Da Le Monde
August 14, 2011
by Gerard Beauregard*
The problem of public debt arises today with the utmost urgency in the international economic, political and media. In a perverse game of dominoes, several countries of the European Community are on the verge of bankruptcy (Ireland, Greece) or endangered by the explosion of government debt (Portugal, Spain, Italy), while the United States is undermined by its abysmal deficit.
The acuteness of the financial crisis and disarray policies unable to explain the curb the panic that seized markets and anxiety that has pervaded the public. Not that the issue of U.S. debt or deficit of the European states have been ignored at the time of the Maastricht Treaty in 1992, but the turn of events since 2008 gives him the unenviable status of unprecedented peril.
This is the single currency and European integration which are threatened, beyond, the entire economic system is cracking before our eyes. However, public debt has a very long history, rich in defaults, failed reforms, but also spectacular recoveries. It is significant to remember that few states were able to do without public debt. However, if the Roman Empire was constantly looking for money, he never mobilized marketable debt to fund and if there were loans, they were made in a timely manner, without that 'there is the slightest inclination to rely on a permanent state of debt.
In the Middle Ages, it was the Italian cities (Venice, Florence ...) who were the instigators of a system of public debt. The need to pay mercenaries for the ongoing conflict between the cities, and the presence of rich merchants, with sprawling banking networks, encouraged to use this financial convenience.
The process, accompanied by some confusion between public funds and funds of the great families, had the advantage of providing merchants (Florentine and others ...) an excellent opportunity to get richer, as to all creditors. He had the disadvantage of supplying deadly factional rivalries and severe disorders.
With their personal wealth, the Italian bankers lent the whole of Europe. This was not without risk. When the King of England, Edward III, was unable to pay its debts at the beginning of the Hundred Years War, it is the major Italian banks which had lent recklessly who made charges. They went bankrupt, and no one feels compelled to fly to their rescue. So there is a great way to get rid of the debt is not to pay its creditors and the cure was reused several times subsequently. Disadvantage: Subsequently, lenders do not necessarily rush to bring new money to the impecunious state.
In France, Saint Louis was the first to the state heavily into debt. His successors accrurent the problem through a policy of strengthening the royal authority and intervention out of the kingdom. We know the reputation of Philip the Fair, "the king counterfeiter." Capture some of the metal in circulation by the successive revisions, playing on the currency devaluations and revaluations constant, the third method to circumvent the problem.
Until Louis XIV and the Regency included all French monarchs will use this solution. But that was not enough. Philip the Fair is also known to have persecuted the Jews and the Templars. It was not only good for him not to pay the debt but to hand over the property of his creditors. Squeeze them or extort money is effective responses.
In the centuries that followed, if the growing needs of the monarchy were almost covered in peacetime by the tax levy from the disasters of the Hundred Years War, the debt grew every major conflict. Much of this credit was drained by borrowing in the City Hall from Francis I, and the sale of offices.
The first passed through the channel of the City of Paris, which offered more guarantees to lenders that the royal power. The second was to provide for expenses (administrative functions) for value, knowing that they were transferable on a market and transmitted. It was totally switched to a debt of State did not say his name to a real competitor of the public debt that could be used far financiers.
During the early years of the reign of Louis XIV, the debt remained contained by a political economy of financial management and an aggressive tariff policy inspired by Colbert. The reduction of public spending and protectionism are therefore two possible outcomes. Unfortunately, the death of Louis XIV, after long and difficult war, the debt reached new alarming levels. Can be estimated at some £ 3 billion, say a dozen years of state revenues, perhaps 80% of gross domestic product (GDP), while the crushing debt service accounted for a much deficit estimated at 80 million per year.
To address this situation, the power actuated several levers. After examining the accounts, the king imposed fines on financial or tax officials, accused of extorting money during the years of financial distress of the reign of Louis XIV. He undertook then to reorganize the tax administration to save money in the apparatus of management of public funds. But this was only expedients.
The government of the regent thought he had found the solution to the system of Law. The issuance of paper money by a state bank, coupled with the creation of a joint stock company, allowed to repay creditors and to pay suppliers. In total, about 2.5 billion pounds of paper money were issued. The bankruptcy system in 1720, gave all involved. After bankruptcy, they had to make a clearance of accounts and compensate depositors at best, while hunting speculators reported nearly 200 million pounds.
After this disaster, the Treasury was not completely lost since the debt was reduced by half. The issuance of paper money is another way to solve financial problems, even if the adverse effects of this medication can not be ignored: rising prices and interest rates ...
During the eighteenth century, the problem of inherited debt and increased by the growing needs of the state and haunted by war governments. Financial controllers talked incessantly without the tax reform undertaken, as the abolition of privilege available to the richest (top nobility) aroused opposition, and so the heavier the burden on some provinces treated better than other was politically explosive. He had to borrow and we had recourse to other channels, including the creation of more and more intense life annuity that proved disastrous for the Treasury.
In 1788, the debt amounted to about 4 billion pounds, while revenues of the state not exceeding 500 million and expenditures reached 630 million. As far as can calculate it, it certainly exceeded 80% of GDP. I must say that the French intervention in the American War of Independence, alone, cost $ 1 billion. At that time, the debt service accounted for about half the budget and debt grew so inexorable. He had to resign ourselves to summon the Estates General to ask for subsidies. The rest is history, in political terms.
Financially, the assembly proclaimed the equality of all before tax and began to unite across the kingdom tax levy. To extinguish the debt, she confiscated the property of the clergy, that can be estimated at 3 billion pounds, with a commitment to take on its own the burden placed far to the church: worship, the assistance and education. To perform this so-called national sale of goods in good conditions, it issued notes to pay for the assignats. The tax reform had not been completed and the debt was to be extinguished. Unfortunately this beautiful scenario collapsed quickly.
The flight of the king, then the war, unrest and finally disruption of tax administration were due to financial recovery. The assignat depreciate rapidly, spending went up exponentially, and finally not only the level of contributions to replace the taxes of the old regime was set too low, but the French paid virtually nothing for almost ten years, or then devalued currency.
The revolutionary government, cornered, turned the assignats in paper money issued and so massive (about 50 billion total) to meet its expenses. He competed well in the debasement of paper money, before removing it in 1797, when its value fell to almost zero.
In 1797, the Executive had to solve a two-thirds said bankrupt. Put simply, he got rid of a pen the majority of the debt by guaranteeing the payment of an annuity paid "cash on the nail" for the remaining third. In fact, support measures were taken which allowed désembourber of the finances of the state: new taxes, farm reorganization of the administration of finance, confidence building Bankers custodians of the debt offered at the Consulate and Empire cleaned up a budget, backed up by a temporary cessation of hostilities.
In looking back on this long history, we can draw some simple lessons. Public debt straight out of the extravagant spending induced by the major conflicts, and this rule is checked with both the first with the Second World War, but it is reinforced every time a crisis of resources amputated state. This was the case at the end of the reign of Louis XIV as during the Revolution, when the economic downturn combined with the effects of war.
However, government debt has become chronic because expenses have increased and it is politically difficult to tax the citizens to the level that requires funding. Two positions have become important: support to economic activity, especially in a recession, at least since 1929, social spending induced by the welfare state, at least since Bismarck in Germany. A third has just appeared unexpectedly: the rescue of banks endangered by the absence of any regulation.
Except in case of war, and again, the public debt became unbearable that, following the wanderings of the previous financial and budgetary policy. If the monarchy fell, because she was not able to remove the tax advantages of the privileged. The waste of public funds, lack of efficient tax system, the inability to track down fraud, lax policies which are to promote certain social groups or lobbies are certain pathways of excessive debt.
From a certain level of debt, it became uncontrollable as his service to repay prohibited. To overcome their deficits, states have used several remedies, but it must be admitted that they were rarely ever simple and painless. Three crooked volunteered and offered more policy: do not repay the debt or phagocytose, to save money, find additional resources.
- Enforcement of creditors or extortion is a priori excluded, bankruptcy or inflation, following the example of Law or assignat. They can rob violently or gently creditors. Inflation was still effective after the two world wars but they envisions side effects.
- A policy of savings and spending cuts. But, as the non-funding of the war led inevitably defeat, and reductions in public spending easily lead to social unrest and economic contraction, which in turn may reduce tax revenues.
- Taxation of occupied countries is no longer acceptable, with other countries or international institutions, in the form of loans or debt forgiveness.
- The devaluation or, more accurately, today, the currency depreciation. It maintains the hope that the recovery of exports will boost the economy and will provide cash flow but its political consequences can be harmful.
- The sale of offices being obsolete, the tax levy, with the age-old dilemma that gripped so the old regime: increasing the burden, which is economically and politically unwise, broaden the tax base by eliminating the underground economy and switching to a high tax on high incomes. In addition, there is a line of sight harmonization of tax systems (and social) and an adjustment of capital flows. Dreamed of this historical pattern, we are still far away.
* Gerard Beauregard
Research Director at CNRS and the Ecole des Hautes Etudes en Sciences Sociales (EHESS)
Former president of the French Association of economic historians from 2001 to 2004, he has co-edited "The public debt in history" (Committee on the economic and financial history of France, 2006) and "Fraud, counterfeiting and smuggling of antiquity to the present day "(Droz, 2006).
In 1788 the debt exceeded 80% of French GDP
Declare war or wind up its creditors, the historian Gerard Beauregard reviews some old methods of debt reduction
2008 and 2011, two crises are alike
But to the experts, the deterioration of the American note will not cause an earthquake comparable to the collapse of Lehman Brothers
Nessun commento:
Posta un commento