IT could be a long, hot summer for Italy.
Germany's decision to raise its discount rate comes at a difficult time for Prime Minister Giuliano Amato, whose two-and-a-half-week-old government immediately responded July 16 by hiking its own discount rate from 13 percent to 13.75 percent, the highest level since 1986.
Not only does the action hurt Mr. Amato's attempts to control public debt, it may not even be enough to defend the lira, which has taken a beating from the deutsche mark in recent weeks.
If the present trend of a strong German mark and a weak lira continues, Amato's government may have to devalue the lira, warns Erminio Bugliosi, accounts director for the Banca d'America e d'Italia - perhaps in September.
Perhaps sooner, warns a long-time American observer.
The July 16 discount rate hike was the second this month (following a July 5 increase from 12 percent) and leaves Italy with by far the tightest credit of any of the Group of Seven leading industrialized nations.
Before the latest increase, Amato had introduced measures to help bring Italy's massive public debt under control, a requirement for entry into the European Community's unified market.
"The increase in the discount rate renders useless the Italian government's economic maneuvers," says Mr. Bugliosi. "It can't do anything but worsen the public debt. And obviously it can't do anything but worsen our situation vis-a-vis the European Community."
Claudio Cremona, a spokesman for Banca Nazionale del Lavoro (BNL), echoes this Italian preoccupation with the nation's future in Europe.
"Better a little sacrifice now than a bigger sacrifice tomorrow," says Mr. Cremona. "Being pushed out of Europe would be a mortal blow to Italy."
Italy's public debt, so worrying to its European Community neighbors, stands at 1.5 quadrillion lire or $1.36 trillion.
Despite the future impact on public debt, the Italians felt constrained to raise their discount rate in order to defend the lira against speculation, that is, selling lira to buy marks.
"We're at a crucial point in all our economic policy - and it's the stability of the lira," admitted Finance Minister Giovanni Goria. "To defend it, it's sometimes necessary to make war."
But the effects of this war may not be felt by the average Italian, argues Cremona. Tight credit should not hurt most Italians very much. "We are a nation of savers," he says. "There hasn't been a debt craze here as in the United States in past years."
In fact, Italians, along with Japanese, save substantial portions of their income - 21.1 percent in Italy, and 15.3 percent in Japan, but Americans save only 9.5 percent, according to figures of the Organization for Economic Cooperation and Development.