A wall of debt. This is the picture that best describes the obstacle that most European countries will face the next day. In France, for example, the government’s 110 billion euro emergency plan to deal with the coronavirus should already translate into a sharp increase in the budget deficit to 9.1% of gross domestic product (GDP) and a surge in public debt to 115% of GDP.
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“A level that can further increase, in France and elsewhere in the euro zone, to become unsustainable, at the risk of seeing a recurrence of the sovereign debt crisis of 2012 which had threatened to break up the euro zone”, warns Jézabel Couppey-Soubeyran, of Paris-1 University.
Exit traditional recipes
Also, while waiting for the States of the Union to agree on a recovery plan and the means to finance it, some economists have taken at their word the Portuguese Mário Centeno, president of the Eurogroup of finance ministers, inviting at “Be innovative and get out of traditional cookbooks”.
But old pots may still prove useful. What the promoters of “perpetual bonds” claim, an instrument which had its golden age in the 19the century before falling into disuse after World War II.
The principle is simple: a state raises capital by promising investors the payment of regular interest over the very long term, which exempts it from paying back the capital. An idea that Daniel Cohen, director of the economics department of the ENS, and Nicolas Théry, president of Crédit Mutuel, took up this idea on their own and adapted it at the time.
“This long-term debt, over 50, even 100 years, would be taken out by the European Central Bank (ECB), emphasizes the banker. Monetary policy would thus make it possible to take on health and climate debts and free up room for maneuver so that the States, whose crisis has brought back to light the importance, invest in the care of dependency, education and universal income. “
Cancellation of debts subject to conditions
Another breathtaking proposal emerges from a note published by the think tank Terra Nova and signed by Laurence Scialom, of Paris-Nanterre University and doctoral student Baptiste Bridonneau (1). Their solution? The ECB should cancel part of the public debts it already holds, conditioning this discount on a commitment by states to invest as much in priority future sectors, in particular climate transition projects.
“This option would not reduce the level of debts, but would restore the room for maneuver of the States while restoring strength to the European project”, says Laurence Scialom.
Just as iconoclastic is the idea put forward by Jézabel Couppey-Soubeyran: ensuring the financing of public expenditure by a transfer of central money without any consideration (2). “Currently, the ECB indirectly finances the states by buying back their debt securities on the markets with a strong risk of being unable to resell them. Why not formalize the situation by allowing the institution to make a direct donation to the treasures? “, she pleads.
Brainstorming and false debate
Perpetual bonds, cancellation of conditional debts, free distribution of money: this proliferation of proposals leaves skeptical Christopher Dembik, chief economist of the Saxo Bank group.
“This brainstorm is intellectually stimulating, but it is a false debate, he explains. Yes, the debts will increase. But the action of the ECB, which will commit € 1 trillion over the year and more if necessary, will allow states to finance themselves without considerable cost. The real problem is that of the bailout of weak businesses which is far from being consolidated. “ Among economists and within the Union, the debate on how to revive the economic machine after the crisis has only just begun.