Key members of deputy prime minister Matteo Salvini’s Lega party have floated the possibility of a new domestic currency to help pay its debts. The plans have only been emphasised after the European Commission paved the way for an initial fine of up to £3billion on Wednesday. The EU’s Brussels-based executive warned the punishments were “warranted” because Italy had met the threshold for dislplincary action.
A Commission report found that Italy’s populist government had failed to make sufficient progress in the past year to reduce its debt.
The Commission said: “Italy’s large public debt is a major vulnerability for the Italian economy and decisively reducing it should remain a priority in the best interest of Italy.
“Italy’s public debt-to-GDP ratio, at 132.2 percent in 2018, is the second-largest in the union and one of the largest in the world.”
Influential economic figures in Rome’s Senate and the lower house of Italy’s parliament have pushed a so-called parallel currency.
Claudio Borghi, a senior economic advisor for League and a critic of Italy’s Eurozone membership, has championed the concept.
Alberto Bagnai, president of the finance committee in the Senate, has also shown support for the proposal.
Mr Borghi has said the plan for so-called “mini-bot treasury notes” are written into the Lega-Five Star Movement’s coalition “contract”.
He added: “It is a way to mobilise credit that is badly needed and put money into circulation.”
This would effectively create a new currency by circulating the short-term notes on the market market, making them a de facto new lira in waiting.
The euro would eventually be squeezed out and unravel as its replaces by the new currency.
There are no official proposals for the “mini-bots” but they featured as a key pledge in Lega’s election manifesto last year and the coalition agreement also pays homage to them.
A parliament vote last week passed a motion calling on the government to consider using “mini-bots” to ease its debts to suppliers.
Riccardo Puglisi, an economist at the University of Pavia, said the proposal was “a way to facilitate the exit of Italy from the eurozone”.
Marcello Messori, director of the school of European political economy at Luiss University, told the Financial Times: “The issue of mini-BOTs is a way to facilitate the creation of a double monetary circulation.”
But the move would likely put Italy on a coalition course with the EU, as such an arrangement would be in breach of the bloc’s treaties.
Lorenzo Codogno, a former chief economist at the Italian Treasury, said: “A legal tender can only be made by law, but this would contravene the treaty on the euro.”
He added: “No one wants it to be made legal tender now. there is no uncertainty about that.
“Still, once in circulation it could become legal tender in the future.”
The Italian Treasury has already rebuked the Parliament’s new currency concept.
A spokesman said: “There is no need, and no measures of any type are being considered – certainly not the issue of small-domination state bonds – to tackle any supposed delays in payments by public administration.”