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How Matteo Salvini could blow up the eurozone

A curious thing happened in the Italian parliament last week. The chamber of deputies voted unanimously in favour of a motion to introduce a parallel currency in Italy — the so-called mini-BOTs. It was a non-binding motion. 

[...]

Mini-BOTs would look like real money. Their denominations would be the same as euro notes. Depending on how they are designed, Italians could even pay their taxes with them. For this reason they would stand a good chance of becoming an accepted means of payment. Mario Draghi, the European Central Bank president, gave his view last week: “Mini-BOTs are either money and then they are illegal, or they are debt and then the stock of debt goes up. I don’t think there is a third possibility.” 

[...]

In Brussels, meanwhile, the European Commission has triggered the early stages of what is known as an excessive deficit procedure against Italy. It is the first of a number of steps that could eventually end up in a financial penalty. The commission’s complaint relates to the 2018 rise in Italy’s debt to gross domestic product ratio.

It is possible that EU finance ministers will put the procedure on ice. But the stand-off is almost certain to recur in the autumn when Italy is due to present its 2020 budget. Mr Salvini is insisting on big income tax cuts that could push up the fiscal deficit by another 1 or 2 percentage points.

[...]

From an EU standpoint, mini-BOTs are more than just an instrument of fiscal irresponsibility. They would take the confrontation between Rome and Brussels to a new level. The eurozone would lose its cohesion if member states started to issue their own money — however fake it may be. After all, mini-BOTs were originally designed by Italian Eurosceptics for that very reason.

The EU should also tread with caution. There is a strong case not to proceed with an excessive deficit procedure right now and to wait until the autumn. The danger is that the more Mr Salvini is politically cornered, the more likely he is to resort to this instrument. When he does, the eurozone crisis will return. And the ECB may not be able to come to the rescue this time.

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