The era of the green coin – Thomas Piketty


May 30, 2020 4:30 pm

Can the covid-19 crisis accelerate the adoption of a new, fairer and more sustainable development model? Yes, but on condition of changing priorities and calling into question some taboos in the monetary and fiscal sphere, which must be put at the service of the real economy and social and ecological objectives. First of all we must take advantage of the forced stop of the economy to start again in a different way. After a similar recession, institutions will have to play a central role in boosting the labor market. But it must be done by investing in new sectors (health, innovation, environment) and gradually reducing the most polluting activities. We must create millions of jobs and increase wages in hospitals, schools and universities, by increasing the energy efficiency of buildings and proximity services.

In the immediate future, the reforms will have to be financed through debt, with the support of central banks. Since 2008, central banks have printed money to save the banks from the financial crisis they caused. The Eurosystem’s balance sheet (which includes the European Central Bank and the national central banks of the states of the Union) went from 1.150 billion euro at the beginning of 2007 to 4.675 billion at the end of 2018, i.e. from ten percent to almost forty per cent of the eurozone’s GDP (which is worth 12 trillion euros).

There is no doubt that this policy has made it possible to avoid the series failures that dragged the world into the crisis of 1929. But this issue of money, decided behind closed doors and without real democratic roots, has also contributed to inflating financial values and real estate, benefiting the richest, without reducing the structural problems of the real economy (poor investments, inequalities, environmental crisis).

The eurozone will remain fragile as long as it continues to subject its interest rates to speculation

Today there is a risk of continuing on the same path. To cope with covid-19, the ECB has launched a new government bond purchase program. The Eurosystem’s balance sheet has grown. However, this massive monetary injection (700 billion in two months) will not be enough: the spread, the interest rate differential against Italy, which had subsided in mid-March after the announcements of the ECB, started up again.

What to do? First of all, be aware that the eurozone will remain fragile as long as it continues to subject its 19 interest rates to market speculation. You need to have tools to issue a common debt, with a single interest rate. Contrary to what we hear, the goal is to mutualize the interest rate and not to oblige some countries to repay the debt of others. The countries that declare themselves to be the most advanced on this issue (France, Italy and Spain) must formulate a precise proposal, which includes a parliamentary assembly that supervises the system. Germany, urged by the constitutional court to clarify its relationship with Europe, in that case would certainly decide to participate. In any case, given the seriousness of the situation, you cannot stand idly waiting for a unanimity that will not come. The proposal announced on May 18 by France and Germany, which provides for common debt issues to help countries in crisis, is a start, but it is not enough. Starting from the figure: 500 billion euros are less than 4 percent of the Union’s GDP, at least twice as much would be needed.

Furthermore, we must ensure that the issue of money serves to finance the European ecological and social recovery, and not to inflate the share value as has happened up to now. The Spanish government has proposed issuing between € 1,000,000 and € 1,500 billion of common debt (around ten percent of the eurozone’s GDP), and that this interest-free debt be recorded in the ECB’s long-term balance sheet. In this regard, we recall that the German external debt was frozen in 1953 (and definitively suppressed in 1991) and that the rest of the immense post-war debt was extinguished with an exceptional levy on larger financial assets (another measure that will need to be taken ). The Spanish proposal must be supported, and if necessary re-presented, as long as inflation remains moderate.


It is impossible to put together large sums of money without borrowing. Who in Brussels evokes dizzying figures about the green deal without explaining where the funding would come from does not make good policy. By definition, those who do it recycle sums already promised elsewhere (for example by subtracting resources from the meager budget of the Union), count the same expenses several times, add public and private support (to the delight of speculators), most of the times all these things together.

These practices must end. Europe, if it does not show its citizens that it is capable of mobilizing itself in the face of covid-19 at least as much as it has mobilized for its banks, runs a fatal risk.

(Translated by Federico Ferrone)

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