TRIBUNE. “Covid debt” is not necessarily a problem

The current crisis reminds us that our modes of production and consumption must be transformed. New public spending is necessary and will only be possible within an overhauled institutional framework, which will organize the long-term sustainability of public debt.

There are short-term needs. Measures to support the economy such as short-time working are essential to avoid an even greater collapse. They must even be greatly increased, in particular for the most vulnerable people, in order to limit the social consequences of the economic crisis.

It is just as necessary to commit large amounts and over several years to meet our structural needs. Massive investments that only the local authority can support must be made in transport, in building insulation or even in energy transition. The aim is to reverse a trend that began in the early 1980s: that of the decline in public investment.

However, far from “whatever the cost”, many voices are already using the sharp increase in public debt observed in 2020 to shape public opinion on the return of austerity, which would be the only possible policy. As Emmanuel Macron excludes going back on the massive tax gifts of the pre-crisis period, public spending should be limited so that the State remains able to honor its financial commitments.

Canting, the worst solution

The proposals in terms of confining the Covid debt respond to this logic. The aim is to identify the share of public debt attributable to the health crisis in order to separate it from the rest of the public debt. The State would then undertake to repay this part of the debt quickly to return to the pre-crisis situation. This proposition is the worst of all. First, because it explicitly aims to return to the logic of the world before, making public debt a scarecrow. It is high time to get out of this neoliberal logic. We suffer from unemployment, degradation of public services and climate change; not from excess public debt. Then because, in doing so, we do not draw any consequences from the dramatic recourse to blind budgetary austerity implemented in Europe from 2010.

Cancel, an unnecessary measure

A different proposal has flourished since last summer: it suggests the cancellation of public debt securities held by the European Central Bank. Unlike the cantonment, this proposal aims to offer room for maneuver in fiscal policy: by reducing the stock of debt through cancellation, the government would thus be able to issue new securities financing the public investments required by the in place of the ecological transition. This proposal, aimed at ensuring the State’s ability to intervene usefully, is obviously clearly preferable to cantonment. But she could suggest that public debt is a problem today.

Yes, we can eradicate poverty!

There is nothing to confirm this from an economic point of view; this “excess debt” (because greater than 60% of the GDP) is caused by the existence in Europe of absurd rules, which are currently only suspended, which aim to curb public spending. Remember that the French state is indebted at historically low interest rates, and even partially negative. Moreover, the interest charge paid each year fell by more than 15 billion between 2011 and 2019 even though the debt increased by nearly 20 points of GDP. Let us also remember that the value of public assets exceeds that of public debt, meaning that every French person is born with positive net assets. The problem is therefore not so much the level of debt estimated today at 120% of GDP but the way in which it is issued and supervised.

Protect, the right way

In the current framework, the sustainability of public debt could be called into question. Although unlikely in the short term, the interest rates charged on government securities may rise as a result of a change in the perception that financial markets have of the fiscal policies carried out. This is why we are calling for the organization of less exposure of this debt vis-à-vis the financial markets.

The public deficit is necessary when it comes to financing public investment and supporting activity in the event of a crisis; the challenge is to ensure that these necessary expenses can be financed smoothly. Of course, not all deficits are useful: unproductive and unfair tax giveaways must be done away with. In addition, the recurrent public expenditure linked to our model of society must be financed by taxes and contributions.

It is therefore important to review all of the State’s financing mechanisms. It is necessary to realize that the logic of supply (exemptions from contributions, reduction of taxes on production, etc.) which leads to eroding the tax base in order, it is claimed, to retain the richest or to improve the competitiveness of the largest companies is futile and generates bad debt. The progressive nature of taxation must be reinforced, the only method capable of encouraging consent to tax and allowing recurrent financing of public services.

Help states roll off their debt

The central bank has a key role to play in order to allow the state to roll over its debt, that is, to borrow again to repay old loans. This requires that it be able, if necessary, to acquire new bonds issued by States (“primary market”), in order to control the evolution of their interest rates. This would avoid the speculative bubbles created by the current policies of Quantitative Easing [des programmes d’achats de titres déjà existants et échangés sur le « marché secondaire », NDLR]. This possibility is currently prohibited under European treaties which also set arbitrary and absurd rules concerning budgetary policies.

These treaties must be reviewed. It is also necessary to regulate the credit activities of banks and impose on financial institutions an obligation to hold public securities, as was the case in France from the end of the Second World War until the 1970s.

The challenge is ultimately to guarantee States the possibility of borrowing at a controlled cost. This presupposes an institutional organization which cannot be a marginal adjustment of the current system. Financial markets must be prevented from “judging” fiscal policies. These should only be guided by the needs of the population and the pressing need to implement the ecological transition.

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