Tribune. Faced with the rapid growth of public debts, which will make them climb from 7% to 22% of the gross domestic product (GDP) of European states, some economists simply suggest drawing a line under this additional debt. Not directly, but through the European Central Bank (ECB).
Indeed, for several years, the latter has been buying public debt securities from banks and other possible holders – to the chagrin of many financial experts from northern European countries, and under the inquisitive gaze of the Court German constitutional government of Karlsruhe. Mario Draghi had launched this policy in Europe. Christine Lagarde plans to add 1,500 billion euros to it.
The ECB’s balance sheet should therefore rise above 6 trillion. It would suffice, say the supporters of the cancellation, for the ECB to cancel the debts it has bought, that is to say, part of its assets. It might move to negative equity, since the liabilities would remain constant, but, unlike other banks, it can work very well because it enjoys the monetary privilege, that of issuing money.
Under the prudential supervision of the ECB
But you have to understand the game of scriptures. It is the States of the Union which own the ECB, whose shares forming its capital appear at the top of its liabilities. If the capital of the ECB becomes negative, it is the heritage of the States which decreases accordingly. Therefore, even if this writing game is possible, the markets would not be fooled and many states would still find it more difficult to borrow.
In addition, from a legal point of view, canceling claims on states acquired by the ECB amounts to directly funding these states, that is to say, transgressing the treaties. This is why the Court of Karlsruhe and its northern counterparts may well see very red. Not to mention that this would postpone the international role of the euro on world markets far in time.
There is, however, a less “dramatic” solution: it would be the European banks, under prudential supervision by the ECB, which would directly cancel the claims they hold on the various states, for roughly equal sums. For example 100 billion euros of the claims of the banks of country A towards the State of country B, and 100 billion of claims of the banks of country B on the State of country A. Between countries C and D, this would not be however only 10 billion, and so on…
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