Only ‘good’ debt can save Europe’s economy – ex-ECB chief

Former European Central Bank (ECB) chief Mario Draghi called on European governments on Tuesday, August 18, to ensure the colossal amounts of debt countries are running up in the wake of the coronavirus pandemic are invested in upgrading their economies so that future generations can benefit. 

“The debt created by the pandemic is unprecedented and will have to be repaid mainly by those who are young today,” Draghi warned at the opening of the “Meeting 2020” in Rimini, an annual international Catholic festival of reflection.

Europe is running up vast amounts of new borrowing because of the huge government subsidies needed to keep businesses and households afloat during the worst of the pandemic.

But such debt was only sustainable if it is used for productive purposes, such as investment in youth, infrastructure for production, or research, Draghi said. 

“In that case, it will be seen as ‘good’ debt,” he said. 

“If, however, debt is used for unproductive purposes, it will be seen as ‘bad’ debt and its sustainability will be eroded.”

The eurozone has taken an economic unprecedented hit as a result of months of coronavirus-related lockdowns. 

Last month, the European Commission forecast that the 19-nation bloc’s economy would shrink 8.7% this year after many countries, including Italy and France, posted double-digit contractions in gross domestic product in the 2nd quarter. 

Draghi, largely credited with saving the euro from collapse during the eurozone debt crisis, said the measures taken by governments and the central banks to prop up the economy had been “correct.” 

But now, “a massive investment of intellectual and financial resources” for young people was urgent.

“It is therefore our duty to provide them with the means to service this debt, and to do so while living in improved societies,” Draghi stressed, rather than pouring resources into initiatives that generated “guaranteed and immediate political returns.”

“The state of emergency and the measures it has justified will not last forever. Now is the time to demonstrate wisdom in choosing the future we want to build.” – Rappler.com