dott. fazio examines the progress of the italian economy in terms of stability and recovery address by the governor of the bank of italy, dott. antonio fazio, at the annual meeting of aiote / assobat / atic / forex held in milan on 25 / 1 / 97. yesterday the effective exchange rate of the lira was 5 per cent higher than in december 1994. compared with the low point reached in the march 1995 currency crisis, the lira has appreciated by 25 per cent. to find a period in which the lira recovered to such an extent and so fast, it is necessary to go back fifty years to 1947. inflation, measured on the basis of the cost - of - living index, fell to less than 4 per cent on average in 1996 ; between june and december it was around 2 per cent on an annual basis. according to preliminary figures, inflation in january of this year was less than 2 per cent. the net external position of the bank of italy, excluding gold reserves, improved from $ 28 billion at 31 december 1993 to $ 45 billion at the end of last year. in 1994 purchases of foreign currency in the market, primarily in the first half of the year, amounted to $ 7 billion ; in 1995 there were net sales totalling $ 7 billion. in 1996 purchases were renewed, at an accelerating pace from march onwards. yesterday the foreign currency reserves of the bank of italy and the uic amounted to $ 35 billion, after using $ 21 billion to repurchase official ecus and redeem foreign currency swaps and other short - term liabilities. foreign exchange interventions have been carried out in such a way as to avoid interrupting the appreciation of the lira. between 1 march and 22 november 1996 the effective exchange rate rose by 4. 7 per cent ; the lire needed to buy one german mark decreased from 1, 056 to 998. the lira ’ s re - entry in the european exchange rate mechanism on 25 november 1996 was at the central rate of 990 against the mark and 1, 906 against the ecu. the new rate corresponds to a depreciation of 19 per cent compared with that obtaining before the september 1992 currency crisis. the lira re - entered the erm after the performance of the economy and an appropriate combination of policies had re - equilibrated italy ’ s external position, brought a sharp slowdown in inflation and improved the outlook for the public finances. the surplus

, if it were permanent and extended to the entire yield curve, would largely compensate for the restrictive effects of the budget package. the government has also introduced measures to sustain economic growth, such as a tax allowance for corporate equity, the deductibility of the portion of irap relating to labour costs, provisions to foster competition and measures for infrastructure investment. action must proceed with wide - ranging measures that gradually bring the economy up to a higher and better balanced growth path. it is crucial to establish a clear and credible comprehensive framework within which to place individual measures. this programme must comprise both the measures already specified and those to be designed starting today. it must apply both to the measures that can be taken in the short term and to those that will require more time. a comprehensive approach to the design of pro - growth measures can bolster confidence in the prospects for our economy, with beneficial effects on investment and the cost of the public debt. the measures – as we know – must aim to reduce administrative costs and the length of judicial proceedings ; improve the efficacy of regulation and stimulate competition ; raise the quality of public services and obtain better terms for infrastructure projects, including by means of resolute action on the legality front ; they must also remove the obstacles to the growth of firms ’ size, enhance the formation of human capital, facilitate innovation and improve the working of the labour market. bis central bankers ’ speeches appendix : summary of the decree law ’ s main provisions a. 1 measures that increase revenue the decree produces increased revenue of €25. 5 billion in 2012, €24. 6 billion in 2013 and €24. 1 billion in 2014. most of the increase comes from the taxation of real estate and excise duties. other measures increase the taxation of assets other than real estate. further provisions are designed to strengthen the fight against tax evasion. taxation of real estate. – the decree brings forward the entry into force of the own municipal tax ( imp ), instituted by the legislative decree on municipal federalism, from 2014 to 2012 and modifies the related tax base significantly. the latter now includes first homes and is calculated by applying higher adjustment factors to upwardly revised cadastral income than those previously in force for the municipal property tax ( ici ), especially for residential buildings. as already provided by the march legislative decree for the implementation of municipal federalism, the new tax supersedes ici and personal income tax ( plus the related surtaxes ) on imputed income from