1. SUMMARY. DURING DISCUSSION ON JANUARY 28, BANK OF
ITALY VICE DIRECTOR GENERAL OSSOLA WAS UNCHARACTERISTICALLY PESSIMISTIC BOTH ABOUT FINANCING OF INDUSTRIAL CONTRIES
DEFICITS DUE TO RISING OIL IMPORT BILL AND ABOUT ITALY'S
OWN FINANCING PROBLEM. HE REGRETTED ABSENCE OF STRONGER
EUROPEAN LEADERSHIP AND BETTER EUROPEAN COORDINATION.
HE THOUGHT VARIETY OF FINANCING SOURCES SHOULD BE
EXPLORED INCLUDING INTRA-EC GOLD SETTLEMENTS AT MARKET-
RELATED PRICES. END SUMMARY
2. TREASURY ATTACHE VISITED OSSOLA JANUARY 28 TO DIS-
CUSS POST C-20 INTERNATIONAL FINANCIAL SITUATION.
OSSOLA WAS NOT HIS USUAL EBULIENT SELF AND WAS VERY
PESSIMISTIC ABOUT PRESENT SITUATION. HE LAMENTED
ABSENCE OF STRONG LEADERSHIP IN EUROPEAN COUNTRIES AND
HOPED THAT U.S. INITIATIVES, INCLUDING FEBRUARY 11
ENERGY CONFERENCE, COULD HELP TO FILL VOID. HE REGRETTED
MOVEMENT TOWARD BILATERAL OIL DEALS AND COMPETITIVE
DEVALUATIONS BUT SAID THAT ONCE PATTERN HAD BEGUN,
EACH COUNTRY WAS FORCED TO FOLLOW SUIT.
3. OSSOLA WAS EQUALLY WORRIED ABOUT ITALY'S 1974
ACCOUNT DEFICIT WAS EXPECTED TO BE ABOUT $6 BILLION
OF WHICH $3.5 BILLION WOULD BE DUE TO ENERGY CRISIS.
BANK WAS CONTINUING TO SEEK FINANCING IN EURO-MARKET
WHILE BEING FORCED TO INTERVENE FROM DAY TO DAY TO
AVOID A SHARP DECLINE IN LIRE. HE THOUGHT THAT TOTAL
INTERVENTION IN JANUARY MIGHT REACH $1 BILLION. (PRELIMINARY
MONETARY MOVEMENT DATA FOR JANUARY 1-15 INDICATE OVERALL
DEFICIT OF $238 MILLION, WITH OFFICIAL GOLD AND FOREIGN
CURRENCY RESERVES FALLING BY $421 MILLION. DIFFERENCE
BETWEEN TWO FIGURES MAINLY ACCOUNTED FOR BY REDUCTION
IN COMMERCIAL BANKS NET FOREIGN LIABILITIES AND RED-
UCTION IN SHORT-TERM LIABILITIES OF BANK OF ITALY
RESULTING FROM PARTIAL REPAYMENT OF 1973 BORROWING
FROM BELGIAN NATIONAL BANK.)
4. OSSOLA RETURNED TO WELL-KNOWN ITALIAN THEME OF
NEED TO OBTAIN AGREEMENT FOR SETTLEMENT OF INTRA-
EC DEBTS IN GOLD AT MARKET RELATED PRICE. HE POINTED
OUT THAT HE HAD ADVISED U.S. OF MOVE IN THIS DIRECTION,
PERHAPS 18 MONTHS AGO, AND THAT HE HOPED THAT AGREEMENT
COULD BE REACHED AMONG ALL MAJOR INDUSTRIAL COUNTRIES (INCLUDING U.S. ) IN WAY SO AS NOT TO PREJUDGE EVENTUAL
RESOLUTION OF LONG-TERM GOLD PRICE PROBLEM. OSSOLA CLEARLY
MEANT TO BE SURE THAT U.S. WERE AWARE OF GROWING PRESSURE
FOR SOME KIND OF AGREEMENT (MAYBE EVEN WITHOUT U.S.
CONCURRENCE) FOR GOLD SETTLEMENTS, AT LEAST WITHIN EC.
AGREEMENT MIGHT BE PRECIPITATED BY RISING DEFICITS IN
ITALY AND IN OTHER EC COUNTRIES WHICH HAVE A LARGE
PART OF THEIR RESERVES IN FORM OF GOLD. OSSOLA THROUGH THAT EVEN
IF IMBALANCES WERE NOT MAINLY AMONG EC COUNTRIES BUT WITH
OIL-PRODUCING COUNTRIES OUTSIDE EC, AGREEMENT ON GOLD
PRICE QUESTION INSIDE EC MIGHT PERMIT REDISTRIBUTION OF
DOLLAR HOLDINGS OF EC COUNTRIES WHICH COULD THEN BE
USED FOR SETTLEMENTS WITH OIL PRODUCERS. IN OTHER
WORDS, IF PRICE WERE RIGHT, ITALIANS AND FRENCH MIGHT
BE ABLE TO DRAW UPON GERMANY'S LARGE FOREIGN CORRENCY
RESERVES THROUGH SALES OF GOLD TO GERMANY OR THROUGH
SALES OF GOLD TO EUROPEAN MONETARY COOPERATION FUND IN SOME
WAY SO AS TO PERMIT INDIRECT ACCESS TO GERMANY'S DOLLAR RESERVES.
5. OSSOLA SAID THAT EC MONETARY COMMITTEE WOULD DISCUSS
GOLD PRICE QUESTION AND OTHER MATTERS AT ITS FEBRUARY
4-5 MEETING. HE WOULD URGE COMMITTEE TO EXAMINE
TOGETHER ALL SOURCES OF FINANCING OF EXPECTED EC DEFICITS,
INCOUDING PERHAPS SOME COORDINATION OF EC COUNTRIES,
RESORT TO EURO-MARKET BORROWING. WHILE OSSOLA BELIEVED
IN LONGER RUN PHASING OUT OF GOLD FROM INTERNATIONAL
SYSTEM, HE THOUGHT THAT INTERIM SOLUTION OF GOLD PRICE
PROBLEM COULD BE JUSTIFIED, SINCE SO MANY OTHER MATTERS
OF PRINCIPLE CONCERNING MONETARY REFORM HAVE ALREADY
BEEN SET ASIDE BY VIRTURE OF NECESSITY. HE HOPED THAT
OTHER COUNTRIES WOULD NOT BE DOGMATIC ON GOLD PRICE
QUESTION.
6. OSSOLA NOTED THAT NEXT OPPORTUNITY FOR DISCUSSION
OF THESE FINANCIAL ISSUES AT MINISTERIAL LEVEL WOULD
SEEM TO BE AT FEBRUARY 11 ENERGY MEETING IN WASHINGTON.
HE WAS PREPARED TO ATTEND MEETING AS PART OF ITALIAN
DELEGATION TO DISCUSS INTERNATIONAL FINANCIAL ASPECTS OF
ENERGY QUESTION IF FOREIGN MINISTER MORO WERE TO INVITE HIM. HE DID NOT KNOW WHETHER DECISION HAD BEEN TAKEN
ON COMPOSITION OF ITALIAN DELEGATION SO AS TO INCLUDE
ANYONE FROM FINANCIAL MINISTRIES (E.G., TREASURY
MINISTER LA MALFA) OR FROM BANK OF ITALY. VOLPE
Source: https://www.wikileaks.org/plusd/cables/1974ROME01282_b.html
Summary: Timeline overview
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