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Mini-Bots: The New Italian Instrument That Causes Controversy In Europe

  • Posted by: ASG Capital

You can find this article on Funds Society website.

The Italian authorities are looking to launch the new mini-BOTs. What is this financial instrument? Why are European Central Bank (ECB) officials so upset by this monetary development?

Mini-BOTs are new Italian Government ‘I Owe You’ (IOU) issued in settlement for its outstanding expenditure contracted with the private sector, according to ASG Capital. These instruments will have legal tender status, can be exchanged between different private and public entities and used for payment of taxation. In sum, mini-BOTs would function as a local currency issued by the Italian government beyond the pale of the Euro system, outside the ECB’s monetary control.As ASG Capital points out in a recent analysis, naturally, European officials in Frankfurt and Brussels are not at all ‘amused’ by this monetary initiative coming from Rome. Faced with this new development, Jacques Sapir, French economist, describes how the ECB is standing between ‘a rock and a hard place’:

1. As it did with Greece, the ECB could apply funding pressure on the Italian banking sector for example, to make its government comply with Frankfurt’s monetary hegemony. However, there is a risk this policy could back fire. As Europe’s third largest economy and a fundamental keystone to the construction of the European project, Italy may use this kind of action as an excuse to extend a wider spread use of the mini-BOT, or ultimately leave the Union all together. In such circumstances, it is uncertain the Euro would even survive the exit of this important founding member.

2. On the other hand, the ECB could tolerate the issue of Mini BOTs as an exceptional monetary phenomenon. In this case, Frankfurt would be setting a precedent, which other nation member states may introduce in turn at some future date.

Ever since the launch of the Euro, Italy’s growth has been very weak. Its banking sector is subject to severe financial strain under the weight of significant non-performing loans. Rome has no choice but to do something….

If mini-BOTs are perceived as a potential ‘spanner in the works’ by successful northern member states, it could be considered as a cry for help from the Italian perspective. For the Eurozone to hold together and address its financial and economic imbalances, its banking sector needs to be cleaned up once and for all.

By moving pan Eurozone non-performing loans onto the ECB’s balance sheet for example, many of the region’s banking problems could be solved at the stroke of a ‘Quantitative Easing’ pen. This would be a far simpler way to manage the future of the single currency rather than watch a disorderly breakup of the Eurozone, because of the advent of the mini-BOT.


Column by Steven Groslin, Executive Board Member and Portfolio Manager at ASG Capital

Author: ASG Capital