CITY AND SUBURBAN
Pound's Italian lesson on the expletive-deleted Snake
CHRISTOPHER FILDES
The man with the right idea about the bra was President Nixon. Pressed to action by his staff, he replied, as the Watergate tapes recorded: 'I don't give an expletive- deleted about the lira.' This policy has been so widely accepted, and works so well, that it took a considerable feat of mismanagement to bring about a lira crisis, even if it was only a little one. This opera buffa, though, has a serious moral for sterling. It began with EN!, the Italian State energy corporation, arranging to sell $125 million worth of lire through its Turin bank. A $125 million selling order does not, these days, break an exchange rate, but it is the sort of order which a central bank, in Rome or London, would like to see in advance — or even to transact. ENI's bank found itself doing the business at a ruinous price, in a market suddenly swept by rumours of imminent devalua- tion. The polite version is that ENI and the Bank of Italy, never the best of friends, failed to get their act together. The less Polite version is that the Bank left ENI to stew in its own juice. Less politely still, some say that a hand from the Bank lit the fire under the stewpot. Gone are the days When the Bank had, in Governor Guido Carli, the world's most respected central banker. The lesson for sterling is that none of this would have happened, or mattered, if the lira had not been in the European Monetary System, alias the Snake. To Change the parity of a currency in the Snake requires a meeting of ministers from all the EMS countries. They take time to assemble, and time to agree. Markets move faster than ministers. Once they catch wind of what is going to happen, they are onto a bet which cannot lose. If the Parity changes as they expect, they make money. Even if it stays put, they are no worse off. The result, as we saw with the lira, is a violently unstable market or a market which has to be shut down by Official decree (no doubt to be replaced by a black market) — or both in succession. So much for the stability which our Snake- fanciers say that their favourite reptile would bring to sterling.
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