The European Central Bank (ECB) does not, at least for the moment, have eurozone debt (especially that created during the pandemic) on its agenda. It has long been announced that the Emergency purchase pandemic program (Pepp) will be closed in March, which mainly benefited Italy but there is still no talk of Quantitave Tightening (QT), a topic at the center of the debates within the US monetary authority, the Federal Reserve. QT is the inverse of Quantitative Easing (QE), ie the gradual sale on the market of government bonds purchased through Pepp and similar programs, which inflate the balance sheets of central banks. There is also no mention of a rate hike, an increase already announced in the United States.
This does not mean that the European monetary authorities are not worried about a debt destined to grow with new budget shifts and price increases which, although not yet similar to those in the United States, are beginning to raise fears of a new wave of inflation. This only means that the discussions take place under a thick curtain, confidential, precisely in order not to frighten the markets. Who know that the US debt has different characteristics than those of the European debt.
Let’s explain. The economic crisis of 2008-2009, first, and the pandemic with all its implications, then, created an increase in the debt of the American federal administration much faster than what happened in Europe: it went from 44% of GDP in 1990 to 125% in 2020, to then drop to 123% in 2021. A new increase is expected in 2022 if the (much debated) Biden infrastructure and social investment plan goes through. Precisely the Biden Plan requires an increase in the legislative constraints on debt (to be clear, a deficit in the budget). Argument on which there is heated debate in Congress. Over the past thirty years, the yield on government bonds has also changed: for those at ten years it has gone from just over 3% a year in 1990 (when the debt was 44% of GDP but inflation was still blowing) to 1.6% at the end of 2021 (with debt at 123% of GDP and expectations of a new wave of inflation). Yet federal decades are selling like hot cakes.
Unlike the debt of the European states which is placed abroad at least in part (about one third, the Italian one), the American one is purchased entirely internally. Furthermore, the demographic element (i.e. the aging of the population) plays differently on the two continents. Even in the US as in Europe, the “baby boomers” are retiring, that is the age groups born between the end of the Second World War and the 1950s, and they go there with pensions, in relation to earned income, on average much lower than the European ones, at the time of retirement, almost always finished paying the mortgage on the house and the university fees of the children. He has only one desire: to place his savings and any severance indemnities so that he can sleep between two pillows. This is exactly what the ten-year government bonds offer: they pay little, but they are a safe haven. at the time of retirement, almost always finished paying the mortgage on the house and the university fees of the children. He has only one desire: to place his savings and any severance indemnities so that he can sleep between two pillows. This is exactly what the ten-year government bonds offer: they pay little, but they are a safe haven.
In case of difficulty, then, the “Government” and “the Fed” would print others. America is so large and has so many resources that it can well withstand a depreciation of the dollar against other currencies. A little bit the basis of what is called the Modern Monetary Theory.
The fears for the increase of the indebtedness and the US debt, therefore, are more among the elected (the political class) than among the voters.
