Should we cancel the public debt inherited from the measures taken to fight the coronavirus pandemic? The debate seems like nothing lunar while the crisis is far from over, that no State has a problem to finance itself and that interest rates never have been so low thanks to the European Central Bank ( ECB) which buys Treasury bonds with a vengeance … But there you have it, the “whatever the cost” martially proclaimed by Emmanuel Macron last March to announce unlimited support for the economy, begins to worry: the load of this debt will it not weigh heavily on assets, which have been sacrificed by the health policies adopted, and on future generations?
The numbers are staggering. The French debt literally exploded in 2020, crossing the symbolic bar of 100% of the GDP to settle at nearly 120% against 98% in 2019. In forty years, the debt has multiplied by six, since it is s’ established at 20% of the GDP in 1980. Admittedly, for the moment, it costs nothing thanks to the euro: France borrows even at a negative rate at ten years! Thus, while the indebtedness has doubled since 1995, the debt service (the interest payable each year) continues to decrease, falling from nearly 3.4% of GDP to 0.8% in the same period of time.
Still, one day, it will have to be repaid. However, there are not thirty-six ways to do it: either we increase taxes, or we cut in public spending, or we do both by finding the right mix so as not to break growth. Another, much more radical method is to cancel the debt or to restructure it as we say in financial parlance, in whole or in part. This is the solution advocated by part of the left and economists and not just the left (from Alain Minc to Thomas Piketty). Thus, in a call published on February 5, 150 European economists (one third of whom are French) propose that the ECB erase 25% of national public debts (one third of the debt of large states), i.e. 2,500 billion euros , which it bought to help states cope with the pandemic or, at the very least, transform them “in perpetual debt without interest ”.
Conviction in advance
An idea immediately dismissed by Christine Lagarde, the President of the ECB, who, in the Sunday Newspaper, considers that it would constitute “A violation of the European treaty which strictly prohibits the monetary financing of States”. Not to mention that the unanimous agreement of the Twenty-Seven would be necessary, which condemns it in advance, so hard is it to imagine Germany agreeing to this idea that there would be magic money.
Above all, we really do not see the point of such a cancellation since, de facto, the debt is already canceled! Indeed, the bonds held by the ECB are free for the State since it pays it back the interest paid via its central bank. Of course, the principal will have to be repaid one day, but the ECB has no intention of ultimately reducing its balance sheet: it should renew it at maturity so as not to overwhelm the economies of the euro zone unless , by then, the hawks take power in Frankfurt …
In other words, launching the debate on the cancellation of the Covid debt when the ECB is intervening massively in the markets and while the Union will soon disburse the 750 billion euros from its stimulus fund adopted last July, it is is to take a big risk, that of drawing the attention of the markets, which will wonder when their turn will come, on the real situation of the economies of the euro zone. All the more so as the gaping gaps have widened between the north and the south of the euro zone (the recession in Germany was twice less than in France…). However, removing 20 points of debt will not change the trajectory of France, which has the unique characteristic of having both the highest taxes and public spending in the OECD. In short, if France does not quickly implement far-reaching reforms capable of reviving growth in order to return to sustainable public finances, rates could quickly start to rise again, which would bring it to its knees. The only debate that is worthwhile should be about the use of the money pouring into the country and not about a phantasmic debt cancellation.