taly’s situation could blow up the fragile trust that keeps Europe together, and the leading parties may even be planning for it. The discussions between Lega Nord and Five Star included an idea called the “mini-BOT” that would effectively serve as a parallel currency.

The BOT is Italy’s Treasury bill, and as in the US, it serves as a kind of cash equivalent in electronic trading. The mini-BOT would be a government debt instrument, in paper form, that pays zero interest and never matures. The government would use it to pay social benefits and accept it for tax payments. Private businesses would not be required to accept it, but they could.

Private businesses and individuals would also, in theory, buy the mini-BOT as a way to pay their taxes. But they would buy them at a discount. So, traders would immediately set up an arbitrage where the person getting the social benefits payment could sell them for euros for, call it, a 5% or 10% haircut. Former Prime Minister Silvio Berlusconi, who is still a force in Italy, insists this would be legal. The Northern League sees a way to ease the transition out of the euro and the Five-Star Movement sees a way to increase spending without having to take on euro debt. And since the new coalition government wants to increase the deficit an additional $180 billion euros or so through a combination of tax cuts and increased spending, this is being seriously proposed.

The mini-BOT probably could be a practical alternative to the euro for many transactions. From what I’ve read, the other eurozone countries would have difficulty stopping it because the euro would still be the only formal “currency.” And other Mediterranean countries would watch this experiment and begin moving in the same direction themselves.

You see where this goes. Italy might be able to use mini-BOTs (or let’s be honest and call them the new lira) to finance deficit spending without breaking eurozone rules. This could ultimately debase the euro and blow apart the eurozone. Germany would have to leave. From there, you can draw your own map.

The Gave piece mentioned is behind a paywall (yes - I am now paying for Mauldin's paywall) but it fundamentally says "we can't model this shit anymore" which, combined with the viewpoint mentioned here:

Lends credence to the notion that there's a little too much modeling going on for comfort.