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The European Central Bank (ECB) should consider writing off government bonds bought during the coronavirus crisis, according to an adviser to the Italian prime minister.
Riccardo Fraccaro told Bloomberg about this, according to Euronews. Fraccaro believes that monetary policy should support the expansionary fiscal policies of member states, the cancellation of government bonds purchased during a pandemic or the continued extension of their maturities.
The public debt of the euro area is expected to reach its highest level since 2014 this year. Its relation to GDP was 95.1 percent in the second quarter of 2020, with Greece, Italy and Portugal being the most indebted.
European governments are borrowing to protect their economies from the effects of the epidemic. Due to low interest rates, this process is sustainable for the time being, in stark contrast to the situation a decade ago, which caused the crisis in the region.
Philip Lane, chief economist at the European Central Bank, spoke this week that while public debt will be higher at the end of the process, it is the correct response to this type of emergency. And Christine Lagarde, president of the ECB, said that maintaining favorable financing conditions is key to maintaining purchasing power and credit flows and avoiding massive layoffs for as long as necessary.
Euronews notes that while it is unclear how sustainable long-term debt growth will be, there is no alternative to massive fiscal stimulus given the unprecedented recession caused by the pandemic.
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