On February 5, more than a hundred economists, including Thomas Piketty, Laszlo Andor and Paul Magnette , ask the European Central Bank (ECB) to cancel the public debts it holds (about 2.500 billion EURO) to facilitate resilience in the post-Covid-19 era.
This appeal, published in nine European newspapers in French, English, German, Italian and Spanish, emphasized that "citizens are discovering, some of them with dismay, that nearly 25% of European public debt is now held by their central bank. We owe ourselves 25% of our debt". "If we repay this sum, we have to find it elsewhere, either by re-borrowing to roll the debt instead of borrowing to invest, or by raising taxes, or by cutting spending", notes the manifesto. All three options would slow down growth and prevent economic recovery.
The collective of economists indicates that in exchange for writing off public debts, or transforming them into interest-free perpetual debts, states would commit to "invest the same amounts in ecological and social reconstruction". And could "also repair the social, economic and cultural damage after the terrible health crisis we are going through".
In response to the call from the economists, ECB’s Lagarde1 told France's Le Journal du Dimanche on February 7: "Cancelling that debt is inconceivable". "It would be a violation of the European treaty which strictly forbids monetary financing of states," she said, calling it one of the "founding pillars" of the euro single currency. She believed that although all euro area countries will emerge from this crisis with high levels of debt, they will manage to repay this debt. She also commented that rather than expending so much energy asking for debt to be canceled; it would be much more worthwhile to focus instead on how this debt should be used, on how public funds will be allocated, on which sectors we should invest in for the future.
She forecasted that 2021 would be a year of "recovery" but acknowledged that the Eurozone would not return to pre-pandemic levels of activity "before mid-2022".
Besides, Lagarde predicted that the euro area growth rate would be around 4% this year, depends on the vaccination policies and the rollout of the campaigns and on the economic measures taken by governments in response to health requirements.
ECB President affirmed that “the current crisis has strengthened the European Union”, stressing that the decision taken by the Member States to borrow jointly for the first time marks a moment of exceptional cohesion in the history of the European project. However, she also pointed out that the crisis has exacerbated any pre-existing gaps, explaining why the Next Generation EU recovery plan is even more crucial, particularly the support it will provide through the grants given to each Member State, tailored precisely to their specific national situations. For example, Italy will receive around €200 billion in grants and loans.
1 Christine Lagarde is a French politician, businessperson and lawyer. She held various senior ministerial posts in the Government of France: she was Minister of Commerce (2005–2007), Minister of Agriculture and Fishing (2007) and Minister of the Economy, Finance and Industry (2007–2011). Between July 2011 and September 2019, she became the first women to serve as Chair and Managing Director of the International Monetary Fund. She served as serving as President of the European Central Bank since 1 November 2019.
Source:
https://www.ecb.europa.eu/press/inter/date/2021/html/ecb.in210207~f6e34f3b90.en.html
https://en.econostrum.info/A-hundred-economists-call-on-the-ECB-to-cancel-the-public-debts-it-holds_a889.html