BZ-GUEST ARTICLE: Heinrich Röder thinks that the stability rules in the Eurozone must be relaxed.
Economists, including Thomas Piketty, have recently been campaigning for the European Central Bank (ECB) to cancel debts and write them off. This is well meant, but it would accomplish the opposite of what is intended to be accomplished. Because this creates the impression that European countries, the southerners ahead, are bankrupt and therefore only a haircut can help. The German taxpayer will believe that he has to pay for the Italians’ debts. The German politician will declare that debts have to be repaid.
Even if it seems different prima facie: A European state always gets its money from the ECB. If normal banks lend money to the state, i.e. buy a government bond, then they must have received the money beforehand from the ECB – be it that the ECB gives the bank a loan, be it that the bank has made money on its ECB through previous transactions Account has collected. And where does the ECB get the money from? She credits it through a computer entry to the banks, which then pass it on to the state. That’s all.
Strictly speaking, taxes do not finance anything either. When we pay taxes, we are only giving back to the state part of the money that was previously put into circulation by it and the ECB. Taxes are used to steer the economy: they redistribute money, they withdraw money from the economy and thus prevent inflation – and they can punish harmful behavior. In the euro zone, the ECB is forbidden to give money directly to states. It can only buy bonds from the banks. The proposal by Piketty and Co. relates to these bonds acquired by the ECB.
There are economists who consider this intervention by banks to be correct: The informed banks know about the creditworthiness of a country and offer a corresponding interest rate. In addition, direct financing by the ECB leads to inflation. Both are wrong: the interest rate is set on the market by the ECB. And banks buy bonds when they know they can always sell them to the ECB. Inflation? Canada has a long tradition of direct government funding from the Canadian central bank. This has not led to increased inflation. Britain is following suit.
What should happen to a state’s debt? If the state wants to pay off its debts, the income (taxes) must be higher than the expenditure. He can also replace the due bond with a new one and thus extend the loan, or the ECB simply buys the promissory note. Which of these options the state (and the ECB) choose depends on the economic situation. The state can never go bankrupt because the ECB can always “knock it out”. It can produce any amount of euros.
Even if the state would never repay its debts to the ECB, this would not be at the expense of anyone, not even at the expense of the taxpayer. This is difficult to understand because private debt is different. Money is a control instrument of the state. The level of debt is a side effect of his actions. Its aim should be to stabilize the economy. Debt increases and decreases with the amount of expenditure.
The state can make mistakes; its biggest mistake is often not spending enough. If we understand that money is a means of government control, that it can, together with the ECB, add or withdraw money from the economic system as needed, then we know that the state should never pursue the goal of low debt for its own sake. However, the rule system of the euro prescribes a certain level of debt as a target. This is wrong and the system must be readjusted.
Piketty gives the impression that European states are objectively in dire straits and that a haircut is therefore necessary. In fact, we have an emergency generated by the rule system of the euro (that is something completely different) because the states are forbidden to exceed a certain level of debt and to finance themselves directly from the ECB. Other industrialized nations have better rules. The euro rules must be scrutinized.
So that we can approach this calmly, we need a special regulation for corona debts: Any state can leave it with the ECB forever, but it can repay it if it makes economic sense.
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