The ECB is alarmed. The euro is the glue which holds the EU together. If the euro fails, so could the European Union.


Working as a student many years ago, along with the cash in my pay envelope I received some paper vouchers which I could exchange for a lunch in the staff canteen. These “luncheon vouchers” could only be used in that canteen, but were still valuable to me and I considered them an important part of the reward for my work. Memories of those distant times flooded back recently when holidaying in Italy I noticed that the people were using luncheon vouchers not only in restaurants and bars, but also when purchasing groceries in shops. The vouchers appeared to be a parallel currency to the euro in times of Italian economic difficulties.

Italy’s economy has long been the concern of the European Central Bank (ECB) because of its enormous national debt, $2.6 trillion, more than 130% of its GDP. Conventional economics demands that this must be brought under control, usually by some form of austerity. To the ire of the EU, the Italian government is doing exactly the opposite by producing expansionary budget plans of expanding welfare and cutting taxes.

Italy’s leaders have been on a collision course with the EU since taking power in 2018, claiming that the bloc’s technocratic rules have caused economic malaise and blaming the EU-inspired austerity for the country’s double-dip recession after the 2008 financial crisis. Since then, Italy’s economy has trudged along, averaging under 1%, well behind most other European economies. Particularly worrying to the government is its youth employment, which tops 30%, exceeded only by Greece and Spain. Rome wants more spending, which it says will boost growth, productivity and employment, which in turn will ease the servicing of debt in the years ahead.

Meanwhile, the government’s borrowing costs are rising. Government bond yields have nearly doubled in the past year, rising to their highest level for four years. Investors are viewing Italy as an increasingly risky bet. The ECB is alarmed. With a GDP of nearly $2 trillion, Italy is the EU’s third biggest economy and there are simply not enough funds to bail it out. Italy is too big to fail.

All this when, yet again, Italian politics is in disarray and the 66th government since World War II is on the point of collapse. The coalition partners Lega, led by Matteo Salvini, and the 5-Star Movement (M5S), led by Luigi Di Maio, are in constant disagreement. Claudio Borghi, the economics chief of the far-right Lega and a long-standing Eurosceptic, who campaigns for Italy to leave the single currency, has proposed a radical solution to untie this Gordian knot of debt; the minibot.

Similar to luncheon vouchers, minibots are non-interest-bearing tradeable securities. Billions would be printed by the Italian government, which could then be used by recipients to pay taxes and buy any service or goods provided by the state including, for example, petrol at stations run by the state-controlled oil company. Initially they would be used only domestically and would not be traded on international financial markets. According to Borghi, they would quickly become accepted more widely and used as a form of money to be “spent anywhere to buy anything”! Supporters of the idea claim that minibots will give a major boost to the country’s sluggish economy.

Unsurprisingly, the ECB thinks differently and is greatly alarmed by Borghi’s proposal, which it claims will simply add to Italy’s debt. Besides, it says, minibots breach EU rules, giving the ECB exclusive power to issue currency in the euro zone, the only legal tender. This is disputed by Borghi’s supporters, who argue that minibots are not new debt but simply the securitisation of debt that already exists. Regarding “legal tender”, they say that this is defined as a currency that sellers are obliged to accept. If there is no obligation, minibots do not infringe any EU treaties.

At the heart of this argument, which could be protracted, is the issue of the very existence of the euro as a common currency. Borghi is openly hostile to the euro and says it is only a matter of time before it collapses. Many economists agree. Some are suspicious that this is Italy’s first step to leave the euro currency and return to the lira. If this happens it would cause massive losses to investors across Europe, potentially triggering another financial crisis. The euro is the glue which holds the EU together. If the euro fails, so could the European Union.

India would not be immune to any fallout. Figures from the EU Commission show that the EU is India’s largest trading partner, accounting for 92 billion euros worth of trade in goods in 2018, or 12.9% of total Indian trade. The EU is the leading destination for Indian exports, almost 18% of the total. Trade in goods between India and the EU increased by 72% in the last decade and some 6,000 EU companies are operating in India, providing directly 1.7 million and indirectly more than 5 million jobs in a broad range of sectors.

Events are moving fast. Last week, Italy’s government passed a decree in Parliament authorising the creation of the minibot parallel payment system. In retaliation, the EU Commission on Wednesday threatened a fine on Italy of as much as 3.5 billion euros, which would cause another twist in Italy’s debt spiral.

Never before has the humble luncheon voucher been at the centre of economic warfare!

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