European economists urge debt cancellation

PARIS: More than 100 economists called Friday on the ECB to give a 2.5-trillion-euro ($3.0-trillion) boost the economic recovery of the single currency zone from the Covid-19 pandemic by writing off the public debt it holds.

In an open letter published in major newspapers in leading eurozone countries, the economists note that a quarter of the public debt of nations that use the euro is now held by the European Central Bank.

"In other words, we owe ourselves 25 percent of our debt and, if we are to reimburse that amount, we must find it elsewhere, either by borrowing it again to 'roll the debt' instead of borrowing to invest, or by raising taxes, or by cutting expenses," wrote the economists, according an English copy of their letter received by AFP.

All three of those options would depress growth and hold back recovery.

The economists propose instead that the ECB forgive these debts in exchange for the countries pledging to spend the equivalent amount on a green transition and social projects, which the economists say would result in a stimulus package of nearly 2.5 trillion euros.

Such a move would "immediately give European nations the means of their green recovery, but also heal the severe social, cultural and economic damages undergone by our societies during the devastating Covid-19 health crisis," they wrote.

The eurozone economy shrank by 6.8 percent last year, and hopes for a strong rebound this year are fading fast as the rollout of vaccines has moved slowly while new, more contagious variants of the coronavirus are spreading globally.

ECB Vice President Luis de Guindos said Friday that a debt cancellation would have a negative impact on the "reputation, credibility and independence of the central bank".

The economists said there were no legal impediments to the move, rather it was a question of the political will of European leaders to use monetary policy tools to the full extent.

The signatories of the open letter include Thomas Piketty, whose hit book "Capital in the Twenty-First Century" turned him into one of a handful of so-called "rock star" economists globally and a policy adviser to leftwing politicians in Europe and the US. The open letter was published by the Le Monde in France, El Pais in Spain, La Libre Belgique in Belgium, Der Freitag in Germany and the Avvenire in Italy.