2 May 2021

EU Government debt goes over €12 trillion with €192 billion in interest payments for 2020

I've been very quiet recently - sorry about that. But I'm still keeping an eye on events. One important annual event that I have been monitoring every year for the last decade is the moment when the European Commission publishes the official figures for government debt and interest payments in April.

You can find the basic data using Eurostat's Data Browser but I have collected the critical information in a Google Sheet that you can find here.  Sadly, for the first year, the Eurostat figures no longer include the UK - no longer a member of the European Union. Sniff.....

The bottom line is that Government debt for the 27 countries that make up the European Union at the end of 2020 went over €12 trillion - €12,078,212,200,000 to be precise. That's an increase of 11.44% in just 12 months. 

For the 19 countries in the Eurozone, the total is now well over €11 trillion - €11,107,740,800,000 - up 10.77% in a year. 

The increases for individual countries varies. Greece's government debt only increased by 3%, and for Italy, the increase was  6.8%. For France, it was 11.4%, but even Germany increased the level of debt by an impressive 13%. The winner in that particular competition was Estonia, which more than doubled the level of debt (108% increase). 

Obviously, we can blame COVID for much of this. Governments have been borrowing like crazy to cope with the impact of the pandemic. 

And of course, the impact of that borrowing will be reflected in the levels of interest payments - the other fascinating story that you can learn from the Eurostat figures.  We learn that taxpayers in the 27 European Union countries handed out a total of €191,646,600,000 in interest payments in 2020. If we only count the 19 Eurozone countries, the total comes to €172,706,500,000.

Now, you might say that this is no big deal. Indeed, the low interest rates that are in part the result of the ECB's policy of buying up government debt on the secondary markets mean that the amount of interest paid actually dropped by around 11% relatively to 2019. I suppose that is good news.

But I think that we should not forget that under the current system, the increase in debt will need to be paid off at some point. And, in the future, there is nothing that can stop the markets from increasing the cost of government borrowing as soon as they can - it's very easy money. Just lend to a government, and sit back and let the taxpayers pay you. No risk - because governments can always tax their citizens to pay the money they owe.

You should also not forget that these massive interest payments have been going on every year for decades - and they are quite unnecessary. 

For example, if you look at the figures for the Eurozone for the entire period from 1995, you will see that that total amount paid out by Eurozone citizens has now reached €6,763,744,100,000. Divide that by the population of the Eurozone, and you can see that every man, woman and child in the region has paid an average of nearly €20,000 in interest payments over the period.  For Italians, the number is even higher - €32,657 to be precise. 

People who have read my blog before may well be aware that I think that these payments are insane. It is a racket. tThe money that our governments borrow from "the markets" is, in large part, created out of thin air by commercial banks who have the virtual monopoly of money creation in the current system. While it is already insane that we allow those commercial banks to create money to loan to citizens and businesses, the insanity is even more obvious in the case where they can create money to lend to our governments. 

Perhaps one positive impact of the current pandemic, and the fact that our governments have been forced to borrow trillions of euros to cope, is that it might finally put the spotlight on the way in which commercial banks create money in the current system. The insanity of allowing our governments to keep on borrowing from banks that don't have the money that they lend should hopefully start to become obvious to all. 

The solution? Simple. We should end the current system where our governments are legally obliged to borrow from commercial banks who can create the money they lend. Instead, governments should be allowed to borrow directly from Central Banks. And those Central Banks should have the option of writing off debt

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