Econostrum | Economic News in the Mediterranean



ECB President rejects any idea of debt cancellation

Christine Lagarde refuses any cancellation of public debt (BFMTV screenshot)
Christine Lagarde refuses any cancellation of public debt (BFMTV screenshot)
EU. Christine Lagarde's response to the manifesto published by a hundred or so economists calling for the cancellation of the public debt held by the European Central Bank was not long in coming. The President of the ECB said in an interview on BFMTV on Sunday 7 February 2021 that this was "unthinkable".

The signatories of this text, which appeared on Friday 5 February 2021 in nine European newspapers in French, English, German, Italian and Spanish, stressed that nearly 25% of European public debt was in the hands of the Central Bank. "We owe ourselves 25% of our debt", they were astonished to plead for the cancellation of public debts or their transformation into interest-free perpetual debts. In exchange, they suggested that states would commit to "invest the same amount in ecological and social reconstruction".

Christine Lagarde develops several arguments for refusing the cancellation of public debts. Firstly, the president of the ECB points out that this is "legally impossible, it would be a violation of the eurozone treaty (...) This treaty says that you cannot turn the banknote printing press around to finance state spending". This is Article 123: "To my knowledge, there is no unanimity of the Member States to revise the Treaty", she added.

"Debts are managed over a long period of time"

Cancellation would also "call into question the French signature" and therefore impact investor confidence. "It would be much more expensive to refinance", Christine Lagarde emphasises. She suggests that to repay this debt "time, growth and thirdly, control of public spending, and here I believe that in France we have a little room for manoeuvre on the subject".

In an interview in the Journal du Dimanche on Sunday, 7 February 2021, the President of the ECB stated that "there is no doubt" that the countries of the euro zone will manage to repay this debt. "Debts are managed over a long period of time. Investments made in sectors that are decisive for the future will generate stronger growth (...) "the recovery will create jobs, and thus federate. We are moving towards another economy, one that is more digital, greener, more committed to climate change and to maintaining biodiversity". For Christine Lagarde, "2021 will be a year of recovery" but "we will not return to pre-pandemic levels of economic activity until mid-2022".

Eric Apim

Monday, February 8th 2021

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