Three different interventions in the Sole24ore on Sunday 14 October can be seen as just as many indications that a change of pace in the attitude of economists and European policy makers towards the measures necessary to save Europe from decline is possible, and perhaps imminent . Guido Rossi hopes that the Nobel prize awarded to the European Union will spur our continent on the path of political integration by renouncing the "exclusive and senseless belief in austerity policies alone". Beda Romano documents what the most attentive economists never tire of repeating, namely that austerity increases, not decreases, the debt/GDP ratio. And finally Fabrizio Galimberti questions the thesis that in recent years has justified the policies of cuts and higher taxes, namely that these have expansionary effects according to the equation "less debt, more growth".
But what is public debt really? According to American entrepreneur and economist Warren Mosler, US state debt is, sic et simpliciter, the amount of net dollar financial assets held by the rest of the world. Naturally, this also applies to Europe: the total debt of the euro states is nothing more than the other accounting face of the savings accumulated in euros by Europeans and non-Europeans. In other words, without public debt we would not be able to put aside the euros of our private savings, nor of institutional savings such as pension funds. The private hunger for savings justifies the public debt. Cutting it means jeopardizing the financial balance of individuals, who in an attempt to rebuild it reduce consumption. That's why the recession keeps biting and unemployment soars. We therefore need more, not less, debt.
This is the to say the least unprecedented (and only apparently paradoxical) message that Warren Mosler will present at the Conference on “Public Debt Management” on October 26, organized by Treves Editore in the Aula Magna of La Sapienza University. Among others, listening to him will be the other speakers at the conference: economists, bankers, public managers, economic policy makers and trade unionists, such as Richard Portes, Pietro Reichlin, Paolo Savona, Rainer Masera, Innocenzo Cipolletta. It will be interesting to see if we will be able to grasp the urgency of looking at Europe's problems from a new and different point of view.
Mosler's message takes up the ideas of past economists, reinterpreted in an unusual light. His blog has made inroads on the net and the Economist has given prominence to his ideas, also known as Modern Money Theory. According to Mosler, it is precisely the much celebrated divorce between the central bank and European governments that generated the debt crisis in Europe. And we must recognize his foresight when, at the end of the 90s, he described with deadly precision what would have led the euro to implode in the event of a global recession. According to Mosler, the strict rules of the European currency (an almost unique case of currency referring not to a single sovereign state, but to various states that maintain high degrees of independent sovereignty) would have prevented the ECB and European governments from responding adequately to the crisis. The loss of monetary sovereignty of individual states would have rendered public debts and national guarantees on bank deposits non-credible, inevitably causing the crisis to explode in the sovereign debt market and in the banking sector.
That's exactly how history went, and the lesson is twofold. The first is that no sovereign debt is safe unless the state itself, through its central bank, guarantees its conversion into bank reserves. And Draghi's recent move is nothing more than a way to introduce, in a divided Europe, the same mechanism that exists in the United Kingdom or the United States. The second is that (judicial) debt management is a powerful tool for regulating demand. And since national debt management in a monetary union is no longer possible, Europe needs to wake up and, faced with the rules on national budgets, relaunch strong initiatives, financed by a shared public debt which, as Mosler says , is nothing but the other accounting side of our savings. Europe will have to take charge of growth and full employment.
