Pour olive oil into a large pot and place it over medium flame.  Once the oil begins to smoke add onion, garlic, and bay leaves.  Cook until the onions are translucent.

Next add tomato paste, salt, and black pepper. Cook until the tomato paste has darkened, about five minutes.  Add the peppers continue cooking until they have softened, about another 10 minutes.

Add wine and water.  Turn up the heat and bring to a boil. Cover the pot, reduce the heat to a medium low and simmer for 20 minutes.  This will give the peppers time to break down further.

Uncover the pot and turn the heat back up and stir until most of the liquid has evaporated.  To finish, take off the heat and remove the bay leaves.  Stir in basil, balsamic vinegar, and season with salt and pepper.