The European Union lives better without the United Kingdom than with it. The academic of the London School of Economics, the Belgian Paul De Grauwe, maintains that with the British it would not have been possible, for example, to launch the project of the Next Generation funds. De Grauwe was in Barcelona this week invited by the Cercle d’Economia and has participated in a meeting organized by the Political Economy Opinion and Reflection Group Europe G.
Is the ECB right to raise interest rates when there is an international banking crisis?
Yes. It’s unavoidable. The question is how far you have to go. Right now I am in favor of stopping. There is no need, unless inflation resurfaces. If not, the economic recovery could be in jeopardy.
Can European banks remain calm?
He’s in a solid situation. With an interest rate of 3% on the deposits that European banks have with the ECB, there is a transfer to the entities of 130,000 million euros each year. So I don’t see many risks right now.
You maintain that the Stability and Growth Pact is “dangerousâ€. Because?
Your figures, 3% deficit and 60% debt over GDP, where do they come from? From nowhere. Is it a religion or what? The Trinity. They have no scientific basis. Then there is the balanced budget rule, which implies that governments cannot issue debt to finance public investment. This is dangerous, because we need public investment, especially now that, with the effects of the weather, they are taking on an existential dimension.
Is public investment better than private?
We have this idea since the 1980s that when the State invests, it displaces private investments. It was the neoliberal foundation. Saying that private investment by definition is more productive than public investment is false. Look at China: have you seen what they have achieved with their rail network? Actually, the two are complementary. With climate change you have to invest in infrastructure to have a new source of energy. And it is the State that must finance it. Private companies will not. They’re not interested in it. But when there is that infrastructure, then yes they can take advantage of it.
But don’t we run the risk of increasing the debt?
The cost of public borrowing today, for most eurozone countries, is between 2% and 3%. A few years ago it was 0%. But the return on investment is more than 3% per year, unless you have no imagination. It does not matter what the country’s level of indebtedness is, because by investing the possibilities of GDP growth will be greater and, therefore, we will have the means to finance this debt.
In other words, debt is not bad.
We must destroy the dogmas: ‘It is not possible, we cannot issue debt’. Of course we can do it! What will our children tell us in 20 or 30 years when they see that we have not invested enough? They will say: “You did not invest!” If instead we do it and the debt increases, will our children say: “You were stupid to increase the debt!?” No! They will say: “Thank goodness you did it.” Yes, this debt will be transferred to our children. But at the same time, assets and infrastructures will be created that will make the energy situation more efficient, more sustainable.
And the debt that is in the hands of the ECB does not count?
When consolidating the accounts, it is as if it did not exist. It is a debt to ourselves. A debt has been replaced by bank deposits. It is true, the ECB at any given moment could start selling it, but it should not and there is no reason for it.
Should the Commission ensure that these public investments are profitable?
It is already doing so within the framework of the Next Generation EU funds. For example, the Italian government had in its program, among other things, the renovation of football stadiums in Italy. And the Commission said no. We need someone, a referee to decide.
But no one controls this referee, who is not subject to elections unlike the states.
It is a political problem. It is the weakness of the Stability Pact, which imposes rules and makes them supervised by people who do not have political legitimacy. They have legal legitimacy, of course, because everything is the result of a treaty and all countries have signed it. But when there are people in Brussels who have the power to force, to put pressure on the national government, which does have political legitimacy, whenever there are economic problems it will reject these rules.
You live in London and you were very critical in 2016 of Brexit.
The European Union has come out on top with Brexit. Let’s be real, with the pandemic we created an investment project, the Next Generation EU, but the British would have opposed it. The reason they were in the EU was not to strengthen it, but to weaken it from within. This has always been their strategy for hundreds of years.
