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Tribune. The issue of public debt inflated by the health crisis has long been an issue in the French political debate. What to do with the “Covid debt”? The answer given by the Arthuis report is that it will have to be reimbursed by increased control of public spending. Other options are on the table: outright cancellation, renewal at maturity, reimbursement by the fruits of growth, “confinement” in an ad hoc structure supplemented by taxes or savings resulting from structural reforms.

Which option to choose? Despite the unprecedented nature of the health crisis, it is worth looking for lessons in history. An example dating back two centuries is instructive: that of the debt inherited in 1815 by the British crown from the Revolutionary and Napoleonic wars.

This comparison is justified by the monetary context: from 1797, the gold convertibility of Bank of England notes was suspended, which allowed partial financing of the war by their issue, as today the support by the European Central Bank (ECB) public anti-Covid programs is enabled by the suspension of the stability pact in the euro area.

Important differences

This debt monetization was once no more at the discretion of the British government – the Bank of England was then private – than it is today for the states of the euro area, from which independence of the ECB is guaranteed by the treaties.

There are of course important differences between the two eras. When England entered the war, the Bank of England was not a central bank but a joint stock company, formed a century earlier to allow hard-pressed royal finances to borrow private capital in exchange for a monopoly on issuing tickets within a 65 mile radius of the City. It was managed on a discretionary basis by directors convinced that this issue had no effect on the value of the currency or on overall economic activity.

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Another difference: in twenty years of war, the amount of public debt has tripled to reach 270% of gross domestic product (GDP); the Covid has so far only increased it in France from 100% to 115% of GDP. Finally, a small part (about 6%) was held by the Bank of England, to which the interest received in 1815 provided more than two-thirds of the income.

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