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  • Donderdag 1/9/2022

    The debt which is acquired by the ECB under the PSPP is de facto already mutualized. The ECB could transform the liquidity surplus that has resulted from its purchasing programmes into new tradeable securities. The issuance of securities by a central bank is a market friendly instrument of open market operations, which already is used by many central banks all over the world. This would be a much smoother way of reducing bank liquidity than the other option: reselling its portfolio of bonds acquired under the PSPP. Second, a sizeable issue of ECB-securities will create a deep and liquid market for EMU-wide common safe assets, which gives the ECB the opportunity to conduct its open-market operations in the future exclusively in its own securities. Moreover, the presence of a well-developed market in a European common safe asset would greatly reduce the fragmentation risk of the eurozone. The debt acquired under the PSPP could remain on the Eurosystem’s balance sheet into eternity, meaning that the relevant public debt ratios of all member states decline substantially. To eliminate public hazard and to make sure that this de facto bail-out will never be repeated, it should be included in the TFEU that in the future the ECB is no longer allowed to purchase public debt of any member state. This is the package deal: member states must accept a much stronger EMU with more market discipline and a well-developed market in common safe assets. The bonus: a reduction of public debt ratios by approximately 25%.

  • Woensdag 26/8/2020
    Wie zal de coronacrisis betalen?

    We show that in the current macroeconomic environment, in which nominal interest rates are expected to remain below the sum of real GDP growth and inflation for some time, the rise in government debt due to the Covid-19 recession and fiscal policy responses is feasible without ever having to raise taxes. Specifically, a rise in public debt due to a temporal increase in the deficit automatically vanishes over time. Even when Covid-19 leads to a permanent rise in the government deficit, a permanent (moderate) decline in real GDP growth and persistent (moderate) deflation, the debt-to-GDP ratio will stabilize in the long run without a later increase in taxes, even though the level of stabilization will be at a higher level. Our purpose is not to argue for more public debt and an unlimited stimulus, since interest rates may not be lower forever, but to have a richer discussion of the fiscal policy response to the crisis than is currently the case.

  • Dinsdag 5/2/2019
    Johan Van Gompel

    Over the last three years, Belgium's public debt has fallen by more than 4 percentage points of GDP, after having risen sharply during the financial crisis. This reversal is good news and was mainly due to stronger economic growth and fiscal consolidation. However, at 103.4% of GDP, the debt ratio remained among the highest in the euro area in 2017. To further reduce the debt to a sufficient extent, the primary budget surplus should continue to build up in the short term to above 2% of GDP, in line with the target set in the Stability Programme. In the longer term, new savings should -preferably be made at the same time to offset the costs of an ageing population. Otherwise, a declining primary surplus threatens to ultimately increase the debt without it having sufficiently fallen towards the 60% level. To reduce the debt ratio structurally in the context of a normalisation of the current historically low interest rate, the growth potential of the economy will also have to be increased. Despite the still high debt, Belgium is maintaining market confidence. This is related to the relatively healthy position of the private sector, as a result of which the Belgian economy as a whole is in a very positive net asset position vis-à-vis the rest of the world.

  • Donderdag 30/3/2017
    Jan Van Hove & Lieven Noppe

    In this research report we discuss the main fiscal policy proposals that have so far been put forward by the new US President Trump, starting with a brief overview of recent evolutions in US public finances and related projections under current policies. Our main conclusion is that Trump’s proposals are not well designed for spurring economic growth significantly, but are likely to further deteriorate the already worrisome fiscal position of the US economy. Notwithstanding the Republican majority in Congress, Trump will have to compromise on his ideas, which will temper sustainability risks of government finances. At the same time, such compromises are likely to lead to disappointment in financial markets that are currently anticipating a strong economic boost.