In 1923, when critics warned that his theories ignored the future cost of inflation, John Maynard Keynes answered with a line that would become a generational manifesto: “In the long run we are all dead.” A century on, the long run has arrived. The sentence is no longer a joke. It is the climate in which the eurozone now breathes.
The numbers say so. The European Central Bank (ECB) at one stage owned close to 40 per cent of Spanish public debt, and the picture is barely better for Italy, France or Belgium. The Federal Reserve chairman, Jerome Powell, has himself acknowledged that the $39 trillion (€36 trillion) of US federal debt is “not unsustainable, but will not end well unless something is done soon.” Few in Frankfurt would phrase it differently in private.
The mechanism is not new. In the Berlin of the 1930s, Hjalmar Schacht ran a scheme of breathtaking simplicity: a shell company issued debt, banks were obliged to buy it, the interest sat in blocked German savings accounts. The trick financed full employment, industrial revival and the war machine at the same time. It survived only as long as the supply of confiscated assets — first from Jews, then from conquered countries — kept arriving.
Decades later, the procedure has been laundered into respectability. It is called quantitative easing. The motive is no longer rearmament but the rescue of currencies and States that grew used to spending what they did not earn. The logic, though, is the same: a public institution buys the debt that no-one else wants, at prices no market would accept, and pretends indefinitely that the bill will be paid later.
THE ECB’S SOUTHERN BURDEN
Between 2015 and 2022, the ECB absorbed bond issuance from Madrid, Rome, Paris and Brussels at scale. Southern treasuries refinanced at near-zero rates while their stock of debt roughly doubled. The arithmetic worked only so long as rates stayed at the floor. They have not. Spain, Italy and France are now paying record interest costs on stocks of debt close to or above 100 per cent of GDP, and growth is nowhere near the level needed to outrun the bill.
The political consequence is already visible. The government in Madrid has had to walk back parts of its spending plans. Rome watches its budgetary margin shrink each month. Paris saw its 2024 administration collapse over a budget it could not pass. None of these crises is independent of the others. All of them flow from the same source.
A SILENT WRITE-OFF IN FRANKFURT
The exit being prepared in Frankfurt will not be called bankruptcy. It will not be called a haircut either. It is expected to be presented as “financial engineering”, and to consist of keeping those bonds indefinitely on the ECB balance sheet, rolled over without any real maturity.
In practice, that means the central bank quietly absorbs the loss while the political class avoids the word “default”. It is a silent write-off. The credibility of the euro will erode; the political crisis will be postponed. The trade-off is by now familiar to every finance minister in the EU, and almost never named in public.
WASHINGTON’S MIRROR
The euro is not alone. Powell’s warning on the $39 trillion carries its own irony: the institution that for half a century has fuelled credit expansion is now warning of its consequences. The dollar has held up, in the phrase of a US Treasury official during the Second World War, “because it is backed by guns.” The euro has no equivalent backstop.
The Austrian School economists Ludwig von Mises and Murray Rothbard argued long ago that gold mattered not for its own sake but because it bound the hands of those who printed money. Forcing a State to back its currency with something tangible imposed a limit on what it could buy — and therefore on the political favours it could dispense to voters and interest groups. No finance ministry on either side of the Atlantic has missed those constraints, and their absence is exactly what produced the situation we now inhabit.
THE END OF THE LONG RUN
Keynes’s quip was meant to dismiss the future. The future has now caught up. The generations paying the interest today did not contract this debt. They are watching their best-educated young people emigrate, their wages stagnate and their northern neighbours grow visibly poorer. They are entitled to ask whether the joke still lands.
The bill, like any deferred bill, does not vanish. It changes hands, currencies and generations. The eurozone has spent two decades pretending otherwise. The pretence is approaching its limit. The long run is here.
