Notes on the Front

Over one hundred economists throughout Europe have called for the €2.5 trillion in government debt held by the European Central Bank to be effectively cancelled.  This makes up approximately 25 percent of total Eurozone debt.  It would be, as the signatories state, a first step in Europe’s recapture of its destiny.

Governments have seen their debt rise considerably during the pandemic crisis.  Eurozone government debt has risen from 86 percent of GDP in 2019 to 97 percent by the end of September last year.  Ameco estimates suggest this could rise to over 100 percent this year.  Debt could rise by over €2 trillion by 2022.

In Ireland we may well end up weathering this storm rather well – at least in terms of the GDP ratio, given the strong level of multi-national related activity.  Nonetheless, actual debt levels could rise by €50 billion out to 2022. 

Unlike during the last recession, when many could blame ‘fiscal irresponsibility’ on the part of countries that got themselves into a debt crisis (think Greece), no such blame can be levied against any EU country.  This was truly an external event, an unforeseeable natural catastrophe.  And debt was the inevitable result of states acting in the interests of public health. 

So, with much of this state debt being held by the ECB through their programme of buying up bonds on the secondary markets to maintain low interest rates, we have an excellent opportunity to redirect this debt into productive purposes.  According to the economists:

‘Our proposal is therefore simple: let us enter into a contract between the European states and the ECB. The latter commits to erasing the public debts it holds (or turning them into perpetual interest-free debts), while states commit to invest the same amounts in ecological and social reconstruction.’

So there is a quid pro quo:  the ECB cancels the debt and states use it for investment.  In this way, the debt levels don’t necessarily fall but a significant proportion is transformed from the dead hand of debt and debt repayments, into an ambitious investment programme to: 

‘ . . . 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.’

We already have a template:  the EU’s Recovery and Resilience Fund.  This is a €675 billion fund to finance investment and reform measures to boost a green and digital recovery throughout the EU.  With debt cancellation, this could be transformed into a €2.5 trillion investment and reform fund.  And, according to the economists, there are no legal obstacles to this course (despite initial objections, there were no legal obstacles to the ECB’s quantitative easing programme).  As always it comes back to policy innovation and political will.  We need a new ‘whatever it takes’ moment. 

In Ireland, the Irish Fiscal Advisory Council has estimated that approximately 75 percent of the deficit is a temporary response to the Covid crisis (the other 25 percent being a permanent increase in spending).  If so, we could see that upwards of €25 billion to €30 billion in Covid-related debt could be directed into a medium-term investment programme (this is just a back-of-the-excel-sheet estimate). 

This could be a transformative step in addressing the existential crisis of climate change and the challenge of automation and AI.  This has the real prospect of raising everyone’s living standards, reducing inequality, and bringing life-changing relief to the 70 million Eurozone residents living in poverty or social exclusion (over one million in Ireland).

Of course, we are just one nation – and a small one at that.  What does it matter what anyone says here?   It does, though.  We could deliberate this proposal at the highest elected level.   The Dail could debate a resolution calling for the transformation of Covid-related debt (or public debt held by the EU – it comes close to the same amount) into investment for green recovery and social reconstruction.

Were the Dail to pass such a motion, we could give leadership throughout Europe over the issue of debt transformation; if only by virtue of being first mover.  This could spur other parties, civil society groups and trade unions throughout Europe to take up a similar call.  From a small island off the west coast of Europe we could start a movement for democratic and progressive transformation across Europe. 

So the question is:  what party or group of parties will start that debate in the Dail?  Someone in Europe has to take a first step in the process of recapturing our destiny.  Why not start it here?