Tuscan rivals in Italy vote spar over centre-right currency plan

By Silvia Ognibene and Isla Binnie

SIENA, Italy (Reuters) - A proposal by a centre-right coalition, leading polls ahead of a March 4 election, to issue small-denomination sovereign bonds would damage public accounts and curb economic growth, Economy Minister Pier Carlo Padoan said on Thursday.

Championed by the eurosceptic League and backed by former premier Silvio Berlusconi's Forza Italia, the bonds would be issued by the Treasury to those owed money by the state.

Padoan, who has served as a technocrat in a government run by the centre-left Democratic Party (PD), told RAI state TV the scheme was "a plan to circulate a disguised parallel currency".

He is running for the first time as a PD candidate in the Tuscan town of Siena, where his rival is the architect of the currency scheme -- the League's economics chief Claudio Borghi.

"Historical experience shows that, in these cases, a country that adopts a double currency drastically damages its public finances, growth potential and stability," said Padoan, whose party has slumped in polls as the centre-right has strengthened.

The League maintains that such a measure would not constitute printing a parallel currency, saying that having two currencies with different exchange rates would risk putting a "disastrous" gap between the value of income in the weaker currency and debts in the stronger.

Proposals to flank the euro with new financial instruments have caused some concern among investors, who ditched Italian debt last year when Berlusconi said he wanted to print a "new lira" for domestic use.

While the general scheme is jointly backed by the centre-right group, including the far-right Brothers of Italy, the League has separately presented a detailed plan to issue "mini-BOTs", named after Italy's short-term government bonds.

Once in circulation, the League says these notes could be used to pay taxes and buy state-provided goods and services, such as petrol from government-controlled oil company ENI.

"We (Italians) will use these to pay taxes but they will also circulate in place of (the euro) currency," Borghi said at a campaign event in Siena on Wednesday.

For the League, the measure is also a step towards preparing for what it sees as the euro's inevitable collapse. Support for the party has soared since 2013, coinciding with increasing hostility to the European Union among Italians.

In Siena, Borghi presented mock-ups of the "mini-BOTs", worth 50 euros and 200 euros respectively.

He said putting 70 billion euros-worth of the notes into circulation could add between 2.5 and 3 percentage points to economic growth.

According to the last polls published before a blackout period began last week, the centre-right has a clear lead but is unlikely to win a working majority.

Most polls put Forza Italia ahead of the League, but some by a narrow margin. The two parties have agreed that whichever gets the most votes will pick the premier and guide policy-making.

The anti-establishment 5-Star Movement, which has rowed back from a pledge to hold a referendum on Italy's membership of the euro, is the most popular single party, polling a shade ahead of a centre-left coalition formed around the PD.

(Reporting by Isla Binnie in Rome; Editing by Catherine Evans)