Executive Intelligence Review


The Truth Behind the Italian Debt Cancellation Proposal

May 25, 2018 (EIRNS—Although the proposal to “cancel” €250 billions Italian debt is not included in the coalition contract of the new Italian government in formation, international media continue to focus on that, adding to the general narrative about the barbarians taking over Rome. The proposal, which was floated at some point during government negotiations, is not as odd as it May sound. Here is the explanation.

The European Central Bank has bought over €2 trillion of sovereign assets since 2015. The ECB has bought such assets from banks, crediting those banks with the corresponding liquidity on the ECB account. In economic textbooks this is called “debt monetization.” When a central bank does that, it de facto freezes that portion of debt, and can eventually decide to destroy it. The ECB is freezing that debt, as it rolls over bonds at maturity.

It is not necessary to cancel that debt. It would be enough to roll it over with bonds with a 50- or 100-year maturity, some economists suggest, pointing to the fact that other central banks, such as the Federal Reserve, have already excluded such assets from the accounting of the federal debt.