Ad van Riet (ECB) speaks at the ESM

Financial Repression and High Public Debt in Europe

The sharp rise in public debt-to-GDP ratios in the aftermath of the financial crisis of 2008 posed serious challenges for fiscal policy in the euro area countries and culminated for some member states in a sovereign debt crisis. This note examines the public policy responses to the euro area crisis through the historical lens of financial repression with a particular focus on how they contributed to easing government budget constraints. Financial repression is defined in this context as the government’s strategy – supported by monetary and financial policies – to gain privileged access to capital markets at preferential credit conditions and divert resources to the state with the aim to secure and, if necessary, enforce public debt sustainability. 

Following a narrative approach, it turns out that public debt management and resolution, European financial legislation, EMU crisis support and ECB monetary policy have significantly contributed to relieving sovereign liquidity and solvency stress and generated fiscal space through non-standard means. The respective authorities have in fact applied the tools of financial repression to restore stability after the euro area crisis.
Ad van Riet is Senior Adviser in the Directorate General Economics of the European Central Bank (ECB) and Secretary of the ECB Occasional Paper Series. He studied Economics at the Erasmus University Rotterdam and holds a PhD from Tilburg University in the Netherlands. He started his career with De Nederlandsche Bank in mid-1987, joined the European Monetary Institute in end-1994 and the ECB in mid-1998. At the ECB, he has held several management positions, successively taking charge of the Monetary Policy Stance Unit, the EU Countries Division and the Fiscal Policies Division. He has published on European integration, monetary policy, fiscal policy, structural reforms, financial regulation, and the flow-of-funds. 

This is an ESM research internal seminar. If you would like to attend, please write an email to ESMresearch@esm.europa.eu