Public Debt In The Eurozone: A Political Problem

by Thomas Fazi

Public Debt In The Eurozone: A Political Problem

…It is unparalleled anywhere else in the world. In “normal” countries – that is, advanced countries that control their currency – there is a strict operational (if not political) relationship between the central bank and the government, where the former tends to support the decisions made by the fiscal authorities. There, public debt is almost never a problem. We have the example of Japan: even though the country has the highest debt-to-GDP ratio in the world (close to 230 per cent), the central bank in recent years has effectively written off a huge chunk of the debt – more than 40 per cent of the country’s public debt has now been permanently buried in the Bank of Japan’s balance sheet – and has just announced that it will keep interest rates on government securities at zero for the foreseeable future, to reduce the government’s interest burden and help it pursue more expansionary fiscal policies. And guess what? The country is close to full employment. So much for the problem of excessive public debt.

This is the opposite of what happens in the Eurozone, where the central bank essentially tells governments: we will help you service the debt but only if you agree to implement austerity and forego any form of expansionary fiscal policy. This goes to the heart of the problem: public debt in the Eurozone is a political tool – a disciplining tool – used to get governments to implement socially harmful policies (and to get citizens to accept these policies by portraying them as inevitable). We saw this at play in Italy, in 2011, when the ECB effectively used its monopoly currency-issuing powers to pressure a democratically elected government into resigning. And, of course, we saw it in Greece during the infamous summer of 2015, when the ECB paralysed the country’s banking system by cutting off its banks’ access to central bank liquidity……


About Kristjan

Defitsiidi terrorismi vastase pataljoni eriüksuslane (finantsignorantsuse vastu võitlemise osakond). Treening: MMT, postkeinsism, Tartu Ülikool Majandusteadus
Rubriigid: English. Salvesta püsiviide oma järjehoidjasse.

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