March 2, 2021

Lagarde discredits the debt forgiveness proposal




“Inconceivable”. This is the adjective that the president of the ECB has used to describe the proposal made jointly by the presidents of the PSOE and Podemos consisting of solving the problem of the galloping public debt with a cancellation of it by the European issuer. Christine Lagarde has not limited herself to recalling what other members of the ECB’s council, such as its Vice-President Luis de Guindos, had already clarified that a debt cancellation would constitute “a violation of the European treaty that strictly prohibits the monetary financing of the States” , a rule that constitutes, he insisted, “one of the fundamental pillars of the euro.” He has also dedicated an authoritative reproach to those who make such proposals, saying that “if the energy expended in demanding a cancellation of the debt by the ECB were devoted to a debate on the use of that debt, it would be much more useful!” .

Lagarde made these statements in an interview with Le Jouernal du Dimanche fracés and with the clear intention of stopping in its tracks a germ that until now had only timidly manifested itself in the radical Five Star movement of Beppe Grillo and the Greek extremists, but that It seems to have also caught on in the parties that make up the Spanish government. «What will this public expenditure be used for? In which sectors with a future is it convenient to invest? That is the essential issue today! ”, Lagarde tries to reorient the public debate.

“All the countries in the euro zone will emerge from this crisis with high levels of debt,” he continues to justify the refusal, “but there is no doubt that they will be able to repay it. Debts are generated in the long term. Investments made in key sectors for the future will generate stronger growth. ‘

Lagarde does not doubt that this sustainable recovery “will create jobs” and also ensures that “we are heading towards another economy, committed to climate change and the preservation of biodiversity.” In the immediate term, he estimates that “2021 will be a year of recovery, the economic recovery is suffering a delay, but it has not been ruled out.” He adds that, although it is very clear that we await it with impatience, it is decisive that we manage to follow the correct paths. Lagarde makes it clear, on the other hand, that “we will not recover the level of economic activity prior to the pandemic before mid-2022”.

For the euro zone, he figures the increase in GDP this year at 4%, “perhaps somewhat higher”, but points out that “everything will depend on the vaccination policy” against the coronavirus in the different countries “and the measures they will take governments to respond to sanitary conditions ”. Lagarde stresses, moreover, that the crisis has had the effect of accelerating European cohesion thanks to the common loan obtained by the states and calls on governments to focus on rapid ratification in order to act as soon as possible.

For the moment, he indicates, no problems have been detected arising from the support measures taken by the ECB, such as possible real estate bubbles, and he anticipates that when the crisis is overcome, state aid for economic stimulus will not cease suddenly. It recognizes that the crisis has increased the differences that existed between the States, but is confident that recovery plans can serve to reduce them. At the same time, it considers that the investments foreseen in the recovery plan will serve to create wealth and to deal with the indebtedness in which most of the countries have embarked. The cancellation of the debt proposed by Cristina Narbona, president of the PSIE, “is not possible,” he insists.

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