Should there be public debt cancellation in the euro zone?

E uro-zone countries ’ public debt ratios will be extremely high after the coronavirus crisis, which may jeopardise growth. This has led to proposals to cancel public debt, or at least a portion of the public debt. What to make of these proposals ? We do not believe they make sense : The government bonds held by the ECB are effectively cancelled if the ECB commits to not reducing the size of its balance sheet after the crisis; Cancelling government bonds held by banks would lead to failures among banks, for which government bond holdings serve as liquidity reserve s ; Cancelling government bonds held by institutional investors (life insurers in particular) and households would lead to a collapse in household wealth, including for low-income households that hold life insurance contracts; Cancelling government bonds held by non-residents would erode all confidence in the euro zone and sharply drive up euro long-term interest rates.