Year of the Sboom

The Italians have a word for what has been happening to their economy lately: sboom. An s placed before certain Italian words turns them into their opposites, and "unboom" just fits the bill. When Italy's postwar economic miracle suddenly began to fade last year, the sboom set in. Last winter and into the spring, the lira wobbled and fled the country in uncounted millions. The stock market dived, and inflation rampaged. Italy's economy, further unsteadied by continuing political crisis, looked sick indeed.

Now the Italians are congratulating themselves on a second miracle: the sboom has not turned into a bust. The biggest reason is the strong fiscal medicine administered by the Bank of Italy and its governor, Guide Carli, who is talked of as a future Premier of Italy. Those policies sharply curbed foreign borrowing by Italian banks and thus helped create a deflationary credit squeeze. They also helped produce a drop in industrial production, a threat of unemployment, falling profits and scattered business bankruptcies--but they seem to have saved the economy from collapse.

Italy's wholesale prices have steadied, and Milan's stock exchange index has just crept above 6,000 for the first time since last spring. Last week, Treasury Minister Emilio Colombo reported that Italy's balance of payments has switched from a monstrous $1.2 billion deficit last year to a surplus of $535 million for the past five months. At the same time, Parliament acted to curb the national passion to buy on credit by passing a law requiring 25% down and two-year terms on installment purchases. Best of all, the lira has been revivified.

Last winter, amid official predictions of a mounting trade deficit and some foreign talk of devaluation, speculation against the lira gripped European currency markets. The panic subsided when the U.S., the International Monetary Fund and European central banks granted $1.2 billion in credits to shore up the Italian economy. In the last year, the lira has gained slightly against the pound, lost only 4/10 of 1% to the dollar. But Italy's economy still faces a tough and crisis-ridden fall. Whether it survives in good shape depends largely on whether it can check its upward wage spiral and thus avoid pricing itself out of world markets.

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