Controversial reconstruction Fund: The EU needs to overcome the curse of high debt

a Few days after the end of the Brussels summit marathon by the European Central Bank (ECB) issued and five Economists written work is reminiscent of debt paper

Controversial reconstruction Fund: The EU needs to overcome the curse of high debt

a Few days after the end of the Brussels summit marathon by the European Central Bank (ECB) issued and five Economists written work is reminiscent of debt paper at unpleasant truths about high state. Countries with high debt are in crisis, in danger, suffering particularly steep declines in their economies. These countries were no longer at the Zero lower bound, trapped in private investment would be crowded out by high sovereign debt in the short term and the long term, they have suffered in times of crises is particularly high slumps in their economies, and they have less room for manoeuvre in a crisis, with more expansionary fiscal policy to counteract. In addition, a very high level of government debt affects long-term growth opportunities, which would be affected in the event of a in high-interest manifesting a crisis of confidence even further.

Gerald Braunberger

publisher.

F. A. Z.

The conclusions of the plight are obvious. As soon as the current crisis is overcome, must be combated the high levels of debt, says the working paper. The recently adopted EU Fund could help countries with high debt to tackle the Problem.

Whether this will succeed remains, however, questionable, because the Fund will reduce the incentive for highly indebted countries, to operate after the crisis, a sustainable financial policy. After long and controversial discussions of the heads of state and government adopted the EU-pot is used, other than its Name, no ominous reconstruction is to suggest, according to the Corona-crisis. Unlike after a war, the Virus leaves no physical destruction of housing, infrastructure, or factories and machines.

to increase The volume is likely to

In the best case, the funds appropriated for the modernisation of European economies, which have in the last decades of wrong economic and financial policy priorities. But why governments should put all of a sudden the right priorities, just because you get a lot of money, of the no small part as a non-repayable grant is awarded? Especially since the money use is not likely to be very effectively controlled?

no, the main purpose of the new Fund is to contribute to the stabilization of highly indebted States in the European Union. Therefore, a significant part of the funds must be distributed as grants to the States. In the Eurozone, it is likely that several States would have been in the first weeks of the crisis to the brink of insolvency, would not have been put in place by the European Central Bank a generous bond-buying program. But in the long run it would be for the highly indebted countries is risky to rely solely on monetary policy. Therefore, these countries needed, since you want to take on the private assets of their citizens still resort to a debt haircut in the eye, external aid.

The EU Fund provides this support. Because he is solidified in the case of international investors, the impression of a European solidarity in financial policy – so, de facto, a common European liability for the national debt. Therefore, it is likely to remain at the current volume of the EU funds hardly. More stress should be given to national budgets, for instance in the form of Bank rescues, the call for further aid from Europe resound. The probability is high that he will then be answered also.

Updated Date: 27 July 2020, 07:20

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