A few days ago, some economists, led by Thomas Piketty , made a revolutionary proposal through a manifesto: “the cancellation of the public debt in the hands of the European Central Bank (ECB)”. In less than 24 hours, the vice president of the ECB, the Spanish Luis de Guindos.
pointed out that this proposal “did not make economic and financial sense”, in addition to being contrary to the Treaties of the European Union. The next day, the President of the ECB, Christine Lagarde publicly insisted on the direct rejection of the ECB to the proposal.
This proposal has a couple of important inaccuracies. In the first place, there is a first lack of definition that derives from not taking into account the operation of the European System of Central Banks of which the ECB and the central banks that are its shareholders are part.
The purchase of public debt is carried out by the national central banks,in Spain the Bank of Spain with the money lent by the European Central Bank, which is the issuer of the money. Thus, in the financial accounts published by the Bank of Spain this is reflected as a debtor position (of the Bank of Spain) with the Eurosystem. This means that, if all this is to have any effect, it would be necessary to cancel not only the public debt but also the debt of the national central banks with the ECB, since, for practical purposes, it does not matter if a debt is of the Treasury or Bank of Spain.
Secondly, there is another statement that should be qualified: that from 2015, when negative interest rates began, until the health crisis began, the level of debt in Europe decreased. Well, consulting Eurostat, it is seen that between 2015 and the end of 2019 the public debt increased both in the Eurozone and in the overall European Union.
En la Eurozona, la deuda pública pasó de 9.56 billones a 10.02 billones de euros. Efectivamente, la deuda pública como porcentaje del PIB se redujo ligeramente, pero eso es simplemente fruto del crecimiento económico y sólo significa que la deuda pública era más sostenible no que los Estados debiesen menos dinero. No se entiende muy bien porque se considera positivo tener más deuda pública en sí mismo, pero aún menos que creamos que debemos menos cuando debíamos y debemos más.
The proposed purpose of this debt forgiveness is to invest in “economic and social reconstruction”, and what is intended to avoid is that that part of the debt has to be refinanced and cannot be invested. Or rather that if you have to make new investments, which actually involve public spending, you have to cut other expenses or raise taxes .
From an economic point of view this seems like the multiplication of the loaves and fishes, that is to say a miracle. If you want to invest in “economic and social reconstruction” then the resources have to come from somewhere: in this case where would they come from?