Daily Management Review

Will Italy issue its own currency?


The idea of creating a national currency and exit from the euro zone has been discussed in Italy for several years, but now it has again attracted much attention. This is taking place against the background of the controversy of the country’s Euro-skeptic government with Brussels over observance of EU budget rules.

In late May, the ruling party Northern League proposed issuing so-called mini Bills of Treasury, or mini-BOT (Buoni Ordinari del Tesoro). The government would use them to pay off debt obligations to companies, and citizens - to pay taxes. Parliament approved this proposal; however, it was only a reference vote.

Implementation of such a proposal could actually give birth to a second currency in Italy, writes Financial Times (FT).

The idea has not yet been worked out in detail, but Tommaso Monacelli, a professor of economics at Bocconi University, said that the nominal value of a mini-BOT can vary from €1 to 50. They will not have a maturity date and interest will not be paid.

This idea is being promoted by critics of Italy’s presence in the euro zone - Alberto Bagnai, chairman of the Senate Finance Committee, and Claudio Borghi, chairman of the budget committee of the lower house of parliament and economic adviser to the Northern League. A few years ago, Borghi offered to start issuing mini-BOTs for about €70 billion for people to pay for products and services of state-owned companies, such as gasoline at Eni gas stations, Reuters notes. Also, issuance of mini-BOTs was one of the pre-election promises of the Northern League in 2018, and the party included this proposal in an agreement to form a ruling coalition with the Five Star Movement.

However, this idea is unlikely to be implemented. “These are only proposals to the government and nothing more,” notes Monacelli of Bocconi University. Moreover, some deputies after reference voting (which usually does not end with the adoption of laws in Italy) admitted that they supported the proposal without even reading its content, writes FT. Shortly after the vote, the finance ministry announced that the government does not plan to issue mini-BOTs.

Even if the country issues mini-BOTs to make them legal means of payment, it will have to be supported by a corresponding law. However, some experts, in particular the former chief economist of the Ministry of Finance Lorenzo Codogno, warn that this will be a violation of the euro zone international treaty. “There’s no doubt that now nobody wants to make [mini-BOTs] a legal means of payment,” says Codogno. “But, being released, they may become it in the future.”

Meanwhile, the European Commission on Wednesday warned Italy that it did not fulfill the agreed targets for reducing government spending. Because of this, it will be difficult for the country to reduce public debt, which in 2018 reached 132% of GDP. Brussels also warned that Rome this year could violate the EU rule, according to which the budget deficit should not exceed 3% of GDP. If the situation does not improve, the EC may begin a formal procedure of sanctions in July, involving fines for violating these rules, writes FT.

source: ft.com, reuters.com