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‘We can't pay’: how Italy dealt with war debts after World War I

Published online by Cambridge University Press:  14 March 2019

Marianna Astore  and
Michele Fratianni
Marianna Astore*
Affiliation:
Bocconi University and Università Politecnica delle Marche
Michele Fratianni
Affiliation:
Indiana University and Università Politecnica delle Marche
*
M. Astore (corresponding author), Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University, via Guglielmo Röntgen, 1, 20136 Milan, Italy; and Department of Economics and Social Sciences, Università Politecnica delle Marche, Piazzale Martelli 8, 60121 Ancona, Italy; email: [email protected].
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Abstract

The article deals with Italian inter-war debts against the background of the contentious international issue of war reparations that many Allied nations wanted to link to war debt repayments. Italy, having first achieved an extremely large haircut by restructuring US and UK debts in 1925-6, defaulted in 1934, after the Lausanne conference of 1932 failed to deliver war debt forgiveness. We construct a new series of Italian foreign debt from 1925 to 1934 that is consistent with the unfolding of relevant historical events. Starting in 1926, our values are much lower than the currently available foreign debt series. The reason is that the current series do not take into account the large haircut that Finance Minister Volpi extracted from the London debt accord of 1926. Then, beginning in 1932, the values of our series exceed the currently available series because we date the formal Italian exit of the US war debt to 1934, whereas the current series dates it to 1932, at Lausanne.

Keywords

Italyforeign debtdebt restructuringdefault

JEL classification

N24: Europe: 1913– H63: Debt • Debt Management • Sovereign Debt N44: Europe: 1913–
Type
Articles
Information
Financial History Review , Volume 26 , Issue 2 , August 2019 , pp. 197 - 222
Copyright
Copyright © European Association for Banking and Financial History e.V. 2019 

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Footnotes

Preliminary versions were presented at the Seminar series in Economics and Social Sciences, Università Politecnica delle Marche, Ancona, November 2016; 2nd Macroeconomic History Workshop, York, March 2018; Economic History Society Annual Conference, Keele University, April 2018; International Congress ‘Making peace’, Padua, November 2018; 4th LSE Interwar Economic History Workshop, London School of Economics, December 2018; and Seminar series in Economic History, University of Barcelona, December 2018. We would like to thank two anonymous reviewers for their insightful comments on the article and suggestions for improvement. We also thank Angelo Pace for sharing his and Maura Francese's foreign debt series and revealing the difficulties in constructing it; Giuseppe Della Torre for suggestions on the likely sources of foreign debt; Paolo Evangelisti, archivist with the Camera dei Deputati, for directing us to relevant documents on the Cassa Autonoma di Ammortamento dei Debiti di Guerra; and Francesco Chiapparino for raising relevant questions about our work.

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