How much debt do you currently owe?

EU corona debtEconomist warns of the consequences of inflation for savers

The mountains of debt are growing worldwide in the corona pandemic - also in Europe. According to the stability criteria for member states of the European Monetary Union, 60 percent national debt is allowed. France, however, had around 116 percent national debt in 2020, Germany at least around 70 percent.

The development in southern Europe is particularly serious. Greece, for example, had a debt of 207 percent of the gross domestic product in 2020, Italy around 160 percent.

At the moment, the European Central Bank is buying up so many bonds from these countries that the debt would not increase, said economist Thomas Mayer in the Dlf. "If you look at that: the interest rates on Italian bonds are lower than those on American bonds. Although Italy is in a government crisis again, the market is of little interest because it knows the ECB is buying." The old debts would be guaranteed by the ECB, said Mayer.

Thomas Mayer was chief economist at Deutsche Bank from 2010 to 2012 and has since headed the think tank of the Flossbach von Storch asset management company. (dpa / Karlheinz Schindler)

But at some point the bill will come to the bill: "It comes from the fact that if you keep interest rates low, the debt will keep increasing, at some point inflation will have to rise. And if inflation rises, then the central bank would have to raise interest rates, But it can no longer because the states would then go bankrupt. Due to the high debt, the interest payments become too high that they can no longer pay them. So interest rates have to stay down, although inflation rises, and then confidence in it falls Money that the central banks are issuing. Unfortunately, that is the direction we are going. "

In the end, those who keep their savings in bank accounts or have bonds from highly indebted countries would then have to pay: "There is a kind of hidden tax on money savers," says. Mayer.

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Dirk Müller: Mr. Mayer, new record debts. Can it go on forever?

Thomas Mayer: It won't go on forever. The numbers you mentioned are already out of date because they are getting by. At that time you had thought you could get through without a second wave.

In the meantime, however, it looks as if the fourth quarter of last year, the first quarter of this year has become weaker, economic activity has slowed again, which will drive this debt up even further, because now there is new aid and tax revenues are falling out. That means it will get a little worse than that. But, to come back to your question: It can't go on like this forever.

"At some point the bill for the colliery will come"

Müller: We have now adopted the latest figures from Eurostat. But you are right to say that development has continued. You say it cannot go on forever, because even a zero interest rate policy cannot be equated with incurring more and more debt?

Mayer: If you have zero interest and if you then extend the maturities indefinitely, in theory you can of course incur unlimited debts, and this development seems to be going in this direction. However, there is no free meal - "there is no lunch," said the famous economist Milton Friedman.

At some point the bill comes up for the bill and it comes from the fact that if you keep interest rates low, the debt will keep increasing, and at some point inflation will have to rise. And if inflation rises, the central bank would then have to raise interest rates, but it can no longer do so because the states would then go bankrupt.

Due to the high debt, the interest payments become too high that they can no longer afford them. So interest rates have to stay down even though inflation rises, and then confidence in the money the central banks are issuing falls. Unfortunately, that's the direction we're going.

"The old debts are guaranteed by the ECB"

Müller: Is that so when the bill comes in Greece, for example - that's the worst; We said that the national debt is now 200 percent or even more, as you say - if this bill is opened in Athens, will Europe have to pay it again?

Mayer: Yes, it goes in this direction, because we had already built up an enormous mountain of debt during the financial crisis. Despite the haircut in Greece, the debt is as high or will be as you are saying. The next step was, since individual countries already have enormous debt ratios and they are getting higher, to pool these debts indirectly on the ECB's balance sheet.

This means that the ECB is simply buying up so many bonds from these countries that the debt does not increase. If you look at it, the interest on Italian bonds is lower than that on American bonds. Although Italy is in a government crisis again, the market is of little interest because it knows the ECB is buying. The old debts are guaranteed by the ECB.

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Then they started to pool new debt at the level of the European Union through the EU reconstruction fund. That is the next step that one takes now in order to be able to continue walking this staircase of debt that one is climbing. But as I said, "there is no free lunch" - at some point the bill will come.

"Ultimately it leads to inflation"

Müller: And it isn't infinite either, this rescue fund. That is, it is limited. And if we look again at the numbers - I have already mentioned the most important ones - Italy 150 percent, Spain 114, Portugal 130 [note. d. Red: Figures from autumn 2020], but France too high, is way too far and too high above the criterion. Who can and should pay for it?

Mayer: Ultimately, I think that this actually leads to inflation, and then those who keep their savings in bank accounts pay it, those who, of their own free will or because they invest in financial instruments, have bonds from these countries. The interest rates on these bonds will not rise, the rate of inflation will rise. This means that the real values ​​of these systems are melting away. There is some kind of hidden tax on the money savers.

Müller: Is that going to be problematic for everyone?

Mayer: That, I think, is probably the way we will go. One would of course have to consider whether one could not do better by already considering how one can save again, how one can possibly also excuse these states. But politics does not act with foresight. We saw that in the pandemic crisis. Rather, it reacts to developments.

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"The financial system could not cope with a hard haircut"

Müller: Because you mentioned the keyword, I would like to go in briefly. Debt haircut, that is also debatable for you, although the banks then say yes, then we will go bankrupt?

Mayer: The haircut is one of those things. A hard haircut like the one we know from developing countries, the financial system could not cope with. But one could imagine that one would combine a haircut with a monetary reform. Now, if you will, this is experimental medicine we're talking about. This is not conventional medicine. But there are considerations that are known from the past.

In 1933, well-known American economists had advised the state under President Roosevelt to implement such a monetary reform. Then the monetary system was changed. By freezing part of the national debt on the balance sheet of the central bank and using it as a cover pool for the money spent, one could theoretically connect us with the digitization of the euro. Such plans are conceivable, but I don't think that politics will go this way, they will just keep going until inflation actually rises and confidence in money is lost.

Müller: Many are wondering: why can these countries that we have talked about in the first place, Greece, Italy, France, Portugal, Cyprus and so on, still afford such expensive pension systems?

Mayer: That, of course, also depends on their trust that they will be supported by the Community, and especially now by the European Central Bank. If that weren't the case, they would have to make cuts. Incidentally, that's what Italy did under the Monti government. At that time, the ECB was not completely ready to prop up Italian debt. It's over now.

Everyone assumes that the ECB is behind the states. The pressure to save is decreasing. And then what economists call the tragedy of the commons comes into play. That means: common land, that is the communal meadow of the farmers in the past, where they drove the cattle over and cared little that the meadow remained intact. Now, when everyone can run into debts and the ECB buys them up, of course nobody really pays attention to the fact that these debts have to be paid back.

Statements by our interlocutors reflect their own views. Deutschlandfunk does not adopt statements made by its interlocutors in interviews and discussions as its own.