Italy: The Fleeing Lire

Packed in suitcases and hidden in the false bottoms of automobiles, lire are being smuggled out of Italy at the rate of more than $200 million a month. In any other nation, such a capital flight might lead to alarm or panic. In Italy it is recognized as only another ingenious ploy to cheat the tax collector. No one really worries, because the fleeing lira usually returns to Italy wearing a disguise.

Italians spirit their lire over the border to Swiss banks, which then use the money to open foreign accounts in Italian banks and buy Italian shares and securities for their Italian depositors. Since dividends are paid to the anonymous Swiss bank account, the Italian investor can collect his profit without attracting the attention of the hated tax collector.

The Swiss dodge is not new to Italian investors, but they have never used it in such numbers. In this year’s first half, $976 million in lire re-entered Italy in disguised form v. $435 million for 1962’s first half—and authorities can only guess at how much has not yet completed the round-trip journey. In a nation in which only 1,194,328 of 53 million people filed tax returns last year, this tax dodge is generally admired rather than deplored.

So far, the two-way traffic in lire has not unsettled the Italian economy or seriously affected Italy’s balance of payments. Nor has it affected the price of the lira, which has remained remarkably steadfast at 100 lire for 16¢ for 14 years. But the traffic is not without its dangers. The accounts opened by Swiss banks in Italy can be converted into foreign currencies on demand. Should the government’s “opening to the left” take it too far to the left, or should the tax collector become too zealous for the businessman’s taste (there is talk of imposing a capital gains tax and raising the income tax), Italy’s loose lira might be frightened into a one-way flight that could mean trouble for Italy’s whole financial structure. Last week the Milan stock exchange reflected this uncertainty, with the slowest trading period that Italians could remember.