Member states must look to financing options other than public debt and taxation to support the green transition and free themselves from debt repayments, French financial economist Jézabel Couppey-Soubeyran told EURACTIV France in an interview.
Read the original interview in French here.
Countries contracting public debt are ultimately “submissive” to the whims of financial market actors, so much so it impacts where the money is spent to favour profit-making projects, Couppey-Soubeyran said.
In recent weeks, France’s Economy Minister Bruno Le Maire fought tooth and nail to avoid a downgrade of the country’s credit rating by S&P Global. The agency eventually kept its rating at ‘AA’.
Le Maire vouched to “accelerate” France’s debt/GDP reduction plans, and aims to bring it back down to 108.3% by 2027.
Such measures prove that public debt is not just a financial instrument but an “unbalanced social interaction”, which chains sovereign states to private creditors’ profit expectations, the economist told EURACTIV.
Alternative financing
Couppey-Soubeyran, a lecturer at Sorbonne University in Paris and an advisor to left-wing think-tank Veblen Institute, instead calls for a radical overhaul of the way we think about state financing in light of the “ecological peril” the world is facing.
She described the ‘good’ debt, ‘bad’ debt debate as “artificial”: “Financing large-scale investments and operational expenditures come hand-in-hand. Building a hospital is a crucial investment, but you also need to pay doctors.”
The most urgent task, in her eyes, is to find alternative tools that help finance unprofitable expenditures that are crucial to the green transition, yet wouldn’t otherwise be eligible for debt financing.
One option is the creation of a ‘Green Quantitative Easing’ tool, whereby the European Central Bank (ECB) would stand ready to buy out creditors that no longer believe a government is solvable – and as such, avoid risks of EU countries’ defaults.
“We’ve done it during both the Euro crisis and the pandemic,” Couppey-Soubeyran said, “and it worked”.
Such a tool could be easily actionable and a quick fix, though the economist warns that this is no ideal solution, as it remains deeply rooted in a financial market logic, and reinforces economic inequalities and financial instability.
So, she calls for something a little more radical: “The ECB would fuel money directly into ‘public financial institutions’, whose task it would be to direct the cash to public expenditures” that, though unprofitable, are necessary to the green transition.
In order for France to meet its net-zero by 2050 goal, as enshrined in the Green Deal, the country must invest an average of €66 billion every year until 2030, according to a recently-released report on the financing of the ecological transition.
Direct ECB cash fueling, which would come with “no reimbursement requirements”, could give states more room to direct spending towards projects that would be ruled out of debt financing normally.
Systemic changes required
Ultimately, such a proposal is underpinned by systemic changes, not least the end of ECB’s sacrosanct independence.
“We need a renewed monetary policy governance, which brings inputs from official representatives as well as civil society experts,” Couppey-Soubeyran said.
“The financing model I call for doesn’t work with an independent central bank – nor should it fall fully under state control, which could put democracy at risk,” she told EURACTIV.
But wouldn’t the ECB printing money – and a lot of it – unavoidably lead to inflationary pressures? “Inflation risks are low,” she said, as long as the printed cash meets the economic needs of the ecological transition.
The lecturer’s take breaks with the ‘liberal’ economic orthodoxy, which supposes that public institutions are not equipped to spend money in an efficient and non-inflationary way.
According to Couppey-Soubeyran, the role of the ECB needs to be looked at anew anyway. While it is armed to supervise and manage monetary-induced inflation, the ECB has proven unable to effectively tackle structural inflation, such as the recent price hikes that were due to problems in the supply chain and energy shortages.
However, “when inflation is solely due to an excess of cash in the economy, central banks better know how to fight back”.
If we are to hope for a successful ecological transition, the urgency is to make money flow in the real economy through green investments, Couppey-Soubeyran argued.
Maybe, this urgency is reason enough to radically reimagine the role of public finance and monetary policy.
[Edited by János Allenbach-Ammann/Nathalie Weatherald]
