Report
Patrick Artus

Will the public debt accumulated today have to be repaid?

There are statements that it will be necessary to "repay" the public debt accumulated today because of the coronavirus crisis. But why repay it? In the euro zone, the ECB buys the additional government bonds. If the ECB does not seek to reduce the size of its balance sheet in the future, then these government bonds are de facto cancelled and do not worsen government solvency. If governments are ever to repay this public debt, the ECB would have to reduce the size of its balance sheet and therefore put these government bonds back on the market. But why would the ECB want to reduce the size of its balance sheet? The Bank of Japan's balance sheet is much larger, and no disaster has occurred. Even if inflation were to rise, why would the ECB take the risk of triggering a public debt crisis in the euro zone?
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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