Escalation in Italy: "Parallel currency as next step?"

The danger that Italy will soon introduce a parallel currency to the euro and thus provoke a new euro crisis is being severely underestimated. This is the assessment of the FERI Cognitive Finance Institute. "Italy's current budget dispute with the EU is part of a larger orchestration; this is being deliberately performed and escalated by the Italian government," says Dr. Heinz-Werner Rapp, founder and director of the institute. To give itself financial breathing room, but also as a possible precursor to leaving the euro, Italy could soon introduce a parallel currency. "This step would be extremely dangerous and could cause a massive crisis in the euro area," Rapp warns.

The government has long had the detailed concept for this in the drawer. First, the Italian government would issue bonds in small denominations, so-called mini-BOTs. These would be permitted as alternative means of payment in domestic monetary transactions. "The government would thus have a kind of parallel currency and could put new money into circulation without consulting the ECB," Rapp points out. In this way, Italy would create - in addition to a negative TARGET balance of around €500 billion - another massive threat vis-à-vis the ECB and the EU Commission. At the same time, Italy is protecting itself against possible monetary sanctions by the ECB: "Italy has learned from the last euro crisis and wants to avoid a loser scenario à la Greece at all costs," Rapp stresses.

"The risks of this development have so far been completely underestimated, also on the financial markets," Rapp stresses. Italy has always been the main risk factor in the fragile eurozone. However, this risk is now increasing further, as Italy is even deliberately allowing for severe distortions on the financial markets. "A further rise in interest rates on government bonds serves as a signal to Italy's own population that only a hard bailout can help," Rapp speculates. This would pave the way for the introduction of mini-BOTs as well as further tightening. Italy thus remains a dangerous time bomb that could still cause massive damage to the eurozone, the experts conclude.

In an analysis on the "Future Risk Euro Break Up", the FERI Cognitive Finance Institute had already pointed to Italy as the main risk for the future of the euro months ago. The analysis is available in German.