printer printer Click on the green icon on the right
The Belgian debt could amount to less than 50% of the GDP
by Olivier Bonfond
11 December 2014

Article 123 of the Lisbon Treaty confirms the prohibition for the ECB to make direct loans to member States. This provision made for an abyssal hole in the coffers of member States. In Belgium only some 186 bn euros were paid in interest that might have been saved over a twenty year period...

Since the Maastricht Treaty was signed in 1992, member States are no longer allowed to borrow from their own Central Banks or from the European Central Bank (ECB). So to finance their deficits they have to borrow from the financial markets, i.e. from large private banks. This prohibition on borrowing directly from the ECB, confirmed in article 123 of the Lisbon Treaty, has resulted in enormous additional costs for public finances in the EU member States.

‘Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.’ (Article 123 of the Treaty of Lisbon, paragraph 1

(Rate on financial markets / Rate on financial markets then ECB rate (saving €90 bn) / Rate = inflation then ECB rate (saving €171bn) / Rate = inflation (saving €186 bn) / Rate = 1% (saving €248 bn) / Rate = 0% (saving €306 bn)
The graph above shows how public debt would have evolved since 1992 if the governments had been allowed to borrow exactly the same amounts without calling upon the financial markets. The highest curve (in blue) shows what has actually happened. The pink curve (3rd from the bottom) shows how the debt would have evolved if in exactly the same circumstances the Belgian State had borrowed from the National Bank of Belgium at a rate corresponding to inflation. If this had been the case, the Belgian public debt would currently amount to 50% of the country’s GDP and we would have saved €186 bn in interest over twenty years. Another example: if the Belgian State had borrowed from the ECB since 1999 (red curve, 2nd from the top), the Belgian public debt would currently amount to 75% of the country’s GDP and the Belgian State would have saved €90 bn in interest.

The ECB must be allowed to lend directly to member States

Contrary to the claim that debt is the result of excessive spending by the ‘Welfare State’, it is clear that financing public debts on the financial markets has played a major role in how the Belgian debt has increased over the past twenty years.

Such blatant observations led citizens and some thirty Belgian social movements including trade unions to raise the question of the legitimacy of the debt and to launch a citizen audit of the debt. Must populations bear the cost of the crisis when they have no responsibility in it? Must populations pay a debt that does not correspond to anything they could benefit from?

It is absurd that the member States should be compelled to borrow from private banks at rates between 1 and 6% while the same banks can borrow at a 0.05% rate from the ECB. As it caters for the interests of large private banks and not to those of the majority of the population, this political decision is both economically absurd and socially unacceptable. The ECB must be allowed to lend directly to member States.

To prevent governments from plunging into ill-considered debt and the ECB from turning into a bottomless financial pit, the conditions in which States are allowed to borrow at a minimal rate must be established. Alongside traditional economic criteria such as the debt/GDP ratio, public deficit or inflation, other dimensions must be taken into account such as social rights (including labour law), European requirements in terms of development of renewable energies and reduction of greenhouse gas emission, fighting inequality and corruption, or regulation of the financial sector. All those criteria are quantifiable and subjected to in-depth comparative analysis within the EU countries through institutions such as the OECD or the ILO. Consequently there would be no difficulty in including them. If those criteria are not respected, the interest rate could increase and States could still turn to the financial markets if they so wished.

European governments in general and the German government in particular currently oppose such measures claiming that they would result in inflation. While such objections are not without foundation, let us remember that the level of monetary creation can be supervised and limited, and that on the other hand, current austerity policies are about to drive the EU into a spiral of deflation. So the EU needs some inflation, but essentially massive investments to implement an ambitious, efficient and environmentally responsible economic recovery policy.

Translated by Christine Pagnoulle with the collaboration of Vicki Briault

Source: Carte Blanche (op-ed) in the Belgian daily Le Soir 14 November 2014.

Olivier Bonfond

Is an economist and adviser to the CEPAG (André Genot Centre for Popular Education, Belgium). He is a militant for Global Justice, a member of the CADTM, of the Citizens’ Debt Audit Platform in Belgium (ACiDe) and of the Truth Commission on Public Debt founded on 4 April 2015.
He has published the following books in French: Et si on arrêtait de payer ? 10 questions / réponses sur la dette publique belge et les alternatives à l’austérité (Aden, 2012) and Il faut tuer TINA. 200 propositions pour rompre avec le fatalisme et changer le monde (Le Cerisier, fev 2017).
He also coordinates the Belgian website Bonnes nouvelles (also in French).