The ECB can economically cancel the debt, but the constraints are the Treaties. Lagarde’s answer to Marco Zanni

In the last European Parliamentary Committee ECON there was an essential question from an economic point of view made by the Honorable Marco Zanni to Christine Lagarde, President of the ECB. The theme was the possible cancellation of the debts of the states in the hands of the ECB, and you can listen to the answer in this Youtube video, unfortunately in English (but you can find the translations of the subtitles in Italian):

Mr Zanni asks if the ECB would have problems canceling the debt of the states it owns or if the ECB is an institution other than a commercial bank and therefore can cancel the debt without problems.

The ECB President's answer consists of two parts:

  1. in the first, Mrs Lagarde states that cancellation is prohibited by Article 123 of the TFEU which prohibits the monetization of public debt either directly (credit openings) or indirectly (purchase of public debt securities;
  2. in any case, if the ECB canceled the debt, it would change absolutely nothing, because the ECB creates the euro and therefore can meet any liquidity requirement.

So the ECB, from the point of view of economic logic, could cancel all public debt WITHOUT ANY PROBLEM, except for Veronica de Romanis, but it would violate Article 123 of the TFEU.

Now I present to you article 123 of the TFEU.

"The granting of overdrafts or any other form of credit facilitation by the European Central Bank or by the central banks of the Member States (hereinafter referred to as" national central banks "), to institutions, bodies or agencies of the The Union, to state administrations, regional, local or other public bodies, to other bodies governed by public law or to public enterprises of the Member States, as well as the direct purchase from them of debt securities by the European Central Bank or national central banks.

Technically, the ECB has circumvented Article 123 of the TFEU by purchasing the securities with a fake and organized passage in credit institutions. The letter will not have been violated, but certainly the meaning of Article 123 TFEU has already been completely overcome. At this point, what legislative impact can the cancellation of the debts have?

But I would like to deepen the discussion: the 123 TFEU is not one of the 10 Commandments, written directly by God and delivered to Moses on a stone table. the TFEU is just an extremely imperfect treatise written by men for men. Treaties can be corrected, integrated, torn apart. If this were not the case, the treaty of Kadesh of 1274 BC would still be in force, which bound Hittites and Egyptians who boasted of being "Eternal". Instead, after a few decades, it was no longer worth the silver on which it was engraved. What is the superiority of the TFEU over the Kadesh Treaty? This isn't even written on silver leaves.


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The article The ECB can economically cancel the debt, but the constraints are the Treaties. Lagarde's answer to Marco Zanni comes from ScenariEconomici.it .


This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bce-puo-cancellare-economicamente-il-debito-ma-i-vincoli-sono-i-trattati-la-risposta-della-lagarde-a-marco-zanni/ on Sat, 21 Nov 2020 10:44:27 +0000.