The EU Economic and Financial Affairs Commissioner Pierre Moscovici believes it will be beneficial to communitise new debts in the euro area in the long run.

GD/AD – 07/2017

The French socialist Moscovici expects Germany to contribute more. ‘We’re not talking about creating a transfer union. But if we create a European budget for investment, then we need funding from all Member States, corresponding to the strength of their economy”, said the Commissioner. Moscovici also expects ‘a rapid return of Greece to the capital market’. In his opinion, the reform package adopted by the Greek government is ‘very tough’ and the Greeks should be ‘rewarded’ for this.  

Debt is growing unabated

According to critics, this view fails to take into account the fact that despite numerous ‘reform laws’, Greece has only made modest progress in actually implementing these rules. Government debt, which currently stands at around EUR 335,336,000,000 (335 billion euros) or 176.9% of GDP, grows every minute by a further 18,000 euros. There is hardly any evidence of debt reduction, for example, through productivity-driven economic growth as a result of investment.  

The euro area’s problems are less about accessing ‘new debt’ and more to do with reducing existing debt. There are already several euro area countries who are almost unable to maintain areas of social security due to excessive debt. At the same time, the number of euro area countries with demonstrable debt reduction is getting smaller and, with only a few modest exceptions, consists essentially of Germany only.  

There was no clear explanation of how to ensure that communitisation of debt does not just lead to more debt, primarily as German liability risks, and how this would truly improve the underlying cause of the issue, namely the existing burden of liabilities. Other experts are also asking themselves how such a development could be put in place without damaging the European peace project in Germany.