funding instruments amounted to €760 billion. at the end of 2003 total funds raised stood at approximately €1, 100 billion. the bank of italy protects savings and savers through the stability of intermediaries. it promotes the efficiency and competitiveness of the credit system and thereby favours the allocation of the funds raised for the growth of production and the formation of new savings. at the end of 2002 households ’ portfolios contained a total of €290 billion of corporate shares and bonds. corporate failures have direct repercussions on the savings of households, as well as on the banks. the bank of italy intervenes promptly with intermediaries so that loan losses are kept within the limits of banks ’ capital and reserves and do not affect the savings entrusted to them. in an economy in which firms increasingly finance themselves in the market, the value of this component of savings depends in the first place on the stability of the firms themselves. the truthfulness and quality of firms ’ financial reports and the other information they disclose to the public are fundamental. the system of internal and external corporate controls must be strengthened. we look upon the work of parliament to improve and supplement the system of controls in the light of recent events with confidence and respect. the unitary oversight of the credit function must not be impaired. the independence of the institutions responsible for controls is of fundamental importance. drawing on the experience of the most advanced financial systems, the instruments of intervention must be strengthened and more resources made available so that the supervisory authority for companies and the stock exchange can take timely action to limit the frequency, magnitude and effects of corporate failures. a large share of national savings is entrusted by citizens to the state. the security of the savings entrusted to the public sector is fully guaranteed by the state ’ s power to levy taxes. however, too high a level of public debt adversely affects the financing available for firms and for investment. by limiting growth, it prevents the formation of new savings. in the current situation of the italian economy, it is essential to reduce the public debt in relation to gdp. the prospect of closer economic policy coordination within the government will increase the efficacy of measures ; it can favour more effective action on the public finances. the recovery of the world economy also offers italy an opportunity to overcome the present phase of uncertainty. capitalizing on the resources of enterprise, labour and technology that it commands or can command, the italian economy must make a concrete start on structural action, the reforms needed for faster growth.

disadvantages the vulnerable groups with low bargaining power such as pensioners, housewives, students etc. it generates social disharmony and social tensions. • inflation also raises the costs of local enterprises by raising the prices of inputs and wages. this would adversely affect a country ’ s comparative advantage. • similarly, inflation also puts further pressure on the government budget by raising current expenditure due to increases in the prices of inputs and the salaries of employees. it also causes the revenue to fall behind the increases in the national income. therefore, the use of inflation as a measure for funding government budgets is not an advisable strategy for any government. this was very cogently expressed by dr. goh keng swee, economic pundit behind singapore ’ s economic miracle, in his reminiscences of why singapore chose to retain the currency board system, as follows : “ financing budget deficits through central bank credit creation appeared to us as an invitation to disaster. there was no effective way of exchange control in an open trading economy like ours to deal with inevitable balance of payments troubles. … … the way to better life was through hard work, first in schools, then in universities or polytechnics and then on the job in the work place. diligence, education and skills will create wealth, not central bank credit. ” there is no better explanation of the evils of inflation tax than the above statement of wisdom. countries which did not have this wisdom fell through the line and were gripped by uncontrollable hyper - inflation in their economies. the most recent example is zimbabwe where inflation presently runs at mo re than 3700 % p. a. its central bank governor, mr. gideon gono, recently lamented by equating his country ’ s hyper - inflation to an economic hiv, an epidemic that would kill people on a mass scale. hence, using inflation to fund budgets is just like getting a demon to work for you.