IN THE cold light of yesterday morning, Sunday night's devaluation of the lira - despite all the efforts by Giuliano Amato, the Prime Minister, to present it favourably - looked depressingly like a defeat for the government's economic policy.
Mr Amato refused to devalue the lira when he took office two months ago and had committed his government to keeping it stable, arguing that Italy's economic ills must be cured by cutting the runaway deficit and fighting inflation. Devaluation was portrayed as one of the worst things that could happen.
On Sunday he claimed that the German interest rate cut was an important achievement, eliminating the main cause of the recent monetary turbulence, and said: 'This is not a lira devaluation. This is a revaluation of the mark and an agreement by Germany to cut its interest rates.'
But the agreement - 3.5 per cent devaluation of the lira and 3.5 per cent revaluation for everyone else - was seen in Rome as a 7 per cent lira devaluation. And this, said Mario Monti, an economist, in La Stampa, 'is a grave defeat for Italian economic policy'.
It was grave because Italy made huge losses propping up the lira in recent weeks, because it was not accompanied by measures to sort out the economy and because it had brought down 'the mainstay of the Italian economy, the commitment to monetary stability'.
'It is a defeat. An honourable defeat, but always a defeat,' said a leading banker. 'It would have made more sense if this realignment had been matched by important economic measures sufficient to redress our public finances.'
Giorgio La Malfa, the head of the opposition Republican Party, who had urged devaluation when the government took office, said: 'Amato really has to go now.' Mr La Malfa has been urging a much broader coalition to take charge, which would include the former Communists and the Northern League. The proposal was unexpectedly backed yesterday by one of the state radio stations.
The devaluation took the heat off the lira for the first time in two weeks and Italian stock and government bond prices surged when the markets opened yesterday. However, the devaluation has not solved any of Italy's huge economic problems, and the question remains whether it can avoid devaluing again. A 'no' in the French vote on Maastricht could unleash fresh attacks on the lira.
The government therefore came under renewed pressure to set Italy's house in order in the next two or three weeks. Luigi Abete, president of Confindustria, the industrialists' confederation demanded 'a significant and rapid reduction of interest rates', which had been increased in the attempt to avoid devaluation. For the industrial world, he said, the size and speed of this reduction will be the measure of the effectiveness of Sunday's devaluation.
The Prime Minister insisted on Sunday that the reforms would go ahead with even greater severity than originally intended. But action is needed rather than words and Mr Amato is going to have to produce something tangible soon.
Marching with the mark, page 23
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