Europe Debt Write-Off Would be Terrible Economics, Carstens Says

(Bloomberg) -- Bank for International Settlements General Manager Agustin Carstens warned euro-area policy makers not to consider canceling government bonds bought during the pandemic.

Carstens, who runs the Basel-based institution after a stint at the helm of Mexico’s central bank, told Bloomberg Television that experience showed such policies wind up being “catastrophic.”

“It might be good politics in the short term but it’s terrible economics,” he told Francine Lacqua and Tom Keene in an interview on Wednesday.

Euro-area countries face deep holes in their budgets amid spending to prop up the economy, and Italy’s debt burden is seen nearing 160% of output this year, one of the world’s highest.

That has led to calls in both France and Italy for bonds the European Central Bank bought as part of its crisis response to be written off.

Riccardo Fraccaro, a close aide to Italian Prime Minister Giuseppe Conte, told Bloomberg on Nov. 26 that said monetary policy makers must support member states’ expansionary fiscal policies “in every possible way.”

Euro-area central banker have rebuffed the idea, however, with ECB President Christine Lagarde saying it “would simply be a violation” of the law.

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