenon in which the wage component is very large
and still growing. Last year, a sharp increase in bank costs per em-
ployee produced no significant or widespread ~ains in productivity.
The proces: of getting the banks out of the loan business was also af-
fected by some salutary and non-transitory factors. The competition
to which the loan business in Italy is exposed has grown hotter: the
money markets have broadened and gained in strength, both in the area
of government securities and in that of acceptances and commercial loans;
the stock market has shown a significant gain in volume; relations with
the international financial system have intensified and the volume of
foreign capital flowing into Italian businesses ~~~as particularly ample.
Even the increased return on management to the lendin~; agencies was
partly attributable to the spread of the practice of maximizing profits
while weighing the risk, rather than trying for dimensional growth at
- all costs. This phenomenon must be looked on with f avor from the point
of view of more careful selection of loans; furthermore, even reserve
funds and amortizations had been shrinking over recent years, while the
rate of capitalization amQng Italian lending agencies is still below
the international average.
Strengthening of their non-trading positions was pursued in timely f ash- �
ior.~ by the special credit institutes; particularly among those whose
primary commitment was to cover their exposure toward sectors oF +,,he
economy in structural difficulties. Favorable results were achieved
through efficient management, inputs of new capital, expansion of loan
opportunities, differentiation among sources of revenue and the defini-
tion in 198o under the terms of PL 784 of the processes for credit
transformation for companies holding too much government paper, even
non-interest-bearing.
In 1980, according to their fiduciary holdings, capitalization rose from
8.4 to 9�3 percent for the special credit institutes and from 4.1 to 4.6
percent for the lending companies. Specifically, last February's PL 23
called for bestowals of some $00 billion lire.
The government's decision to recapitalize the public lenders meant con-
firmation of the soundness of a differentiation among lending bodies
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and responded to the need for upgrading a factor for development in the
financial system in a plurality of competing brokers. Observing this
institutional dictum, the structure of the public credit agencies will
be brought up to the mark, in the awareness that autonomy presupposes
and fuels efficiency, and that this must find expression in operating
and organizational standards that will protect and reinforce their fi-
duciary statu~.
The lenders' action is at one with the Bank of Italy~s commitment to
single out those factors, including the organizational ones, which in-
crease the costs of loan brokerage. In the pursuit of this task it was
stated last year in this off ice that action must be taken to correct
the imbalance between private and publ~.c lenders, and changes made in
- the statutory discipline which would enrich the spirit of enterprise
in the latter and bring their management practices more into line with
the principles of profitability. This approach was the subject of very
deep reflection in the light of the debate over doctrine, intended to
bring together all the day-to-day implications and the juridical nexus
of the possible organizational solutions.
The orientation which emerged has already been adopted by the Vigilanza
- in the exercise of its authority in statutory matters and thus welcomed
by some of the public lending agencies, which grasped its favorable po-
tn~etial. On the legislative level, too, recapitalization for major
public banking agencies was written into PL 23 as par~ of the review
of their statutory orders, out of concern, in restoring conf idence in
business, with drawing on past experience for guidance in future beha-
vior.
The nature of the business, discipline over revenues apart from capital
assets, and the configuration of internal controls over management:
these are the three aspects in a bank which is a public corporation that
most require improvement.
The corporate goal cannot be other than that of acting as intermediary
in matters of credit, and this essential task rnus~t be graven into the
statutes: to eliminate, in the definition of the sphere ~f opeiations
of our public banking agencies, those restrictions that hark back to si-
tuations long a thing of the past and hamper their activity serves to
make it clear that only behavior consonant with the principles of pro-
fitability and competition is perraissible.
The public institutes should also be given access to the market in order
to attract the kind of investments that will share the bank's risk,
according to procedures that do not exempt the agency from public majo-
rity control, exercised under the present patterns of participation,
and hence from its institutional position. In some cases resort to or-
ganizational models quite similar to corporations, already part of the
banking regulations, make it possible to enter the market , with suit-
able limiting clauses, and to solve the problems of providing.a voice
for risk capital in management bodies. Retention of differentiated mo-
dels, like that in effect for the Savings Funds, demands a quest for
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for devices which will allow input aside from the capital endowments
by means of negotiable securities which also incorporate some sort of
sharing i.n the agency's profits and risk, but not in its management.
The organization must compel the p~xblic bank to comply with such re-
quirements as are expressed in its internal assessments of propriety
as to management attitudes and as to individual deals. The overall
efficacity of the aud.itors~ function is correlated in an essential way
with the smooth and timely performance of such assessraent5 on the part
of the corporate bodies.
- We cannot dismiss proper distribution of powers among the governance
and management organs of the lending agencies. Public appointment pro-
cedures, where the balloting is done among people who are professionally
expert in the loan business, are designed to make that proper distri-
bution of powers effective.
During 1980 we did away with the anomalous situation existing in a great
many savings ba~iks, which had nobody in their highest offi~e. Ca11ed
upon, in compliance with the interpretation of the rules concurred in
by Parliament, I submitted lists af nominees, chosen according to pre-
dominantly technical criteria, to the treasury minister, who took them
as the basi.s ~or his own decisions after hearing the opinions of the
Credit Committee. In the few instances where the government authori-
ties prefer~ed other candidates, we avoided any mingling of procedures
and a different one was followed, under which the office of the Govern-
nor consisted in providing, as he does for the private lending agencies
[M~nti] his technical opinion as an expert, which was binding should
it '~e negative. Once the appointments had been made, after approval by
Par~.iament, they straightened out tangles that had been building up for
years, and restored full powers to the boards of directors.
In a market situation where, particularly at the international level,
there is mounting pressure to broaden the array of instrumentalities
- for financing the economy, the organ of surveillance must support the
healthy evolution of the credit brokers, private and public, while pro-
tecting their stability. The problem, fr4m the point of view of what
participation the banks can assume, was the object of a recent decision
of the Credit Committee, in which it spelled out the boundaries of pos-
sible acquisitions, laying down as a guiding principle the rule that
investments in securities could be made on~.y when they were such as to
foster sounder structures in the credit system and to improve its effi-
ciency and its cost effectiveness. Within this framework, the lending
agencies can assume shares in other credit agencies or in companies that
manage collateral services for the banking business. To the same end
of strengthening the confines within which this must be contained, any
shares acquired in settlement of loans must be disposed of within stip-
ulated time limits.
More complex and risky conditions on the international markets, coupled
with demand for open dealing, also advised, in the same opinion, forbid-
ding Italian lending agencies t o acquire shares in foreign financial
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institutions. With reference to the fact that all agencies of a bank
with international ramifications are required to tailor their own con-
duct to disparate regulations, it was also ruled that any authorization
for the establishment cf facilities abroad through affiliates must also
reckon with the various degrees of access to information as to the oper-
ating requirements as well as the surveillance structures in other coun-
tries.
For ascertaining corporate solvency, the soundest procedure is that of
consolidating accounts, the use of which assumes the circulation of in-
formation back and forth across national boundaries between affiliates
- and parent houses, and wi~l be encouraged by understandings among the
surveillance bodies concerned. Pending the passage of legislation pro-
viding for consolidated reports, there must be collabor~tion by the
banks from now on in the regular and systematic supply of information on
their financial dealings with their agents abraad.
In the special credit sector the aim of restructuring was pursued be-
yond the provision of additional capital to expand the sphere of opera-
_ tions for such lenders alon~ with their ability to engage in risk-shar-
ing, and ordering the incorporation of the Credit Institute for public
- interest corporations into Crediop, which was vested with institutional
authority in the area of credit to industry as well. Most significantly,
there was a review of audit practices in the sector, subjecting all in-
stitutes equally to the audit authorities, to those authorized in mat-
ters of domestic territorial organizatior~, and those dealing with ad-
ministrative sanctions and liquidation.
The ongoing debate in many forums produced helpful insights into the
limits of loan assistance standards and into the wisdarr, of giving the
government direct authority to manage incentives designed to encourage
industrial investments and to correct the uneven development of our
economy. What actually came out, though, when we got down to formulat-
- ing new guidelines, were some new ideas that in fact increase the res-
ponsibility of the l~nding agencies for management of government con-
tributions. So it is with the proposal that the Cassa per il Mezzo-
giorno must rule on requests �or credi~ solely on the basis of the fac-
tors inherent in the loan contract. In this way there is only an ap-
parent rescission of the link between credit and subsidy, and the fact
that the subsidy is by no means certain will have an impact on the
assessment of the profitability of the undertaking and hence on the
selection of lenders.
One idea that takes a more respectful approach to the distinct and se-
parate roles of the government and the lending agencies was embodied
in the law governing intervention for reconstruction and development in
the Southern regions stricken by the earthquake. It provided that con-
tribution s to ~quake-damaged companies be determined by the compet~ent
local off ices so that any possible loan agreements embody ordinary in-
' terest rates.
The higher le~~els of capitalization in the credit agencies, the legis-
lative changes made regarding the special credit institutes, and the
appointments of presiding officers for the public lending agencies, like
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the innovations in statutory matters all improve the lending process
- in a delicate economic situation which requires, in the interests of
the entire economic system, greater soundness and efficiency in our
financial structures.
Ladies and Gentlemen:
My intention to give you a complete and. detailed picture of rscent eco-
nomic events and to report to you on the conduct of the Hank cannot have
concealed the anxiety with which we went through those events, or our
concern as we faced the vicissitudes of our economy, which internatio-
nal events have made still more complex.
In 1980, along with the positive legacy of a growth in investments the
like of which has not been seen for years, and with signs of a renewed
commitment on the part of labor and management, we wound up with a
very grave state of affairs for the currency, which belongs ~o~all of
us, and is the indispensable vehicle for the economic and civil bonds
that join~us together into a society.
We can no longer tolerate an inf lation whose basic component is still
rising and pulling us away fr�om the countries with which we are united
by history and culture.
An inf lation which has not run below 10 percent for 9 years now, and
which has hovered at a'round 20 percent for 2 years,~has generated not
only enormous dead-end transfers of wealth and the inefficiencies that
always come with uncertainty and the volatility of prices; it has
affected the very essence of our currency, stripping it in large mea-
- sure of its function as a reserve asset and leaving it only the humble
function of a counting system and a means of payment.
No complex trading economy can survive without a yardstick of value
that can be relied on now and in the future. To escape the snare of a
currency that melts away at a rate as swift as it is unpredictable, the
economy takes as its own yardstick, through a multiplicity of proce-
dures and institutes, the very sum total of goods and services it pro-
duces. Under conditions like these, even the successes of the conven-
- tional monetary maneuver are in danger of de~enerating into tactical
fixes which cannot ward off strategic defeat in the form of even worse
inf lation.
_ When this process has been under way for a number of years, you cannot
restore monetary balance by attrition through scant liquidity or by
off ering an unalluring exchange rate. The road back to a stable currency
calls for a genuine change in monetary constitution, which involves
the function of the central bank, as well as the decision-making pro-
cesses for public spending and income distribution.
The first condition is that the power to create money be exercised in
complete autonomy by the same centers that decide on spending. There
was a time when this requirement arose with respect to the productive
system, and it was then that the public-interest nature of the central
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bank and the separation of bank and business were clearly spelled out.
Today that requirement must be met above all in relation to the public
sector, freeing the central bank from a condition which allows cash
shortages to press for expansive creation of liquidity inconsistent with
policy objectives on money growth.
This necessitates a reexamination of the means by which, unc}er our cur-
rent statutes, the issuing institution finances the Treasury: the
overdrafts in the Treasury account, the practice of buying up remain-
dered bonds after auctions, underwriting other government-issued secu-
rities. Particularly urgent is calling a halt to the Bank of Italy's
picking up all BOTs not sold at auction.
And yet, in a rapidiy changing democratic society, where there is keen
aspiration to a higher standard of living, intense social dialectic,
persistent and widespread inequities pressures for the creation of
still more liquidity are pushing our currency almost irresistibly over
the threshold of st ability, unless we throw up defenses in the very
places where demand originates.
The second condition, therefore, is a set of rules for procedure that
will place the major decisions on spending squarely in the context of
monetary stability policy. A basic principle of economic and politi-
cal freedom forbids taking the content of those decisions out of the
reach of decisions by families, by businesses, by the entire collecti-
- vity as expressed in Parliament and in the Government. And the very
existence of a currency, of unused purchasing power, is an expression
of that freedom. But society must organize to keep spending decisions
from being made at the cost of the common heritage that is monetary sta-
bility. To do this, it must discipline the ways in which choices are
made, without dict ating any of the content of t hose choices, just as
other rules establish the manner, and thereby the possibility of taking
action without in any way commanding it.
There are of course individual decisions which govern the division of
income between savings and consumption, and these are defined in their
- structure. The tax instrument can provide the necessary guidance for
those choices to make them part of a consistently compatible whole.
But to a f ar greater degree than in family budgets, the breach in mone
tary stability is caused by spending decisions in the public sector and
in decisions on distribution of income within businesses. It .is there
that the relation between spending and resources is stretched so far as
to make price increases and debt devaluation a necessary perverse in-
strument for balancing the books.
Rules must be put in place to govern public spending decisions that wi11
compel them to substantive respect for the obligation of solvency. Once
there was a time when the harmony between spending as the prerogative
ai the sovereign and taxes paid by the people was assured by the dialec-
tic between the executive and parliament. When the people became so-
vereign, the budget constraint worked for a long time under the rigid
rule of balance. The disappearance of that constraint led public finance
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into a situat-ion whcre economic equilibrium has no other anchorage than
the capacity E'or~ self-control of the collectivity. Article 18 of the
_ Constitution was supposed to strengthen that guarantee, but the way it
has been administered has all too frequently proved incapable of prevent-
ing spending f rom acting as a sensitive force for stability, and instead
has let it slip f ree of the solvency constraint. We need to look for,
off icially def ine, and solemnly impose forms, such f or instance as man-
datory balance between current revenues and expenditures, with which to
ensure practical application of the principle spelled out in the Consti-
tution.
Procedures and guidelines are equally necessary in corporate decisions
_ on spending. A transformation-based economy, which imports raw mate-
- rials and exports finished products at international prices, has labor
as its principal cost f actor to be contained, in the twofold component
- of wages and productivity. And that containment is entrusted, in our
way of doing things, to labor and management through the collective
bargaining system.
By virtue of its economic and monetary effects, of the vast magnitude of
interests involved, and of the representative and delegatory institu-
- tions involved in it, collective bargaining, national and corporate, is
a genuine force in economic policy, comparable to the one through which
public-sector spending is determined, and like that, it stands in need
of standards that will keep it from drifting toward monetary instability.
Like any other exercise of economic freedom of initiative, th~ freedom
to bargain for contracts cannot claim exemption from the constraint of
the general interest. As things stand today, the very machinery for ne-
gotiation, its fragmentation onto diff erent levels, its f ailure to ac-
cept macroeconomic indicators which might act as a binding reqiiirement
for overall compatibility, all make it exceedingly difficult for labor
and management to arrive at decisions which simultaneously involve both
a demand for f air distribution of incomes and respect for monetary sta-
bility. We need to seek out and define institutional procedures through
which collective bargaining can get back again to being an instrument
for governance of income dynamics and working conditions, rather than
for the destruction of the currency.
We must stop putting so much faith. in automatic devices which degrade
the ability of both parties to work out their differences and which are
insensitive to changing economic as we11 as social conditions. Just
_ when the inflationary push was heating up f astest, some believed that a
surrogate for stability had been found in indexation; it is precisely
the spread of that practice that sanctions and hastens the ruin of our
currency.
Monetary stability is too precious and too fragile an asset to allow
the lines thrown up to defend it to be undermined by issuing lifetime
passes to individuals or groups guaranteeing them automatic protection,
especially when such protection is frequent and indifferent to the ori-
gin of inflationary pressures.
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In the one member nation of the EEC that,more than any other, has held
the line on prices of recent years, it is expressly forbidden to use any
~ form of indexing, not only in collective bargaining contracts but also
in the form of clauses in individual contracts that link the pecuniary
obligations of either party to any index whatsoever. In that same coun-
try monetary stability, affirmed and defended, finds further expression
in the ease with which its currency is permitted to cross its boundaries.
Autonomy for the central bank, increased rigor in budget procedures, and
collective bargaining codes are the preconditions for a return to monetary
stability.
For 10 years now, with even the indirect lznk to gold through converti-
bility of the dollar and the fixed exchange rate gone, the lira, like
the other currencies, has become an even raore immaterial and abstract
commodity, whose value is guaranteed by nothing more than the strength of
the economy and the capacity of the society as a whole for organizing
itself and for governing.
A currency law is indispensable for giving us back a stable yardstick
for all present and future assets and to protect us from the risk of
backsliding toward positions which did not help us fight inflation, when
they were not actually f ostering it.
These are the issues which the gravity and urgency of the economic situa-
tion demand that we deal with in all their complexity and entirety. The
recent debate indicates that decisions have been ripening in our minds
and that even now, today, we can take practical steps in the right di-
rections. If its efficacy is not to be dissipated, that debate must be
translated today, right now, into a will to action. What it needed far
more than technical tinkering is the ability to shake off our prejudices,
- our mistrust, and our short-sighted defense of narrow individual interests.
And the strength to do that is rooted in our civic consciousness, the
last, the irreplaceable bastion of a stable currency, as it is of every
- other pillar of a f ree and just society.
COPYRIGHT: IL MQNDO 1981
6182
CsO: 3104/299
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M~LITARY FRANCE
~
i
~
I
NEW SHORT-RANGE GROUND-TO-AIR MISSILE PRESENTED
Paris AIR & COSMOS in French 27 Jun 81 p 41
[Article by Pierre Langereux: "Presentation of the Very Short-Range Groun~~to-Air
SATCP Missile"]
[Text] The SATCP [Very Short-Range Ground-to-Air] weapon system was presented in
its basic version at Satory for the first time. This is a portable missile slated
for the French army and the French air force for the defense of sensitive points
and combat units. The various elements of this basic version were presented by
MATRA [General Mechanical Aeronautics Company], the contractor, as well as hy SEP
[European Propeliant Company~ and SAT [Telecommunications Company, Inc.], respon-
sible for the propulsive unit and the self-directional device of the missile, re-
spectively. Thomson-CSF [Thomson-General Radio Company] also made a presentation
of the TRS 2600 radar intended for the version of the SATCP missile mounted on a
light armored vehicle for the army. In all, five versions of the SATCP missile are
planned. In addition to the two just mentioned, a ground-to-air version which can
be carried on the shoulder of an infantryman and an air-to-air version mounted on
the army's helicopters as well as a sea-to-air version for the principal defense of
small craft and as complementary armament for the French navy's battle class ves-
sels are also envisioned.
The SATCP is an antiaircraft missile slated for the interception of both planes and
helicopters flying at low or very low altitutes. The missile is guided by an infra-
red device of very great sensitivity capable of detecting a helicopter at a distance
of 4 lan. The explosive charge of nearly 3 kg triggered by a proximity fuse gives
the missile great effectiveness. The two powder propellants (for e~ection and
cru~sing) drive the missile to a dis~ance of 4 lan in about 6 seconds with great
maneuverability enabling its interception of aircraft flying at less than 8 G's.
The TRS 2600 surveillance and t3rget identification radar unit built by Thomson-CSF
is especially designed, in conjunction with the SATCP missile system, for hitting
- planes and helicopters flying at low and very low altitudes. The radar makes it
possible to detect helicopters, planes that fly alone or in patrols, missiles,
and drones (RPV's [Remotely Piloted Vehicles]) moving in a hostile environment
(natural or man-made clouds). This radar unit can locate a helicopter more than
6 km away a.nd a plane more than 10 km away with a precision in targeting closer
than 0.6� on the horizontal plane and 60 meters in distance (on a helicopter).
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Im~olved is a Doppler radar unit with impulses operating on the S band with a mobile
antenna (40 revolutions per minute) placed under a radome. The transmitter with
phased amplif ication and variable frequency is entirely "solid ~tate," and the lota~
sound receiver with double change of frequency has a high level of fixed echo screen-
ing (+55 decibels). The microprogramed computer has a special track for the detec-
tion of partially concealed helicopters at the request of French technical departments.
_ The numerical resolution, at a speed of 32 frames, is complemented by an automatic
pursuit device (TNS) [Timed Wire Service]) which can be activated manually or auto-
matically, making it possible to lock in four targets simultaneously (or more if
desired). The entire radar unit weighs about 80 kg and can be integrated into light
armored vehicles.
COPYRIGHT: A & C. 1981
2662
CSO: 3100/819
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MILITARY FRANCE
FIRST MILITARY TELECOMMUNICATIONS SATET~LITES DESCRIBED
Paris AIR & COSMOS in French 27 Jun 81 pp 6"s, 65
~Article by Pierre Langereux~
~Text~ In the mi~itary use of space, the French army has finally given p=iority
to telecommunications over earth observation. This is obviously for reasons~of
expediency. Actually, the Forces will be able to use the P&T ~Postal and Tele-
communications Administration~ Telecom 1 satellites, which will be in service
- beginning araund year-end 1983, whereas the construction of an earth observation
satellite for the French Armed Forces has not yet been decided. The French SAMRO
~Military Optical Reconnaissance Satellite~ project, which has been under study
since the 1970's, is however beginning to take on a concrete form that goes well
beyond the mere "technical lookout" concept that has governed it until now.
The decision to build a SAMRO satellite observation network could be made next
year, enabling the system to be put into service by the end of 1986.
France will thus be the fifth power possessing military telecommunications satel-
lites, after the United Stat~s, the USSR, the United Kingdom and NATO. If the
SAMRO program is launched, France will be the third power having military earth
observation satellites, after the United States and the USSR (and possibly China).
SYRACUSE System in Service By End of 1983 with Telecom 1
The Armed Forces' need for space telecommunications was realized as a result o�
the Kolwesi (Zaire) affair, when the need for direct and reliable communications
~ links to monitor and direct the operations of intervention forces abroad was
brought home to the government and the Armed Forces. The United States and more
recently the USSR have aZready provided the examples. During the (ill-fated)
American raid on Teheran, the president of the United States was kept in~ormed
"in real time" of the development of events, thanks to the American military
telecommunications satell.ite netw~ork that covers the entire world.
In view of France's smaller "sphere of influence" abroad, her ambitions are mose
limited.
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They are principal].y to ensure "long distance communications with her ships and
interventional forces" by means of a"communications network consisting vf trans-
mitting and receiving stations owned and operated by the Armed Forces," thanks to
"two repeaters exclusively for the Armed Forces," with which Telecom 1 satellites
are being equipped, according to the DTEn CMisaile Technology Directorate~. This
military telecommunications network will also be able to provide long distance
government links with embassies, DOM-TOM ~Overseas Departments-Overseas Territo-
ries~, etc.
The use of two telecommunications satellites ia based on the need to cover prin-
cipally a priority zone extending from Panama on the west to Reunion Island and
the high seas off the east coast of Africa on the east, as well as from Disko
� IslanB (75� N) on the north to the open seas off the Cape of Good Hope on the
south. This zone covers a large portion of South America, a strip of North
America and the western edge of the Inc3ian Ocean.
The Navy is especially interested in establishing permanent and reliable links
with its ships navigating in the Atlantic, the Mediterranean and the Indian Ocean
French abroad" ~as published~ and above all, to protect our oil and
other strategic materials supply routes.
Pending the availability of a satellite dedicated specifically to military and
government telecommunicationa, the Defense Ministry has therefore decided to use
(in part) the P&T's civilian Telecom 1 satel].ites, the first o� which will be
- launched in July 1983 by an Ariane rocket. This milit~ry use of Telecom 1 is
covered by the SYRACUSE ~Radiocommunications System Using Satellites~ program,
ultrasecretely decided on 17 January 1980 by the then defense minister, Yvon
_ Bourges, according to the REV[TE DE DEFENSE NATIONALE.
The SYRACUSE program is under the direction of the SCTI ~Central Aeronautical
Telecommunications and Equipment Service~ with assistanae from the CELAR ~Ordnance
Electronics Center~ and in cooperation with the Armed Forces General Staff, and
in particular the Navy General Staff.
Three Telecom 1 satellites are being built under the prime contractorship of MATRA
~Mechanics, Aviation, Traction and Missiles Company~, with Thomaon-CSF for the
civilian and military payloads. The Defense Ministry has financed apecifically
the addition, to the civilian payload, of supple;nentary equipment to be reserved
exclusively for military links. This equipment consists essentially of two
repeaters operating at 7.25 and 8.4 GHz, in the frequency band reserved for mili-
tary telecommunications. Since this equipment was not available in France, it
was ordered from the United States where it is manufactured in California by Ford
Aerospace, which specializes in the manufacture of American military apace
telecommunications satellites.
_ These mili'.ary telephone and telegraph (coded) links will provide a traffic hand-
ling capacity equivalent to 60 telephone communications channels simultaneously.
_ They will use spectrum-staggered multiple access (AMRC/SSMA) techniques developed
- notably by CELAR and full-scale tested over the past several years under the
SEXTIUS ~expansion unknown~ program.
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This experimental program, drawn up by the SCTI and DTCAN ~Technicil Directorate
for Aeronautical Construction~, was designed to "test the feasibility of military
use of satellite communications using a amall antenna (2.2 m) and different types
of modulation anC multiple access."
The SEXTItTS tests were run first on land, from October 1977 to June 1978, then at
sea, from September 1978 to 1980. Successful digital links (at 4-6 GHz) were
established between a Navy ship and the Pleumeur-Bodou (Brittainy) station, via one
of the Franco-German Symphonie experimental telecommunications satellites. The
advantage of a geostationary satellite for military telecommunications is that it
provides l~nks between fixed or mobile stations and headquarters command posts
using a simple infrastructure and guaranteeing excellent availability and vast
geographic roverage.
Tw~o of the three Telecom 1 satellites will be launcbed into geostationary orbit,
by 7 and 10� west ~as published~, over the G~lf of Guinea (Africa), from which
they will cover Europe, Africa, the Mediterranean, the Midc~le East, the Indian
Ocean and the Atlantic Ocean, as well as the east coaste of the Americas. The
Telecom 1 satellites will be controlled by the CNES ~National Center for Space
Studies~/P&T earth station at Aussaguel, near Toulouae.
The SYRACUSE network, the installation of which is being prepared by the SYRACUSE
operations group, will cv~nsist of not less than 25 earth and naval, fixed and
mobile stations. These stations, designed by Thomson-CSF, will be of four types:
fixed or air-transportable (heavy or light) eacth stations, and shipborne sta-
tions.
- The three principal stations of the SYRACUSE network will be installed as fixed
stations near Paris, Brest(Brittainy), and in Southern France. These synchronous
stations will be equipped with 8-m diameter parabolic antenrias.
The nine heavy transportable stationa (in air-transportable sheltets requiring
two Transall planes) will be distributed. Four stationg will be installed at the
OMIT CMilitary Interforces Communications Organization~ centers at DAKAR (Senegal),
Djibouti, La Reunion and Martinique. The other five will be used by the Armed
Forces General Staff for it~ links with the lst Army and for priority government
links.
The three light transportable stations (on air-tranaportable vehicles via one
Transall per station) will be available to intervention forces abroad for their
links with the Armed Forces General Staff and the government.
Lastly, some 10 naval stations (in shelters with 1.5-m antennas) will be installed
aboard large surface ships of the Navy (c:orvettes, frigates, helicopter carriers,
aircraft carriers) for their links with OMIT Headquarters or fixed ~tations in the
metropole.
The total cost of the SYRACUSE program is estimated at around Fr 1 billion. This
incl~des participation in the Telecom ~ satellite development costs (Fr 50 mil-
lion), operating costs (Fr 45 million/year) and construction of the terrestrial
network.
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The DTEn, besides being involved in the development o� the SYRACUSE program, is
also conducting preliminary design studies on militaty telecommunications satel-
lites that will take over from the Telecom 1 satellitea when these are retired
fzom service in 1990.
Decision on SAMRO Satellite Expected in 1982
The SAMRO project has to do with a"strategic reconnaissance satellite" designed
to provide the Armed Forces with objective knowledge of the infrastructures in
countries being overflown, based on "a periodic observation of military, road and
waterways camplexes" that can furniah "indications of pseparations," avoiding
possible surprises to our Armed Forces. But the SAMRO satellite, generally
speaking, will not be able to furnish the information needed to maneuver forces
and conc3uct tactical ogerations, which muat still depend upon aerial reconnais-
sance.
The SAMRO system will consist of a panning satellite and a terrestrial network that
includes an operations center, a control center, a terrestrial transmitting and
receiving station and an image ope~atioas center, all located in metropolitan
~ France.
The satellite will consist of a platform, which reuses the SPOT ~Earth Observation
]Probe System~ auxiliary platform, and a payload consisting of a set of cameras and
an adapter frame, all designed to respond to military needs. The satellite will
be stabilized on three axes by an attitude control system based on sensors, gyro
wheels and gas jets (hydrazine). An on-board calcu].ator-programmer will control
the recording of data and their restoral by the telemetering transmitter, in asso-
- ciation with a memory and an ultrastable clock.
The SAMRO satellite's camera mode will di~fer from that of the SPOT satellite and
its resolution will�exceed that of the civilian satellite (10 m visually). Its
(digitized) image transm~ssian rate will also be higher and its transm~ssions
_ will be secured against jamming or interception. It is also planned to secure the
satellite itself against laser weapons that co~ild blind its sensors or even des-
- troy it. The satellite will gravitate in a lower orbit than SPOT's (832 km).
The DTEn is responsible for the overall SAMRO system design, assisted by the CNES
for the satpllite, the camera set, and the conceptual and definitional work.
Work is currently concentrated on high-prioritied basic probl~ms to be resolved
in connection with the camera set and the on-board recording system for storing
imagea until passage of the satellite within view of th~ earth station located in
France. Only after the completion of this work can the de~~elopment of the SAMRO
satellite be commenced.
Recently,, the industri;31 organization for the syatem was drawn up, which confirms
that the project is already at an advanced stage. The industrial atructure for
the complete system--apace and terrestrial segmenta--has been entrusted to the
Ballistics and Space Systems Division of AEROSPATIALE ~National Industrial Aero-
space Company~.
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The industrial prime cantractorahip for the satelli.te and the responsibility for
the platform and the adapter frame have been entrusted to MATRA, while AERO-
SpATIALE (Cannes establishment) has assumed responsibility for the structure,
thermal control, the solar generator and the camera set. Image telemetering and
remote control have been entruated to Thomson-CSF.
Industrial prime contractorship for the earth segment as well as responsibility
for the operations center and oontrol center have been assumed by AEROSPATIALE.
Thomson-CSF is responsible for the transmitting and receiving station, and MATRA
and SEP ~European Propellant Company~ for the imaging operations center.
The principal ~ubcontractors for the system are Crouzet, Enertec, Reosc and Sodern.
_ The total cost of the SAMRO system was estimated in 1980 at around Fr 6 billion.
Through 1980, Fr 236 million wer.e apent on SAMRO project studies; Fr 136 million
were al~located to the project ir? the 1981 budget. This does not take into account
the participation by the Armed Forces (Fr 60 million through 1980 and Fr 84 mil-
lion in 1981) in the SPOT satellite which is to serve as a testing bench for the
military satellite.
COPYRIGHT: A. & C. 1981
9399
CSO: 3100/818
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MTLITARY FRANCE
BRIEFS
- SEP DISPLAYS ANTITANK MISSILE--A new entrant into the domain of antitank weaponry,
the SEP [European Propellant Company] presented for the first time at Satory its DARD
antitank missile developed in the context of the invitation to bid issued by the DTAT
[Technical Directorate of Ground Armaments] for the future ACCP [Short-Range Antitank]
missile launcher. This antitank weapon:has a range of 600 meters with a high proba-
bility of disabiling heavy tanks built in the late 1980's. It consists of two parts:
One of them, nonreusable (ir. the rear), whi~h is mainly made up of ammunition, and
- the other reusable (in front), consisting of the trigger mechanism and the sighting
piece. The nonreusable barrel fits into the reusable tube up to the le~.rel of the
front trigger. The weapon is designed for firing from the shoulder with the help of
curved sholder piece integrated into the reusable part. The barrel containing the
ammunition is equipped in f ixed position with a gas generator (with powder) which
- propels the missile, whose stabilizer projects out~ide the barrei. For building
the missile, whose stabilizer projects outside the barrel. For building this light
infantry weapon, the SEP has used composite materials with which it has had exper-
ience thanks to the ballistic and space programs. [Text] [Paris AIR & COSMOS in
French 27 Jun 81 p 42) [COPYRIGHT: A. & C. 1381] 2662
CSO: 3100/819 END
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