Markedly higher public debt ratios in the euro zone: What effects?

Public debt ratios will be markedly higher in the euro zone in the wake of the COVID crisis. What consequences should we expect ? The likelihood of a self-fulfilling public debt crisis will be increased: if investors expect the risk of government default, the rise in interest rates will trigger a default (for governments, the cost of default becomes lower than the cost of not defaulting). This will require the ECB to systematically react to any rise in sovereign risk premia or in long-term interest rates. The additional public debt will be held by the ECB and not by other economic agents: the issue of excess demand for liquid and risk-free bonds will not be resolved, which means that the increase in public debt will not have any effect on long-term interest rates. If the ECB keeps the additional government bonds issued on its balance sheet, other economic agents will have to hold more money. If their demand for money does not increase, this will trigger a portfolio reallocation mechanism and a rise in the prices of other assets (equities, real estate, etc .) .