Home FISCO “It's like in war. We need more public debt.” Speak Dragons

“It's like in war. We need more public debt.” Speak Dragons


“The loss of private sector income – and any debt taken to fill it – must be absorbed, in whole or in part, by public budgets. Higher public debt will become a feature of our economies and will be accompanied by debt cancellation private”. To suggest the solution to revive the economy overwhelmed by the coronavirus is the ex president of the ECB, Mario Draghi , in a long editorial for the Financial Times in which he stressed that “the correct role of the state is to use its budget to protect citizens and the economy against shocks for which the private sector is not responsible and which it cannot absorb”.

Draghi stresses that “states have already done so” in other emergencies. The wars, for example, observes the former governor of the Bank of Italy, “were financed by an increase in public debt”. During the First World War, in Italy and Germany, between 6 and 15% of expenses in real terms were covered by taxation “And today, notes Draghi, it is a question of fighting against the coronavirus and its consequences in human and economic terms.

“The priority is to prevent people from losing their jobs”

According to Draghi, “the key question is not whether but how the state can effectively use its budget. The priority”, he adds, “should not be only to provide basic income for those who have lost their jobs “First of all, we must prevent people from losing their jobs. If we do not, we will emerge from this crisis with an employment rate and a permanently lower production capacity”. To protect them, presses the former Eurotower number one, “an immediate injection of liquidity is needed”, which is “essential for companies to cover operating expenses during the crisis, whether they are large, small or medium-sized enterprises or self-employed workers . “

Draghi promotes the measures taken so far but calls for a “more comprehensive approach”. The only way to avoid the crash of the entire economy, he warns, “is to fully mobilize the entire financial system: the bond market, especially for large companies, the banking system and in some countries even the postal market”. And this insists, “it must be done immediately, avoiding bureaucratic delays”.

“Inevitable recession. The challenge is how to act”

Banks, for example, should lend money at no cost to companies willing to save jobs. In this way, he explains, “they would become” public policy tools “and” the capital they need to perform this task must be provided by the government in the form of state guarantees “.

According to Draghi, “a deep recession is inevitable. The challenge”, he says, is how to act with sufficient strength and speed so that it does not turn into a prolonged depression, deepened by a plethora of failures that would leave irreversible damage ” Faced with a war, all that remains is a common mobilization. And “as Europeans”, concludes Draghi, we are called “to give each other support for what is, in all evidence, a common cause”.

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