The European Central Bank ruled out Tuesday the option of canceling the debt of states it holds in the portfolio, an idea suggested by some economists to deal with the impact of the coronavirus pandemic.
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" I hear the debate in France on the cancellation of debts held by the central bank, but this is not an option for the ECB, " said Fabio Panetta, member of the ECB executive board, in an interview granted daily Le Monde . Beyond the legal constraints prohibiting such a practice, " the citizens would risk losing confidence in the currency ", and that "would end in financial disorder ", explains the Italian central banker.
The latter does not want to repeat the experience of Germany in the 1920s, a period of hyperinflation during which citizens had to " transport tickets in wheelbarrows because the currency had lost its value ". " This is not the way to create prosperity, " and it is " why the treaties prohibit monetary financing, " concludes Panetta.
An abundant debate in France
At a time when eurozone states have to go into massive debt in response to an unprecedented recession caused by the coronavirus pandemic, the ECB increased its emergency program by 600 billion euros to buy public and private bonds , initially endowed with 750 billion euros. However, the Treaty on the Functioning of the EU prohibits the custodian of the euro from canceling the repayment at maturity of sovereign bonds it holds in its portfolio.
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The question of a debt cancellation by the ECB has fueled an abundant debate in France lately, like a column published in Le Monde on June 12 where a member of the European Parliament and six economists advocated the cancellation public debts bought back since 2015 by the ECB, i.e. € 2.320 billion for the whole of the EU, including € 457 billion for France, at the end of May 2020.
The National Assembly rejected in early June a proposal for a resolution by rebellious France advocating " the repurchase of public debt by the European Central Bank ", the government pointing to problems of an " economic and political " nature and a " anachronistic " proposal "
