- The Covid-19 pandemic pushes states to launch economic rescue plans.
- These plans often lead to the creation of new debts, and pose a risk in the future.
- Some economists argue for a new approach, via the monetization of these debts.
It is an expression which was not used by chance. During his speech on March 12, Emmanuel Macron repeated three times that the state would help the hospital, businesses, employees during the coronavirus crisis, "whatever it costs." The benchmark, at least for those who adore economic news, was crystal clear.
Summer 2012. The European Union is in crisis. Greece is on the verge of an exit from the euro, Spain and Portugal have to borrow money at exorbitant rates on the markets. On July 26, ECB Governor Mario Draghi speaks and ensures that the central bank is ready "to do whatever it takes " to save the euro, including a massive buyout the debt of countries in difficulty. The announcement works: the spread in interest rates (the spread ) that had widened between different countries in the euro zone (for example Germany and Italy) is narrowing, a sign that the markets have regained confidence.
Eight years later, "whatever it costs" is back. But does France, like the other European countries, really have unlimited means? For Jézabel Couppey-Soubeyrand, economist and lecturer at Paris 1 Panthéon-Sorbonne, "the States are taking on a major role and must mobilize all that is necessary. In this phase, we must not count the expenses, but we must question the mode of financing. Classic solutions don't necessarily work. It is difficult, if not impossible, to raise taxes or create a new tax during an epidemic, for example, when the economy is down. The government also does not intend to reverse the abolition of the ISF, a real political marker. He also postponed the privatization of Aéroports de Paris: the markets being in free fall and air transport being paralyzed, the sale would have brought in much less than expected.
Borrowing at any cost?
There remains therefore the path of borrowing on the financial markets, and therefore of debt. For now, France is rather lucky: the interest rates at which it borrows long term (more than ten years) are negative, which paradoxically allows it to earn money via this lever. Indeed, investors are so in search of security for their investments that they are ready to lose a little money while being certain to recover the major part of the stake. Does this mean that France has found an inexhaustible vein? No, because these interest rates may very well rise in the coming months, which would further increase the debt burden.
As a 2017 Senate report recalled, "interest rates could rise very quickly if investors came to consider that France's financial situation is too degraded and jeopardizes its solvency or that the credibility of the euro zone is called into question ”. In other words, if France went into excessive debt, investors would doubt its ability to repay and it would find no one to lend it to. For Xavier Timbeau, director of the OFCE, this level is still far from being reached: "with two months of confinement, the impact of the coronavirus would be around 5 points of GDP [around 120 billion euros of wealth not created], thus potentially 5 points more public debt [if GDP falls, the debt ratio increases mechanically]. Compared to the 2008 crisis, where the public debt had increased by 40 points, it was not much. And at the time, we were not talking about sustainability [a country's ability to repay] ”.
France therefore seems - at this moment - immune to a debt crisis. “A huge expense, if temporary, will drive up the debt. But if growth starts again afterwards, it is absorbable for a country like ours, ”notes Agnès Bénassy-Quéré, professor at the Paris School of Economics. This is not necessarily the case for all the eurozone countries also affected by the epidemic.
Each state launched its support plan, often on a “whatever the cost” basis, and by resorting to borrowing. But the currency may be the same, the debts remain national: the German loan is made at more advantageous rates than the Italian loan, for example. The Italian debt already exceeds 135% of GDP. "The risk is that after a while, investors have doubts that Italy can repay its debt, and prefer to buy German debt" analyzes Xavier Timbeau. We would then find ourselves in a situation where Italy would no longer be able to borrow money and could find itself in default. A catastrophic scenario for Jézabel Couppey-Soubeyrand: “If Europe does not know how to manage this crisis in a united manner, this will be proof that the euro zone is useless. "
The central role of the ECB
To allow "whatever it costs" to work, it is therefore necessary to call on the European Central Bank (ECB), which manages the monetary policy of the euro zone. On March 18, it announced that it would buy 750 billion euros in public and private debt by the end of the year. Concretely, this means that Italian debt holders will still be able to resell their claims to the ECB, which will reassure them that they will continue to lend money to Italy. A quantitative easing operation carried out intermittently since 2015.
“This cooperation between fiscal and monetary policy, with the central bank buying back debt, is what we see in war. The states, alone, cannot get out of it, there is no other solution ”supports Agnès Bénassy-Quéré.
However, this policy does not go far enough for Jézabel Couppey-Soubeyrand: "The debt buy-back does not make it possible to lighten public finances, since the debt is still there". For the economist, the ECB must consider other options: "We could consider, while maintaining the current regulatory framework, that the amounts of securities purchased by the ECB are excluded, in accounting terms, from the public debt ratio". Debt would exist, but would not officially “weigh” on this indicator. It would be a form of accounting device.
"Corona-bonds"
Another idea: the ECB could issue “Euro-bonds” or “Corona-bonds”: “it would be a debt pooled at the level of the euro zone, which would allow a better spread of financial risk” explains Jézabel Couppey-Soubeyrand. The idea was nevertheless rejected last week by Germany and the Netherlands, who refuse to "pay" for Italy, which they criticize "lax budget". Instead, Chancellor Angela Merkel advocates the use of the MES, the European stability mechanism. If it is designed to help countries in crisis, it also supposes that the beneficiary States commit themselves in return for far-reaching reforms and austerity policies. A form of loss of sovereignty unacceptable to Italy.
The last idea would be that of a "monetization" of the debt, in other words the famous "printing press": the debt is "converted" into money. The option is not new and is causing a lot of debate among economists. "The ECB could grant states a perpetual loan for the sums linked to the management of this coronavirus crisis," details Jézabel Couppey-Soubeyrand. It would be money available to states, which they would not have to reimburse. ” This monetary policy is prohibited by the European treaties, even if certain economists consider that it is possible to circumvent this prohibition.
The risk of a return to normal
In the end, for Jézabel Couppey-Soubeyrand, the idea is to allow states to rebound after the epidemic: “The future is also the management of climate risk. If we manage this coronavirus crisis by exploding debt levels, we will consider that we do not have the means to prevent this other risk. ” Others consider that monetization is too risky: "it can generate a behavior of budgetary laxity and systematic financing of the public deficit by the central bank, which would end up causing inflationary tensions" remarks the Ministry of Economy and Finance on his site.
The other difficulty which the States are likely to be confronted with is that of returning to normal after “whatever it costs”. If the ECB maintains its conventional policy, without monetization, "there will be pressure to absorb the debt," explains Xavier Timbeau. This will go through a reduction in public spending or an increase in taxes ”. "At the end of the crisis, there will have to be a debate on the allocation of public resources," says Agnès Bénassy-Quéré. For example, shouldn't we work a little longer to have a better health system? " If the "whatever it costs" is not yet finished, the bill promises to be salty.
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- Economy
- Debt
- Emmanuel Macron
- Euro
- Covid 19
- Coronavirus
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