The EconomistJune 29th 2019 Finance & economics 711G
overnments in fiscaldistress some-
times find creative ways to pay the bills.
Revolutionary France sold bonds secured
against land confiscated from the Catholic
church; America used paper bills to fund
its war of independence. In 2001 Argentina
issued ious, as did California in 2009. Dur-
ing Greece’s sovereign-debt crisis Yanis Va-
roufakis, then its finance minister, toyed
with plans for a parallel currency.
Not the most desirable of clubs, then,
yet some in Italy are eager to join. So-called
mini-bots, originally hatched by euro-
sceptics to replace the euro, made it onto
the ruling coalition’s manifesto last year.
Mini-bots (Buoni Ordinari del Tesoro, or or-
dinary treasury bonds) would be used to
settle the government’s bills with commer-
cial suppliers. Recipients could use them
to pay taxes, or for public services. Devised
by Claudio Borghi, an economist of the
Northern League, one of Italy’s ruling par-
ties, they would be low-denomination bills
(up to €500, or $569) that bear no interest.
They would not be legal tender—that
would break eulaw. But Mr Borghi would
like them to circulate widely, eventually
being used in shops to price goods. He has
written that mini-bots would enable a
quick exit from the euro, though ministers
say they have no such plan.
On May 28th the lower house of parlia-
ment passed a non-binding motion calling
on the government to bring down arrears,
and to study mini-bots in detail. The latter
clause was reportedly tagged on at the last
minute: some lawmakers did not realise
what they were voting for. As investors be-
came uneasy Giovanni Tria, the finance
minister, said mini-bots were not an op-
tion. But Matteo Salvini, the League’s
leader, says he will press ahead with mini-
bots in the absence of “a smarter way”.
In truth, they would bring little gain.
Though the government’s stock of unpaid
bills is the euro area’s largest, at around
€50bn, or 3% of gdp,the Bank of Italy reck-
ons this has halved since 2012. And Mr Tria
says the government is now settling bills
more quickly. Mario Draghi, the boss of the
European Central Bank, has opined that as
mini-bots are not legal tender, they would
add to Italy’s stock of debt. So the govern-
ment might as well resort to conventional
bonds. Though the spread between Italian
and German yields has widened since the
populist coalition was formed, it is far low-
er than in countries that have issued tem-porary ious, or “scrip” (see chart). Italy is
nowhere near shut out of bond markets. In
fact, ultra-loose monetary policy means
bond yields are low in historical terms.
History suggests such dire measures are
not generally successful. Governments are
tempted to over-issue scrip, as in 18th-cen-
tury America. As they are less trusted and
less liquid than official currency, their val-
ue slumps. In California banks eventually
refused to accept ious. Argentines hoarded
pesos, spending scrip as fast as possible (an
illustration of Gresham’s law, that bad
money drives out good). If much of their
income becomes denominated in scrip, the
government and private sector would
struggle to pay back debt, which is still de-
nominated in the official currency.
The danger is compounded by Italy’s
membership of a currency union. If mini-
bots’ sole purpose were to pay off arrears,
investors would worry that the true inten-
tion was to leave the euro overnight. On
June 6th Moody’s, a credit-rating agency,
said it would consider them as the first step
towards preparing for an exit; even Mr Va-
roufakis concurs. Investors would sell off
government bonds and residents would
pull their euros out of banks, destabilising
the public finances and banking system.
That explains why the technocratic Mr
Tria wants to squash the idea, and opposi-
tion lawmakers say they would not support
it. But Mr Salvini is reluctant to take it off
the table just yet. A confrontation with the
European Commission over Italy’s public
debt is looming. He might hope that con-
sidering mini-bots signals the country’s
willingness to take drastic steps to intro-
duce fiscal stimulus. If it is a threat, the gun
is pointing the wrong way. 7Why a potentially dangerous idea still
has currency in ItalyMini-BOTsFunny money Bond spreads, percentage points
Spread thin*OverUSTreasuries
†Ten-yeargovernment-bond
spreads over German bundsSources:JPMorganChase;
Datastream from RefinitivArgentina*Greece†Italy†2001 2002020406020150202018 2019020G
lobal auditorshave had a torrid time
of late. kpmg is haemorrhaging clients
in South Africa after allegations of fraud
linked to its work for the powerful Gupta
family; Deloitte is under investigation in
both America and Malaysia relating to
scandal at 1mdb, a Malaysian state-devel-
opment fund. In Britain the Big Four face
threats of break-up after the failure last
year of Carillion, a big government con-
tractor for which all four had done work.
Now Indian prosecutors have the auditors
in their sights.
The most serious case concerns the col-
lapse last year of il&fs, a monstrously
complex financial firm with deep state ties.
On July 15th the corporate-affairs ministry
will argue before a commercial court to
have Deloitte’s and kpmg’s local affiliates
suspended from doing audits for five years
because of flaws in their work for an il&fs
subsidiary. Ernst & Young (ey) is under fire,
too: its local affiliate audited il&fsand an-
other subsidiary. It had already been sus-
pended for a year from doing bank audits
because of its work for Yes Bank, India’s
fourth-biggest private lender. pwc, mean-
while, faces a two-year suspension relating
to work for Satyam, a computer-services
firm that went bust a decade ago.
These legal travails could bring to an
end an odd exception to India’s localism. In
most areas, lobby groups and nationalism
have relegated global legal and financial
players to bit parts. Global banks, with few
exceptions, serve only cross-border trans-
actions and business; global law firms run
Indian practices—from anywhere but In-
dia. By contrast the Big Four’s local of-
fices—which, like those elsewhere, are
owned and largely managed by local part-
ners—handle most multinationals’ Indian
subsidiaries and 58% of the companies in
India’s benchmark bse 500 index, or 65%
excluding public-sector banks.
Losing international auditors would be
a heavy blow for Indian businesses. The
country has thousands of auditing firms,
but only a handful with more than two doz-
en partners. Indian executives regard hav-
ing one of the Big Four on the job as a big
comfort when they act as independent di-
rectors. Foreign investors and multi-
nationals say they are essential if India is to
attract foreign direct investment. Such ar-
guments were no doubt advanced by Punit
Renjen, Deloitte’s Indian-born, American-
resident chief executive, who recentlyMUMBAI
The Big Four may be blocked from
doing Indian audits for years to comeAuditors in IndiaQualified opinion