The erasure of the Greek debt would be totally paid by the European citizens

This is the last duck that is furious on the net: the cancellation, total or partial, of the Greek debt held by the euro area (251.5 billion euros on 321 billion) would cost almost nothing to European citizens!

Therefore, why deprive Greece of this good action? Obviously, this is totally false: there is no free money, otherwise, it will be known for a long time.

This duck originates from an article of the Tribune.fr, published on February 5th. Its author, Ivan Best, claims that a Greek default would not cost “€ 650 or € 731” by French (or 41 billion divided by the number of inhabitants), but “€ 10.50 per year per adult”. The reasoning is based on the fact that, according to its author, ” the State – and therefore the taxpayers – never repays the public debt. When a loan expires, the State reimburses it, via Agence France Trésor (AFT), by borrowing again. The State budget, which shows all its income and expenditure, does not include any line “repayment of loans”. Because, in fact, it is a so-called treasury operation, managed by the AFT: thus, it borrowed 186 billion euros in 2013, to repay in particular 106 billion euros of bonds arriving at the deadline “. Since it’s cash, it’s free, we imagine. Better, according to the author, “the 40 billion euros loaned to Greece by France, via different channels, have already been borrowed by AFT, they are already integrated into the French public debt. The cancellation of any reimbursement by the Greeks would, therefore, have no impact on the level of the French public debt.

Alas, it is a tale, charming, but a tale. Let’s go back step by step (you can also read my article on the Greek debt).

Greece benefited from bilateral loans from the euro area states for € 52.9 billion. The French share amounts to 11.39 billion exactly. This sum, borrowed on the markets, is indeed already integrated into the public debt. It has raised 80 million euros of interest to France each year between 2010 and 2012. At the end of 2012, the eurozone decided to extend the duration of these bilateral loans to 30 years and to introduce a ten-year moratorium. interest, which in turn is reduced (the market rate plus 50 basis points). But in the meantime, France (which did not borrow then at 0.6% at 10 years), must pay interest to its creditors on the 11.4 billion borrowed, money that comes from the French budget.

The European Financial Stability Facility (EFSF, replaced since July 2013 by the European Stability Mechanism, ESM) took over from the states. It borrowed on the markets the modest sum of 141.8 billion euros reposted at cost (plus operating costs) to Greece (end of 2012, the maturities were extended to 30 years and a moratorium of 10 years on payment of interest established). To raise money at the best rate, the EFSF benefits from the guarantee of the eurozone states that are not under financial assistance: in other words, they have not paid anything (and therefore do not receive anything of interest ), but in case of default, they will have to cover the losses according to a distribution key fixed in advance (Germany will bear 29.13% of losses, France 21.87%, Italy 19, 22, etc.). So, contrary to what the Tribune asserts, this part of the loans is not “already integrated into the public debt” of the eurozone states.

Now imagine that Greece is defaulting on all or part of its debt held by the euro area. France should then pay the EFSF almost 30 billion euros to absorb losses, a sum it will borrow on the markets which will increase its debt mechanically. It should write this claim on Greece in the dry loss, which would increase its deficit in the sense of Maastricht, and it would also permanently lose interest on its bilateral loan of 11.4 billion. Finally, the ECB would pass on its loss (25 billion euros) to the national central banks …

It is true that citizens will not raise their taxes (which no one has ever claimed), but the debt burden will increase automatically: let us recall that it currently weighs 2.2% of French GDP (56, 14 billion euros in 2013, representing 14.19% of the state budget). This is money paid to the financial markets that cannot be invested elsewhere (the public debt is largely due to operating expenses too heavy). To say that the state never pays off its debts is nonsense: it repays them continuously. While some re-borrow all or most of the maturing loans, others, such as Germany, Belgium or Denmark, have a primary surplus (excluding debt charges) to reduce their debt- see here. Most importantly, states pay interest each year and we can not predict that it will be the burden of debt in ten years: rates today are abnormally low and they should go back to 2 or 3% over ten years. Clearly, the bill of the Greek default will increase with time …

So European citizens will pay the full amount of Greek debt held by public institutions in case of cancellation.

Not immediately because the mechanism of indebtedness will smooth the shock is obvious, but they will pay over time.

It is therefore understandable that states are reluctant to give up their claims on Greece. Especially the poorest states: the three Baltic countries, Slovakia or Slovenia point out that they are much poorer than Greece (moreover, the Slovak government jumped when it wanted to help Athens …). In addition, Greece cannot be isolated from other assisted countries: why not also restructure the $ 78 billion lent to Portugal and the $ 40.2 billion to Ireland?

Do not make me a bad case: I am in favor of financial solidarity with Greece, it is the logic of economic and monetary union. Provided, of course, that this country reform so as not to plunge back. This gradual eradication of debt could take the form of an extension of the term of the loans to 50 years and a decrease in interest rates to be paid from 2023 (including by gift of 86 billion frozen during the moratorium). But that will have a cost and it is normal to explain it to the citizens instead of falling asleep with fairy tales.