MNI EXCLUSIVE: Italy Works On Mini-BOTs Despite Denial

By Silvia Marchetti and David Thomas

     ROME/BRUSSELS(MNI) - While Italy's Treasury has denied the existence of any

preparations to pay debts with small-denomination bonds, sources within both

ruling parties say a draft plan for so-called "mini-BOTs," which could raise

concerns over the establishment of a parallel currency, could be ready before

parliament closes for its summer break.

     Mini-BOTs, named after the country's Treasury bills, would have no

maturity, pay no interest and could be provided in compensation for tax credits

and for debts to government suppliers. They could then be used not only as

payment for taxes, but also potentially for goods and services, sources at the

governing coalition's League party and Five-Stars Movement told MNI.

     A final version of a mini-BOT plan could be prepared by September, when the

government will lay out its next budget, they said. Even without mini-BOTs, this

timing would be likely to coincide with a renewed clash with the European

Commission, which said on Thursday that Italy warranted a debt-based Excessive

Deficit Procedure, something which could eventually lead to fines.

     Mini-BOTs were included in the coalition parties' election programme, but

talk of them resurfaced last week when Italy's lower house of parliament passed

a unanimous motion encouraging the government to use the instruments.

     --TREASURY INVOLVED

     A source with links to the 5-Stars Movement said that, despite a government

statement on Friday denying any plans or need for mini-BOTs, the Treasury was

actively involved in talks on the matter.

     "There are several options on the table which are currently being discussed

between our co-governing parties and the Treasury," the source said. "One would

be mini-BOTs, but other instruments are also being weighed to securitise tax

credits and bonuses owed to families and firms, such as targeted vouchers and

coupons."

     Italy's government could save roughly E12 billion if it uses mini-BOTs and

vouchers to pay fiscal deductions, sources at the League and Five-Stars said.

Italy's Treasury is reviewing tax expenditures with the goal of saving more than

E8 billion over the next few years.

     "We will not be forcing mini-BOTs on anyone and this is by no means an

attempt to introduce a parallel currency but a way to reduce Italy's public debt

stock," said the League official. "The state would be paying off each portion of

what it owes creditors - be it firms, suppliers or taxpayers - in an

appropriate, more speedy and efficient way."

     Carlo Cottarelli, a leading economist and former IMF official who was

briefly prime minister designate in 2018, told MNI it was uncertain whether the

government would actually move ahead with mini-BOTs, although he noted that

League officials had stopped saying that use of the instruments could prepare

the way for exiting the euro.

     "Psychologically, mini-BOTs are not a good signal to the markets. I'm not

quite sure about the legal aspects with regard to whether they infringe European

Union treaties, but those same people who support this initiative have clearly

said in the past that mini-BOTs would help pave the way to a parallel currency,"

said Cottarelli, director of the Public Accounts Observatory at Milan's Catholic

University.

     --TROUBLE WITH BRUSSELS

     A source at the opposition centre-left Democratic Party also told MNI he

doubted mini-BOTs would see the light of day, although he added that if they

did, it would immediately cause trouble with Brussels.

     "For the EU, mini-BOTs would be seen as additional, ordinary debt

instruments, just like BOTs. And they would add to the debt, so not good."

     A European Commission spokesperson said the EC had taken note of the

Italian parliament's motion.

     "We also take note [of] the statement of the Italian Ministry of Finance

that there is no need for, nor any ongoing initiative to, introduce special

financing measures, including the issuance of certain forms of government bonds,

to address the issue of late payments by the Italian public administration," the

spokesperson said.

     An official at the European Central Bank was similarly dismissive of the

idea, noting that mini-BOTs would be illegal under EU law were they to be made

legal tender.

     "On the legal side, it depends on the construction," the ECB official said.

     But the 5-Stars source said using mini-BOTs to pay tax credits could reduce

litigation.

     "We want to make it easier for taxpayers and VAT holders to recover what is

owed to them by the state when they make their tax declaration statements at the

end of each year," the source said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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