Thread by @jeuasommenulle

Thread of the #MiniBOT saga. This will focus on technicalities – others like @SMerler or @LucioMM1 will be more useful if you try to understand the politics of this and the full implications.

First: what are MiniBOT exactly? Still vague ofc but the bulk of the idea is that they are small denomination bearer bonds used to pay the gvt's commercial debts and which can be used to pay taxes.

Every word in that definition is important as we’ll see below.

Biggest question everyone has is: is this a new illegal currency and does it mean Italy would be out of the Euro? Again, on the politics and ultimate goals of the proponents of MiniBOT, see above. But technically?

Art 119 TFUE is clear that the goal of the EU is to have a single currency, but not a legal obligation, obviously. This said, Italy’s currency is the Euro and that has legal consequences.

Most relevant one is Art 128 TFUE “The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union”. This is what could make MiniBOT illegal (if not issued within ESCB).

The fact that they are small denomination bearer bonds, i.e. with a physical reality, means they could be considered “notes”. And of course, they would “feel” like a currency. But what about legal tender?

This is where it gets tricky. The definition of legal tender is not harmonized in the EU and it’s in fact very different in various member states. In 2010 an EC expert focused worked on this, see report ec.europa.eu/economy_financ…

The main conclusion was that harmonization was necessary but also that in practice legal tender can mean different things in the EU.

Most interestingly it points out that an Italian Supreme court ruled against the legal tender status of certified cheques. (Cf. Judgment No. 6291 of 10th March 2008)

The key here is that “their acceptance has not been made universally mandatory so that they cannot benefit from legal tender status” – in other words if MiniBOT are not legally mandatorily accepted in transactions they are not legal tender.

The fact that you can pay taxes with them does not mean the baker has to accept them if you buy bread – so not legal tender in Italy (could be different in other EU countries ofc!) which means that imho #MiniBOT could be legal.

However the tax-paying gimmick is important to insure that the MiniBOT are not quickly worthless (but the logistics of paying VAT with bearer bonds is… interesting.)

What would the achieve, then? Italy can still raise cash easily in the markets, especially on the short term. Yields are even negative on the short-term real BOT.

Sure, the government could make money from lost MiniBOT etc, but they are also expensive to create. So all-in, I’m pretty sure MiniBOT won’t help Italy with cash or cost of funding.

I also hear that will help the government pay its supplier. This is both right and wrong. It’s wrong because Italy could pay suppliers by raising cash on the markets (cheaper than MiniBOT.)

But it’s right because one big reason Italy doesn’t pay its suppliers is a (bad) accounting one. See, the (badly written) rules on Excessive Deficit Procedure say that

“stock of government debt in the EDP is equal to the sum of liabilities [] in the following categories: AF.2 (currency and deposits) + AF.3 (debt securities) + AF.4 (loans)

Did you spot the BIG missing bit? Of course, it’s “Other accounts receivable/payable (F.8)”, which includes all debts to suppliers! (And pensions, but that’s another story.)

So, as long as you do not pay your suppliers with cash raised on the markets, you do not raise public debt for EDP. If you pay with some sort securitization instrument, than it might be considered debt or it might not.

Eurostat has a full documentation explaining in what case this should lead to increased debts or not. Italy will argue MiniBOT do not and if Eurostat rules the opposite it will be easy political points for Lega/M5S against the “Eurocrats”

However, important to point out is that MiniBOT will have 0 impact on deficit. Deficit in ESA2010 is 99% based on consumption, i.e. actually using the service, not paying it. So paying with MiniBOT, BOT or cash won’t change a cent of deficit.

Where does this lead us? I think MiniBOT are legal. But I also think they are useless: no financial gain, no gain on deficit and the gain on debt is possible but unlikely to be approved by Eurostat. So what’s the point?

I think (just my 2c) this is part of psychological warfare. Lega/M5S know it’s legal and know the rest of the EU hates it because it “feels” like money, “feels” like preparation to exit the Euro even if it’s nothing of the sort.

It’s a good threat to get whatever they really want to get. END/

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