[Economics] #MiniBOT, #Italy - The Resistance against the Euro comes from the Right not the Left anymore 2019-06-19
If Italy would leave the euro currency then the current dispute will be regarded as a watershed moment.
Currently the Italian government is working on so-called MiniBOTs.
MiniBOTs will work like a means of payment and are seen by some as the beginning of Italy's exit from the euro.
In order to achieve an economic recovery it is essential that local goods and services are consumed respectively that money is spent. For this a government can either raise taxes for example for high and very high incomes and redistribute. Or a government can borrow money to finance government spending and either sell the government bonds to local credit institutions to make their population the creditors or sell the government bonds to the central bank to make the state itself the creditor.
However the prevailing doctrine within the EU, however, provides for a cut in public budget policy and a reduction in sovereign debt (austerity). But this continues to promote the economic downward spiral in Italy.
Euro Currency
In addition the ECB supports companies that lack competitiveness with its zero interest rate policy and the purchase of stocks. This is what many critics call zombification of the economy or monetary socialism. Both also mean that there is no guarantee that higher government spending will ultimately remain in Italy and not go to other euro countries. [4] [5]
The EU Commission, the ECB and the German press are in agreement. On the one hand, Italy's government must exemplary and well-behaved reduces its public debt. On the other hand both of them reject the budgetary law of the Italian Government. The latter is likely to meet enormous resistance in Italy and inevitably raises the question of whether they are not the true gravediggers of the EU. [6] [7] [8]
The idea is not new. In 2009 similar government bonds were issued in California under Arnold Schwarzenegger (Republican). Schwarzenegger (Republican) was forced to spend so-called IOUs (I owe you) on creditors and suppliers due to a budget freeze. The IOUs should also serve only to pay tax debts but quickly started to circulate as a parallel currency. The IOUs were ended after a few weeks as a result of the agreement in the budget dispute. [11] [12]
Interestingly the uprising against the EU and the Euro comes from the right leg and not from the left anymore. The Lega will be able to enforce its project in the long term but probably only with the Movimento 5 Stelle. However should the Lega withdraw their plan then both parties Lega and Movimento 5 Stelle would crash in the elections. [9] [10]
Then there is the plan to introduce a flat-tax of 15% for incomes below 50,000 Euros a year. Above all this plan would be a relieve to lower and middle incomes. The Italian government is probably expecting that this would trigger a positive economic stimulus. In any case such demands are popular among the population. But this plan would cost around 30 billion euros and these could come from the MiniBOTs. [12] [13]
Prior to the current EU dispute with Italy Alexis Tsipras (Syriza) left-leaning Prime Minister of Greece dared to argue with the EU. On June 27, 2015 a referendum took place under Tsipras (Syriza) about the austerity measures imposed by the Troika (EU Commission, ECB and IMF). Although 61% of voters voted against austerity measures and 39% voted in favor of austerity measures with a turnout of 62% the government of Tsipras (Syriza) has implemented austerity measures anyway. In addition the Greek Minister of Finance Yanis Varoufakis was dismissed in July 2015. [18] [19] [20]
The then Finance Minister Varoufakis worked in his term in secret on plans for a parallel currency in order to maintain the payment system in case of a withdrawal from the Euro. According to Varoufakis it was always about strengthening the position of the Greek government in the negotiations with the EU. A parallel currency was not introduced in Greece and any resistance to the austerity measures was dismissed along with Varoufakis. [21] [22]
On the basis of the treatment of the Greek government and Yanis Varoufakis the risks of both sides can be shown. If MiniBOTs are introduced then they can succeed and cause Italy to exit the euro in the long term and if Italy leaves the euro other countries with the same problems could follow the example of Italy. On the EU side however the ECB could restrict or completely suspend refinancing for local credit institutions. So the EU has an interest against MiniBOTs and as long as MiniBOTs are not a common currency the EU has the leverage. Ant european Central Bank (ECB) President Mario Draghi called MiniBOTs either illegal or useless. [23] [24]
[1] What is the trade balance for Italy? (1995-2017)
https://atlas.media.mit.edu/en/visualize/line/hs92/show/ita/all/all/1995.2017/
[2] Where does Italy import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/ita/show/all/2017/
[3] Where does Germany export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/deu/show/all/2017/
[4] WIRTSCHAFT, HANDEL & FINANZEN - ROUNDUP/Aktien Europa Schluss: Die EZB enttäuscht die Anleger 2019-06-06
https://www.handelsblatt.com/dpa/wirtschaft-handel-und-finanzen-roundup-aktien-europa-schluss-die-ezb-enttaeuscht-die-anleger/24433098.html
[5] ROUNDUP/Aktien Europa Schluss: Die EZB enttäuscht die Anleger 2019-06-06
https://www.t-online.de/finanzen/boerse/id_51922248/isin_48263291/roundup-aktien-europa-schluss-die-ezb-enttaeuscht-die-anleger.html
[6] Italien : Angriff der Mini-Monster 2019-06-05
https://www.zeit.de/2019/24/italien-staatsanleihen-mini-bots-waehrungsunion-ausstieg-euro-staatsschulden
[7] Kraftspiele zwischen Italien und EU - Salvini muss sich vorsehen 2019-06-08
https://www.deutschlandfunk.de/kraftspiele-zwischen-italien-und-eu-salvini-muss-sich.720.de.html?dram:article_id=450926
[8] MINI-BOTS : Ein Gespenst aus Rom 2019-06-10
https://www.faz.net/aktuell/finanzen/finanzmarkt/kommentar-zu-den-mini-bots-ein-gespenst-aus-rom-16230050.html
[9] Euro-Austritt durch die Hintertür in Italien? 2019-06-03
https://www.luzernerzeitung.ch/international/matteo-salvini-riskiert-euro-austritt-italiens-ld.1124231
[10] GELDPOLITIK - Bekommt Italien mit sogenannten „Mini-Bots“ eine Parallelwährung? 2019-06-05
https://www.handelsblatt.com/politik/international/geldpolitik-bekommt-italien-mit-sogenannten-mini-bots-eine-parallelwaehrung/24422170.html
[11] Schuldscheine für Gläubiger, Urlaub für Beamte 2009-07-02
https://www.welt.de/politik/article4046078/Schuldscheine-fuer-Glaeubiger-Urlaub-fuer-Beamte.html
[12] Quicktake - Why Investors Flinch Over Italy’s Mini-Bills Plan 2019-06-10
https://www.bloomberg.com/news/articles/2019-06-10/why-investors-flinch-over-italy-s-mini-bills-plan-quicktake
[13] Economics - The Ink Is Almost Dry on Italy’s 15% Flat Tax Rate 2018-05-14
https://www.bloomberg.com/news/articles/2018-05-14/italy-populists-go-all-in-on-pricey-vows-preparing-to-take-power
[14] EU election results: Italy's League wins more than a third of vote 2019-05-27
https://www.thelocal.it/20190527/italy-european-election-resullts 2019-05-27
[15] Salvini's far-right party tops Italy's EU election polls
https://www.theguardian.com/politics/2019/may/27/matteo-salvini-far-right-league-party-tops-italy-eu-election-polls
[16] Kommission schickte Italien Mahnbrief wegen Defizit 2019-05-29
https://orf.at/stories/3125040/
[17] Krisentreffen - Italiens Regierung will EU-Defizitverfahren abwenden - auch Salvini 2019-06-11
https://www.spiegel.de/wirtschaft/soziales/italien-krisentreffen-mit-salvini-koalition-will-eu-defizitverfahren-abwenden-a-1271747.html
[18] Greece debt crisis: Tsipras announces bailout referendum 2015-06-27
https://www.bbc.co.uk/news/world-europe-33296839
[19] Greek MPs approve referendum as lenders see difficulties ahead 2015-06-28
http://www.ekathimerini.com/198467/article/ekathimerini/news/greek-mps-approve-referendum-as-lenders-see-difficulties-ahead
[20] Referendum divides coalition partner 2015-07-02
http://www.ekathimerini.com/198863/article/ekathimerini/news/referendum-divides-coalition-partner
[21] PARALLELWÄHRUNG : Kommt in Griechenland jetzt der Geuro? 2015-05-19
https://www.faz.net/aktuell/wirtschaft/konjunktur/griechenland/thomas-mayer-interview-zu-varoufakis-die-parallelwaehrung-13596404.html?printPagedArticle=true#pageIndex_0
[22] Ex-Finanzminister Varoufakis im stern - "Ich dachte an die Einführung einer Parallelwährung in Griechenland" 2015-07-29
https://www.stern.de/sonst/vorabmeldungen/ex-finanzminister-varoufakis-im-stern--ich-dachte-an-die-einfuehrung-einer-parallelwaehrung-in-griechenland-6362560.html
[23] GELDPOLITIK - Draghi kritisiert Italiens Plan zum Schuldenabbau – „Mini-Bots“ seien illegal 2019-06-06
https://www.handelsblatt.com/politik/international/geldpolitik-draghi-kritisiert-italiens-plan-zum-schuldenabbau-mini-bots-seien-illegal/24433694.html
[24] European Central Bank: Draghi: 'Minibots' 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. 2019-06-06
https://twitter.com/ecb/status/1136618501639155713
- What problems does Italy have and which not
- What MiniBOTs are and what they are not
- The Conflict with the EU
What problems does Italy have and which not
Politicians, journalists and economists who appear in public seem to agree that the problem of the Italian economy is solely its public debt and that this can only be solved if the Italian government exemplary and well-behaved reduces its public debt. In fact Italy has a public-debt of over 130% relative to its gross domestic product although EU rules only allow a maximum of 60%. And economic growth as in most EU Member States with the euro very low.In order to achieve an economic recovery it is essential that local goods and services are consumed respectively that money is spent. For this a government can either raise taxes for example for high and very high incomes and redistribute. Or a government can borrow money to finance government spending and either sell the government bonds to local credit institutions to make their population the creditors or sell the government bonds to the central bank to make the state itself the creditor.
However the prevailing doctrine within the EU, however, provides for a cut in public budget policy and a reduction in sovereign debt (austerity). But this continues to promote the economic downward spiral in Italy.
- Austerity in theory:
- Austerity
- Confidence of the markets is growing
- Increase in investments
- Economic upswing
- Declining unemployment
- Declining budget deficits
- Declining interest rates
- Austerity in reality:
- Austerity
- Declining demand
- Increase in unemployment
- Economic recession
- The savings goals are missed
- Increasing budget deficit
- Increasing interest rates
Euro Currency
In addition the ECB supports companies that lack competitiveness with its zero interest rate policy and the purchase of stocks. This is what many critics call zombification of the economy or monetary socialism. Both also mean that there is no guarantee that higher government spending will ultimately remain in Italy and not go to other euro countries. [4] [5]
The EU Commission, the ECB and the German press are in agreement. On the one hand, Italy's government must exemplary and well-behaved reduces its public debt. On the other hand both of them reject the budgetary law of the Italian Government. The latter is likely to meet enormous resistance in Italy and inevitably raises the question of whether they are not the true gravediggers of the EU. [6] [7] [8]
What MiniBOTs are and what they are not
On May 28, 2019 the Italian Parliament passed a proposal allowing the government to settle the debts of the Italian State with the local companies by so-called MiniBOTs in small denominations. In addition Italians should be able to settle their tax debts with MiniBOTs. The first criticism was received after the Italian Social Democrats (Partito Democratico/PD) voted in favor of it claiming afterwards that this section had been smuggled in by the Lega only at the last minute. BOT is the abbreviation for "Buoni Ordinari del Tesoro" (treasury note) and are government bonds of the Italian state denominated in Euro which have neither a yield nor a maturity. The face value of the MiniBOTs is 100 euros or even lower which is why they could quickly be used as a comprehensive means of payment. [9] [10]The idea is not new. In 2009 similar government bonds were issued in California under Arnold Schwarzenegger (Republican). Schwarzenegger (Republican) was forced to spend so-called IOUs (I owe you) on creditors and suppliers due to a budget freeze. The IOUs should also serve only to pay tax debts but quickly started to circulate as a parallel currency. The IOUs were ended after a few weeks as a result of the agreement in the budget dispute. [11] [12]
Interestingly the uprising against the EU and the Euro comes from the right leg and not from the left anymore. The Lega will be able to enforce its project in the long term but probably only with the Movimento 5 Stelle. However should the Lega withdraw their plan then both parties Lega and Movimento 5 Stelle would crash in the elections. [9] [10]
Then there is the plan to introduce a flat-tax of 15% for incomes below 50,000 Euros a year. Above all this plan would be a relieve to lower and middle incomes. The Italian government is probably expecting that this would trigger a positive economic stimulus. In any case such demands are popular among the population. But this plan would cost around 30 billion euros and these could come from the MiniBOTs. [12] [13]
The Conflict with the EU
The Central Conflict however is between the Lega, which has emerged strengthened from the EU election and the EU which insists on its rules. [14] [15] The Italian Interior Minister Matteo Salvini (Lega) stated already after the EU election that he wants to renegotiate the EU budget rules. And the European Commission expects Italy to reach a new deficit of 2.5% in 2019 instead of the agreed 2.04%. [16] [17] MiniBOTs that would pay to settle tax debts are therefore a provocation to the EU. On top of that the EU is approving every state budget of the Euro member states and in the current climate one can predict a coming conflict even without prophetic abilities.Prior to the current EU dispute with Italy Alexis Tsipras (Syriza) left-leaning Prime Minister of Greece dared to argue with the EU. On June 27, 2015 a referendum took place under Tsipras (Syriza) about the austerity measures imposed by the Troika (EU Commission, ECB and IMF). Although 61% of voters voted against austerity measures and 39% voted in favor of austerity measures with a turnout of 62% the government of Tsipras (Syriza) has implemented austerity measures anyway. In addition the Greek Minister of Finance Yanis Varoufakis was dismissed in July 2015. [18] [19] [20]
The then Finance Minister Varoufakis worked in his term in secret on plans for a parallel currency in order to maintain the payment system in case of a withdrawal from the Euro. According to Varoufakis it was always about strengthening the position of the Greek government in the negotiations with the EU. A parallel currency was not introduced in Greece and any resistance to the austerity measures was dismissed along with Varoufakis. [21] [22]
On the basis of the treatment of the Greek government and Yanis Varoufakis the risks of both sides can be shown. If MiniBOTs are introduced then they can succeed and cause Italy to exit the euro in the long term and if Italy leaves the euro other countries with the same problems could follow the example of Italy. On the EU side however the ECB could restrict or completely suspend refinancing for local credit institutions. So the EU has an interest against MiniBOTs and as long as MiniBOTs are not a common currency the EU has the leverage. Ant european Central Bank (ECB) President Mario Draghi called MiniBOTs either illegal or useless. [23] [24]
MiniBOTs can be quite useful, but they are only means of payment but not money only until the Italian government makes it mandatory to accept them. And the possibilities of the EU and the ECB to go against Italy because of the MiniBOTs are also reasons for MiniBOTs. If the ECB would sanction the Italian banking system then MiniBOTs would be a suitable alternative at least for the local economy even if Italy could theoretically be excluded from the Eurozone.Draghi: 'Minibots' 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.
— European Central Bank (@ecb) June 6, 2019
[1] What is the trade balance for Italy? (1995-2017)
https://atlas.media.mit.edu/en/visualize/line/hs92/show/ita/all/all/1995.2017/
[2] Where does Italy import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/ita/show/all/2017/
[3] Where does Germany export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/deu/show/all/2017/
[4] WIRTSCHAFT, HANDEL & FINANZEN - ROUNDUP/Aktien Europa Schluss: Die EZB enttäuscht die Anleger 2019-06-06
https://www.handelsblatt.com/dpa/wirtschaft-handel-und-finanzen-roundup-aktien-europa-schluss-die-ezb-enttaeuscht-die-anleger/24433098.html
[5] ROUNDUP/Aktien Europa Schluss: Die EZB enttäuscht die Anleger 2019-06-06
https://www.t-online.de/finanzen/boerse/id_51922248/isin_48263291/roundup-aktien-europa-schluss-die-ezb-enttaeuscht-die-anleger.html
[6] Italien : Angriff der Mini-Monster 2019-06-05
https://www.zeit.de/2019/24/italien-staatsanleihen-mini-bots-waehrungsunion-ausstieg-euro-staatsschulden
[7] Kraftspiele zwischen Italien und EU - Salvini muss sich vorsehen 2019-06-08
https://www.deutschlandfunk.de/kraftspiele-zwischen-italien-und-eu-salvini-muss-sich.720.de.html?dram:article_id=450926
[8] MINI-BOTS : Ein Gespenst aus Rom 2019-06-10
https://www.faz.net/aktuell/finanzen/finanzmarkt/kommentar-zu-den-mini-bots-ein-gespenst-aus-rom-16230050.html
[9] Euro-Austritt durch die Hintertür in Italien? 2019-06-03
https://www.luzernerzeitung.ch/international/matteo-salvini-riskiert-euro-austritt-italiens-ld.1124231
[10] GELDPOLITIK - Bekommt Italien mit sogenannten „Mini-Bots“ eine Parallelwährung? 2019-06-05
https://www.handelsblatt.com/politik/international/geldpolitik-bekommt-italien-mit-sogenannten-mini-bots-eine-parallelwaehrung/24422170.html
[11] Schuldscheine für Gläubiger, Urlaub für Beamte 2009-07-02
https://www.welt.de/politik/article4046078/Schuldscheine-fuer-Glaeubiger-Urlaub-fuer-Beamte.html
[12] Quicktake - Why Investors Flinch Over Italy’s Mini-Bills Plan 2019-06-10
https://www.bloomberg.com/news/articles/2019-06-10/why-investors-flinch-over-italy-s-mini-bills-plan-quicktake
[13] Economics - The Ink Is Almost Dry on Italy’s 15% Flat Tax Rate 2018-05-14
https://www.bloomberg.com/news/articles/2018-05-14/italy-populists-go-all-in-on-pricey-vows-preparing-to-take-power
[14] EU election results: Italy's League wins more than a third of vote 2019-05-27
https://www.thelocal.it/20190527/italy-european-election-resullts 2019-05-27
[15] Salvini's far-right party tops Italy's EU election polls
https://www.theguardian.com/politics/2019/may/27/matteo-salvini-far-right-league-party-tops-italy-eu-election-polls
[16] Kommission schickte Italien Mahnbrief wegen Defizit 2019-05-29
https://orf.at/stories/3125040/
[17] Krisentreffen - Italiens Regierung will EU-Defizitverfahren abwenden - auch Salvini 2019-06-11
https://www.spiegel.de/wirtschaft/soziales/italien-krisentreffen-mit-salvini-koalition-will-eu-defizitverfahren-abwenden-a-1271747.html
[18] Greece debt crisis: Tsipras announces bailout referendum 2015-06-27
https://www.bbc.co.uk/news/world-europe-33296839
[19] Greek MPs approve referendum as lenders see difficulties ahead 2015-06-28
http://www.ekathimerini.com/198467/article/ekathimerini/news/greek-mps-approve-referendum-as-lenders-see-difficulties-ahead
[20] Referendum divides coalition partner 2015-07-02
http://www.ekathimerini.com/198863/article/ekathimerini/news/referendum-divides-coalition-partner
[21] PARALLELWÄHRUNG : Kommt in Griechenland jetzt der Geuro? 2015-05-19
https://www.faz.net/aktuell/wirtschaft/konjunktur/griechenland/thomas-mayer-interview-zu-varoufakis-die-parallelwaehrung-13596404.html?printPagedArticle=true#pageIndex_0
[22] Ex-Finanzminister Varoufakis im stern - "Ich dachte an die Einführung einer Parallelwährung in Griechenland" 2015-07-29
https://www.stern.de/sonst/vorabmeldungen/ex-finanzminister-varoufakis-im-stern--ich-dachte-an-die-einfuehrung-einer-parallelwaehrung-in-griechenland-6362560.html
[23] GELDPOLITIK - Draghi kritisiert Italiens Plan zum Schuldenabbau – „Mini-Bots“ seien illegal 2019-06-06
https://www.handelsblatt.com/politik/international/geldpolitik-draghi-kritisiert-italiens-plan-zum-schuldenabbau-mini-bots-seien-illegal/24433694.html
[24] European Central Bank: Draghi: 'Minibots' 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. 2019-06-06
https://twitter.com/ecb/status/1136618501639155713
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