Could Italy collapse the euro?

View

KyussB wrote: »

View wrote: »

The EU Treaties explicitly reference “a SINGLE currency, the euro” (TEU Art 119.2) and “the use of the euro as the SINGLE currency” (TEU ART 133).

Attempting to re-introduce any form of “national currency” by any sleight of hand or by calling it anything else is an EXPLICIT breach of the EU Treaties. That is completely illegal under EU law and is unconstitutional under Irish law.

You're spinning this in circles here. You can't enforce currency laws against bonds - because bonds are not a currency.

At what points does a bond satisfy the legal definition of a currency? When it is made transferable? When it is accepted in lieu of tax payments?

You can't apply currency laws against bonds.


Can you progress this beyond repetition of the same assertions, and explain how a bond can be made illegal using currency laws? (and under which specific laws?) Governments issue bonds all the time - are they doing this illegally?

Look either something is a bond or it’s a quasi-currency.

If it’s the former, then we already issue a multiplicity of bonds. There is nothing to stop anyone trading in them (or even attempting to buy their groceries with them). These though are repayable in Euro at the end of the lifetime of the bond and the interest you receive will be in Euro. They are “Eurobonds”. They are NOT a quasi former national currency.

If it’s the latter currency case though - ie something intended to be a parallel currency - then it is illegal under EU law and unconstitutional under Irish law. And, no, no one is going to be fooled by attempts to pass a quasi national currency off as a bond.

View

KyussB wrote: »

View wrote: »

They aren’t seperate currencies.

One group of 9 countries use one currency, the other five use another currency. Both are linked on a 1:1 basis so are de facto used interchangeably by people and referred to as the CFA. In addition, another 4 use the CFP. All the countries concerned have full sovereignty.



As I have pointed out that is a false dichotomy.



Again you are assuming that all Federal states do that today and, even where it is true today, it most certainly was not true when most Federations were in their infancy.

And that leaves aside the point as to why the EU member states should emulate a Federation when the EU isn’t one.



First up, I’d question whether we actually do have “current imbalances” and whether they are an overall problem (as opposed to discrete problems to be addressed at member state or regional level). Second, the problems in Italy relate to them having failed to address their domestic political and economic issues. Reform is painful but that doesn’t mean it isn’t necessary and redenominating their national accounts won’t make Italy’s national debts disappear (since they are overwhelmingly domestic).

9 out of 14 countries using the CFA are in the Least Developed Countries list:
https://en.wikipedia.org/wiki/Least_Developed_Countries

They're not really a positive example of a currency union producing successful results.

Being successful is a seperate issue.

There’s absolutely no evidence that the countries concerned would be better off if they used seperate national currencies, is there?

KyussB wrote: »

Why are you still talking as if I want the Euro gone? (you imply this by saying I suggest Italy redenominate their accounts)

I'm going to have to stop responding if I keep getting misrepresented like that, because it's leading things in circles.

You have repeatedly touted reintroducing national currencies. Ergo, you clearly do not support the Euro being the sole single currency of Ireland (and every other Eurozone member state) and “want it gone”. I am not misrepresenting you at all.

View

EdgeCase wrote: »

My question is why are we claiming the Euro is the problem when Italy’s political, economic and social history has been like this since the modern economy began after WWII.

It boomed for a period in the 60s and 70s but always against the backdrop of major social and political turmoil. Then it had big reforms in the early 80s which saw it get on track for a while with debt levels falling a and the economy growing, surpassing the UK and France in scale for a while.

Then by the 1990s it was back to stagnation and rising debts.

I actually don’t see much having changed except that the Euro has put a spotlight on the problems to some extent.

When I look at Italy I see a country that is living in the past economically. It was a world leader in areas like car manufacture, white goods, industrial machinery and all of that and that’s mostly slipped away due to lack of real innovation and lack of exciting new products.

You can blame some of it on globalization but you can blame a lot of it on local stagnation of industry.

Then you’ve had a persistent problem with systemwide corruption, failure to collect taxes amounting to something like 25% of GDP and a political system, with a house and senate that have equal power and just chaotically bounce bills back and forth for years. You’ve also got a massive socioeconomic divide between north and south that has festered for decades, despite loads of talking and loads of failed attempts to repair it.

This is a country that attempted to prosecute seismologists for failing to predict an earth quake...

It’s a country that saw nothing odd about having, Silvio Berlusconi, effectively the Italian Trump, as PM for years.

Yet somehow it’s all down to “somebody else” the Euro, foreigners, the Germans, the EU ... anyone except the electorate.

This post is correct.

Italy had problems before the Euro and has failed to address them since introducing the Euro. That’s the fundamental issue, not what currency they use.

KyussB

View wrote: »

Look either something is a bond or it’s a quasi-currency.

If it’s the former, then we already issue a multiplicity of bonds. There is nothing to stop anyone trading in them (or even attempting to buy their groceries with them). These though are repayable in Euro at the end of the lifetime of the bond and the interest you receive will be in Euro. They are “Eurobonds”. They are NOT a quasi former national currency.

If it’s the latter currency case though - ie something intended to be a parallel currency - then it is illegal under EU law and unconstitutional under Irish law. And, no, no one is going to be fooled by attempts to pass a quasi national currency off as a bond.

Quasi means "apparently but not really; seemingly" - which means you can make bonds operate as a quasi-currency (as in, not actually a currency, but operating like one), and legally, it's untouchable by currency laws.

Doesn't matter what people think - it still sidesteps the law, because it's still a bond in the end - it's both a bond and a quasi-currency.

Since you don't have any legal way to define it as a currency, how are you going to prosecute it as a currency?

KyussB

View wrote: »

You have repeatedly touted reintroducing national currencies. Ergo, you clearly do not support the Euro being the sole single currency of Ireland (and every other Eurozone member state) and “want it gone”. I am not misrepresenting you at all.

I have said repeatedly that I don't want it gone - I want it kept as an exchange currency.

KyussB

KyussB wrote: »

At what points does a bond satisfy the legal definition of a currency? When it is made transferable? When it is accepted in lieu of tax payments?

You can't apply currency laws against bonds.

This is basically the problem with your plan - if there is a question over the legal status of it why would anyone accept it or hold it for any longer than they had to?
With a currency its usefulness is very clear
(A medium of exchange, a store of value, and as a unit of account.) If this bond isn't a currency what use is it to me or my employer?

KyussB

It's a bond - nobody has established any legal question over it - governments issue many varieties of bonds, all the time.

It would be accepted by Revenue in lieu of tax payments - which would underpin its demand (because if demand for the bond drops, to the point that you could buy 1 Euro worth of bonds, for less than €1 - then that's effectively a tax cut for anyone who can snap up the bonds in the private market - which will bring its demand back up, keeping it close to parity with the Euro).

The Italian coalition actually appear to be publicly supportive of a similar idea:
https://www.reuters.com/article/us-italy-politics-minibots-factbox/factbox-how-italys-mini-bot-parallel-currency-would-work-idUSKCN1IQ2B1

PeadarCo

KyussB wrote:

It would be accepted by Revenue in lieu of tax payments - which would underpin its demand (because if demand for the bond drops, to the point that you could buy 1 Euro worth of bonds, for less than €1 - then that's effectively a tax cut for anyone who can snap up the bonds in the private market - which will bring its demand back up, keeping it close to parity with the Euro).

What currency would the bond be in if its not euro? It has to be denominated in a currency. If the Italian government starts issuing bonds in a new currency(assuming its not euro denominated) you suddenly run bang up against EU treaty provisions.

Given the state of the Italian economy any new currency will be worth less than the euro. All your idea results is a run on Italian assets.

KyussB

You're making claims of infeasibility and economic collapse, based on the assumption that it's not denominated in Euro. The bonds are denominated in Euro - and it runs alongside the Euro.

PeadarCo

KyussB wrote:

You're making claims of infeasibility and economic collapse, based on the assumption that it's not denominated in Euro. The bonds are denominated in Euro - and it runs alongside the Euro.

Then how is the bond different than any other bond the Italian government might issue?

KyussB

Exactly. That's how it sidesteps currency laws.

If it's accepted at face value for tax payments (which is what would drive demand for it), and is tradable privately - then it operates as a quasi-currency, and can run in parallel with the Euro.

PeadarCo

KyussB wrote:

If it's accepted at face value for tax payments (which is what would drive demand for it), and is tradable privately - then it operates as a quasi-currency, and can run in parallel with the Euro.

But its still euro demoniated with the added benefit you can use it to pay tax. Why would use a bond to pay a tax bill? Why would you turn down the interest due on it or the capital appreciation on redemption of bought it from the government below par value? I don't understand how this rather bizarre benefit can drive demand. You can pay a tax bill with the funds derived from the redemption of a standard bond. Obviously the shorter the term of the bond the less time you have to wait to get the cash. Or you can just sell the bond to another 3rd party and get the cash that way.

The whole idea sounds pointless.

KyussB

It wouldn't bear any interest. The benefit is it can be used to extend government spending and aid in breaking austerity - only to a limited extent, though - as it doesn't have the same power as a full national currency.

KyussB

KyussB wrote: »

It wouldn't bear any interest. The benefit is it can be used to extend government spending and aid in breaking austerity - only to a limited extent, though - as it doesn't have the same power as a full national currency.

But if it is denominated in EUR and is exchangeable for EUR why not just issue EUR bonds as now. Borrowing is borrowing.

KyussB

Deleted User wrote: »

But if it is denominated in EUR and is exchangeable for EUR why not just issue EUR bonds as now. Borrowing is borrowing.

When the bonds are issued, the government doesn't take Euro in exchange for the bond - i.e. money is not borrowed - it gives the bond as partial payment.

PeadarCo

KyussB wrote:

It wouldn't bear any interest. The benefit is it can be used to extend government spending and aid in breaking austerity - only to a limited extent, though - as it doesn't have the same power as a full national currency.

What's the benefit of the bond? Why buy this bond than all the other bonds available on capital markets?

What you are proposing is that someone would buy it at its par value and then later have it redemmed at its par value. The only way this can give a return if it is bought in a deflationary environment. The minute there is any inflation whoever buys it is making a loss in real terms.

In terms of paying tax it offers no advantages assuming a liquid bond market. If the euro bond market for intalian government bonds becomes illiquid it means the country is bust. As large amounts of Italian government debt is held in Italy that would mean those bonds are worthless. If people won't buy euro bonds from Italy they will not buy bonds demoniated in a new currency backed by a bankrupt government.

PeadarCo

KyussB wrote:

When the bonds are issued, the government doesn't take Euro in exchange for the bond - i.e. money is not borrowed - it gives the bond as partial payment.

So what your saying is the bonds won't be denominated in Euro which contradicts what you have previously said about the bonds being denominated in Euro.

A genuine question do you have any understanding of bonds even at a high level. I say this because your idea is completely ignorant of what bonds are, how they work and global capital markets even at a basic level.

KyussB

The bond isn't bought from government - it's given as partial payment by government. The bonds are denominated in Euro's - not any new currency - there is no actual new currency, the bond itself becomes a 'quasi-currency'.

No, nothing I said stops the bonds being denominated in Euro's. You're accusing me of ignorance yet you're repeating things that are wrong, regarding what exactly I proposed, that I've patiently been correcting many times for you.

PeadarCo

KyussB wrote:

The bond isn't bought from government - it's given as partial payment by government. The bonds are denominated in Euro's - not any new currency - there is no actual new currency, the bond itself becomes a 'quasi-currency'.

Where does this bond come from if not issued by the Italian government? Or if not the Italian government who issues it?

In what currency is the par value of the bond?

PeadarCo

KyussB wrote:

No, nothing I said stops the bonds being denominated in Euro's. You're accusing me of ignorance yet you're repeating things that are wrong, regarding what exactly I proposed, that I've patiently been correcting many times for you.

See below from post 220 where you said the bonds would be denominated in Euro.

KyussB wrote:

You're making claims of infeasibility and economic collapse, based on the assumption that it's not denominated in Euro. The bonds are denominated in Euro - and it runs alongside the Euro.

KyussB

Yes that's exactly what I've been saying? They are denominated in Euros - I never said they won't be. They are issued by the government.

KyussB

KyussB wrote: »

When the bonds are issued, the government doesn't take Euro in exchange for the bond - i.e. money is not borrowed - it gives the bond as partial payment.

In a previous job I used to do a tiny bit of business with the Italian government - in this example why would I accept payment in these bonds rather than in EUR? I have to pay my suppliers and staff in EUR. The taxes I collect would be in EUR (VAT, employment taxes). If a sales man came to me and said he had negotiated a new deal taking these new bonds as partial payment I wouldn't be impressed and would be discounting the income.

Bond markets seeing new bonds being issued would price the increased exposure of the Italian government into their expectations - if the bonds were issued without interest the cost of borrowing elsewhere would probably rise.

Edit: Additionally you are imposing costs on whoever is supposed to be receiving these bonds - how does a company manage this? Cash into a bank account is straightforward and well established. For the bond does something get posted to me and I have to run into the stock exchange and pay someone to sell them for me?

KyussB

It would likely be restricted to domestic business - since they could use the bonds to pay their tax. People directly employed by the government would have no choice on whether to accept it or not - contractors could pass it up if they like, but the work would just go to someone else willing to take it.

It's not exposure like regular bonds - if it led to yield increases elsewhere, it wouldn't be through that dynamic.

The bonds would spawn their own financial markets and channels, yes - this would be a cost, which can be offset by increased pay...in bonds

KyussB

KyussB wrote: »

It would likely be restricted to domestic business - since they could use the bonds to pay their tax. People directly employed by the government would have no choice on whether to accept it or not - contractors could pass it up if they like, but the work would just go to someone else willing to take it.

It's not exposure like regular bonds - if it led to yield increases elsewhere, it wouldn't be through that dynamic.

The bonds would spawn their own financial markets and channels, yes - this would be a cost, which can be offset by increased pay...in bonds

This was domestic business. I used to work there. We managed the Italian government procurement agency account very tightly as they were already poor payers from what I remember.

Making it only useful within Italy and at the same time making it a condition of getting business would fall foul of EU competition law.

It absolutely would be an exposure - they have to come back to the government at some point instead of Euros.

Extra work and costs not many will do if the reward is in paper.

KyussB

It wouldn't be a condition of getting business - there would just be lower bidders who are willing to accept the bonds as payment - picking the lowest bidder is fair game.

How is a 0% bond which can only be redeemed through taxes (and can have a 100 year maturity if the government wants), an exposure?

If there's money to be made (and being a quasi-currency, there is) - then a market and proper channels for it, will develop.

blanch152

KyussB wrote: »

It would likely be restricted to domestic business - since they could use the bonds to pay their tax. People directly employed by the government would have no choice on whether to accept it or not - contractors could pass it up if they like, but the work would just go to someone else willing to take it.

It's not exposure like regular bonds - if it led to yield increases elsewhere, it wouldn't be through that dynamic.

The bonds would spawn their own financial markets and channels, yes - this would be a cost, which can be offset by increased pay...in bonds

Even if by some magical fantasy, these bonds were legal, and the transaction costs were miniscule, have you really thought through what kind of rate would be needed to issue them? 20%? 40%? Because I really can't see any rational person taking the word of the Italian government to pay them back.

blanch152

KyussB wrote: »

It wouldn't be a condition of getting business - there would just be lower bidders who are willing to accept the bonds as payment - picking the lowest bidder is fair game.

How is a 0% bond which can only be redeemed through taxes (and can have a 100 year maturity if the government wants), an exposure?

If there's money to be made (and being a quasi-currency, there is) - then a market and proper channels for it, will develop.

KyussB wrote: »

It would likely be restricted to domestic business - since they could use the bonds to pay their tax. People directly employed by the government would have no choice on whether to accept it or not - contractors could pass it up if they like, but the work would just go to someone else willing to take it.

It's not exposure like regular bonds - if it led to yield increases elsewhere, it wouldn't be through that dynamic.

The bonds would spawn their own financial markets and channels, yes - this would be a cost, which can be offset by increased pay...in bonds

There is no logical consistency to your posts on this issue where you contradict yourself in successive posts as illustrated by the bits in bold.

Ronaldinho

This might settle some of the to-ing and fro-ing: https://www.reuters.com/article/us-italy-politics-minibots-factbox/factbox-how-italys-mini-bot-parallel-currency-would-work-idUSKCN1IQ2B1

KyussB

blanch152 wrote: »

There is no logical consistency to your posts on this issue where you contradict yourself in successive posts as illustrated by the bits in bold.

It's not contradictory, you're posting before getting to the posts which answer your questions. They have a 0% rate. They are used in-part as payment for government spending. A private financial market would develop supporting the trade of these bonds.

blanch152

KyussB wrote: »

It's not contradictory, you're posting before getting to the posts which answer your questions. They have a 0% rate. They are used in-part as payment for government spending. A private financial market would develop supporting the trade of these bonds.

Who would accept them?

If I was a business in Italy and I was selling computers under your system, I would have two prices, one in euros and another 50% higher if you are paying in government bonds.


Inevitably what would happen over time is that government-issued bonds would be non-convertible and euros would leave the country or be traded underground. The euro would become a FEC.

https://en.wikipedia.org/wiki/Foreign_exchange_certificate

The Chinese FECs in the mid-1980s, though nominally carrying the same value as the local yuan, traded at a significant premium in the black market, precisely because they were redeemable in foreign currency.

http://www.china-briefing.com/news/2007/11/20/15-years-in-china-foreign-exchange-certificates.html