The eurozone elites are looking straight down the barrel of an Italian economic revolt and a parallel currency. Subversive “minibot” treasury notes are back in play.

“I don’t govern a country on its knees,” said Matteo Salvini after sweeping the European elections even more emphatically than the Brexit party. Note the majestic ‘I’. He is already master of Rome.

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The Lega strongman can no longer be contained, even by Italy’s ever-ingenious mandarin class. His party commands 40pc of the country together with eurosceptic confederates from the Brothers of Italy. It has erupted like a volcano in the Bourbon territories of the Mezzogiorno, now on the front line of migrant flows and left to fend for itself by Europe. Salvini can force a snap-election at any time.

By some maniacal reflex the dying Commission of Jean-Claude Juncker has chosen this moment to draw up the first indictment letter of the revamped debt and deficits regime. Italy faces €3.5bn of fines for failure to tighten its belt. It has 48 hours to respond.

“We’re not Greece,” said Claudio Borghi, Lega chairman of Italy’s house budget committee. “We are net contributors to the EU budget. We have a trade surplus and primary budget surplus. We don’t need anything from anybody. And we are in better shape than France.”

Lega strategy is to offer EU leaders a choice: reform the EU treaties to enable fiscal expansion and allow the European Central Bank to act as lender-of-last-resort; or face the consequences.

Brussels says Italy has failed to make “sufficient progress” on debt levels even though the chief cause of slippage was recession and a world trade slump. Its demands are macro-economic vandalism. It is ordering a country already in slump to tighten budget policy violently by 1.5pc of GDP. It is doing this after the withdrawal of monetary stimulus from the ECB.

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The prescription is futile even on its own crude terms. Italy’s nominal GDP will deflate. The public debt ratio will ratchet higher through the denominator effect. But law is law - at least for Salvini’s Italy, if not for Macron’s France.

“I am not going to hang myself for some silly rule,” said Salvini. “Until unemployment falls to 5pc we have a right to invest. We have regions where youth unemployment is 50pc. We need a Trump cure, a positive fiscal shock to reboot the country.” His plan is a €30bn boost led by a flat tax of 15pc.

But Italy is not America. It is not a sovereign economic country able to borrow in its own coin. His plan is impossible under the current structure of monetary union. All it took was a minor skirmish to push risk spreads on 10-year Italian bonds to a six-month high of 292 basis points on Wednesday. Stress begins at 300. The banking system spirals into crisis at 400.

Italian lenders hold €360bn of their own country’s debt. Rising yields force them to mark down these assets. The International Monetary Fund says a “severe” shock would drive down the Tier 1 capital ratios of Italy’s banks by 230 points, with a chain reaction quickly spreading through Portugal and Spain and morphing into a systemic threat to the eurozone. The “sovereign-bank doom loop” has not gone away.

Mr Borghi said the plan for minibot treasury notes is written into the coalition’s solemn “contract” and will be activated to flank the tax reform package. This scrip paper creates parallel liquidity - akin to what Yanis Varoufakis wanted to do in Greece - to be used to pay €50bn of arrears to state contractors and households.

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“It is a way to mobilize credit that is badly needed and put money into circulation,” he said. Once these short-term notes trade on the open market they would become a de facto currency, a new lira in waiting. Italy would have a split monetary system. The euro would unravel from within. My guess is that the ECB would first ration and then cut off Target2 support for the Bank of Italy.

Mr Varoufakis says Italy would have to impose capital controls within days. The country would wake up one morning to find that it was no longer in the euro. That, of course, is what Mr Salvini wants. Currency sovereignty is a pre-condition of national self-government. “The euro is a crime against humanity,” he once said, to me as it happens.

Will the poteri forti of the Italian deep state let him go this far? There was much bluster a year ago. It came to little. The Lega-Five Star alliance later capitulated in budget talks with Brussels. They were boxed in by the President Sergio Mattarella, an inheritance from the old order.

He used the constitutional powers of the Quirinale - rarely invoked under the Second Republic - to block their economic agenda. He vetoed appointments and installed technocrats in key departments. Imagine a Speaker Bercow taking charge of the Treasury and you get the gist.

The Lega’s landslide election victory has changed the game. “We have far more bargaining power,” said Mr Borghi. “We know will be stiff resistance at every level but this time we intend to impose our line.”

The political battle will come to a head under the new Commission this Autumn when Italy’s budget is sent to Brussels. Yet the writing is already on the wall. Germany and the northern block have refused to rebuild the eurozone on viable foundations before the next global downturn hits. They have rebuffed all proposals for EMU fiscal union and debt sharing.

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Lorenzo Codogno, former chief economist of the Italian treasury and now at LC Macro Advisors, said EU leaders guaranteed the next Italian banking crisis at last year’s December summer when they cleared the way for easier sovereign debt restructuring. There can be no further rescues by the eurozone bail-out fund (ESM) unless debt is deemed sustainable. “Other European countries are preparing for Italy’s default,” he says.

The ECB may not legally buy Italy’s debt until the country requests a formal bail-out under stringent conditions, requiring a vote in the German Bundestag. This would entail a ‘Troika’ take-over of Rome. Salvini would sooner have them arrested.

Mario Draghi’s “whatever it takes” has expired. The situation is even more dangerous than during the EMU crisis of 2012. There is no longer any firewall at all.

The actions of the European Commission at this juncture are astonishing. They have issued a crass ultimatum regardless of the immense financial risk. They are needlessly provoking the newly-triumphant leader of Europe’s second biggest manufacturing power.

To say that Brussels had no choice under the strict rules of the EU fiscal machinery (dubious) is to acknowledge the absurdity of the EMU construction. The project has taken Europe to this demented this cul de sac.

Should Salvini bring the whole temple crashing down on their heads, the retort will serve them right.