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resisting the temptation to inflate, had taken the wiser course. The fall of the lira which, at the end of July, was quoted as low as 153.68 to the pound sterling and 31-605 to the dollar, continued to cause grave anxiety. The measures taken to control and prevent speculation on the exchanges by prohibiting the sale of Italian money without justification substantiated by documentary evidence, though certainly beneficial, proved to be insufficient to solve a problem of which the real roots lay in the formidable adverse trade balance. The nation was urged to effect economies, and on June 30 measures aiming at reducing imports were issued by the Council of Ministers. Expenditure on luxuries was discouraged, and it was decided to suppress all further issue of licenses for cafés, dancing halls, restaurants, etc.; a check was placed on luxury building, the trade being required to concentrate on the erection of dwellings for the lower and middle classes. Steps were taken at the same time to secure the more extensive utilisation of Italian raw products. The Government decided itself to set an example to the nation by effecting drastic economies in expenditure, including a severe limitation on appointments to the Civil Service. A vigorous speech by Signor Mussolini at Pesaro on August 18 expressed the determination of the Government to save the currency at all costs. "I shall never," he declared," inflict on this great nation the bankruptcy of the lira," and called upon the people to support the Government in the economic battle" with the same enthusiasm with which they had rallied for victory in the war.

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In September important legislative action was taken to give effect to the policy announced by Signor Mussolini. The 90,000,000 dollar Morgan loan was transferred to the Bank of Issue in respect of 2,500 million paper liras for notes issued on account of the State; this enabled the paper circulation to be reduced from 6,728 million liras-the figure given on July 31, 1926-to 2,229 million liras, the gold reserve of the Bank being raised to 2,400 million gold liras. Secondly, provision was made for a sum of 500 million liras to be placed annually in the Budget of the Ministry of Finance so as to enable the note circulation to be gradually withdrawn. The drastic policy represented by these and similar measures occasioned sinister forecasts of disastrous effects on Italian industry. Supporters of the Government policy, however, held that the tightness of money consequent on currency reduction would lead to its more economical investment, and that the Bank of Italy, in virtue of its special position as the only bank of issue, would be able to regulate credit in accordance with the best interests of trade. The exchange soon showed a favourable reaction to the new financial measures, the lira at the end of September being quoted at 129 to the pound sterling. This rise continued throughout the autumn, and at the end of December the quotation was 107-83 to the pound and 22-238 to the dollar.

At the close of the year the Government embarked on another financial venture in the form of an internal loan, the "Prestito del Littorio," or Lictor Loan. The object of this loan was to enable the Government to effect compulsory consolidation of its shortdated Treasury certificates and bonds, while at the same time avoiding further inflation. The publicity work in connexion with the loan was most ably carried out, and the result promises to be highly satisfactory.

The "Wheat Campaign" (Battaglia del grano), mentioned in the ANNUAL REGISTER, 1925 (p. 159), was vigorously pressed during 1926. The figures of the bumper harvest of 1925, which amounted to 66 million quintals were, it is true, not repeated; on the contrary, the weather conditions proved most unfavourable, but nevertheless the harvest reached the notable figure of 60-2 million quintals-in the circumstances a very remarkable result.

In foreign affairs the Italian Government followed a consistent policy of peace and good relations. The political atmosphere as between Italy and Germany was disturbed in the early part of the year by the question of South Tyrol, the German and Austrian Press complaining of the "ruthless" measures of Italianisation in this region, which was acquired by Italy as the result of the war. These polemics were made the occasion of a defiant speech by Signor Mussolini before the Chamber on February 6. This was followed immediately by a moderate but firm reply by Herr Stresemann in the Reichstag, and led to a counter reply by Signor Mussolini delivered before the Senate on February 11. The importance of the Italian Prime Minister's affirmations lay not so much in their substance as in their tone, and were jubilantly received by the Fascist Press as a proof that the subservient Italy of pre-war days had given place to a new Italy which had no intention of knuckling down to Germany or any other Power, and which would, if necessary, to quote Signor Mussolini's phrase, "carry the Italian flag beyond the Brenner. This breeze between the two Chancelleries was followed shortly by the disaster" of Geneva, when Germany, owing to the intransigent attitude of Brazil, failed to gain admission to the League of Nations When, however, at the September Session, Germany was granted her long overdue membership in the League and a seat on the Council, the Locarno Pact came into force, and the relations between the two countries became normal again. The effectiveness of the Locarno Pact also brought England and Italy into closer contact. This rapprochement was among the most notable features of the year, exemplified inter alia by an exchange of notes for an economic understanding in Abyssinia, and by the conversation which took place at Leghorn on September 30 between Signor Mussolini and Sir Austen Chamberlain. During the year Italy concluded a number of treaties, as follows:

(1) "The Treaty of Friendship and Conciliation" concluded with Spain and signed at Madrid on August 7. The particular object of this Treaty, apart from a general expression of goodwill, seemed to be the initiation of a policy of collaboration in the Mediterranean and of mutual defence in Africa.

(2) "The Treaty of Friendship and of Economic Relations," concluded with the State of Yemen on September 2, by which Italy consolidated her position in the Red Sea and laid the foundation of an economic collaboration.

(3) The Treaty of Friendship and Arbitration," concluded with Rumania and signed at Rome on September 16. In virtue of this Treaty, according to Fascist opinion, Rumania ceased to be a mere satellite of France, and looked to Italy as the natural holder of the balance of power in the Balkans.

(4) "The Commercial Treaty" with Greece, signed on November 24, in virtue of which Italy obtained equal commercial facilities in Greece with the other Great Powers.

(5) "The Treaty of Friendship and Arbitration" concluded with Albania on November 29, which was construed in Yugoslavia as a menace to her interests in Albania, and which led to the fall of M. Nintchitch, who was chiefly responsible for Yugoslavia's policy of rapprochement with Italy.

(6) "The Treaty of Conciliation and Arbitration" with Germany concluded at Rome on December 29.

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Those observers who prophesied that this "Napoleonic Year " (to employ Signor Mussolini's own phrase) would witness a gradual restoration of democratic Government have been belied by the facts. On the occasion of the commemoration of the late Queen on January 16 the "Aventine" deputies attempted to return to the Chamber, but were forcibly ejected by the Fascist members amid scenes of disorder. Two days afterwards Signor Mussolini prescribed the conditions on which the dissentient members Iwould be allowed to return. These conditions included the recognition of the Fascist Revolution, an admission that the moral question" did not exist, and the complete rupture of all relations with the "Fuorusciti " or Italian opponents of the existing regime who have taken refuge abroad. On March 16 the Matteotti trial was opened at Chieti, the verdict being delivered on the 24th of the month. Two of the four persons accused were sentenced to six years imprisonment, the others being acquitted. The chief counsel for the defence was Signor Farinacci, the Secretary of the Fascist Party; his plea consisted principally of a violent attack on the character and views of the late Socialist deputy. The result of the trial, which was more or less a foregone conclusion, disposed of a question which had caused incalculable damage to the prestige of the party abroad and had gravely menaced its position at home. Shortly after the trial the Fascist Grand Council held fresh elections, and Signor Turati succeeded

Signor Farinacci as Secretary of the party. This choice was construed by some as the first step towards a relaxation of the previous rigid autocracy, a hope which was later found to be premature when, in November, extraordinary measures for the suppression of all opposition were taken as a result of an attempt at Bologna on the life of Mussolini by a lad of 15 during the course of the Duce's Napoleonic progress in Emilia. Two similar attempts had been made earlier in the year, one on April 11, by an Irishwoman of unbalanced mind, when Signor Mussolini was leaving the opening ceremony of the International Surgical Congress at Rome; and the other also at Rome, in September by an Italian political refugee. The legislative measures taken in consequence of the third attempt included not only the imposition of the death penalty on all persons making attempts on the life of the King, the Queen, the Heir Apparent, and of the Head of the Government, and imprisonment for periods ranging from five to fifteen years for participation in conspiracies having a similar object, but also various penalties, including imprisonment, loss of citizenship, and confiscation of property, on Italian subjects acting in any manner calculated to injure the prestige of the State. For the hearing of such charges a special tribunal was instituted, composed of five officers of the National Militia, with a President chosen from among men holding the rank of generals in the Army, Navy, Air Force, or the National Militia. The various opposition papers which had been frequently sequestrated in the course of the year, were at the same time definitely suppressed. Opponents of the present regime to the number of 522 were removed from their homes and placed under surveillance, and the "Aventine" members of the Chamber deprived of their mandate. Thus "normalisation," in the sense of a return to pre-war constitutional methods seemed more remote than ever; democratic elections or "paper chases," to use Signor Mussolini's famous phrase, were, in September, abolished, even within the party itself, the Duce declaring in a recent interview that subordinates were to be appointed by their superiors" whilst the supermen elect themselves." The system of elective mayors was also abolished, and the experiment of appointing the mayors by Government choice out of a list submitted by the inhabitants was tried in the smaller centres. The experiment was pronounced to have justified itself and the system will be made universal in Italy.

Interest in aviation was intensified during the year which was notable for the historic flight of the "Norge," under the command of General Nobile, from Europe across the North Pole to America, and for Italy's victory in the Schneider Cup race. The reorganisation of the Army and the Navy was vigorously pursued, and further progress made in the constitution of the Mercantile Marine, two mammoth liners-the Augusta and the Roma-being launched in the course of the year.

CHAPTER IV.

GERMANY AND AUSTRIA.

GERMANY.

THE resignation from the Cabinet of the Nationalist Ministers in the autumn of 1925, in consequence of the conclusion of the Locarno Pact, had rendered a reconstruction of the Cabinet necessary, but this had not yet been effected by the beginning of 1926. While the foreign policy of Dr. Stresemann commanded the firm support of a majority ranging from the German People's Party on one side to the Social Democrats on the other, the differences in internal policy between the German People's Party, which in social matters adopted a somewhat reactionary attitude, and the Social Democrats were so marked as to render nugatory the efforts of the middle parties to construct a Government on the basis of the "Big Coalition." The Social Democrats refused to enter the Government and assume the responsibility of office because they feared that by so doing they would, owing to the enormous amount of unemployment, lose the votes of large numbers of electors to the Communists. In the middle of January Dr. Luther again undertook the task of forming a Ministry. He at first chose as Minister of the Interior the leader of the Democrats, Herr Koch, but Bavaria objected to this on the ground that Koch, as they alleged, was in favour of unification, and they therefore thought that he would be a menace to the independence of the States. Not till January 19 did Dr. Luther eventually succeed in forming a Cabinet, after the Democrats had reluctantly brought themselves to submit another name in place of Koch. The new Government was composed as follows: Chancellor, Dr. Luther; Foreign Minister, Dr. Stresemann (German People's Party); Home Affairs, Dr. Kuelz (Democrat); Finance, Dr. Reinhold (Democrat); Trade, Dr. Curtius (German People's Party); Labour, Dr. Brauns (Centre); Justice, Dr. Marx (Centre); Defence, Dr. Gessler (Democrat); Post Office, Stingl (Bavarian People's Party); Communications, Krohne (German People's Party); Food and Agriculture, Haslinde (Centre). The new Ministers were Herr Kuelz, who had been Senior Burgomaster of Dresden ; Herr Reinhold, the ex-Finance Minister of Saxony; and the Berlin lawyer, Herr Curtius.

The weakness of the new Government became apparent before many days had passed, when on a vote of no-confidence brought forward by the Opposition consisting of the Nationalists, the Racial Party, and the Communists, it obtained a majority of only 10. Even this majority it lost when, at the beginning of May, it brought forward its "Flag Ordinance," which instructed German missions abroad to show, in addition to the black-red-gold

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