## 27 Apr 2013

### The Eurozone needs an injection of €14 trillion of debt free money

I've been thinking hard since I discovered that the total amount of public and private sector debt (€23,784 billion) within the Eurozone was 2.5 times the total money supply (M3 €9,538 billion). Clearly, there is something horribly wrong here. It implies that even if everyone piled up all the money that there is, it would still be totally impossible to pay off the mountain of debt that has been created by irresponsible debt creation by the commercial banks.

Something has to change.

I've already made the suggestion that the ECB could impose a modest financial transaction tax on all Euro denominated electronic transactions to generate revenue that could be used to allow governments to get out of debt.

But there is a problem there. Yes, you could suck euros in to pay off government debt using the tax, but that would presumably remove the amount of available money in the system, especially if repaying the loans led to the money being destroyed.

What is really needed is an injection of fresh debt free money into the system to make up the difference. Specifically, the European Central Bank should be able to inject up to €14 trillion into the system. At that point, there would finally be enough money around to pay off the debts.

So, how might that be done? Well, you might have already heard me talking about the advantages of simply distributing funds on a pro rata basis in which each citizen effectively receives the same amount of funding. Let's see how that might work within the Eurozone. I've compiled the relevant figures in this table.
The first column shows the latest figures for Government debt in each of the 17 countries, which together add up to a very impressive €8.8 trillion. The second column shows the population size for each country, allowing us to calculate per capita debt (fourth column). I've sorted the entire table according to this number so that it is easy to read.

Ireland wins the prize with €42,813 of government debt per head of population. But Belgium isn't bad with €33,999, following by Italy with €32,681. After that, there are a whole series of countries with per capita government debt of between 25,000 and 28,000 that includes Austria, France, Greece, Germany and the Netherlands.  Not much to choose there. Now remind me? Which country is giving the entire Eurozone lectures on excessive public sector debt???

After that we find Portagal and Spain on around €19,000 along with Finland. Cypress and Slovenia, which are supposed to be totally irresponsible are way down the table. For me, these figures demonstrate that the whole system based on the Maastricht criteria has completely warped our thinking.

Now,  suppose that we say that we need to inject the €14 trillion to balance the books, and that we will do that simply on the basis of population size. The fifth column shows how this would break down by country. Germany would of course get the lion's share, but only because there are more people living there. In the next column you can see that the injection would immediately remove every single Eurozone country out of debt, with the exception of Ireland, which would still have to find another €3.4 billion. But, frankly, that's peanuts.

In the final column, you can see the net per capita cash injection for each country. It adds up to an average of €20,560 per man, woman and child in the Eurozone. Plenty there to end all the austerity programs, and get the economy kick started.

Why don't we do this?

If the European Central Bank refuses to implement such a scheme (which I am sure Mario Draghi in his role as ex European Director of Goldman Sachs is likely to do), I would like them to explain how it is even remotely possible for the Eurozone countries to get out of debt, given that there is currently 2.5 times more debt than there is money in the system.

The system is clearly broken. It needs to be fixed.