Italy is in serious trouble financially. This is virtually common knowledge at this point. What isn’t common knowledge is its Euroskeptic government led by Lega’s Matteo Salvini and Five Star Movement’s Luigi Di Maio are preparing an assault on the foundation of the European Union itself to save Italy.

And that assault comes with the most innocuous name. Mini-BOT. Mini-BOTs were originally the idea of former Greek Finance Minister Yanis Varoufakis to assist Greece get out of the stranglehold placed on it by the euro.

What is a mini-BOT? It is a small denomination (mini) Bill of Treasury (BOT) that can be issued by, in this case, the Italian government to act as a domestic currency for settling government debts, paying taxes, etc.

It would be a parallel currency which could circulate freely domestically at a discount to the euro which would work as a medium of exchange to reflect the reality of the Italian economy better than the euro does.

The euro’s value is dominated by Germany’s economy. And, in short, by being so the euro overvalues Italy’s labor pool and undervalues Germany’s. Gresham’s Law states under-valued money is hoarded and over-valued spent. In Italy the euro is hoarded. In Germany it is spent. This is why Germany runs such a massive trade surplus against the other members of the euro-zone.

Italy (and Greece, Portugal, Spain and others) need a currency that can circulate to properly support domestic trade.

By mispricing Italian labor via the euro it keeps the goods produced in Italy uncompetitive on the world market. Italy’s central bank can only issue euro-denominated debt which trades at rates far lower than it should, enhancing Germany’s position.

The Italian economy, like Greece’s, is also strangled by the cost of servicing its national debt denominated in euros. This keeps the demand for money within the economy high for debt servicing purposes and its circulation low.

Low circulation equals low trade and a sluggish economy. The EU’s budget rules favor paying off creditors first and tending to the Italian economy second. The ‘austerity’ imposed on euro-zone members, because of this mispricing of both the debt and the euro itself, becomes doubly harsh when the euro rises, sucking the life out of the debtor nation.

As the currency rises, the value of the debt rises versus the labor it is a claim against also rises. Then the country’s creditors need a bailout, which they get. The debt gets ‘restructured’ to put the debtor on an even-longer dated hamster wheel of repayment and some of it gets paid off in the form of national assets now trading at a fraction of its real value.

The mini-BOT seeks to reverse this process by allowing the Italian treasury to issue them as interest-bearing small bills which can be used to purchase goods and services in the Italian market but which will also be redeemable to pay for government services and taxes.

Doing this bypasses the euro completely and these will trade at a discount to the euro, thereby setting a proper exchange rate for Italy’s economy relative to Europe’s as a whole and increasing money velocity.

This is what Salvini and Di Maio are in favor of and what they will likely introduce soon.

And it is imperative that you understand what this means for the European Union. It is an existential threat to the current Germany-dominated political order. The main purpose of the euro was do to exactly what we have seen since its introduction, create a structural advantage for German industry through which Germany’s political class can dominate the EU itself. It was specifically designed to roll up the wealth of the continent in this way, bankrupt countries less competitive than Germany and keep them that way trapped within this single currency regime.

Laying aside my myriad and sundry libertarian and Austrian economics-based objections to this system of debt-based fiat currency, the current structure of the euro is even more monstrous than that of the individual currencies themselves. But, the Mini-BOT is a stop-gap measure on the road back to monetary and fiscal sanity. Not perfect, but the right first step.

Italy’s sovereignty-focused government, an outgrowth of the desperation of the Italian people, understand this dynamic at a deep level. It is why Salvini and Di Maio have attacked Brussels on the issue of the budget rules, tax cuts and infrastructure spending while soft-pedaling to the Italian people their radical agenda, which is to force a reorganization of power in Brussels or, failing that, take Italy out of the euro completely.

I have been arguing for over two years now since Matteo Salvini came onto the scene as a major player in Italian politics that his best path for success is to always and consistently put Brussels into the position of the bad guy.

Breach a budget rule here, detain some human traffickers there.

Each time the EU responds in the most predictable way, Salvini gains popularity and his arguments against Brussels’ unwillingness to listen gain credence.

And what scares Brussels the most is not what they say do – an increase in Italy’s debt, unsustainable spending, etc. Italy is nearly unsalvageable under a euro-only currency regime. No, what EU leadership fears the most is that this parallel domestic currency system of the mini-BOT actually works.

Because once it does it will show the rest of Europe just how corrupt and vindictive EU leadership is. As if Brexit talks haven’t exposed this fundamental truth to them already. And once that happens, the future of the EU itself comes into sincere doubt.

From what I understand, through anecdotal evidence, Salvini and Di Maio are going to move quickly on the mini-BOT, not just as a threat but as a real thing.

And their problems now lie with who I call the Troika of Technocrats who hold the positions to block their plans – President Sergei Mattarella, Prime Minister Giuseppe Conte and Finance Minister Giovanni Tria.

These are all the epitome of the Italian Swamp. They work for the old guard political order in Italy who, like most of the political establishment in the U.K., work for Brussels.

They will try to take down the Italian government before the mini-BOT becomes more than a discussion in parliament. Conte already threatened to resign over this issue. You’ll notice he didn’t do so.

And that to me is a huge tell. Conte bluffed Salvini and lost. Because with Di Maio in charge of Five Star and the poll numbers where they are, the Troika could all easily be removed if they take down the government (see my article linked above for the tactical situation).

If Salvini did it, it would hurt him. But, again, Salvini is way too sharp an operator to fall for that trap. So it will have to come from President Mattarella and Prime Minister Conte, if it comes at all.

They have to move quickly to get the Mini-BOT in place. Europe’s finances are unraveling quickly. The ECB is looking at lowering rates again once Mario Draghi exits the stage to leave the mess for his replacement.

Deutsche Bank is looking to spin off a small portion of its bad assets into a Bad Bank while Germany’s economy continues cratering and a hard Brexit is looking more and more likely.

None of these things are euro positive and none of them help the EU in its fight to keep Italy in the fold.

Italy will need the mini-BOT once this huge move into sovereign debt is over. It is rapidly becoming the most over-crowded trade in history with nearly $12 trillion in debt now carrying a negative return.

For now, Draghi and the rest of the would-be oligarchs in Brussels are in denial about what Salvini and Di Maio are planning. They won’t be once the power struggle for Italy’s government takes center stage in September when the budget is proposed, Brussels tries to impose fines and Salvini starts selling mini-BOTs.

You shouldn’t have to wonder how the markets are going to respond to that.