Italian PM’s closest aid says ECB should consider wiping out pandemic debt

The European Central Bank should consider cancelling out or holding forever the government debt it buys during the current crisis to help nations recover and restructure, a top Italian government official said.

“Monetary policy must support member states’ expansionary fiscal policies in every possible way,” cabinet undersecretary Riccardo Fraccaro, Prime Minister Giuseppe Conte’s closest aide, said in an interview in Rome on Wednesday. That could include “canceling sovereign bonds bought during the pandemic or perpetually extending their maturity.”

French Finance Minister Bruno Le Maire strongly rejected the proposal and emphasized that the ECB’s existing approach underpins the financial stability of the euro area.

“A debt is paid back, that is the principle of debt,” Le Maire said. “If we are able to easily raise debt on markets today at very low rates, it is thanks to the monetary policy of the ECB.”

Italy, which together with Greece has the highest debt load in Europe, which is expected to soar to 160% of GDP, after more than 100 billion euros ($119 billion) of fiscal spending to counter the pandemic crisis — is already benefiting from the ECB’s emergency stimulus.

The pandemic bond-buying program is skewed toward stressed nations, helping drive yields on Italian bonds to record lows. The nation can currently borrow for 10 years at an interest rate of around 0.6%, cheaper even than the U.S.

via Bloomberg